The release of this report represents one of the 2 pieces of work completed by FWS before winding things down.
The following is a report we prepared in relation to a specific question being asked relating to the Financial Statements and submissions used by Rangers as part of their UEFA License application for the 2011/12 season. It is an extremely long and technical read. It unfortunately wasn’t written with the everyday fan in mind.
We understand this report was presented to the Celtic Board. The Celtic Board provided it to the Scottish Football Association. The shareholders who requested it (to whom it was provided without charge) also sent it to the SFA. Certain media outlets also have received and presented it in part, though from whom we cannot say, having only ever provided it to the parties who requested it. To date no media, football club or governing body have contacted us regarding it or its contents.
Given this status we now feel it appropriate to release publicly the report which has been roundly ignored and sat upon without action or evident reflection.
Background to it
As an organisation we have a specific interest in football governance and ensuring that our sports governing body is fit for purpose. Examining potential failures relating to a process overseen by the SFA seemed a natural progression from our recent ‘Stigma’ series of articles (starting with Stigma in Scottish Football- Intro and Part 1: Too Big To Fail) that looked back over the events of this time period and what went wrong and could have been done better. It was the failure of the SFA to properly protect our football clubs from financial failure and systemic risk that led directly (via of course the financial stress of our clubs) to the circumstances of the 2011/12 UEFA licence and the takeover of Rangers by Craig Whyte. By the start of the 2011/12 season Scottish football was on the verge of a collapse that could have started a chain reaction of failures amongst our biggest clubs.
It is within that snapshot of time that a possible route to salvation and redemption of the governance failures of the past was possible. Ahead of Whyte’s takeover, Saffery Champness (an accounting firm) prepared a February 2011 draft report initially entitled ‘Project Charlotte’ that we viewed that explained this as follows:
Historically, the Club’s cost base has been set up such that profitability is only possible with UCL participation. With UCL participation, the Club made an operating profit in FY08 and FY10 of £641k and £5m respectively, however without UCL participation, the Club made an operating loss of £17m in FY09.
Were the Club not to have the benefit of revenues arising from UCL participation, we estimate that this would have resulted in operating losses of £14m in FY10.
Due to the fact that UCL participation is not guaranteed and that it will be even harder to achieve next season due to changes in Scotland’s UEFA coefficient ranking, we consider it prudent to run the business on the assumption of non participation in the UCL going forward.
The Club has been reducing its level of overhead costs over the 3 years to FY10, however these levels still appear to be too high to sustain the business at a breakeven level assuming no UCL participation.
The summary projections we have seen show that the Directors have a cost reduction plan in place, where first team player salaries are assumed to decrease to £15m (from an expected £17.8m for FY11) and overhead costs are to decrease by £1.5m from FY12 onwards. The cost reduction plan is intended to lead to the Club operating at breakeven, assuming a minimum of UEL participation.
It is a folly to suggest that the perilous financial state of the club was not already known. When Whyte got his hands on the keys to Ibrox it was to launch a gamble on European revenues that would either pay off in terms of repairing the short term cash deficits or sink it entirely – either way he’d get his reward for being the man willing to roll the dice and had no intention of investing his own money in. It beggars belief that the SFA did not appreciate the severity of the situation also in facilitating the takeover and licence decision. A refusal would condemn Rangers to immediate insolvency and SFA heads would roll for allowing things to get that bad, not to menton a potential backlash for the refusal itself. The large EBT case unknown liability would have been one ‘if’ too many for most investors on top of the above cut-backs. Realistically it would take £18m (Lloyds) + £3m (DOS) + £5m (working capital) = £26m to buy Rangers if done by the book, even then an owner would be uncompetitive and unpopular and it could potentially all be for naught if the Big Tax Case lands. And really it is ALL about the failures in governance that firstly allowed this to happen, then were involved again in the aftermath.
This situation had built up on the SFA’s watch and even after an estimated £100m between debt/equity swaps and group restructuring had been subsumed within the Murray Group. It was with the future of Rangers as a going concern on a knife-edge that the UEFA licence application was made by the old Rangers board, omitting any mention of going concern worries in doing so and – somewhat surprisingly given insolvency had been discussed by the directors – free of any sort of financial concerns mention by the auditors in their report. By the handover date to Craig Whyte in May 2011, the licence had already been granted.
By end of March when the licence was applied for, agreement had been reached between HMRC and Rangers that PAYE and NIC ought to have been levied on payments made in 2000-2003 to Tore Andre Flo and Ronald de Boer and the amounts due agreed. The payment terms were still being negotiated and there was the possibility of penalties still to be applied, but interest back-dated to the period it should have been settled was accruing. Dispute has raged on whether this constituted an ‘overdue payable’ in respect of the initial licence grant. It seems to be accepted that it certainly should have been raised in the monitoring period at least and the SFA ultimately did bring charges on that before finding their ability to do so trumped by a lack of jurisdiction.
The charges brought were:
Firstly, failing to comply with “the articles and any statutes, regulations, directives, codes, decisions and international match calendar promulgated by the board or by a standing committee, committee or sub-committee thereof, or by FIFA or UEFA or by the Court of Arbitration for Sport”.
Secondly, that Rangers did not follow rules that: “All members shall:- (a) observe the principles of loyalty, integrity and sportsmanship in accordance with the rules of fair play; (b) be subject to and comply with the articles and any statutes, regulations, directives, codes, decisions and international match calendar promulgated by the board, the Professional Game Board, the Non-Professional Game Board, the Judicial Panel Protocol, a committee or sub-committee, FIFA, UEFA or the Court of Arbitration for Sport; (f) behave towards the Scottish FA and other members with the utmost good faith.”
Rangers hit back with a statement claiming:
“Disappointingly, and presumably rather than accept that the investigation was a waste of all parties’ time and resources, the club has been served with a new revised Notice of Complaint relating to the monitoring period subsequent to the grant of the UEFA licence. This new Notice of Complaint neglects to properly capture the provisions of prior agreements made between the club and the SFA.”
After having a lack of jurisdiction claim accepted by the SFA, consideration turned to whether pursuing through CAS ought to happen. Then it stalled and dithered. After an exceptionally long time it was dropped quietly and with as little fuss as could be managed. None of the questions over the SFA’s role in it all could be permitted to be aired in CAS so it was a matter of time. Had the SFA had their way, oldco Rangers would have been the scapegoat and everything swept under the carpet. The newco refused – quite rightly – to allow this. The SFA buckled as their chance to be seen to clean it up was lost without exposing their own part in the debacle.
In the course of the work undertaken, it appears to us that there are grounds for concern also in relation to ‘fair presentation’ in relating to the licence application. Particularly with regards to the financial statements relied upon in the submissions, but with regards to the submissions made in the course of the licence also… given statements later made by Stewart Regan relating to the basis on which the licence was granted. This, allied with concerns made by a Judge in the First Tier Tax Tribunal that the auditors appear to have been systematically misled would seem to raise further questions still about the submissions made, but more importantly about the SFA’s role in providing due diligence and a fair process under the requirements they are under. Case precedent would suggest in such circumtances the SFA can be jointly and severally liable for wrongfully granted licences whether relating to overdue payables, undeclared going concern issues or fair presentation breaches. They are responsible for the ‘Licensor’s Assessment Procedures For The Financial Criteria and Requirements’ [UEFA FFP Annex IX] being appropriate and properly applied regardless if the auditors conduct parts of the testing.
If no charges are being levied at Rangers relating to the grant itself, it would seem the default position would be that Rangers themselves must have provided all the appropriate documentation on the grant itself to the SFA for consideration to remedy seeming shortcomings in reporting of overdue payables, a lack of fair presentation in the accounts and the going concern issues. This contradicts evidence that has come available since suggesting the licence ought not to have been granted and the SFA’s role in granting it with all this information to hand must come under scrutiny. If this is the case, the SFA would bear all responsibility if the licence was wrongly granted and itself would seem to provide a clear self interest in how any judicial process is conducted by the SFA and their reluctance to embrace any sort of independent enquiry. The SFA owe a clear and frank explanation of why the licence grant does not require scrutiny, because the overwhelming impression being given is that it is being avoided to protect the SFA while being seen to be doing something. Without transparency and accountability the SFA is akin to a cartel protecting its own interests rather than the good of the sport. It is not the fair and transparent regulator it presents itself.
No significant progress has been made in implementing greater protections from financial risk within our domestic game, nor a regulator who is accountable to anyone other than a myriad of club interests. When Inverness Cally Thistle announced financial stress in October it drove home that more financial strife is always just around the corner while our clubs are run on the margins and with low capitalisation. COVID has brought that starkly back into focus. We warned last year of Dundee’s potential for failure in The Ongoing Case for FFP in Domestic Football. When speaking directly to Mr Doncaster, Dundee’s position was summarily dismissed due to them “having wealthy owners”.
As fans of the game we deserve better for the teams we love. We deserve to be represented as stakeholders in the game both at the Regulator and within our clubs. We deserve to have protections for our clubs from the excesses of nefarious owners.
Both the SFA and SPFL as it is currently constructed is not fit for purpose and needs to embrace the democratic needs of all Scottish football’s stakeholders. Help us make that change.
[the report follows]
fanswithoutscarves.org 
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