This article is long overdue. I’ve been meaning to write it for a while now.
The global health emergency has been problematic in that regard; it has confused a picture that was already looking fairly bleak for the Ibrox club. But this has gone from being a bad picture to being a positively catastrophic one. At Sevco they are still pretending that hard choices can be avoided.
But that strategy is doomed to run out of road, and it always was.
What they are facing now is a multi-front catastrophe which threatens to overwhelm them.
I don’t believe they have the leadership required to see their way out of it. I certainly don’t think they have the money. This article will look at where they are in every aspect of the club and it will pose one the question that would be keeping me up at night if this were Celtic.
Could the global health emergency doom their club to The Second Death?
Back in 2008, I wrote an article for E-Tims called The End Of Rangers?
I started with a story; that of Ray Kroc, the guy who went on to become the first global head of the McDonalds chain.
His business philosophy was brutally simple; “If my competitors were drowning,” he said, “I’d stick a hose in their mouth.”
That, I thought, summed up Murray and his attitude to us.
But that article argued that Murray and his club were not long for this world; the global banking crisis had inflicted too much damage on his standing. He was no longer able to keep funding that club as he had been. It was a matter of time before it all came crashing down.
Failures at Celtic Park – like allowing them to win three titles in a row – helped them survive for a few years beyond what they might otherwise have.
I have seen enough evidence to know that they were allowed to fraudulently obtain a license to play in Europe for a season. The irony is that during those last years they actually dug the hole deeper, and the EBT scandal was unearthed.
The same dynamics are at play with Sevco.
The path to their eventual demise has, to all intents and purposes, already been charted.
No club in this country and few others in Britain were as vulnerable to a bolt from the blue type disaster as Sevco were and remain.
King’s exit seems almost too perfectly timed right now; that was a rat jumping off a sinking ship.
This is an examination of the challenges facing the Ibrox club, and a summation on why I don’t believe they can be successfully navigated.
If I had to offer up a percentage certainty about them going into administration, I’d put it at 100%.
Their odds of survival this crisis at all I’d put at 30%.
If admin makes drastic, epochal, swingeing cuts they could get through it but they would be in no fit state to challenge us for at least another decade, and only then on full houses and a fan-base wholly accustomed to routine, and humiliating, failure.
Sevco Spends More Money Than It Can Afford To … And Earnings Just Tanked.
Based on the numbers we know about, Sevco spends many more millions of pounds than it can afford to.
Tens of millions.
They required a sum in that region just to get them through the campaign, and that was before the global health emergency hit like a hammer.
Their directors claim that they have made up the overage. Have they?
Wages of players have been deferred for three months; that’s one way to make up the money.
The directors personally guaranteeing to pay the bills is another way.
But that’s got a limited shelf life and I very much doubt that it is a strategy that was going to last even in optimal circumstances.
We are no longer in optimal circumstances.
Sevco’s season ticket and hospitality base brings in around £25 million over the course of the summer. That has allowed them to run a massive football operation, including an expensive first team squad and a major training centre.
A drop of even 30% would be perilous.
If it drops to 50% there is no avoiding major trouble.
It is likely that season ticket sales will fall by at least half, and perhaps worse.
Hospitality is probably in greater trouble.
Sponsorship money will almost certainly not be paid in time; Sevco will be fighting to bring even a fraction of their usual earnings in.
How much can they cut costs? They can certainly try.
But if games are to be played at Ibrox then even a minimum level of staff would suck money out of the club without a corresponding stream of income to offset this. A typical home game there sees 50,000 fans all spending cash in and around the ground.
This adds revenue whilst paying for policing, staffing and all the other things that hosting a major football match involves.
Closed door football is a calamity for clubs the size of Sevco.
Clubs the size of Celtic. I’ll get to us at the end of the article.
When you are already projecting a shortfall in income by an eight figure sum the idea of playing games in front of no fan must seem like the raw material of nightmares; no wonder their club’s “policy” was to have fans and damn the consequences.
In a situation like this, a club is slowly drowning.
The only hopes are to bring in additional revenues to offset the damage … or to cut enough that it balances the books.
Their New Shirt Deal Is Already In All Sorts Of Trouble Before It Even Starts.
You have to love Sevco’s sense of timing.
This is the very worst time to be promoting a new shirt manufacturers deal, but that they were still scrambling around even looking for such a deal even as the global health crisis was bubbling away, is a sure sign of a club in the worst kind of trouble.
There are massive questions hanging over Sevco’s new deal, and we know that the media is not even going to attempt to ask them. So let’s ask them ourselves.
The company they’ve signed the deal with has never made a mass-market product. They are a prestige company; that isn’t good in this situation. Do they have advanced manufacturing capacity? Do they have the infrastructure for storage and distribution on a large scale?
This is like a grand experiment for them, with Sevco as the guinea pigs.
On top of that, who is sitting in a major factory right now sewing Sevco shirts together?
Who’s working in the warehouses which store them? Who’s driving the lorries to deliver them? Who is making up shipping labels? Who is going to ensure the products get out to fans?
And as a prestige company, they charge outrageously for their products.
Who can afford to pay for highly priced football shirts right now?
Has Sevco been paid an advance on sales?
You would get that in an ordinary transaction but I doubt that a company with already limited resources would have given them a major chunk of change in the current climate with many unknowns.
Based on Sevco’s previous business relationships, Castore have to have insisted on a large number of break clauses.
They would have covered themselves every which way. What kind of guarantees did the Ibrox club get? Both parties see upsides in the deal, no doubt, but without something from the kit company, Sevco would not have a deal with anyone.
And where is Mike Ashley in all this? I find it impossible to believe that he’s walked away and given up on his “matching clause” deal … especially when the courts have found in his favour over and over and over again. Has Sevco really “got rid” of him, or are they taking their chances, knowing that without his say-so they’d have no deal at all?
One piece of speculation, and that’s all this is; Castore recently raised £7.5 million from outside “investors” to enable them to try and crack the football market.
These investors remain undisclosed; that’s Castore’s right and the rights of those companies or individuals. But it raises an interesting question. As Ashley already has a major stake in any number of sportswear firms, has he taken a stake in this company, do Sevco know this, and are all parties involved going along with a charade so that they can sell shirts …
With Sevco – and with Ashley – you just never know.
What I do know is that this deal is slated to last a “minimum of five years.”
I’ll be amazed if it’s not defunct in half that time.
They Have Deferred Salaries … Those Bills Will Be Waiting For Them Though.
Sevco’s decision to defer salaries for players is lunacy born of desperation.
That does not make it any less crazy.
It is a bill which they cannot pay and which will be waiting for them before next season.
I am sure that someone at Ibrox thought it made sense at the time … but even then it was a dice with death that they could ill afford.
Remember, they will have to start meeting payroll soon, and some kind of repayment of what’s been deferred will need to be arranged.
They can’t keep piling up costs like this without it hitting them, and hurting them, somewhere along the line.
Sevco does not behave rationally.
The right thing to do for them would have been to accept the inevitability of administration and enter it.
They would have been able to trim the fat off the wage bill and let some dreck off the books.
But it might have saved the rest of the club from an all-round implosion.
This is a bill, and it’s a big bill.
The press has never acknowledged it … but the players will not simply accept it never being returned to them.
Add it to the pile of debts.
Nobody Is Coming To Bail Them Out Of The Hole They Are In.
One of the great Sevco fantasises is that there is a constituency out there of the Real Rangers Men who only want what’s best for the Ibrox operation and who would be quite prepared to do anything to make it run right.
This has been exposed as a fantasy over and over again; it has never stopped them clinging to it like a comfort blanket.
All through the early part of the year there were stories of outside investment; those stories are only so much tissue paper now.
If they were ever broadly accurate – and the named party was furiously backing away the last the media spoke to him – they certainly won’t be now.
Nobody with a fraction of sense would commit to sinking money into Scottish football at the current time, and especially with the way Sevco have sought to toxify the game’s governance.
The game is just too uncertain right now.
Nobody knows what they would be investing in, or how long it might take to see a return.
We don’t even know if we’ll see games this year, and there’s no guarantee that the campaign might not be halted if the second wave hits.
It will be at least 18 months and probably longer before any club in this country can secure outside investment.
There is zero chance that Sevco will pull that together, even if their directors were willing to give up significant control to do it …
…. Which brings us to another fantasy where the door is likewise closed.
Not Even A Share Issue Is A Reasonable Prospect At The Moment … Or For A While.
One other source of non-football related income could, in theory, bail them out of a temporary hole and it is the issuing of shares.
There is exactly no chance of that happening either, and thus the only real escape route for the Ibrox club is closed off.
For openers, there’s no way to do a share issue at the moment with the country in lockdown.
It would also take a minimum of three months, and around £2 million, to get it set up properly.
Sevco does not even have a nominated advisor or a place on an exchange.
It is sheer fantasy to believe that they could suddenly pull something like this out of thin air and have it ready to run alongside season tickets sales, shirt sales and this crazy membership scheme they’ve been trying to punt their supporters.
There will be no appetite from “institutional investors” who will look at Scottish football as a dead end.
Sevco has no history of profits, so there’s nothing to entice them.
When Charles Green was setting up the last share issue he was able to sell people on the idea that Sevco was a sleeping giant which he could re-energise; the company is operating at close to it maximum capacity at the current time and they are posting losses every single year.
It is overly dependent on European football – more on that later – and on an ability to get to the latter stages in the domestic cups.
The business model is based on making profits from the sale of players, and I’ll get to that next.
None of it is attractive for people looking to put money into something in the hope of getting a return.
The idea of a share issue saving Sevco is dead … even if it were only an appeal to their own fans.
It would take too long, cost too much and couldn’t be guaranteed to succeed.
Relying On European Football Income Is Going To Be Perilous At Best …
Relying on income gained from playing in Europe is an old Ibrox favourite; the thing is, this is a dangerous stratagem -at best and at worst a deadly one.
They found that out at Rangers, when McCoist’s twin disasters in 2011 forced Craig Whyte to confront the need to rob the tax man of his due at a time when HMRC were already coming for the club.
European football income is dicey, especially when it’s based around the idea of clubs getting to the Group Stages of competitions.
It is hit and miss. Sevco has been reasonably fortunate in the last two seasons that they have not come up against a quality side along the way; if they exit the Europa League before those Groups in a good year the roof comes down.
Imagine how bad it will be in a year like this.
It’s not for nothing that UEFA does not allow potential European football income calculations to matter to them when they are assessing business plans under Financial Fair Play compliance.
Sevco still doesn’t get it. They’ve gambled and won two years in a row, but this year will be different.
For a start, no-one knows what those qualifiers will even look like.
No-one knows if there will be a different mix of clubs.
This affects Celtic too, of course, but Sevco could be dealt a far worse hand if certain countries are experiencing major outbreaks and can’t guarantee clubs can complete fixtures … we just don’t know how uncertain it all might look.
To be betting on European football income to keep on the lights … I’m glad it isn’t us.
Court Cases Still Loom And There Might Well Be Others In Front Of Them.
Mike Ashley’s court case against them hasn’t gone away.
The company they owe for the memorial wall they decided not to build are still claiming they owe £2 million.
Litigation is probably coming from Hummel and Elite.
Sevco faces many more court visits in the future.
And all this is to say nothing of what will await them if they have decided, again, to screw Ashley and Sports Direct out of their due in signing the new deal with Castore.
There is simply no way to be sure, not when we’re talking about this Ibrox board of directors.
The club just loves litigation.
That has never been more clear than when they won the right to go after Hummel and Elite over money they said they were owed towards the end of the current campaign. That decision will almost certainly see their former kit manufacturer and distributors counter-sue in a battle that could last for an age … and will tie them in knots the whole time.
Who knows what else this club is involved in?
What we do know is that the Ashley verdict will cost them mid-seven figures at best.
Could they afford to pay that at a time when they were just coming out of this thing, with cash reserves low?
No chance whatsoever and they know it, and so do we.
They Will Never Get The Values For Players That They Have Long Believed.
The last chance Sevco has of staving off financial disaster is to sell a couple of key footballers; this was their business plan for the summer, and like everything else it is in ruins.
Football clubs are not going to be spending big money on footballers for a while.
Morelos is the most bankable asset; this site and others have never believed they would get an eight figure sum for him, far less the kind of crazy money the club said it would accept.
Their fans cling to this same delusion.
Surely now, nobody really believes it?
The global transfer market is going to take a major hit, and especially the prices of players in leagues which are badly affected by this situation.
Sevco will be running on fumes if they make it to the transfer window at all; there is no chance of them “holding out” for big bucks on Morelos or anybody else.
Remember they reportedly turning down crazy money for Jelavic less than a year before he was sold for a more modest fee?
Peter Lawwell might have sniggered and openly joked about the initial story, but they did believe he was worth good money … their chances of getting something substantial went by the boards when Whyte ran out of cold hard cash.
They sold him in a transfer window where they’d already fallen behind in the league.
It was a mark of their desperation for cash, and their weakness in the eyes of other clubs.
That weakness will be amplified massively this summer … there are easy, and cheap, picking at Ibrox and everyone knows that.
Sevco Will Be Lucky To Keep On The Lights. Celtic Will Definitely Survive.
Sevco is in grave peril; there is so much trouble coming at them, and from so many potential different directions, that you have to wonder how they could have survived it even under optimal conditions and we are nowhere near those.
I do not believe their kit deal will pay well or would have been a success even in a good year.
I don’t believe Ashley has gone away, and what they owe him certainly has not.
I do not believe they can sell major amounts of season tickets when no-one knows if games will be played.
I do not think they can bank on European football.
There will be no “mystery investor” who will rescue them from their plight and a share issue is a practical impossibility.
It seems fairly obvious that what we’ll be looking at in the next few weeks and months will be the near total unravelling of their football club.
Administration is a certainty.
Liquidation is a strong possibility because it is hard to see who would pick them up and try to carry them out of the doldrums of an administration event, especially if this crisis was still ongoing.
In those circumstances, there would be pressure to admit any Rangers III to the top flight.
The greatest irony of them all is that their chances of pulling that together have been almost completely ruined by the club’s conduct in the past few weeks and months.
Scottish football will be in no mood to rescue them, and especially if other clubs have already gone to the wall, as looks horribly likely.
Voices will be raised, of course, about saving them “for the good of the game”, but those will mostly come from media outlets who have discredited and disgraced themselves over the same timeframe.
The risks to the Ibrox operation are enormous at this moment in time, and some might argue that Celtic does face the same risks. Except we don’t. We do have a number of players who would still fetch modestly large fees, even in the current climate.
We have a business plan which does not count on European Group Stage football, and we have not been without that for more than a decade. We have already convened an internal working party to look at “worst case scenarios” and there are banks who would extend us credit lines if we required them.
And we’re sitting on a £30 million cash surplus in the bank, which makes all the difference.
Celtic will undoubtedly get through this extremely tough period … we may be weaker in some ways, and lesser, with no reserves, but this is what cash reserves are for in the first place.
In a year or two, when the dust clears, we could recapitalise the whole club and there would be investors queueing up to get involved with that as we are consistently profitable.
The next few months will be interesting … get the popcorn ready for the movies, starting with Administration 2.
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