Rangers FC - A Disgrace to Scotland

What is ‘Rangers FC’?

A short time ago this would have been a ridiculous question, but today it is highly pertinent.

Is it:

    A)   A registered company privately owned and financed by shares and debt.

         B) An important element within Scottish contemporary history.  

         C) An essential part of Scotland’s social culture.  

If the answer is A, then it should be liquidated. It employs a couple of hundred folks of which only a few would find themselves on the dole for any length of time and its financial affairs have been driven to the position whereby it should be closed down, the assets sold and at least something returned to creditors. Basic capitalism at work.

If the answer is B, then it should also be liquidated. Third Lanark are a part of Scottish contemporary history (arguably the third leg of the ‘Auld Firm’) but were liquidated in 1967. Actually, there is probably a fortune to be made in opening a Rangers Museum celebrating the role that the club has played in Scottish life and debating the damage that the sectarian culture wrecked on Scotland’s economic and social affairs.

If the answer is C, then nationalize it. Surely the Scottish government would be in a better position to negotiate with HMRC, clean up the balance sheet and influence the SFA such that the club cannot be penalized to the heavy extent as is currently being envisaged. Then the ‘club’ can leave nationalization and return to the public sector in no different a manner than we have seen with the banks.

The Essence of Scottish Football

How many Scots spend more on Rangers FC than they do on their houses, how many spend more on Rangers FC than they do on their cars or on their food bill? The reality is that Rangers inspires a passion amongst a significant percentage of the Scottish pubic that perhaps only Celtic FC can rival. This is a brand far more powerful in Scotland than Coca-Cola, McDonalds or Apple.

It is right that these folks are angry. They have been let down. The sacrifice that they have made over the years has been stolen from them by corrupt businessmen and now they are facing a repeat. Let’s say that the club is bought by an American or Singaporean.  They will only buy it if the price is right and if they can make a buck out of it. That is no criticism of them, they are perfectly entitled to do so, but in the meantime, the people who really ‘own’ the club are suffering and it is likely that their sacrifice will continue for some time to come.

However, it is not only Rangers supporters that will suffer. Despite their naïve giggling, all other Scottish soccer fans will also suffer. Celtic domination is inevitable so no excitement in the league. Hardly any reason for any decent players to come to the Scottish game, the best of Scotland departing for more interesting leagues and the continuation in the decline of the national team.

Scottish football would be renamed ‘The Juniors’.

Who Decides?

It is clear that no-one is taking responsibility here. The supporters are powerless, the Scottish Government are cowards and the administrators sorely out of their depth.

However, it is the SFA that should be primarily accused of neglect. This organization should be the guardian of the Scottish game.  However, they have stood by whilst commercial mismanagement of Rangers continued whilst many, even occasional, observers could see it happening. Now they act like a business regulator handing out penalties that whilst perhaps consistent with the rules, show little regard for the future of the Scottish game they are pledged to encourage. Let’s be under no illusions that the transfer ban is based on the same commercial premise as the fine imposed on Wal-Mart for paying bribes in Mexico. Luckily for Wal-Mart they will survive, but Rangers the company will not.

Does the SFA have a crisis room established? Is it discussing this with the other clubs, shouldn’t it have been prepared for this and have seen it as an opportunity for a lasting restructuring of the Scottish game in such a way that some of the passion returns? It appears not. It appears that the future of Scottish football fans is to watch the EPL on TV and visit a Scottish ground for ‘Auld Lang Syne’

So What is the Answer?

Nationalisation will not happen. Salmond is too focused on the upcoming referendum to risk alienating sections of the Scottish public. The SFA is not going to intervene, that is clear so what is the alternative?

Return it to the fans I say, but this cannot happen without someone making money in the interim.  However, make it a condition of sale that an offer to acquire at least 51% of the shares of the company will be made within 2 years will be made to the general public.

When one group agrees to do this, make them the preferred creditor for a period of 1 month and let them go into closed session with HMRC and the SFA. Don’t let Duff and Phelps do the negotiation here, they are useless and only focused on drawing their salary at the end of the month. Actually don’t let the Blue Knights do this as their pretense of being a ‘fans proxy’ is counter-productive to the process. Let it be a hard nosed private equity type who is simply looking for an acceptable 2 year return with a carry thereafter.

Let the law punish Craig Whyte or David Murray. As Whyte correctly pointed out, the SFA cannot punish him in any way that will affect him. However, let’s not punish the real owners of Rangers. Let’s actually reward them for their investment in the club. Let’s not punish the fans of Celtic or St Mirren or Hearts by taking away one of the supporting pillars of the Scottish game. A game that is desperate for leadership, vision and reform.  Let’s admit that the game is not just about passion and religion but is about money. The old fans of Third Lanark know this. 

The End of Waste?

I firmly believe that we may be approaching a turning point in the volume of waste that is produced around the world. To illustrate, lets just say that we are moving from a 3 Michelin Star world to a family restaurant world! Let me explain.

A 3 Michelin starred restaurant has to have everything perfect. As such, if something isn't crispy enough, is a little overcooked or isn't perfectly round, it goes in the trash and the chef starts again. A family restaurant is different. The chef knows that he has to maximise his ingredients. As such, today's roast beef is tomorrow's cottage pie. Today's fresh fruit salad is tomorrow's trifle.

Over recent years, it has been easy in many quarters to behave like a 3 star restaurant. A good example is palm oil. As the price has risen, it has been standard to focus on selling the vegetable oil alone, leaving the crushed kernals and residual oils as waste. However, these 'waste' products have value. Residual oils can be converted to biodiesel, crushed kernals can be fertilisers, animal food or biomass.

Companies such as Lanza Tech are converting all sorts of waste into biogas or similar fossil fuel replacements. The use of many types of waste is increasing within building materials. I could go on.

I firmly believe that the world is about to enter (or has already entered) far more difficult times than we have seen for many years. This will cause us all to tighten our belts. However, this is not necessarily a bad thing. Perhaps we should have not wasted the energies of politicians by travelling to Durban to discuss environmental policies, and just left it to the basic human instinct that comes from necessity in difficult times.

Winners in a Recession

It is easy to analyse the losers from the upcoming (or more appropriately, prevailing) recession, but who will be the winners. Sure the equity analysts will trot out the usual suspects (buy McDonalds and the like) but lets me more imaginative.

1. Anyone who cuts costs.  Somewhat obvious but worth analysing nonetheless. Over the past 10-15 years, the big winner from this category has been China (and to a lesser extent, India). Their contribution to the world has been to cut the cost of everything from stuffed animals to electronics. (though in turn increasing the cost of energy and commodities!). In the future, I believe that China will continue to benefit from this, but there may be others. Dwolla is a clear example of an initiative that will cut a few percentage points off of transaction costs. It may not sound as dramatic as a remote control toy car having fallen in price by 70-90% over recent years, but it is far more important to the world economy and financial structures.

2. Cleantech.  Perhaps more controversial is my sense that the the recession will cause a change in people's priorities (or at least accelerate the growth of a nascent trend). This involves a greater sense of the environment and our treatment of the world. I dont think that we will all become tree huggers, but I do believe that when we can not afford to closet ourselves in luxury cars as we drive from luxury mall to luxury mall, and have more time on our hands, we will become more aware of environmental issues. The big question is whether this trend will offset the undoubted reduction in funding that will inevitably happen.

3. Waste Services. We need to maximise our use of resources and eek out every last penny. Mothers and housewives understand this. When money is easy, they throw out any dinner that is not eaten. When money is easy, it becomes leftovers and the next night's dinner is built around it. It is the same in industry. Even in agriculture, where only a percentage of the plant may be used. For example, grapes may be pressed for wine, but what happens to the rest of the grape after pressing? The same goes for palm oil with over 40% of the crop being discarded. The reality is that this 'waste' can be used and has value. People who do this will make a lot of money.

Am sure that there are many more examples.....need to put my thinking cap on!

A New Crisis for Banks?

Whilst the banking industry is currently focused on its asset problems, it may have another, arguably more dangerous threat ahead. www.dwolla.com 

This is a start-up which is challenging the ridiculous prices that banks charge for payments. Essentially, it has built a model which permits payments to be made for a maximum of $0.25 per transaction. This compares with the 3%-5% that might be charged by credit card companies and similar fees for telegraphic transfers etc. 

If their model is scalable and able to be launched in the international market, this will crucify the retail banking industry's business model. My take is that there will be enormous pressure to resist it, but that it will succeed on the basis of consumer demand. 

Over the past 10-15 years we have become used to China lead deflation in manufactured goods and Indian lead deflation of service costs. However, this could be a massive factor in future economic development far greater than the 3-5% savings made from not paying bank transaction fees. 

For some time, the analysis has been on the evolution of mobile phone companies becoming 'banks' or the use of the 'square' to replace credit card machines, but the basic business model of charging a few percent hasn't been challenged. Now it may be. 

Blue Green Algae

To those involved in renewable energy, algae represents the hopes of a new biofuel feedstock. However, for many, algae is a toxic blight on our waterscapes.

As Summer approaches Australia, Blue Green Algae (cyanobacteria) has raised its head in reservoirs and marinas around the country. The ABC have warned that it could be the worst outcome for over a decade. However, the authorities appear to believe that the only solution is to wait for colder weather and hope that no people or animals suffer (or has happened in many other countries) die.

The traditional problem to this has been the lack of an appropriate treatment. Chemicals may be able to kill algae, but they are toxic themselves and the impact on the water can be worse than the original treatment, killing fish and other marine plant and animal life.

However, a new Canadian group I am advising, has the answer. ECOblue is a formulation made according to Green Chemistry principles from ingredients normally associated with a vegetarian curry! However, they ferment, heat, cool and blend them in a highly sophisticated (and secret!) fashion and prepare a formulation which attacks the algae, literally breaking it apart. However, unlike traditional chemicals, ECOblue does not endanger marine life and it naturally biodegrades extremely quickly. This means that there is no lasting evidence of the algae nor the treatment.

Australia take note!!

African Portfolio Investment - Moving East

Given the collapse of international portfolio investment into Africa in 2008 and 2009, borrowers and issuers in the continent must be looking at the likelihood of an equal (or greater) financial crisis in the West with trepidation. In 2009, 44% of all external portfolio investment in Africa was held by the US and only slightly less from Europe. As Europe collapses and the US stagnates, the prospects for significant new issuance to investors in these regions appears remote. 

Given the positive economic trends that are evidence in many African countries, this may appear to be a potential disaster, but perhaps not. Perhaps we will simply see a continuation and expansion of the trends recently apparent towards inward investment being made from Eastern Asia. 

Over recent years, Chinese FDI in the continent has been well documented. This has taken place on the back of the country's insatiable appetite for resources and has supported the necessary infrastructure for such resources to be exported. Today, I believe that we are about to see an expansion of this trend into portfolio investment into bonds and equities. 

Look, for example, at the debt issue by Senegal earlier this year. Only 4% of the issue was placed in Asia, but the issue soared in price. Was this a result of a lack of interest by Asia or simply that the issue wasn't marketed in Asia? My guess is that it is the latter.

As infrastructure continues to be built and exports from Africa continue to expand, I'd expect continued expansion of portfolio investment from  Asia. Pension Funds and other investors are seeking to internationalise their portfolio and are generally seeking the holy grail of diversification. Dont get me wrong, Africa wont be immune to the economic travails of the West, but the impact will be cushioned by continuing demand from Asia. Asian investors will also be comforted by the relationship with Asian importers and the ability to structure securities where cash flows emanating from Asia will pay off principal and debt of bonds, or finance dividends for equities. 

Expect to see the HKSE and SGX becoming the more dominant home for African equity listings rather than AIM and expect to see the Dim Sum market and  Asian syndicated loan markets launching more debt issues. 

Does London see this coming? 

European Debt Agreement

Europe became a mess partly because of the Moral Hazard that resulted from the inefficient construction of the EU and the Euro. In simple terms, by being associated with Germany and France, countries such as Greece and Portugal had access to lower interest rates, compressed credit spreads and a sense that they could live their lives like the Germans.

This was sadly mistaken. As I read this week, Germany produces things that the Chinese buy.....Greece produces things that the Chinese sell! In short, the only area of competitive advantage was tourism, and since they no longer had the flexibility of cheapening their currency, they were constrained in promoting this.

So we ended up in a mess that has been well documented, but yesterday, the political leaders of the EU announced a breakthrough. The Euro rose and stock markets rallied. I think that this can readily be seen as being a relief rally.

Lets break this down in simple terms. Firstly, private sector banks will have to write off $100 billion or so in Greek loans and raise many billions in new capital....

Secondly, the EFSF will be extended to $1.4 trillion via an injection of equity and debt.

Onc this is done, everything will be rosy..........'ONCE' this is done......Of course, they have to raise the capital first......where is this going to come from??

Lets put it in context. $1.4 trillion is equivalent to over 30% of China's official reserves.

Now lets see who is going to be asked to contribute. The Japanese.....their economy is in a mess and they are faced with an earlier investment in the EFSF being devalued.....The Chinese.......What kind of influence are they going to demand......The Indians......How flattering to hand out the begging bowl to a country that can barely feed its own citizens.......

However, politics aside, on purely commercial terms, why would anyone invest (particularly debt) in the EFSF. Surely only because of confidence that France and Germany will stand behind it....It cant be an absolute guarantee....the electorate wont stand for that.....so it will have to be implied.......

Moral Hazard anyone??

Here we go again!! Will they get away with it??

Sadly, if they do it will be because they sell out to the Chinese and Indians. What a sad day for Europe...Our Grandchildren and their children and their children will all read about this in their history lessons.