RANGERS Chairman Dave King gave the following address at today’s Annual General Meeting.
Ladies, gentlemen, fellow shareholders.
Thank you for again attending your Company’s AGM in such large numbers. As I stated last year, the AGM provides the forum for all shareholders to come together and to hold the Board to account for the manner in which the business and financial activities of your Company have been conducted in the most recent financial year. In the case of The Rangers International Football Club we are here to review the affairs of the Company for the financial year ended 30 June 2017. As you are all aware, the sole business of our Company is the operation and related activities of The Rangers Football Club Limited – which is a wholly owned subsidiary of the Company.
In addition to dealing with the year under review, I will refer to events subsequent to the year-end that I am aware are of some concern to a number of our shareholders.
Prior to conclusion of the meeting there will be an opportunity for shareholders to ask questions of your Board and the Club’s management. History indicates that many of the shareholder questions will be focused on the on-field football activities. Unlike last year, we do not have a manager in place to deal directly with such questions. However, my colleagues and I will do our utmost to answer any football related questions that arise. We all clearly understand the importance and relevance of such questions for a large number of our shareholders.
For the purposes of this AGM, it is helpful for our shareholders to bear in mind that our shareholder base includes many passive investors who are not supporters of the Club and who invested purely on the investment case that was made at the time of their investment. We also have thousands of smaller investors, who I assume will virtually all be supporters of the team and are likely to make up most of the attendees today. The polarity of this shareholder mix represents an ongoing challenge for the Board and, given the dynamics of managing a football club of the size and popularity of Rangers, is something that I believe I must comment on for the clarification of all shareholders.
The shareholders who are not supporters wish to see dividends and a growth in the share price on an annual basis. Those shareholders who are also supporters have little or no concern for investment returns as long as the team is performing on the pitch. The non-negotiable for each Board member in getting the decision making balance right is the need to comply with our legal and fiduciary duty to ensure that the Company is managed in the interest of all shareholders – irrespective of investment conflicts. We cannot adopt a binary approach by coming down on one side or the other. To date, these deviations in investment philosophy have been reconciled by the Board convincing the passive investor shareholders that it will be a value creating strategy to incur losses for a number of years as, if this is not done, it will be impossible to revert to the Club being number one in Scotland. Getting back to number one is the only sure way to create sustainable value for all our shareholders.
Most of the non-supporter investors endorse this approach but their continued support is conditional upon the deficit being carefully managed. On this critical point, the most frequently asked question by non-supporter shareholders is how the Board can guarantee that it will be able to responsibly accommodate the differing shareholder expectations, without advancing one category of shareholder to the prejudice of others. They are concerned that we might, because we ourselves are supporters, place a disproportionate weight on the demands of supporter shareholders – and even supporters who are not shareholders – solely on the basis that their passion for our Club makes them naturally more vociferous and demanding of our attention on an almost daily basis.
These investors observe the extent to which supporters use social media – and even the general media – in an attempt to engage with the Board to influence our decision making. It has been the case since I was a boy that supporters voiced their strong opinions, especially immediately after a match. Players and managers get slaughtered one week only to be heroes again the following week. The potential influence of this however has been vastly increased in its pervasiveness by the volume and intensity created by social media and the parallel attempt by members of the general media to join such conversations. The Board recognizes that supporters sometimes need to let off steam but will not engage with individuals on operational decisions such as when a manager should be fired, who should be hired, which players should be let go, which signed up etc.
In stating this, I understand that the myriad and often conflicting comments that are made ultimately reflect the passion that supporters have for our team and we would like that passion to continue. It is healthy for the Club.
I also take the opportunity to reiterate what I stated last year – your Board will not betray the well-founded process of recovery by sacrificing a number of future seasons in an imprudent financial attempt to influence any immediate one. The Board consists of experienced businessmen who, despite all wearing large supporter hats, will always make decisions in the best immediate, intermediate and long-term interests of the Company. We strive to get the balance right as expected of a publicly listed company and to continuously be alert to our own natural supporter bias. To do so, we must maintain a realistic recognition of the differing appetite for risk displayed by the different shareholder categories. The fear of investors who have put in large amounts of money is that they don’t want supporters who invested smaller amounts – or perhaps are not even shareholders – to dictate the affairs of the Company. This argument can, of course, be extended to the media. Supporters, in turn, whether shareholders or not, don’t want pin-striped suits who have no passion for the Club dictating how their Club is run. As I stated during question time last year, this is exactly why I believe that football clubs should not be listed- but that remedy is now not available to us.
The most important financial risk that the Company continues to face is the need to strike the right balance between financial prudence and deficit funding. The Club is still unable to regain its former status by relying solely on the income it generates from its normal operations. The Board remains committed to the prudent use of debt funding but, in doing so, it remains essential that the Board does not significantly deviate from its approved financial plan as a result of supporter and media pressure during one specific season and thereby abandon the financial discipline that is so essential to ensuring football and commercial success over the medium to long term.
Of course, running a loss-making business requires funding and this requires the ongoing support of shareholders to ensure that the legal permissions are in place. We cannot do as we please when introducing funds. So far, the Board has been successful in securing the cash resources that have been required – often at short-notice – but we cannot take future funding for granted if there is no end in sight to the Company’s losses, or if we take on excessive risk during this intervening period. It is the responsibility of your Board to ensure that this does not happen.
I emphasise the importance of managing risk because it is not a trivial one – particularly at this stage of our recovery when we can ill-afford to make big financial mistakes. It would be wonderful if we were in a position to project our revenue and costs for a number of years, to put the required funding in place, and then tell management to get on with it. That can work on a relatively risk-free basis in most businesses but is not possible in a sporting environment where the manager and player revolving door keeps on spinning and the personnel going out more often than not do so at a cost to the club in question. Under such circumstances, if additional non-budgeted investment is not made available, the club would go backward. No club is immune to this and it is something that your Board is particularly alert to.
In fact, we have keenly felt the negative impact of this merry go round with the loss of two managers – and the corresponding impact on the player squad – since we stood here at last year’s AGM. In our discussions with shareholders we state the obvious when we reiterate that the appointment of the football manager is the most important that the Board can make and that we will treat it with the importance and diligence that it demands. Anything less would be reckless.
When Mark Warburton and his team engineered their exit from the Club we were forced, at short notice, to commence the process to find a replacement. As is demanded by shareholders, this was an extremely thorough process. We did not have a Director of Football at the time so we formed a sub-committee to come up with the specifications that we believed were important for a manager at that juncture. The sub-committee worked extremely hard – and quickly- to pull together a long list of potential managers who applied for the position, as well as identifying others who we could possibly approach. This long list was trimmed and then a thorough desk-top evaluation of each candidate was undertaken in order to produce a final short list. This list was submitted by the chair of the sub-committee, Stewart Robertson, directly to me and I then had the opportunity to interrogate the list to my satisfaction and to ensure that the list complied with the underlying process. The next step was to conduct a formal interview process with each short-listed candidate.
After the interview process was complete and information had been obtained on salary demands and compensation payments, if any, the preferred choice was submitted to me for a final interrogation before being forwarded to the full Board for further scrutiny and approval. Ultimately, a unanimous decision was reached by the Board. This whole process, including negotiation with Pedro’s club regarding compensation and start date, was done so swiftly and effectively that Pedro had his feet under the desk exactly one month after the walk-out by Mark and his team.
On the issue of manager appointments, I personally don’t subscribe to the position of those who advance the view that it must have been wrong to have hired a particular manager simply because the results during the season necessitated the removal of the individual in question. The simple fact is that any manager can fail in any season. An example of this is Leicester City last season. Claudio Ranieri was fired for poor results having just won the EPL the previous season. If his seasons were the other way round then Leicester’s history would be devoid of that magnificent fairytale season.
Nearly every manager is fired at some time – often repeatedly – but there is no credible room for recrimination and finger pointing as long as the appointment was made in accordance with an agreed process that assesses all the risks when making such appointment. There is no such thing as a risk-free managerial appointment. In my opinion, what would truly be wrong is if the Board made a quick knee-jerk appointment without a thorough consideration of the options available at the time just because it appealed to certain sections of the media, or to some of the more outspoken supporters. The appointment of a manager is far too serious for us to endorse such a frivolous approach.
The search for Pedro’s replacement has also been thorough and of appropriate duration under the guidance of Mark Allen, the Director of Football. Based on the manner of Pedro’s departure we had to first re-evaluate the criteria we required of our new manager prior to going through the detailed process that I have already referred to. In this instance,however, our short-listed candidates include individuals presently under contract and that adds an additional unavoidable time element. We should have something to report shortly.
Our Company is fortunate that, by far, most of our supporters recognize that the business of the Club, like any company, should be conducted in a confidential and professional manner. Their continued support for the board and the team is shown by the fact that we again have record season ticket sales of in excess of 44k and by the fact that the many supporters that comprise Club 1872 have again overwhelmingly endorsed the reappointment of all directors. In the case of Graeme Park, this was slightly less but only because he was falsely alleged to have had an undue influence in appointing Pedro as manager. As I stated earlier, after a thorough process, all board members endorsed Pedro’s appointment and we take collective responsibility for that.
I will now move on to the highlights and lowlights of the year under review.
- The most significant highlight of the year was the successful conclusion of the Sports Direct litigation. The settlement amount paid by the Club was 3 million pounds which is a great outcome that will yield many multiples of this in the years to come now that we have regained control of our retail asset, in fact we will get all of that back in the first year. At the time that we announced the settlement, we were legally prevented from disclosing the £3m payment due to the confidentiality clauses that Sports Direct insisted upon in the legal contract. However, under accounting regulations we were obliged to disclose it in the annual report and that overrode the confidentiality clause in the agreement. The settlement payment was fully funded by interest-free loans from shareholders.
- We have continued with the development of young players over the last year to the point that we have a strong pipeline of home grown players that have a realistic potential of breaking into the first team. This is a significant hidden asset for the Club. The Academy at Auchenhowie has been completely restructured and is now performing to the high standard we anticipated. The young players who are taking advantage of the opportunities being provided to them include Ross McCrorie (who I thought was man of the match last night), Ryan Hardie, and Jamie Barjonas.
- During the last year, 28 of our Academy players were selected for international squads from the under 16 age group through to the under 21s which is higher than in previous years.
- We have also concluded a complete overhaul of the Scouting Department and we anticipate significant benefits from this in the years ahead by recruiting the best talent in Scotland, while also targeting certain markets in Europe. Mark Allen must take credit for his big and immediate impact in this area.
- We continued with the much-needed infrastructure spending to ensure that Ibrox and Auchenhowie remain world-class facilities. I think that the progress is evident to supporters attending Ibrox on match days. Further work will continue on our key facilities with several million pounds already committed to over the next 2 years. We continue to be envied by other clubs for having such a magnificent debt free stadium and training facilities.
- Our strengthened commercial and marketing function has put in place processes and measures that will allow us to take advantage of the opportunities that are available to us when the existing retail agreements terminate at the end of this season. Contractually, the first round of new negotiations commences tomorrow and we are well prepared for this. This bodes well for a return to achieving top value for the Rangers brand. The improvement in our commercial operations has seen commercial income almost doubling over the last 2 years and we expect further growth in the years to come. All of this benefit will go into the squad. Even though non-ticket revenues have already increased by 55%, this is not enough. We need to be challenging at the top of the Scottish Premiership and be back in Europe before we can generate the levels of sponsorship that a club our size ought to achieve.
- Supporters, through Club 1872, have become a significant shareholder and are having increased dialogue with the Club at the shareholder level.This level of constructive discussion is valuable to the Club and to our supporters.
- Season ticket sales have reached a new high by exceeding 44,000 for the first time with an average SPFL home attendance of 49,000. This is up from 44,000 in 2016.
- Turnover increased by 7 million pounds during the year under review.
- Inroads have been made to restore the Club to a prominent position within the Scottish football authorities. In that regard Stewart Robertson was elected on to the SPFL Board where he replaced Peter Lawwell. We will continue to push hard in this area.
- We have had encouraging engagement with the City Council to redevelop the area at the front of Ibrox. This can be of very significant benefit to the Club and our supporters.
- Our Charity Foundation is incredibly well run and continues to successfully expand its initiatives to add value to the various communities that we as a Club are supporting.
There are also some disappointments;
- The failure of two managers to get the team to perform at a higher standard was extremely disappointing. We most certainly have not seen a commensurate return on the significantly increased investment that was made. Once again,a significant part of our increased player budget has been tied up in resources that have not, up to this point, made a meaningful contribution on the pitch.
- We have not found an effective mechanism to compensate for the distorted wages and transfer fees paid by English clubs – even at the Championship level. The fact that the Championship clubs are smaller in status and support than Rangers assists up to a point – but does not go far enough to offset the money on offer.
- We have not yet reached a level of stability that will allow us to invite independent directors to join our Board. I am hoping that will change in the next year.
- Finally, while we have made significant progress in improving our business processes through technology enhancement we can still do more to improve our social media platforms and this will require further investment. We are in the process of making a senior executive appointment to address this shortcoming and thereby give our supporters better general communication capability as well as a more enhanced customer experience. This is a priority.
A number of members of the Rangers family passed away during the last year. We give our thoughts, thanks and best wishes to the families of Billy Simpson, Roger Hynd, Peter Jacobs, Daniel Prodan, Davie Provan, Ugo Ehiogu, Jeroen Van Den Broek, Johnny Little, Colin Kirkwood and Yvonne Schofield.
I also want to give a special recognition for the work being done by The Rangers Youth Development Company. Their dedicated team of people sell lotto tickets and combined with other initiatives have donated £7.5m to Auchenhowie over the last 16 years.
Lastly, I would like to express my gratitude to my colleagues on the Board of the Company and to the directors and management of The Rangers Football Club. I thank each of you for your continued support during this protracted period of difficulty. The last couple of years have been tough but none of you have shirked from the task. A special thanks goes to John Gilligan who resigned during the year after adding tremendous wisdom and insight since regime change. We all miss you at our board meetings, John.
I will now open up the meeting to questions.