Analysis: Like Lehman Brothers, reality has ruined the Teddy Bears’ picnic

THE assurance yesterday that Rangers will survive and avoid liquidation is bound to calm nerves among the Ibrox faithful, but the club is loss-making and questions remain about securing the company voluntary arrangement with creditors that it needs to get out of administration.

So are we approaching the endgame, or is it merely a halt in proceedings?

The CVA requires the support of those holding 75 per cent of the unsecured debt, and with HMRC owed perhaps £50 million and unlikely to vote in favour (it usually opposes such arrangements), success therefore would depend on there being another £150m of debt in the club which the creditors are happy to see wiped out.

The actual figures are yet to be determined but aside from the mechanics of pushing this through, there is a view that the taxman will use Rangers as a test case to pursue other clubs.

One analyst has gone so far as to ask whether Rangers could become football’s Lehman Brothers. Emmanuel Hembert, principal at management consultancy AT Kearney, believes developments at Ibrox could be the start of a systemic crisis in the beautiful game and draws comparisons between football’s growing financial woes and those that afflicted the financial sector.

Many football clubs have been guilty of over-trading, completing more transactions than their balance sheets can withstand, and putting pressure on cash flow. In the worst cases – Rangers being the extreme example – they have embarked on a spending spree by borrowing excessively and using the taxman as a private bank who will stand aside while they chase the impossible dream.

Should Rangers fail to honour its debts, Mr Hembert foresees a potential implosion in the game with clubs refusing to lend to each other through deferred transfer payments and the likelihood that creditors would call in their money.

His scenario may be a worst-case outcome and one that the administrators would not recognise as they promise to keep Rangers afloat. But Mr Hembert’s prognosis is not based on a sudden realisation that football has been over-expanding through the same sort of recklessness that brought the banks close to collapse.

His firm published a sustainability study on European football in 2010 in which it warned of the similarities between football and banking and asked whether football was “too popular to fail”. In other words, would the authorities go to any length to sustain clubs despite their reckless approach to financing their ambitions?

Rangers may yet prove the tipping point. But it is far from alone in its unrestrained approach to spending. Aside from the litany of domestic clubs that have gone bust, the much admired Spanish clubs, some applauded for their mutual ownership, regularly run up enormous debts and some have been in conflict over unpaid salaries.

Even the wealthy ones are realising that the debt mountain has to be reduced and are searching for greater cost controls. FC Barcelona reduced its debt last year from an eye-watering €430 million (£356m) to €364m. Vice president Javier Faus believes €200m would be “the ideal situation”.

By most standards this is a considerable sum, but “Barca” can sustain it through cash flow. Last year it also achieved the highest income in Spanish football: €473m.

This season the club has budgeted for a profit of €20.1m, revenues of €461.1m, and costs of €430.2m. It may seem presumptuous to some, but these figures assume winning the league and reaching at least the quarter finals of the Champions League. Greater success will allow the accountants to raise these figures. The club also agreed its first ever shirt sponsorship deal, accepting $200m (£127m) over five years from the Qatar Foundation in exchange for pride of place on the famous blue-and-red jersey.

Those clubs that get into the greatest difficulty are often attempting to emulate those with far greater resources, Rangers being typical. Unlike English Premier League side Manchester City, bankrolled by the unlimited resources of Arabian billionaire Sheikh Mansour bin Zayed al Nahyan, Rangers has no sugar daddy. Sir David Murray was the closest it got to a tycoon with deep pockets, but he borrowed heavily from Bank of Scotland and when the bank’s cash dried up, there was no-one else willing to sign the cheques.

There has been talk for some time of football being the next bubble to burst, except that it is no ordinary business. It embraces communities and commands loyalties in a way that gives the game and its participants a special status.

However, this does not entitle clubs to abuse the system, or receive any special exemptions.

For politicians to be appealing to the tax authorities to “go easy” on Rangers has angered those who pay their dues and abide by the rules.

There will be no taxpayer bail-outs for bust football clubs, but there are demands for investigations into what has happened at Rangers, not least to expose information that remains frustratingly secret. It could lead to greater regulation of the football industry, once again following the fate of the banking sector.