Moira Gordon: Tax case remains key to Rangers’ financial future under Whyte

The Ibrox club released their first accounts since Craig Whyte’s takeover on Wednesday, but Neil Patey of Ernst & Young says that while there are positives to be taken from the figures, the new owner was right to highlight the “dark cloud” which still hangs over the league leaders. He also stated it was unlikely that any auditor would be keen to sign off on the accounts until that matter was resolved.

Claiming that the figures released this week were almost irrelevant given the enormity of the bill they could face if HMRC are successful, Patey said: “Absolutely. There are a couple of reasons why I don’t think anyone should get too hung up on these accounts. A) they are largely pre-Craig Whyte’s ownership so they are largely history and not that relevant to the current ownership structure and B) frankly, what happens with the tax case will make a dramatic difference. If it goes against them for any significant amount of money then obviously there are huge financial implications and I would presume Craig Whyte, and I am only guessing here, but he will be cautious about putting too much money into the club until they have clarified that position.”

If Rangers win the case, that too could colour the situation. “Once it is clarified one way or the other, then, if he has the money, and there have been rumours as to how much money he actually has behind him, but if Craig Whyte has the money then he has made a commitment that he will invest something like five million a year over the next five seasons,” added Patey.

Stating that he had found nothing too surprising in the accounts, he said that from as profit and loss point of view the turnover was semi-encouraging. Up by £0.9m, he stressed that was despite dwindling SPL attendances, the fact fans have less money to spend and the corporate world is spending less on hospitality. “But what was slightly disappointing was the fact the cost base was up, hence the profits of between £4-5m deteriorated by about £4m,” said Patey.

But while greater policing and stewarding costs contributed to that, Patey said he also suspected that wage negotiations and the enhancement of player contracts had played their part.

“It is worrying but it is a trend across most SPL clubs where the turnover is under pressure and they are having to manage costs as best they can. Ideally clubs should try to break even and not make a loss and I suppose Rangers, to their credit did not make a loss. They just didn’t do much better than break even.”

The confirmation yesterday that the club is seeking to secure a tie up with Brazilian club Corinthians was also hailed as a positive. The Ibrox club have spent the last few years cultivating contacts and links in the USA and have recently made it clear they are also exploring the likes of India and Patey says it makes commercial sense.

“Like the top English clubs, Rangers and Celtic are a big enough global brand to try to expand overseas, firstly to try to find players in countries where you might not have to pay massive transfer fees and secondly, if you employ an Indian player or a South Korean player, if he does well you can then sell more merchandise out in those countries and build up a bigger following and enhance your global revenue.

“That has to be a strategy to explore that avenue because the alternative is the domestic market and we know attendances are under pressure and in these difficult times fans have less money to spend and, having just renegotiated a Sky contract that is locked in for four five years, you won’t get more money from TV revenue. So, what is left to you is the global market and they have to investigate ways to increase their global footprint.”

Any advance though, could be overshadowed by the outcome of the tax case. The club are challenging a bill for £35m in back taxes, as well as £14m in penalties after paying players from an Employee Benefit Trust between 2001 and 2010. The next hearing is due to begin on 16 January. Until that issue is clarified, Patey says auditors will be reluctant to sign off on the accounts. “I don’t see anything sinister in it at this stage. But it would be an interesting question for the auditors if they try to have them sign the accounts before the case is determined. From an auditors point of view, you would challenge the going concern if you think there could be a big event which could see the club running out of cash.

“You try to get clarity before you sign so I wouldn’t be at all surprised if you didn’t see that audit opinion being given until after the tax hearing in January. There might not be full clarity then but you would expect a greater degree of it.”