Today’s news that Dave King’s board has lost the crucial vote enabling them to hold a fresh share issue at Ibrox is a crushing one to the club and disastrous for their financial position. From their statements over the course of the AGM and in his sit-down with the in-house media at Sevco he made it pretty clear how important this vote was.
They lost by around 1%. As I said in the previous piece, McCoist is being blamed for that but the real culprits are to be found in the boardroom, where King and his people have utterly failed to convince the fans that the need for this resolution was concerned with stopping Ashley and his people from exercising influence. As I demonstrated last week, before the vote, their influence is virtually non-existent in terms of the day to day running of the club.
Before I move on, there’s an interesting footnote that emerges from the results. When it came to the re-election of the existing directors, every one of them was returned by a handsome margin; over 80% in each case, except for that of King himself.
If 75% support had been required for his re-election as well as the share issue, he would not be club chairman this evening. His re-election secured 74.7% of the votes cast. Resolution 11 achieved 74.6%. It seems clear that these two things are related; the defeat is a personal reflection of how people feel about King himself. If anyone else had been in his seat the share issue measure would have passed and the club would be in a different place this evening.
Let’s see if any of the hacks expand on that point.
Sevco is now in a perilous position, and considerable doubt exists as to whether they will now be able to complete the season without some kind of administration procedure. Questions were already mounting up as to whether or not they could meet bills as they came due, but inside Ibrox there was a calm which belied the scale of the trouble; they really did think this share issue was a lock, and that they would be able to raise the required monies.
Something had clearly been happening in the background. It isn’t clear whether they had made promises to individuals inside or outside the boardroom to secure short-term funding in exchange for shares at a later date, or if they were going to push the rights issue itself through on the shortest available timeframe – it would still have taken months – but what seems apparent is that they were heavily reliant on this coming off.
Remember on Friday when I commented on the strangeness of King’s comments about the “business plan” and the “investment plan” being two separate things? Clearly they were not, the separation was odd. The investment plan is now in ruins.
As a consequence, a wrecking ball has been driven through the business plan. The shortfall between income and expenditure for the season is going to be enormous. A right s issue would have bridged the gap between this season and next, with a little leftover.
Resolution 10, which passed, and allows the board to offer shares to existing shareholders has been mooted as the way of securing the funds, but that’s a misconception their fans shouldn’t cling to. For a start, as the resolution itself makes clear that’s limited in scope, but more importantly this is simply a year’s extension to powers the board already possesses, and which have to be renewed annually. Resolution 11 was the one they wanted, for obvious reasons.
Resolution 10 can raise only a fraction of what a full rights issue could.
Without it, there will be a hole in the balance sheet so big that the entire club could fall into it. Someone has to carry those losses, and with no bank willing to give them credit it means those costs have to be met by the current board.
A few months ago I wrote a piece in which I pointed out that Sevco could fall into administration and worse without any significant external debt.
That generated a lot of online anger from their supporters, who have this idea about administration only affecting clubs when they owe millions of pounds to creditors.
They didn’t grasp the fundamentals of this. Companies don’t fold because they run up debts; companies do that all the time. They fold when they can no longer meet basic outgoings, when the money to get through the day, the week, the month, is no longer on hand to pay the bills. At Ibrox this will happen the second existing shareholders and directors are no longer able, or willing, to meet expenditure needs as they fall due.
There is no-one on the board of Sevco who has the financial muscle to do this indefinitely. King and his people have been in charge at Ibrox for just over 18 months. In that time these guys have put up over £10 million of their own cash just to keep on the lights. None has that money to simply throw around. None can afford to give more. These aren’t billionaires, they are moderately successful businessmen who have modest wealth and who all by now must have realised that this isn’t an “investment” at all, but pouring money into a black hole.
And that’s an apt metaphor, because all of them can surely see that this thing will keep on sucking in cash indefinitely, until there’s literally nothing left. We know that King gave some glib statements about being willing to risk his “children’s inheritance” on this, but did anybody ask the other members of his board if they were willing to gamble with theirs?
When does the breaking point come?
At what stage, if they’re going to keep going, do they need to start disposing of their other assets, corporate and personal, to keep this afloat? How much more will go, how much good money after bad, feeding this insatiable monster? And all football clubs are insatiable monsters, and keeping up with their appetites is why some directors don’t sleep well at night.
The black hole metaphor is applicable here because the gravitational pull of this club’s need for money is such that it could consume all who were close enough to be pulled in. The club itself is edging perilously close to the line beyond which no escape is possible. Astronomers call that the Event Horizon, the point of no return.
Any board member who wants to keep sinking cash into this knows the chances of ever seeing any of it again narrows with every day that passes.
This club is going to be consumed.
The message to shareholders today is to find “minimum safe distance” fast.