There’s been an interesting discussion over on CQN today, on the subject of Sevco, debts and their ability to keep on going. I said yesterday I was going to take a look at their swirling crisis in some detail, but this article won’t be it. This is just a teaser, something to chew on.
There’s a common misconception about administration that has to be addressed, and I understand where the confusion over it lies. Football clubs spend enormous sums of money. Almost all are in debt to some degree or another. Yet administration events are rare. They very seldom happen, and that’s why they can clear the front pages when they do.
Phil McGiollabhain has spent the last four years repeating one line over and over and over again, and still the full meaning of it eludes some people.
It’s this; they are a loss making organisation without a credit line from a bank.
Because right there is the crux of it. Those football clubs which seem to run and run and run on debts do so in only two ways; the tolerance and continued support of the bank, or the tolerance and continued support of an owner with deep pockets.
Debt doesn’t evaporate at football clubs any more than your personal debts do. In order for a club to function at all, it needs money. When the banks won’t lend you another penny, when they stop your overdraft, when they cut you off, that’s the ball game. Your spending power is zero, whether that’s day to day living expenses or meeting the bills as they come due.
Football clubs work on the same basis.
Simple stuff, right?
But so misunderstood, so under appreciated.
At Ibrox right now, there’s no bank, so no bank overdraft. They’re being kept alive by individual board members and the granting of soft loans. Be under no illusions about which of these two is the most dangerous. Banks are reluctant to kill football clubs. Lloyds badly wanted out of the Rangers quagmire, but on no account would they have pulled the plug. Depending on individuals is a far cagier prospect because even with all the will in the world, when someone can no longer dip into his own pocket to keep you going then the show’s over.
Sevco already owes millions to its own directors, and some of their fans are clinging to that fact for dear life, because if the club goes under they lose every cent, or so goes the theory. But those people will be the secured creditors in any administration event, so it’s unlikely they’d lose out to the extent some people think.
And anyway, those debts aren’t “real” in the sense that there’s pressure to call them in. That’s not where the danger lies, and it’s why I used the term “visible debt” in the headline. As long as those people are happy for this money to be owed them there’s no danger of it causing problems in the short to medium term.
The dangers lies in what happens if those people refuse or are unable to give more. Then you’re in a whole other world, because like with any business (or individual) once the money in their principal bank account is spent, it becomes an issue of meeting commitments as they fall due, and this is the genuine concern, and it’s what really sends companies to the wall.
It’s the simple inability to pay the bills.
By any measure – and it doesn’t take much investigation to find this out – Sevco is haemorrhaging money. There is still some left from the season ticket pot, but even at last year’s spending levels that won’t get them through the current campaign, and the spending has actually increased by a considerable amount, as much as 30% if you believe some sources.
When the season ticket cash runs out, I’m afraid that’s it. At that point, without finding someone willing to place upwards of £5 million in the bank, to guarantee salaries and for exigent circumstances, Sevco will be in administration whether they owe the directors £5 or £5 million.
They could, quite literally, hit the wall without any significant debts at all, simply by virtue of being unable to find the money to get through a month.
And that’s a hole so deep you can’t see the bottom.
The trouble they are in … I can’t even imagine a way out of it.