Scottish Championship side Rangers suffered a double blow after reporting an annual financial loss of £7.5M ($11.5M) and losing a tax case, which is likely to cause the football club further reputational damage. The annual loss of £7.5M in the year ending in June is a slight improvement on the £8.1M annual loss last time. But one of the most famous -- and once very dominant -- clubs in Scotland is suffering financially on a number of fronts. It is suffering from playing football in Scotland’s second tier, which is limiting broadcast revenues as Rangers have few televised matches, as well as there being no European football to excite fans. Advertising and revenues from sponsors -- which include Puma, Coca-Cola and Heineken -- were down from £1.5M ($2.3M) to £600,000 ($923,000) in the financial period. Rangers Managing Dir Stewart Robertson said, “There are various reasons why sponsorship income fell and the signs are good that this will increase again.” Chair Dave King said the club is now on firmer footing under the new management system which took over in June this year. He said, “The year under review was a difficult one both on and off the field, but Rangers supporters and investors can be assured that significant inroads have already been made on a number of fronts.”
RETAIL PROBLEMS: The finances of Rangers are also hamstrung by its deal with Mike Ashley’s Sports Direct, which controls the bulk of Rangers’ retail operations. King: “The poor performance of the retail business continues to exercise the collective mind of the Board. Unfortunately, Sports Direct secured a gagging order against the company and its officers that prevents me from fully expressing my feelings on how this important part of our business has been managed under the stewardship of Sports Direct and its senior management.” The club has, though, boasted an “encouraging” increase in season ticket sales, the club revealed. In the past few days, the Glasgow club said it was delaying issuing more shares until criminal proceedings against a trio of former directors, Craig Whyte, Charles Green and Imran Ahmed, are completed.
TAXING TIMES: Separately, Rangers on Wednesday lost a case against the taxman, after an appeals court ruled against the football club. U.K. tax authority HMRC lost its original appeal against a tribunal ruling on payments made by companies owned by the club’s former Owner David Murray. But the ruling was overturned by judges. Andew Smith, a journalist at Scotland on Sunday, said, “They [Rangers] look as though they will earn promotion, which in itself increases revenues stream. But the retail operation is hamstrung by the deal they have with Mike Ashley’s Sports Direct. They effectively don’t make any money out of their retail operation.” On the possibility of attracting new sponsors, Smith said Rangers would not “be going to get Blue-Chip funds,” and said the HMRC case would inflict reputational damage on the club.
John Reynolds is a writer in London.
HMRC WINS APPEAL: STV's Grant Russell wrote HMRC won its appeal against the Rangers Tax Case verdict, "ruling offshore payments to players should be subject to income tax." The tax man "had previously failed in two attempts to prove the use of Employee Benefit Trusts to provide cash loans to employees of the Rangers oldco did not amount to contractual earnings." In court, HMRC argued the payments had technically been "earned" by employees, as they were made as consideration for their services. The scheme, it was claimed, was "a mere redirection of earnings which did not remove the liability of employees to income tax." HMRC's appeal "was allowed on those grounds," with the court agreeing its argument was correct (STV, 11/4). The BBC reported the judgement will have no financial impact on the club, which is playing in the Scottish Championship, but it "is unclear at this stage if there will be any sporting consequences." This is because Rangers "went into administration in 2012 and later liquidation." The tax liability remains with "oldco" Rangers and "will be addressed by liquidators BDO, along with claims from other creditors who were left out of pocket" after the club's financial collapse in '12. The ruling "may also be subject to further appeal" to the U.K. Supreme Court (BBC, 11/4). The Scotland DAILY RECORD reported Rangers have "been left reeling" by Wednesday's Court of Session ruling. Players and staff "paid through the EBT scheme could now be targeted by the taxman, although they might not have to pay all the money back and could instead be hit with fines." The case laid bare the full extent of a £47M ($72M) tax avoidance scheme "that helped bring about Rangers’ collapse" (DAILY RECORD, 11/4). Click here for a list of Rangers EBT payments.
'COMMON SENSE': In Glasgow, Alan McEwen wrote delivering the opinion, Supreme Courts of Scotland Judge Drummond Young said that it was "common sense." The appeal judges observed that the "fundamental principle" that emerged from previous cases was clear, namely "if income is derived from an employee’s services qua [in their capacity as] employee, it is an emolument or earnings, and is thus assessable to income tax, even if the employee requests or agrees that it be redirected to a third party." Young wrote, "If the law were otherwise, an employee could readily avoid tax by redirecting income to members of his family to meet outgoings that he would normally pay: for example to a trust for his wife ... or to trustees to pay for his children’s education or the outgoings on the family home" (DAILY RECORD, 11/4).
