Not Playing In Europe

Real Madrid v Atletico de Madrid - UEFA Champions League FinalIt’s almost that time again, friends; the US primaries are coming up next year and there are a few interesting things happening over there.

The Republican Party nomination is wide open, and some commentators have said they think it’s probably “50-50 that they’ll go for a nut-job”, and with the Tea Party still making waves that seems like a good bet.

On the Democratic side it’s not as complicated, at least not on the surface. Hillary Clinton looks certain to be the nominee, if you believe everything you read. Yet that’s not absolute. There’s a guy over there who might just beat her.

His name is Martin O’Malley, and how perfect is that? He would never get elected in Larkhall, but he might yet be President of the United States.

We’ll return to Martin O’Malley later in the piece.

From the halls of power in Washington DC we’re off to the grubby offices of our intrepid sports hacks, and a piece of breath-taking nonsense on the Daily Record website yesterday entitled “Mike Ashley’s Rangers influence could sound death knell for Newcastle in Europe.”

That piece is so staggeringly awful, with more holes in it than Swiss cheese, that no-one even put their name to it, so it doesn’t carry a by-line, simply the words “By Record Sport Online”.

It is toe-curling, the sort of piece that a first year reporter would not have dared submit to his bosses for fear of never seeing his name in print again.

The dodgy word in the headline of course is “could”, but there are so many obstacles to Newcastle being punished because of Ashley’s interest in Sevco that it’s scarcely worth wasting time reviewing, but I’ll give you the one that jumps out of the page.

The team placed highest on the co-efficient tables gets precedent. Newcastle are 50 places ahead of the Ibrox club, and that’s if UEFA still considers them to be the same side as the one that won those points – which many of us have long said is a nonsense.

Last night, Celtic got out of their Europa League group despite having lost 3-1 at home, in another shambolic performance where the glaring deficiencies of our side were starkly revealed. Celtic might be a “well run club” but they are not a good football team at the moment, and that absolutely has to be addressed if we’re going to again enjoy the big European nights of yesteryear.

Over at Ibrox, what some are leveling “a fresh financial crisis” is bubbling like a magma chamber about to erupt, and the media’s ignorance of just how bad things are can be measured in guff like the example I’ve just given.

Because, of course, there are barriers to Chernobyl FC taking part in Europe that have got nothing to do with Newcastle United or Mike Ashley’s ownership share.

Nearly every report I’ve read in the last two years regarding Sevco Rangers’ financial plight suggests that everything will be alright once they qualify for Europe. The ignorance at the heart of this assertion is quite amazing, as it pays no heed to objective or historical fact and appears based on little more than bad maths and wishful thinking.

Let’s start from the beginning, shall we?

The current Sevco side is nowhere near good enough to qualify for Europe, and they would need significant funds spent on them to reach that level. No-one has so far succeeded in convincing me that these monies are available to them, or are likely to be made available to them in the near future.

They published their accounts yesterday and the media is leading with the news that they showed an £8 million shortfall, with an investment equal to that required if the club is to make it through to January 2016. The figures are ghastly, but what’s more ghastly is what’s under them.

For that £8 million figure is a conservative estimate, based on a number of key assumptions which, frankly, can no longer be assumed.

See, that figure is based on projected earnings.

Those “projected earnings” are based around an uplift in season ticket income, playing in the SPL and a continuing increase in the money that’s coming from Sports Direct (and good luck with that one!).

Also, those figures are only good up to June this year and yet they appear to include money from a share issue that the club didn’t bank until September. There is, of course, no list of the Ashley loans in the negative column, because they aren’t covered by the accounting period.

In short, those accounts are a masterwork of obfuscation and sleight of hand that although perfectly legal has not offered us a wholly accurate look at what’s really going on in the club. What we can infer from them – and from the qualifiers contained in them – are that there are major problems inside the walls and that they aren’t going to magically disappear.

The stark truth is this; those problems would be no less acute for Sevco if they were somehow eligible to play in next season’s Champions League, because unless they were able to navigate three qualifying rounds with the current squad (stop laughing) and achieve Group Stage qualification they would still be running at a loss. A big one.

Remember, those financial projections are all predicated on the club increasing revenues whilst maintaining, or cutting, current cost levels. The second you start to increase spending – and that is exactly what McCoist is demanding they do, and precisely what his successor will expect them to do, and indeed what any club that wants to stay competitive and try and qualify for Europe will have to do – the sums required just to survive start to rise too.

It’s worth bearing in mind something I’ve said previously; without a bank overdraft, granting them some flexibility over their debts, Sevco Rangers is just like an individual who goes to check their account one morning and finds it empty. When bills come due you can duck – for a while – but ultimately not for very long, and the day to day expenses we all know so well, simply living, buying food and shoes and transportation etc, will not be met at all.

Right now they’re living off short-term loans from “friends.” Try that out for a while. See how long they’ll carry you. See how long you stay friends.

Which brings me nicely to Financial Fair Play.

Amongst the many revelations at the recent Celtic AGM, one went oddly unreported, which was Peter Lawwell’s assertion that Scottish football will be putting in place some kind of framework for Financial Fair Play rules in the national game.

This cannot be dismissed as idle chit-chat, because, of course, this is a man who’s perfectly positioned to carry through on that pledge.

This website has been calling for Scottish football implimenting FFP for well over year and if the Celtic CEO succeeds in getting proposals on the table and passed it would be the greatest contribution to the sport here that he will have made, or is ever likely to make.

Sides who want to compete in Europe already have to meet this criteria, of course, but we cannot be unaware that the SFA is truly appalling when it comes to making sure previous rules were complied with.

What we do not know is whether Lawwell and Petrie and the other members of the SFA Professional Game board will be as “accommodating” as previous administrations have been when a club playing out of Ibrox is trying to get a UEFA license without meeting some of the criteria.

That club was not eligible these last three years, by virtue of UEFA regulations concerning membership terms, one of the proofs that the Survival Myth is exactly that.

Most Sevco fans, and much of our media, appears to think that getting their next European license will be a mere formality now that term is up.

I have news for them. It won’t be. Not even close.

Things have changed since the night Maribor knocked Rangers out of the Europa League, their second European exit in a month.

That night Rangers “margin of error” in terms of their financial viability was wiped away. This notion of a club called Rangers “depending on European football” is not exactly a new one. The defeat that night left Craig Whyte no choice but to start sticking bills in his desk drawer.

Forget everything the apologists tell you about him causing the meltdown. He had his hands on the tiller when the tidal wave hit, but that’s where his responsibilities start and stop.

That was the night it all came apart. 25 August 2011.

His only choices after that were to stop paying invoices as they became due, or the club would have been in administration before Christmas that year. Rangers was a shambles long before he walked onto the stage.

Since then, of course, Financial Fair Play regulations have come into force and with them a new raft of licensing requirements, without which teams won’t be allowed into continental competition.

I’m going to give you a couple of them right now, and I’m getting these from both the SFA website and from UEFA’s own publications on the subject.

Aside from adhering to Financial Fair Play (which mandates that no club can lose more than E5 million per annum, or E15 million over a three year period – and good luck arguing that one at the current time, or under Dave King’s “spend millions to get into Europe and let the debts mount up in the meantime” plan … if they try that there will be no European football), clubs also need to make sure they meet a number of other important criteria … and the current SFA board is yet to be presented with a choice on these, as regards the Ibrox NewCo.

The other qualifying criteria includes the following:

Sporting Criteria
• A written and approved youth development programme
• At least three youth teams (u10, 10-14, 15-21)
• Annual medical examinations for first team squad
• Player registration for all aged over 10
• Written contracts with professional players
• Attendees at pre-season Refereeing and Laws of the Game sessions
• A racial equality practice

Infrastructure Criteria
• A stadium for UEFA competitions within the territory of the member association
• A stadium meeting UEFA’s Infrastructure Regulations
• Year-round training facilities
• Dressing rooms and a medical room

Personnel and Administrative criteria
• A club secretary, general manager, Finance officer, medical officer, medical doctor, physiotherapist, security officer, stewards, supporter liaison officer, qualified head coach, assistant coach, head of youth development, qualified youth coach for each youth team

Legal Criteria
• Agreed to abide by UEFA rules (inc FFP rules)
• A written contract with their football body
• Structure charts and give financial details of any subsidiary

Financial Criteria
• Annual/Interim financial statements
• No overdue payables to other clubs
• No overdue payables towards employees or social/tax authorities
• Published details of any post balance sheet events
• Financial confirmation that it is a going concern

I don’t suppose I have to point out the big ones there, do I?

Let’s go through what some of this actually means though, as written in the rules.

The first two on stadiums are interesting. For the sheer entertainment value, let’s look at them both.

The first relates to the stadium where European fixtures will take place. The precise wording reads as follows:

The stadium must be approved by the Scottish FA and fulfil all minimum requirements defined in the “UEFA Stadium Infrastructure Regulations” at least to Category 2 level and any exceptions as agreed between UEFA and the Scottish FA. Furthermore it must be based within the territory of the Scottish FA.

Fair enough, but what does it mean? Well it means that loose guttering or any other major structural or safety problem can’t just be taped up or sealed off with plastic boards. That means the stadium maintenance work they’ve been putting off for three years now has to be done or their license might not be good for playing at their home ground.

Which brings us to the second of the stadium regulations, and if you are drinking or eating right now then wait until you’ve done before reading on, as damage to your monitor might ensue.

This one comes under the heading of Security Of Ground Tenure, an issue that must have our friends at Ibrox in a cold sweat, because this is not about where UEFA matches will be played; it is about the requirements a club must meet to get the license to play in them at all.

It reads thus:

The licence applicant shall have the sole use of the ground or “shared” use (approved by the Scottish FA) and shall be in a position to establish security of tenure for the ground and to play matches in the UEFA club competitions as and whenever required. To establish security of tenure the licence applicant shall own or have a lease in place for the ground. The lease shall run for at least the period of the current season as well as the following season and must guarantee the use of the stadium for the UEFA home matches for the coming season, for which the licence applicant qualifies in sporting terms.

The latest Ibrox accounts clearly demonstrate that there is some material doubt over the stadium tenure, and until that is resolved it doesn’t matter whether the club gets an agreement to play European fixtures at Hampden or Love Street … it’s irrelevant because they need to be able to demonstrate clear ownership of their own stadium, and right now they don’t.

Some websites, Celtic and Rangers sites both, have mooted the sale of Murray Park as a means of cutting costs, but it’s not as simple as that either because, of course, there are legal requirements on the club in the area of training facilities too …

The relevant sections reads as follows:

The licence applicant must have training facilities available throughout the season. The licence Applicant shall either a) own the training facilities, or b) provide a written contract with the owner(s) of the training facilities. This contract must guarantee the use of the training facilities for the coming season, for which the licence applicant qualifies in sporting terms, for all teams which participate in a competition approved by the Scottish FA.

So, if they did dispose of Murray Park it would create a fresh problem, in that they’d need somewhere else to train, and they would need to show evidence of where that was.

The costs associated with running Murray Park are in the millions, and this, of course, is often talked about as the reason why selling it off would be good. The club could train anywhere, after all, and save themselves a fortune in the process, right?

Well, no, actually …

You see, the bricks and mortar aren’t where the money goes, of course. To run a club a size of Sevco Rangers you need an infrastructure … and unfortunately that, too, is not negotiable when you apply for a UEFA license under these new rules.

If we look for a minute at the Personnel and Administrative Criteria, listed above, we can see clearly that they need to have a structure that meets minimum standards, and that makes it almost impossible for them to cut too deep in those areas, or the European License is in danger.

A club losing money hand over fist can’t afford all this, but as these regulations demonstrate, they don’t really have much choice in the matter … not if they want those “European riches” that are supposed to return them to the grand old days of yore.

The problems don’t stop here, of course. In fact, the further one delves into the regulations the more you get the impression that it’s going to take an Act of God before the SFA’s Professional Game Board (including Peter Lawwell ; can you imagine the outcry from Celtic fans?) can look the other way enough to grant this club their Golden Ticket to the Chocolate Factory.

Legal Criteria is going to be a difficult area to navigate.

One of UEFA’s requirements ist that they be presented with a full breakdown of the club’s ownership structure.

The SFA might have been prepared to look the other way when they signed the deadly Five Way Agreement, but UEFA will not be quite so understanding and when those documents arrive at Nyon there is going to need to be a lot more transparency or Mike Ashley’s heart wrenching decision about which of his two clubs he wants to see playing continental competition will be made ever so slightly easier ….

The regulations, in all their cold blooded glory, read thus:

The licence applicant must submit the overall legal group structure, presented in a chart, duly approved by management. This chart must include information on any subsidiary, any associated entity and any controlling entity up to the ultimate controlling parent company and ultimate controlling party. Any associated company or subsidiary of such parent must also be disclosed. The legal group structure must clearly identify the entity which is the member of the Scottish FA and which entity is the licence applicant.

It must also mention the following for any subsidiary of both the member of the Scottish FA and the licence applicant and for any subsidiary or holding company of either: a) name of legal entity b) type of legal entity c) information on main activity and any football activity d) percentage of ownership interest (and, if different, percentage of voting power held) held by parent company and by ultimate controlling party e) share capital f) total assets g) total revenues h) total equity.

The licence applicant determines the reporting perimeter, i. e. the entity of combination of entities in respect of which financial information (e. g. single entity, consolidated or combined financial statements) has to be provided. Further requirements in respect of the reporting perimeter are contained in Annex 01 § 01.7 of Part 4.

All compensation paid to players arising from contractual or legal obligations, all costs/proceeds of acquiring/selling a player’s registration and all revenues arising from gate receipts must be accounted for in the books of one of the entities included in the reporting perimeter.

Stripped of all that dense language, it simply states that hiding behind holding companies and proxies is over. Every person, and every subsidiary company, holding shares in Sevco, and every company that is connected to them, would have to declare those interests in an official return to UEFA before a license would be granted.

And you ain’t seen nothing yet, because the best is still to come.

Because we’re now on the subject of financial returns …

Let’s look at the annual returns, and what UEFA says about those.

Audited accounts first ….

Each licence applicant is required to provide a copy of its audited annual financial statements as defined in respect of the statutory closing date prior to the deadline for submission of the application to the Scottish FA and prior to the deadline for submission of the list of licensing decisions to UEFA. Audited financial statements must include the auditor’s report. The auditor must be independent as defined in Annex 01 § 01.1 of Part 4. Comparative figures in respect of the prior statutory closing date must be provided by 31 January 2014. Each licence applicant is required to provide a self-declaration form confirming whether the Indicators apply.

And what is the “closing date” for submissions for the audited accounts? 31 March, the year before the club wants to play in European football ….

Allow me to continue ….

We do not, of course, have to revisit the issue of Monies Payable to Tax or Football Authorities, because that is all well known to everyone. Instead, we move on to the genuine Hammer of the Gods, the one that knocks all else aside: the requirement for Future Financial Information.

The minimum UEFA requirement is this;

Where the Indicators apply, licence applicants must prepare and submit future financial information in order to demonstrate to the Scottish FA their ability to continue as a going concern until the end of the licence season. Future financial information consists of: a) A budgeted profit and loss account; b) A budgeted cash flow; and c) Explanatory notes including a brief description of each of the significant assumptions (with reference to the relevant aspects of historic financial and other information) that have been used to prepare the budgeted profit and loss account and cash flow statement, as well as of the key risks that may affect the future financial results.

Comparative figures for the immediately preceding financial year and interim period (if applicable) must be provided in respect of the budgeted profit and loss account and cash flow. The future financial information shall be based on assumptions that are not unreasonable and meet the minimum disclosure requirements as detailed in Financial Appendices B and C …

The forecasts will cover an 18-month period split into 3 monthly segments. On 31.03.2014 the licence applicant will provide its future forecasts from the Interims to the end of the season (2013/14) as well as a further forecast for the following season up to the end of season 2014/15.

A licence applicant’s future financial information must be assessed by an independent auditor.

Let’s start with that final paragraph, which may be damning.

An independent auditor.

Now, does this mean one that isn’t working directly for the club? Based on the scale of these regulations it would simply make good sense to have a fresh set of eyes on the books. Imagine someone other than Deloitte having to sign off on this shambles, someone with no vested interest in the outcome?

Tantalising thought, isn’t it?

Even without this, there are no ways around what these regulations lay out. There will be no more putting these things off until the last moment AIM allows. These are much more robust regulations than Sevco has yet had to deal with, and UEFA make it hard for a reason.

Taken in full, you cannot escape the conclusion that if, by some miracle, Sevco were to reach the final of the Scottish Cup this season, there is not an earthly way in which they would be granted a license to play in Europe next year.

Apart from having missed a number of filing deadlines, the “material uncertainty” of their financial position would damn them, and doubts over the ownership of their stadium and training ground would only add to the pain.

If the Professional Game Board issued that license the club that had been denied a place would raise nine kinds of Hell, and rightly so.

Any application from Ibrox would be filed where it belongs; in the bin.

Yes, the media would wail bitterly. The Sevco fans would foam and the mouth and talk about conspiracies again and maybe march on Hampden and Celtic Park for answers – or just to get in the papers – but it would make no difference. It would not change objective fact or reality.

Things will scarcely improve over the next 12 months, especially as this “hand to mouth” existence of theirs looks set to drag on into the foreseeable future of court cases, boycotts, demonstrations and all the other assorted madness we associate with them today.

The media in this country talks about Sevco needing “investment in the team” as if all their problems will vanish the second they have a winning side on the park. It’s nonsense. For all the lunacy that swirls around it, football is a business like any other and you don’t have to look too far to see what happens to clubs when the sugar daddies stop paying the bills or the banks refuse to lend them another quid or the tolerance of creditors runs out.

Sooner or later, Sevco has to actually turn a profit because until this company can show that it’s grasped the fundamentals of business it will never get the kind of security (albeit limited) that comes with credit facilities.

At the moment they are a financial basket case, and that tends to put lenders off and causes endless problems with the credit rating.

Even if football clubs were not a disastrous investment prospect in the first place, this is not a normal football club. It is a Frankensteinesque creation that emerged from the swamp of a debt dumping liquidation and has not learned one single valuable lesson from that event. They still behave in the same reckless lunatic fashion.

And where is the SFA in all of this? They are where they always are. They are standing on the side-lines hoping this all just goes away.

None of it will go away. Their attitude towards the lumbering, shambling zombie institution is the same as it ever was, but sooner or later, if they don’t act first, circumstance are going to force UEFA to take it out of their hands.

In the meantime, we hear the same old chorus from people like Stewart Regan, when he is asked to consider the consequences of what has happened – what he has allowed to happen – on his watch.

Scottish football needs the Ibrox club too much. They are “too big to fail.”

Which brings me full circle, to the American Presidential hopeful with the Irish sounding name, who offered a very pointed critique of the US banking bailout and the excuses that were made for it, and for the political class’s failure to act robustly against those responsible, before they crawled right back into bed with Wall Street the second it was done.

“If an institution is too big to fail, too big to jail, too big to prosecute, then it’s probably too damn big,”

The people who run Scottish football have forgotten that there is more than one club playing in this damned country. Their talk of how “the game needs Rangers” is exactly why no lessons were learned from history and are why we’re right back where we were three years ago.

Peter Lawwell is already on record – as both an office holder of the SFA and as CEO of Celtic – as having stated that he’ll have no truck with fast tracking or league reconstruction, facilitated to get Sevco in the Premier League.

He says sporting integrity comes first.

He and Martin O’Malley are correct. There are things that go beyond cosy relationships and “business as usual.” Reform is not a dirty word. Making everyone play by the same rules is hardly the most radical concept ever devised.

So, I hope financial fair play is going to be introduced here. Then even Sevco will have to get its house in order.

But if they are pinning their hopes for the future on European football, they are bust. That is not the fault of our other clubs, and they should not be made to pay for it. Denial of the European license, when it comes time, would be a clear signal that they’re not to be treated differently from anyone else, and if that damned them to financial ruin then so be it.

They did this to themselves. It’s as simple as that.

The next time you hear, or read, one of our intrepid hacks telling us how Sevco can rebuild its finances simply by climbing onto the European stage, please have a think about how difficult it will be for them even to get there, on and off the park.

Mike Ashley’s “dual ownership” issues are the least – the very least – of the obstacles that UEFA have put in their way.

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6 comments on “Not Playing In Europe
  1. Is this true,the Sun(a paper I would not wrap my chips in)naming Mark Wotte as being mentioned as the new Director of football at Castle Greyscull,next we will have Pep Guardiola as leaving Bayern Munich to be manager of thems as it’s the only job in football he ever wanted………….James is there anywhere you know where I could get Bulldozer drivers courses,could come in handy,god would I die happy………..Oh James great article again. HH

  2. Brilliant article as usual James.

    You mention that Maribor knocked Rangers out of Europe for the second time in a month.

    They also ko’d Rony Delia’s mediocre mob out of the CL for the second time in a month,unfortunately (or maybe fortunately when I think what could have happened to our Hoops in this competition)

    Had the misfortune to buy a ticket for that shambles against Salzburg last night……..Happy Clappers grateful to be in Europe post Christmas.It was truly embarrassing to listen to their meek acceptance of where we are now as a club, as long as we qualified for round of 32 in the bronze medal diddy cup.

    The race to the bottom to meet Der Hun is well and truly on.

  3. James, for the love of all that you hold dear, please please PLEASE change yuor(!) spell-checker – licence NOT license. Even the SFA can get that one right…! 😉

  4. Careful quoting Gov. O’Malley James, he is the person that the fictional politician character in “The Wire” was based on. He is much more Sleekit Ally than JFK. If he ever does become POTUS God Help America, and the World for that matter. Even if he was right about the bankers.

  5. Excellent article again James and it clearly shows you’ve spent a lot of time researching the UEFA Fair-play regulations etc. but jeez, is there no way that you can get this into the mainstream media and to UEFA themselves to really put the boot in, as the sooner that Sevco “qualify” for Europe the sooner their noses get well and truly rubbed in it.
    Scottish Football does NOT need them, and the last few seasons have proved as much, with teams like Hamilton, St; Johnstone & Thistle not only surviving but becoming a main-stay of a rejuvenated SPL.
    HH

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