There’s a short wee video doing the rounds just now on Football Finances: Us v Them. It not required watching, and there’s an obvious mistake when the guy says we’ve won the last nine titles. Whoa! Getting ahead of yourself there fella … but only slightly.
Whilst not revealing, it paints a devastating picture nonetheless.
It is one that will be familiar to regular readers of this blog and of the other excellent Celtic sites. Phil, in particular, deserves a lot of praise, but so too do the guys over on The Scottish Football Monitor, a site which continues to be the go-to place for analysis of the key issues in the game.
All of us are watching goings on at Ibrox right now with great interest.
The rising level of the club’s debts mean that something has to give, sooner or later. Costs are too high over there, and the income streams too low. The more debts they run up the more the directors will have to carry the can. Sooner or later that little arrangement will end as well.
I never get tired of repeating this; clubs do not have to be on the end of catastrophic events before they enter administration. They only have to run out of money. At the moment, directors are stepping in when the well runs dry, but that can’t, and won’t, continue indefinitely.
The scam, so far, has been to convert their debt into shares … but that’s problematic as well.
The problem here is dilution, and it’s not a small problem.
Every single time a director agrees to have his loans converted into shares, the overall value of shares falls and every other shareholder is put at a disadvantage, because their “stake” in the club is decreased. On top of that, the outside world sees this as a sign of a company in severe financial distress … and that impacts on every bit of business that it does, from sponsorship deals to the value of its assets.
In Sevco’s case that means players. One of the reasons we can ask for, and get, big money is that clubs down south and elsewhere know we’re solvent, strong and with no need to sell. Sevco is a basket case, and everyone out there knows it.
During the years of hyperinflation in the Weimer Republic, the value of money fell so much that bank-notes became worthless; whereas a loaf of bread had cost 1 mark in 1919, by 1923 the same bread cost 100 billion marks … when people wanted bread they would actually wheel the money down to the bakers in a wheel barrow. The notes would be in denominations worth tens of millions of marks each; a 50-million-mark banknote was worth about a dollar.
Eventually, the bakers would accept only the highest value denominations and they would lay them on top of the bread and cut round them … and that’s the size of slice you’d get per note, and that’s where Sevco’s shares are headed, to the point where even if you printed the certificates on bog roll the paper would be worth more than the shares themselves.
That’s not a great place to be, and the only way that those directors will see any of that money back is – perversely – if they devalue them even further and hold a share issue, wherein each sells his stack of shares to someone else. But who?
Forget institutional investors; the black spot is on King, so any share issue would be doomed whilst he’s at Ibrox.
Anyway, institutional investors want a return on their money … nobody in the Square Mile is going to buy millions of shares from existing directors who obtained them via a debt-for-equity swap. Why would you touch that, even with a 20-foot pole?
The only other people to whom the directors can flog this worthless dreck are the fans, but that’s never been an easy sell at Ibrox, with none of the share issues from Rangers or from Sevco raising all that much from supporters. This one would be especially difficult, as – and this is the funny part – none of the money it raised would be for the manager or the club, but essentially just to pay off the directors who’ve already given loans.
The board could probably try to get away with it, on the off-chance that this didn’t dawn on their gullible supporters, but surely the media would have questions and the truth would out? The club could brass-neck it anyway, but even in an optimal scenario where the press was on the side of the scam and didn’t bat an eyelid, the collapse in the paying membership of Club 1872 shows you what the appetite for spending more is amongst their fans.
If the fans don’t spend the money, then these guys are left holding nothing but paper.
Shares are only worth what someone will pay, and if you conclude that there’s not going to be a queue around the block for these things then the only other value they have is when it comes to the club paying out a dividend … and the more shares you have, of course, the bigger that is.
But before you get one of those the organisation has to be profitable … there actually have to be profits to be paid it from. So there goes that.
There’s a great picture from the Weimar Republic of someone with a book of 1 million mark notes, like a chequebook, in a sheaf … and he’s actually writing on the blank side of them with a pencil; he’s using it as a notepad, because an actual one probably cost more.
These directors have to know, by now, that this is what they are holding in their hands; nothing at all. They may as well make confetti out of the share certificates.
At some point, they have to realise they are throwing good money after bad … and then what?
Well, that’s where things get really interesting. At the moment they realise the club will be trading whilst insolvent – the second the money runs out – they have to call a board meeting and put the club into administration at once. At once.
Because otherwise, they, as directors, become legally obligated to meet the debts and they won’t even get share certificates for doing it.
It is simply not going to happen; they would be mad to take that on.
Their club has gotten away with this little scam of theirs for a while now, but at the end of this season they will go into the summer on the back of another monumental loss. The whole of the next campaign will be about staving off the manifest folly of this one. Nothing looms on the horizon that will make next year more profitable than this one will be … indeed, if we’ve secured nine in a row there’s no way they can sell their fans even on spending at the current level.
Their supporters will expect a monumental effort to prevent us from overhauling the record.
They will not accept merely standing still … and their club can’t even afford that.
The cost base will go through the roof. Go out of Europe early … and next season over there stops being about halting Celtic’s march towards the ten and becomes, instead, a battle for the very survival of Sevco itself. I wouldn’t fancy their chances much, on or off the park.
Those directors do know how bad this is.
Right now, their shares do have an “on paper” worth, not that it will ever be realised. If they do end up in administration they can kiss that goodbye.
The way that club has run has already put them on the brink of disaster.
What they do next will decide if they enter the realms of catastrophe.
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