Two years ago, myself and my co-editor on ReLoaded Digital, Brian Anderson, were going to launch a true crime magazine. We originally wanted to do it in print. So we spoke to a bunch of commercial printers and got quotes and estimates. Most of them were in the range of what we could realistically do, as long as we kept it simple.
But being able to afford them wasn’t the difficult part.
As my old man very quickly pointed out, that, in fact, was the easy bit. It was what happened once we had ten thousand of these damned things that was going to prove challenging. Unless we had outlets to sell them in (we had that reasonably well worked out) they would gather dust. Unless we could get them to those places they would gather dust. If they weren’t sold they would either be pulped, or come back, to gather dust.
Which led us to the tricky question of where exactly they would gather dust. If you’ve ever started a fanzine or any kind of print publication you’ll have some idea of what even hundreds of magazines looks like. Thousands takes up a lot of room.
And ten thousand? Man oh man, unless you’ve seen it you really have no frame of reference for it at all.
I was thinking about that the other day after I wrote my article on Sevco’s mounting problems, and I realised that a very specific look at one key area of the club is worth a more detailed examination, because it’s the one we’re consistently told is the biggest problem and, therefore, the biggest possible source of a solution short of Champions League income.
That area is retail.
Sevco fans would have you believe that this is what has been “holding the club back” for the last few years. They believe this because a constant stream of media lies has given them that belief. Not all of the media are wilfully lying of course. Others are just lazy so and so’s who can’t do even the most basic research or think things through from one end to the other. It doesn’t matter anyway; what most Sevco fans believe bears little resemblance to the truth.
Mike Ashley is held up as the Bad Guy here, and he’s a nice target because he’s an easy target. But I’ve long argued that he didn’t really do anything that another businessman wouldn’t have done. When Sevco was born, free of the shackles of the JJB deal – and I’ll get to that shortly – they had no infrastructure whatsoever. Sports Direct were a blessing, not a curse, and they were the only show in town, after the disaster JJB turned into.
According to the media and some sections of their support – and Dave King, of course, who trots this line out endlessly – they will be just fine when he clears out, but will they? How much better off will they actually be?
Let’s go to the extreme end of the pier, the best they can hope for; beating Celtic in retail income terms. Let’s be even more generous and say this is a profit figure, and not simply income from retail without paying heed to any of the costs.
Celtic posted retail and merchandising income of £11.8 million last year, down on the year before which was around £13 million. Again, let’s take the highest figure, just to be generous to them. Give them that, in cash. There you go chaps.
What does an infusion of £13 million do for them?
Well, first it clears the £3 million loss they made in the last audited accounts. It lets them show a profit of £10 million. Excellent, right? That could make a difference to the club. An organisation making that would be well placed to survive and even thrive.
But as with everything, the Devil is in the details.
Let’s look at the good side of it. No external funding required. No soft loans from directors. That kind of money would give the manager something to spend, right? With a wee bit put away for exigent circumstances. Yes … and no.
For a start, although it’s not exactly widely acknowledged, they are £18 million in debt to their directors at the last count. So some of that would certainly have to be repaid. We know there are those pesky infrastructure issues; they could be having some of the love they’ve been missing out on all these years. This is all to the good, and that number would be repeated every single year … £10 million profits into the future ….
But of course, that’s not how it works as everyone’s well aware. Football clubs spend money as soon as it comes in, and as Paul67 has pointed out, it’s not as simple as just saying “We’ll buy two quality players with that cash …” and going out to do it.
Let’s say you buy Scott Sinclair for an initial outlay of around £3 million. Over the course of a three year deal at the kind of salary you’d need to pay him (£30,000 a week) you’re talking about another £3 million over the course of the deal. Minus bonuses which you can probably rack up to another £1 million in total. So a single player, of the right calibre, ends up costing £7 million, not £3 million, over the course of his contract. Not exactly cheap.
I know Sevco fans will think that’s affordable with a £10 million profit every year, but it’s no longer a £10 million profit because that one player has driven your wage costs up by £1 million plus and that £10 million is suddenly £9 million. Minus the transfer fee.
Which means for this season your profit is £6 million all of a sudden.
Half of it almost. Gone. On one player.
But it’s doable. You could build, and maintain, a reasonable team on that kind of money. It’s not impossible. It would still take years of careful spending to bring them to the point where Celtic is now – and we’d presumably not stand still and wait to be caught – but it’s not inconceivable that they could be ready to mount a challenge to stop our twelve in a row.
If only the real world worked like that, eah? If only exigent circumstances didn’t exist. If stadium repairs didn’t have to be done. If only there was any chance whatsoever that the club would actually make that kind of money out of merchandising.
At the height of Rangers retail income bonanza was the JJB deal. Much heralded at the time, it was the agreement which allowed them to close the Rangers Shops, which were enormously expensive to run and were eating into the balance sheet. That deal, signed to cover ten years, netted them £18 million up front and a guarantee of £3 million per year. The press trumpeted this an act of genius. In point of fact, it was. They got the bulk of the money up front.
That deal was worth £48 million over ten years.
This comes to £4.8 million a year, which is more than the reported total income Rangers Retail Limited announced in their last balance sheet. That’s the deal which is spectacularly weighted in Ashley’s favour. Sevco fans will doubtless claim the number is on the low side because of the boycott, but we have no way of knowing how successful that boycott is. Many fans aren’t interested in it at all, and bought the kits anyway.
But let’s give them the benefit of the doubt; let’s say the boycott saw retail and merchandising revenues drop by 50%. So double it to nearly £10 million. That almost gives them parity with Celtic, but of course it doesn’t reflect everything. Rangers Retail Limited’s profit was only £2.8 million. Once again, assume a 50% drop off from the boycott, which a new deal would reverse, and double that and you get £5.6 million.
That £10 million I talked about earlier is now worth just over half of what it is was, when you include expenses and outgoings.
Yet £5.6 million is still pretty decent money.
Except that’s only half the story again.
Because Rangers Retail Limited is a partnership agreement; a weighted one, but a partnership just the same. The bulk of Rangers Retail Limited’s profits go to Sports Direct; this is why Sevco fans are so furious. If that deal was weighted properly, it would be closer to a 60-40 split … and let’s be generous and give Sevco the bulk of that. Their “cut” of the total profits of Rangers Retail Limited – if we’re assuming the reversal of a precipitous 50% drop because of the boycott – would be worth a mere £3 million.
Sports Direct looked like a good partner in the first place for a number of reasons.
They are the world’s biggest sports retailer.
They have reach JJB and other companies got nowhere near.
One of the main complaints about JJB as a retail partner was that Sevco fans outside of Scotland often found it very hard to get merchandise. Sports Direct were able to resolve that because of a major online retailing operation, which was vastly better than any other out there.
That will remain the case far into the future.
Whoever Sevco’s next major retail partner is, they will have to live in the deep shadow of Sports Direct come what may. Their presence on the high street is enormous. None of their competitors even comes close, and so none will be able to offer the kind of benefits and reach Sports Direct can.
There are things any major sports retailer has to consider in signing a major deal with Sevco. To make it work they would need to grant Sevco the run of their retail outlets, at least in Scotland. That turns off fans of every other club in the country.
Sports Direct could cope with that, because their deal only prioritised Sevco merchandise in certain parts of the country, and their prices meant that many fans of other clubs would still buy online. I’m not saying a general boycott of their stores because of the Rangers deal is what sunk JJB … but it didn’t help.
This sort of reaction would have to be factored in to any kind of retail deal, and ironically Sevco’s own public statements – about how hated they are in Scotland – would only increase the anxiety felt by any retailer who was negotiating such a deal with them.
JD Sports are probably the only people who could compete with Sports Direct in the high-street, and take the hit from a corresponding revenue fall from other fans. They might even find the idea attractive, following the events of the last couple of years.
But any company which negotiates with their club will know three things, above and beyond the likelihood of other fans organising boycotts.
First, the club has no real alternative but to sign a retail deal and they are desperate.
Second, those retail deals are probably worth less than they were before the EPL blew everything away.
Third, and most important, Sevco now has a reputation for being … difficult to deal with. Sports Direct can attest to that, but so too can Puma and their shirt sponsors. Don’t underestimate how much reputational damage King has done to them with his ridiculous behaviour.
The high earnings mark Sevco can realistically expect – in a very good deal – is the £4.8 million a year they were earning in partnership with JJB, which seems astonishingly generous when you look at it now, with the benefit of hindsight.
No wonder the company went bust.
An extra £4.8 million isn’t something you’re ever going to turn your nose up at, but it doesn’t even cover the emergency loans they’ve needed this season thus far.
Add it to their last accounts and they’d have made a profit of £1.8 million.
And that won’t make a dent in their problems far less enable them to catch us. At best it will allow them to break even or negate the need for soft loans. It doesn’t even get them off the starting blocks in terms of rebuilding the club.
And, as I’ve pointed out this is the only option they have.
Because they can’t do what we do; we run nine Celtic shops and a major website, which is reflected in the fact our income from merchandising is twice that of Rangers Retail Limited at the moment. Take into account the boycott, yes, but also that Sports Direct has ten times the reach of the Celtic shops.
Those shops are massive for us.
They make us a lot of money.
But they are also expensive to run and the support system needed to do it is enormous.
Any online retail outlet requires a massive background operation.
Amazon couldn’t do what they do without one of the biggest warehouse networks in Europe. Sports Direct’s Hinshelwood facility is enormous and hugely expensive to run. Sevco’s option outwith another retail deal is to set up that kind of infrastructure itself and that’s massively out of their financial reach.
In constantly pushing this line that the Sports Direct deal is what is “holding them back” their chairman is simply buying himself time, and not much of it. He can drag this out for another six years – if the club is around that long – pretending that a more favourable deal will transform the club.
It won’t.
It will give them a minor bump in income, but that is all.
Merchandising is one cog in a very big wheel; if is not a magic wand and it never has been. They are kidding themselves – worse; they are being conned – to think this is the answer to their prayers. It’s not even close.