Profit for the Pitch: Rangers v Celtic — Part Four
Updated: 7 days ago
In Part Three of Profit for the Pitch, we explored the consequences of gambling too heavily on European success and the continued strategic reconstruction of Celtic towards the capture of its talismanic Captain Scott Brown from Rangers' broken pathways for high-potential players.
Today we see what happens when a gamble backs a good horse and also what can happen when you double down on a high-risk road.
2008 — Walter Smith Returns
18 months after Walter Smith swiftly terminated his successful tenure as Scotland manager to rejoin Rangers, the bet on the pitch paid back big time, like in 1992/93.
Rangers reached the UEFA Cup Final in Manchester to face Zenit St Petersburg, managed by none other than the Little General, Dick Advocaat.
Off the pitch, Rangers were also again winning their financial competition, despite finishing second in the league as the roulette-like trend of 50% blue and 50% green League Flags continued. Rangers won the two domestic cups but, more importantly, reaching a European final raised Rangers’ revenue greatly to c.£64.5m and generated profits that reduced net debt to c.£21.6m.
Like in 1992/93, Rangers were winning the financial competition in Scotland and in Europe. However, during those 15 years between each great European campaign, the club needed an extra £50m cash injection from shareholders.
A full season of European competition once in every 15 years was insufficient to keep Rangers in the financial competition. To keep winning its financial competition off the pitch, current levels of expenditure on the pitch would need the team to average approximately a European Quarter Final every year.
Meanwhile, Celtic’s alternative approach was beginning to produce its own financial returns. The club was generating significant revenues while also making meaningful profits from player disposals. Its investment in scouting, youth development and training facilities was designed to make the football operation more productive rather than simply more expensive.
The financial competition was therefore becoming a contest between two different strategies for sporting success:
Celtic was creating a system where commercial income from domestic and European competitions was bolstered by player development, recruitment and trading. Whereas the financial model of Rangers depended heavily upon European qualification and its boosts to player trading.
Meanwhile, compared to the 90s, the financial model was weakened by the continued roulette-like trend of League Flags through to 2012.
What started in the 1980s as a strategic plan of investment on the pitch, matched with infrastructure investment off the pitch to make sustainable steps of growth in revenues and profits for the pitch, by the late 1990s had increasingly become a bad habit of gambling so heavily as to create a dependency upon European success.
2011–12 — The Last Gamble
With the global financial crisis crushing the other business interests of Sir David Murray, mostly in the metal industry, by 2011 the financial competition of Rangers was becoming too tough to sustain.
Sir David Murray guided the transformation of Rangers from one of four leading Scottish clubs in the 1980s into Scotland’s dominant club in the 1990s. Despite his increased investments in the club over 23 years, including 16 as Chairman, he sold his controlling stake to businessman Craig Whyte for £1.
Whyte accepted the debt in the company that owned the club, while a loan from Ticketus was secured over future season-ticket sales to clear c.£18m owed to Lloyds Banking Group.
The deal solved an immediate problem by bringing cash into Rangers. But it came at a cost: future supporter income had effectively been pre-sold to solve a present financial problem.
However, there was another financial problem in the form of a major tax dispute — HMRC was claiming a major debt from Rangers’ allegedly incorrect use of Employee Benefit Trusts (EBTs) between 2001 and 2010.
Whereas many top clubs in Scotland and England had also used EBTs, they settled their debts. Sir David gambled further on fighting the case and, in turn, Mr Whyte took up arms.
2012 — Liquidation then Monopoly
Off the pitch, Whyte was losing confidence in his ability to win the legal fight with HMRC and was defaulting on PAYE and VAT worth c.£9m.
On 14 February 2012, HMRC put the company that owned Rangers into administration, in order to examine the scale of its financial liabilities and ability to repay the £9m. On the pitch, this cost the club a ten-point deduction.
Now it was no longer a question of whether Rangers could fund the next transfer window or qualify for Europe. The immediate question was whether the company could meet its current obligations.
The figures were staggering. Administrators reported more than £55 million of known creditor claims, while the unresolved tax dispute meant potential liabilities could ultimately be far higher.
In June 2012, HMRC rejected a proposal for a Company Voluntary Arrangement and the company that had built the business around Rangers entered liquidation.
The football club continued, as a new company acquired control of the business and football operations from the liquidation. However, the SPL clubs decided to reject the application of the new company and it then applied to SFL clubs, which found it in their interests for Rangers to join at the fourth tier of Scottish football.
With Rangers requiring three successive promotions to reach the top flight again, Celtic would have at least three seasons where its budget was c.10x that of its nearest competitor.
Rangers had built a business capable of supporting domestic dominance. But its superstars-before-structure strategy did not excel enough in European competitions to provide profit for the pitch, so its financial model unravelled. Now they had to start from the bottom of the professional pyramid in Scottish football.
Celtic, meanwhile, had built a substantial financial and sporting advantage while Rangers were gambling too heavily on European success. Its investments in infrastructure, talent development and player trading provided profit for the pitch and reduced its dependencies on profit from the pitch.
If Rangers invested in infrastructure for the development of talent and its fanbase, the club could have kept on winning the financial competition for years to come.
Part Five follows Rangers’ road back to competition with Celtic, which would have the chance to play monopoly for some seasons and rebalance the Old Firm’s financial competition.
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