Celtic and Rangers interim accounts show professionalism gap

 

Celtic PLC and Rangers Football Club PLC both released interim financial information for the six months to 31 December 2007 in February.

At Celtic Quick News, we believe that financial strength ultimately determines long-term football domination, so I have detailed an analysis of the figures.

It is important to state that both clubs released more information that they are legally obliged at this time. However, whereas Celtic maintained their commitment to fans to provide transparency on the financial goings-on at the club, Rangers have kept key indicators hidden.

Rangers released figures only for: turnover, interest, tax (which was zero), profit and earnings per share.

In addition to the above, Celtic reported operating expenses, amortisation charges for player registrations, income from player sales, a full balance sheet with a complete breakdown of assets, liabilities and equity, a cash flow statement, detailing where money came from, where it went and net debt position (which was not revealed by Rangers).

Celtic added several pages of notes to the accounts, explaining the granular detail behind the numbers (for example, youth development income was up £7,000 on the same period last season).

For the first time in four seasons both clubs benefited from Champions League group stage income, which resulted in a £10.0m uplift in Rangers income from the previous season. Notwithstanding that, they still trail Celtic by some way.

Celtic turned over £42.434m, £9.358m more than the £33.076m Rangers managed. This is largely a result of the decision Rangers took at the start of last season to outsource their merchandise operations to JJB Sports, which Rangers reported in August reduced their annual income by £17m.

Celtic reported an operating profit for the six months of £6.813m, which was boosted by player sales to £10.066m. Rangers profit from the period with a similar European income was £2.273m (which I expect is also their operating profit figure).

As the majority of European income arrives in the first half of the season, the second six month results for both clubs normally return an operating loss, for Celtic, this is will be close to £2m, which would result in an annual operating profit of £5m.

Last season Rangers operating loss for the second half of the season was £5m, despite playing two rounds of Uefa Cup football. They can expect the same this six months, which would result in an operating loss for the season of around £3m.

A key contributor to the operating profit/loss figures for both clubs is expenditure on player registrations, which is amortised over the period of each player’s contract.

At the end of last season Celtic were carrying a £5.865m annual charge for player registrations, whereas Rangers were carrying £3.759m.

Rangers pre-tax profit figure at the end of this season will benefit from the sale of Alan Hutton and possibly Daniel Cousin.

Ignoring player sales at both clubs, as they can neither be guaranteed nor viewed as part of a development strategy, with Champions League group stage football and either Champions League or Uefa Cup football after Christmas, Celtic can budget to make a £5m profit and Rangers a £3m loss.

Failure to reach the Champions League group stage would adversely affect both clubs, as any Uefa Cup football short of reaching the final, would only partly offset the drop in income.

However, elimination at the Uefa Cup group stage would leave Celtic a couple of million below break -even and would result in Rangers posting an operating loss of around £10m.

In the last five years Celtic have qualified for the Champions League group stage 4 times and Rangers three times.

The key point revealed by the figures is that Celtic could survive a season without Champions League football without either incurring substantial losses or being forced to sell players. Only achieving £2.273m half-year profit with Champions League income indicates that the same is not true for Rangers.

The net debt figure was noticeably missing from Rangers results; however, we can work out fairly accurately where it would have been at the end of the period.

Football clubs net debt varies enormously during the season. The annual accounts are released shortly after most of the season ticket money arrives in the bank, so at the start of May, bank balances will be at their worst.

Both clubs cash flows will be similar during the season, which means a comparison of their interest repayments will give a useful indication of Rangers net debt at 31 December.

Celtic paid £395k on a net debt figure of £6.84m, however, despite “debt free” promises, Rangers paid £826k interest during the period, suggesting their net debt figure was more than twice as high as Celtic’s at over £14m. It is also worth noting that £1.5m of Rangers annual income for the next 9 years was paid up front by JJB in 2006, and will not therefore bring new cash into the business.

These figures shed light on why Hutton was sold, and why Rangers are so keen to cash-in on top scorer Daniel Cousin. Even with Champions League income they remain only marginally profitable and without their merchandise rights they are likely to remain financially exposed to the vagaries of football results for another 8.5 years. The consequences of Rangers failing to qualify for the Champions League group stage any time soon will be severe.

Celtic on the other hand look rock solid. The years of running at a loss have ended, and while Champions League income looks crucial if the club is to return a profit, the worst case scenario is a small, manageable, loss.

While Rangers have been dominated on the field by Celtic since 2000, Celtic have only held a structural financial advantage since the start of Rangers JJB Sports contract in 2006. This deal more than any single player will decide the outcome of more league titles in the next nine years.

When you consider the relative state of the clubs in 2000, Celtic’s financial recovery has been nothing short of an economic miracle, underpinned by over 50,000 people buying season tickets and the best commercial deals in world football outside the pampered (and in my view badly run) few in Europe’s wealthiest leagues.

Congratulations to the fans who continue to support the club throughout the world, and Peter Lawwell and his team on a world class set of results.

Paul 67