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Punishments to maintain Sporting Integrity

21 Jun

A certain Rangers “blogger’s” recent appearance on Newsnight was unmemorable except for the statement that “Rangers have been punished enough”. Of course, Scottish football message boards exploded with laughter at this comment, and looking at opinion polls from around the SPL, the rest of Scottish society find it even more hysterical.

Lets look at the facts. Firstly, “Old” Rangers were docked 10 points for entering administration. This is a consequence, not a punishment.

Secondly, as of today, the transfer ban that was imposed on “Old” Rangers has been overruled by Lord Glennie. Owner Charles Green is still unsure how to proceed, with some saying he is trying to accept the transfer ban in order to avoid more stiffer and severe punishments.

Thirdly, the fines charged by the SFA for bringing the game into disrepute have yet to be paid. Furthermore, liquidation is a financial consequence of coming out of administration, not a punishment. One is not “given” liquidation as a punishment. Liquidation, too, is a consequence of financial mismanagement.

The “Newco” problem for the SPL is labelled as a battle between the supposed financial necessity of having Rangers in the SPL and one of “sporting integrity”. Although much has been written about the “history” of Rangers being lost when it entered into liquidation, and even more has been written about the situation that engulfed Leeds, Middlesborough, and Fiorentina, this blog is not about sporting integrity as it relates to financial impropriety. This blog entry is about sporting integrity as it relates to cheating.

Is there any guidance from other sports on how governing bodies have dealt with sporting cheats? The Big Ten Basketball conference is one of US largest basketball conferences. In the US, where collegiate sports are cash-cows for American universities, the Big Ten has led the country in attendance every year since 1978. Its basketball rivalry is huge and within the conference is a “Big Three” rivalry which includes the University of Michigan. The Big Ten brings in hundreds of millions of dollars to the University of Michigan. The rivalries are huge and the team brings in the best players and recruits from all over the country.

In American collegiate sports, there is one rule considered sacrosanct – the absolute ban on the paying of players. Match fixing is criminal, of course, but the integrity of the game relies on the fact that the ten people on a basketball court at any given time are amateurs. In other words, they financial footing of every player at any given time is equal.

In the late 1990s, the University of Michigan was rocked by a scandal that had deep repercussions to the University and the Big Ten.

The case began when the investigation of an automobile accident during basketball player Mateen Cleaves’ 1996 recruiting trip revealed a curious relationship between a legitimate sports agent named “Martin” and the Wolverine basketball program dating back to the 1980s. A six year investigation resulted in several Michigan basketball players implicated over the next few years and by 1999 some were called before a US federal grand jury. Four eventual professional basketball players were discovered to have borrowed a total of $616,000 from Martin. During the investigation, Webber claimed not to have had any financial relationship with Martin, but eventually confessed to taking loans from Martin. He was both fined in the legal system and briefly suspended by the NBA after performing public service.

The university investigation looked at four players behaviour and came to the conclusion that they had briefly compromised their amateur status. In response, the University placed the basketball program on two years’ probation. The punishment was to withdrew from postseason consideration for the 2002–03 season, the program had to vacate all or part of five previous seasons and to remove the players’ names and achievements from its record book.

In all the punishments were as follows:

  • No postseason play in 2002–03, even though the players who took Martin’s money were no longer at the school.
  • The school vacated the entire 1992–93 season and every game it played from the 1995–96 season through the 1998–99 season. This included the 1997 National Invitation Tournament title and the 1998 Big Ten Tournament title. It also vacated its two Final Four games in 1992 and its entire NCAA tournament record in 1993, 1996, 1998 and 1999. There is a difference between forfeiting a game and vacating a game; a vacated game does not result in the other school being credited with a win.
  • Returning $450,000 received from the NCAA for postseason play in 1992, 1993, 1996, 1997, 1998 and 1999.
  • Banners commemorating the 1992 and 1993 Final Four runs, the 1997 NIT title and 1998 Big Ten Tournament title would be removed from the rafters.
  • Two years’ probation.

Of note, these punishments were self-imposed.

The governing body for mens basketball, the NCAA, accepted Michigan’s sanctions. It also imposed an additional two years’ probation and docked the school one scholarship a year from 2004–2005 until 2007–2008. The NCAA also barred Michigan from postseason play for the 2003–04 season. On appeal, the NCAA reversed its decision to add a second year of postseason ineligibility after hearing an appeal by the University.

Compare this to the present situation at Rangers. What we likely have here is a club and/or a business run by a group of men who knowingly and willingly paid their players through multiple contracts, likely failed to lodge them with the SPL, and didn’t pay their taxes along the way. They withheld £21 million in PAYE and VAT this season alone. They have failed to pay transfers fees owed to their contemporaries and they have failed to pay ticket sales to other member clubs. The EBT and double contract story likely extend to the best part of a decade. There is also reports about non-employees receiving funds from EBTs pre and post departure. The amount owed to the Revenue is upwards of £97M.

For an example of how the financial doping allegedly committed by Rangers, see my previous post on how EBTs hypothetically benefitted a club here.

It is a sad state of affairs in this country that a single director (let alone two directors/owners) of a company can get away with this level of corporate malfeasance. It is even sadder state of affairs that the sport’s governing body has allowed such a stranglehold by one of its members that it now claims it cannot manage to survive without it.

If Rangers were playing in America and did what they did here there, they would have been expelled. Without question. They would have been expelled, had their seasons vacated, titles removed, and fined. There would have been criminal charges brought against the directors and they would be sent to jail if convicted.

On the other hand, what do we do in Scotland? Here, our sport’s governing body asks its existing members to consider allowing a newer version of the former entity that screwed its creditors and competitors to the tune of £124 million by giving them a vote on whether its newer form can re-enter. The former company which doesn’t exist anymore gets to vote on this at the expense of another former member, Dunfermline Athletic, who too were an existing member of Club SPL screwed by the actions of the Old Rangers. There has not even been a punishment for the Lee Wallace fiasco – fielding a player bought from another member without payment. At a minimum, on this offence alone, those games in which Lee Wallace played, should be vacated. Period.

It is ludicrous. This is not a sleight of Rangers, this is my condemnation of our sports governing bodies and the UK’s corporate governance laws. In any other sporting context we would not even be having this conversation. We would be asking how long are they expelled for? Looking at American collegiate sports for guidance, the University of Michigan self-imposed the aforementioned punishments over $616K (£400 pounds) and four young men taking pay from an agent, while in Scotland, the SFA has done nothing. Even in the University of Michigan scenario, there was no suggestion that any of the basketball games played were compromised. The punishments were handed out for cheating, nothing more, nothing less.

Scottish Football is dead. This is why.

Rangers in Crisis: The Hunt for Whyte October and a Pretty “Poison Pill” Woman

18 May

WEB3dLAW is back with a significantly shorter blog post today.  I have been waxing lyrical lately about popular films. One of my favourite of all time is The Hunt for Red October – the film adaptation of the Tom Clancy novel about Cold War era submarine warfare between the Yanks and the Russians. In one of the latter scenes, former US senator Fred Thompson asks the protagonist Dr Ryan, played by Alex Baldwin, “What’s his plan?” To which Dr Ryan retorts, “His plan?”  The Captain points out that “a Russian submarine captain doesn’t take a dump without a plan”.

One of my partner’s favourite films is the Richard Gere/Julia Roberts RomCom, Pretty Woman.  Do you remember this scene from Pretty Woman when Gere takes Roberts to a dinner meeting with the father and son owners of one of Gere’s takeover targets?

http://www.youtube.com/watch?v=mkKviMfi24s

Gere wanted to buy a large family owned ship building business and in what is commonly referred to as a “hostile takeover”, the duo had come along to the meeting to persuade Gere’s character to end his bid for their family business.

I mention these because both films lead into my nice little transition into a discussion about the business concept called “poison pills”, something I mentioned yesterday.

Poison Pills” and “Shark Repellents” sound like they belong in a James Bond film, but they are actually generic terms for business strategies to repel or reduce the attractiveness of a business to hostile takeovers.  I often wonder, “What was Craig Whyte’s plan?” He doesn’t look like a man that takes a dump very often, or without a plan. I have been thinking about this for a long time. Something doesn’t sit right in this whole thing, so I will give this idea a whirl. It is an idea, but would love to hear your input on its feasibility or accuracy. If I have missed anything out, let me know.

A “poison pill” is a generic term used to describe shareholder rights plan, and is a type of defensive tactic used by a corporation’s board of directors against a takeover. Shareholder rights plans, or poison pills, are controversial because they hinder an active market for corporate control. They also devalue the company and benefit the directors.  A poison pill also has other meanings:

It is sometimes used more broadly to describe other types of takeover defences that involve the target taking some action. The broad category of takeover defences (more commonly known as “shark repellents”) includes the poison pill.

Other anti-takeover protections include:

  • The target business adds to its charter a provision which gives the current shareholders the right to sell their shares to the acquirer at an increased price (usually 100% above recent average share price), if the acquirer’s share of the company reaches a critical limit (usually one third).
  • The target takes on large debts in an effort to make the debt load too high to be attractive—the acquirer would eventually have to pay the debts.[1]

Let’s look at the facts.

  • CW bought Rangers from Sir David Murray’s company for £18,000,001.00. There was a £1 transaction between the two men.  Craig Whyte then paid off Lloyds TSB debt at HBOS by wiring £18,000,000 from Collyer Bristow to an account at Lloyds.
  • CW then had Lloyds assign all relevant securities over to him or his company Wavetower, now “Rangers Group FC”.  Although it is widely accepted that Craig Whyte used Ticketus money to fund the purchase, what is important to remember is that Craig Whyte and Sir David Murray valued the company at £18Million + £1 or £18,000,001.00.
  • Ticketus becomes an unsecured creditor after Rangers enters into administration and is owed £26.7 Million.
  • Rangers cannot raise money from season ticket holders for the next few seasons.
  • Charles Greene and his “20-man consortium” buy Rangers from CW for the nominal charge of £2.  There is no agreed £18M paid into a lawyers account to pay off a debt to HBOS this time. The £8.4M is set aside for the creditors’ pot IF a CVA can be agreed to.  If the CVA can’t be agreed to, is there any contractual obligation to put the £8.4M into the club’s coffers? NO.
  • A new only comes in and cancels the Ticketus deal altogether. They sue the old owner – Craig Whyte. The Ticketus deal is null and void, and CW only pledges his shares and debenture if a CVA goes through.
  • I may be wrong, but I have seen no-one from the MSM ask this question. If the CVA is not agreed, then what happens to the £8.4M held for the creditors? If the answer is nothing, and it doesn’t go into the CVA pot, then it means…

Charles Green bought the club, Ibrox, Murray Park, and the car parks for £2.00. If a CVA cannot be agreed to, and the club has been sold to a 20 man consortium in equal shares that RFC have been bought for 10p each share! Any new owner could come in and buy these shares in a newco company – a debt free football club playing in the SPL with a TV contract with Sky and ESPN. A rights issue WOULD make the original owners a tidy profit on the stock exchange. 

I want to be clear this is me hypothesising. However, it is very suspicious to me that a company that was sold a year ago for £18,000,001.00 has been sold again in less than a year for £2.00. It is worth knowing if the Ticketus deal was a double poison pill– not only did it fund the purchase of the club, but it effectively ensured that “the target company takes on large debts in an effort to make the debt load too high to be attractive. It would be so unattractive that no acquirer would want to pay the debts.”

Here is a classic anti-shark repellent move! This strategy also assumes that the club pays their debts in the long-run. However, under today’s company laws, in particular the Enterprise Act, struggling businesses can continue in new forms as government would rather see businesses keeping jobs going at the expense of toxic debt – which keeps far less in employment.

A plan to shed my business debts in a morally ambiguous, but legal way might look like this:

Run up massive debts and get served with massive bill from more creditors including, hopefully HMRC! Be unable to service those debts. Limit the ways the company can gain access to working capital. Then bankrupt your own business by putting it into administration. Make the company unattractive to legitimate parties of interest by taking on massive amounts of debt. Hire the same people who advised you on this strategy to run the company during the administration process. Offer to sell to a buyer (outside of the circle) to make the whole thing seem legitimate, but as soon as he sees the financial picture, he walks and walks away. Make it as unattractive as possible to any other potential buyers by having an element of your customer base threaten any potential buyers, but at the same time pay for the Old Guard (fine gentleman like Sandy Jardine, Andy Kerr and Mark Dingwall) to wax lyrical about how great Rangers is to anyone eager to lap it up. 

Forego your debts to the tax man other legitimate creditors and form a “newco”… Get a slap on your wrist from the regulatory organizations.  Cancel all of your debts. Buy your partners in consortium out. Return to the glory days of the past.

Smell a rat now?

Laters,

WED3DLAW

[1] Fundamentals of Corporate Finance (6th ed.), Editions McGraw-Hill Ryerson, §23: Mergers and Acquisitions