Profit for the Pitch: Celtic v Rangers — Part Three
Updated: 7 days ago
In Part Two of Profit for the Pitch, we contrasted the financial strategies of Rangers and Celtic from 1998 to 2003, when one of the Old Firm reached a European Final and we concluded with a question:
Rather than buying established elite players every season, could investments in infrastructure, player development and trading create a more profitable and sustainable competitive advantage?
2004 — Delayed Damage from Gambling on European Success
For Rangers, the balance sheet was starting to tip. With low growth in the Scottish football economy compared to major European leagues, Rangers’ financial returns on European campaigns under the Little General had not covered the investments.
Too many players were sold at a serious loss. As examples, a net loss of £5m each was recorded on Ronald De Boer and Tore André Flo after a relatively fruitless four and two years respectably, compared to Rangers in the 1990s under Walter Smith.
Overstretched on the continent, Rangers lost its domestic dominance as Celtic increased its rate of winning League Flags. After winning just 10% through to 1998, Celtic won 50% through to 2003/04.
But Celtic was not only exploiting gaps in Rangers’ domestic defence. It was approaching the financial competition with a different strategy: infrastructure for the development of players to deliver sustainable competitive advantages.
Following Fergus McCann’s reconstruction, Celtic invested heavily for its stadium to be 20% larger than Ibrox, because this could generate more profit for the pitch than Rangers. However, rather than throw cash into transfer fees, Fergus McCann invested more in the wider football infrastructure: training facilities, scouting and youth development. The objective was not simply to spend more on the next team, but to build a business capable of producing and sustaining successful teams.
The strategy of Celtic accepted that it could not compete financially with English or other major European clubs on transfer fees and wages. It therefore targeted other competitive competitive advantages.
The contrast with the strategy of Rangers under Murray was becoming as clear as Edinburgh Crystal.
Rangers were increasingly investing in established players to improve the odds of European success today. While Celtic was increasingly investing in infrastructure to identify and develop talent tomorrow.
With reduced success domestically and in Europe, Rangers was simultaneously less successful in its financial competition. The club was generating substantial revenues, filling Ibrox and competing for trophies. Yet, with a lack of revenue from talent development and player trading, they were increasingly dependent on external funding.
When debt soared to almost £74m, the club balanced its books with a major rights issue. It raised more than £50m that reportedly restored David Murray to a 90% shareholding and the Chairmanship.
That £50m reinvestment by Murray was a cost of gambling and losing the financial competition over 16 years.
2007 — Investing in Infrastructure - Pipeline: Training Facilities
Celtic opened its Lennoxtown training facility in 2007, six years after Rangers had opened its own first-class training centre, Murray Park. For Celtic, this investment aimed to improve the development of professional and youth players while strengthening the pathway from youth to the first team. For Rangers, it had been about attracting elite players to play in elite facilities.
But infrastructure in training and development only adds value if the organisation actually identifies and develops its talent towards the first team pitch.
One player provides a striking example: Scott Brown.
As an early teenager, Scott was in the Rangers youth system. Our own Graham Smith was scouted from a year below to play in the same team at right back, alongside Scott on the right wing, for two years. Repeatedly regional champions and reaching national semi-finals, youth scouts from England often travelled up to watch their matches.
When the SFA restructured youth football in 1999, Rangers took their eyes off the ball so Scott switched to Hibernian. Hibs had a reputation for giving youth-team talent time in the first team and Brown flourished on the right wing for club and country. At 17, he scored successively for Scotland Under-19s and featured in FIFA’s top ten teenage prospects.
At 22, after five years in Hibernian’s first team, Scott was driving with friends to sign the contract that would finally make him a Rangers player. Scott left Hibs for £4.4m... in a transfer to Celtic. On the way to pen his signature at Ibrox, Scott's agent called and instead he immediately signed for the other side of the city.
Ultimately, Rangers lost Scott twice. First to Hibs, at a time when he would have developed to professional for a five-figure cost. Second, at a seven-figure transfer fee of £4.4m to their Old Firm rivals, Celtic, where he became its most-decorated captain ever — a role he also fulfilled for his country.
To put this in context, the entire £4.4m transfer fee of Scott Brown was lower than even just the recorded net loss on the transfer fees of either Tore André Flo or Ronald De Boer.
Although Rangers initially identified, recruited and developed this top talent, it failed to provide the infrastructure for a development pathway. All of the promising Rangers youth players in that team, including some showing greater talent than Brown, went to other clubs.
The story illustrates a different kind of financial competition.
Investment in training facilities does not create value unless the club identifies talent then acquires, develops and uses it.
Celtic was increasingly building a system based upon that mantra.
2007–08 — Player Trading Becomes Part of the Model
The primary goal of talent development is performance on the pitch to win trophies and prize money. Simultaneously when talent develops and performs on the pitch, its value increases and attracts offers from admiring clubs.
Player trading was proving to be a meaningful part of Celtic’s financial model. In 2006/07, Celtic generated income of c.£15m from player sales. In 2007/08, it generated a further £7m.
These were not Celtic’s only sources of income, but they demonstrated that player development and trading could create success in the financial competition beyond results on the pitch.
Celtic was therefore attempting to create a more sustainable cycle:
invest in infrastructure → identify and develop talent → improve the team → compete in Europe → increase player value → generate transfer income → reinvest in the cycle.
Investment in talent development was not risk-free but it was diversified into many much smaller risks than big transfers.
That is not to say that there should be no space a budget for established elite players. The capabilities and capacities of established elite players have already been advanced and proven by experience. Established elite players set examples and standards for younger talent to excel beyond.
Even for established elite players, European competition increases their value. The risk is that if their value is already high and then the club does not excel in European competition (or worse not even qualify), then the club is even more likely to make a loss when the established elite player is sold.
Rather than gambling heavily on exceptional European success to cover the high costs of signing many established elite players like Rangers, Celtic was creating value from its football operation in multiple ways. Creating teams with a few established elite players and many spaces for rising stars to shine from its talent development pathways.
Part Four follows the return of Walter Smith, excellence in Europe, and then the delivery of the delayed damage from gambling too heavily. This is contrasted with the Celtic way.
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