New Season. New Threats.

The Rangers takeover adds to the Bloom/Hearts tie up and an improving Hibernian under the Black Knights in Celtic's threat environment. What could yesterday's news mean?

On this site, we like to think we take a holistic view of Celtic performance. This means that the external environment, and, gasp, other teams Celtic must play football against, are also ripe topics for conversation.

The threat environment for Celtic, emerging and developing risks, is also fertile ground for discussion.

Hence why we are so interested in the Tony Bloom investment in Heart of Midlothian, the Black Knights investment in Hibernian, and the new ownership at Dunfermline Athletic.

So, obviously, when the nearest rival is taken over, and therefore the threat environment changes, we naturally want to understand what this means for Celtic and their competitive prospects.

The Rangers have seen 51% of their estimated 560,000,000 shares bought by a consortium of American gentlemen headed by Andrew Cavenagh (a healthcare executive) and Paraag Marathe, chairman of Leeds United. The announcement is here.

The Scottish Daily Express claims that the deal to buy out existing shareholders has cost the consortium £75m, valuing the Ibrox club at £150m. This values each share at 0.27p. Stay with me.

In addition, it is reported that £20m will be made available “at this time” to be invested in the club.

So, the consortium has committed around £95m so far to own 51% of The Rangers.

For my part, I am away next week so will not be commenting on this on the podcasts, so here is my tuppence.

What does it all mean for Celtic?

How Will This Be Different?

Prior to yesterday, The Rangers were run by a group of shareholders who, in the main, could be categorised as genuine fans of the club.

In the 10 years since a Mike Ashley-appointed board was forced out by David King and company, this owner group has overseen losses of around £100m from normal operations.

Those losses have been mitigated by the shareholders' loaning money to the football club. In the main, those loans have been converted to shares over time.

There can be no denying the commitment of these fan shareholders who have plundered their personal and family wealth, often to the detriment of their health. And what is wealth without health?

What David King called “investor fatigue” allied to evolving UEFA ordinances around Financial Sustainability Rules (FSR) has rendered such arrangements outside of “football income” and therefore these fans were essentially raiding the family piggy banks to keep the company afloat with no benefit to the strength of the football team on the park. Or, it was unsustainable.

Having genuine fans as shareholders and decision makers is a threat to Celtic, as these people would go to great lengths to beat Celtic and care passionately that they could do so for cultural reasons.

In many ways, the “win at all costs” attitude that reached its apogee under David Murray’s ruinous chairmanship has never left the Blue Room.

This new leadership style will be very different.

What To Expect

Here is the profile of the new board members from John McGarry in the Scottish Mail:

“Eugene Schneur, a fellow American, started working life as a mergers and acquisitions attorney before moving into the real estate sector, specialising in affordable housing. He’s a board member and co-owner of Leeds.

Andrew Clayton is a co-founder and vice chairman of ParetoHealth and a colleague of Cavenagh. Mark Taber is a managing director and member of the executive and investment committees at Great Hill Partners, a Boston-based growth equity firm.”

Eugene has become my early favourite – James categorised his expertise as code for “slum landlord”.

Andrew and the Slum Landlords – worst band I ever saw, but now running The Rangers.

Forgive my irreverence.

The new owners are not Rangers fans. Whilst no doubt what founding father Charles Green called “Rangersitis” is profoundly transmittable and the new guys will inevitably succumb, these are hard-nosed American capitalists who did not have pictures of Gregor Steven on their wall as wee lads.

They are not benefactors – they will not prioritise the League Cup over filling their pockets with cash.

They are not a charity – the club will be run to “long-term financial sustainability”.

They will not fund losses – there will be no endless share confetti or “soft loans”. The club must wash its own face.

And they will get paid first. Before the operational expenses, and before exciting new players.

Andrew and the Slum Landlords need to recover nearly £100m to break even, and then need to make a return.

They are taking over a club that has lost an average of £10m a year, is projected to lose between £20-£25m in the financial year about to end, and which owes previous and existing shareholders around £26m according to the last accounts.

All this to vainly finish second to Celtic.

For over 40 years, there has not been a sustainably run football club operated out of Ibrox.

This will be a significant culture shock for customers.

From a football governance perspective, we should be happy that sustainable operations will be imposed on the football club by the new owners.

The change of corporate structure from a PLC to a limited private company should be of some concern. This will further reduce transparency, auditability and reporting clarity. Supporters should be concerned about the extent they will be able to understand and contribute to the running of the club.

How to Grow the Business?

The new owners have several limitations in play as regards growing the business and making the money they ultimately crave.

The nearly 10,000 capacity deficit compared to Celtic Park remains. Public data about the cost of rebuilds at English Premier League grounds, and the estimated £100-150m cost of redeveloping Celtic’s main stand all illustrate that redevelopment of Ibrox is unfeasible.

Therefore, expect ticket price increases and indeed price hikes across the board at the club. Perhaps the naming rights to the stadium will be up for grabs – The Green Flag Stadium, anyone?

Commercial income is severely hampered due to the reputational damage caused by the previous board’s propensity to end up in court with every commercial partner. In addition, the all-important kit deal, which yields around half the revenue of Celtic’s adidas relationship, is still in the hands of Castore and their mysterious billionaire beneficial owner. Cough.

So that leaves on-field performance and player trading as the main levers to generate returns.

Direct Scottish club entry to the Champions League is over and will likely not return for many seasons. New ownership and modern practices may raise standards over the medium to long term, and Scotland’s coefficient may therefore benefit. But that is a long and precarious game.

Tottenham Hotspur made less money than Celtic from winning the Europa League compared to Celtic’s play-off round exit. And remember, The Rangers relative success at Europa League level was with a squad they essentially could not afford.

So, gaining predictable and substantial revenue from footballing performance will be highly challenging within the confines of a sustainably run club.

Which leaves player trading.

I believe this is where Celtic is most exposed as regards the risk landscape. As James has demonstrated many times, Celtic do not perform well in player trading when compared to European peers. Yes, they perform staggeringly well if you use a dysfunctional Ibrox club and the rest of Scottish football as your benchmark. But that is a false equivalence if you are interested in growing the club.

Should the infrastructure, tools, capabilities, skills and experiences of the 49ers group and/or Leeds United be deployed to assist The Rangers in building a coherent recruitment process, then Celtic may be exposed given their substandard operation.

It is only fair to add, such capabilities do not spring up overnight. And turning player trading into their beloved dollars takes time. Also, it is highly disruptive for the first team coach to have the best players continually sold from under them when they hit the peak asset sweet spot.

We also know that integrating new players, settling them into their new countries and homes, into the new tactical setup and developing all takes patience, and it is full of hits and misses.

There are no signs that Andrew and the Slum Landlords come with a magic sauce proprietary database like Tony Bloom’s. But mere coherence and competence will be a big step forward for them.

The known unknown is a possible future footballing environment change. This MAY be a long-term gamble that European footballing organisations change and some kind of pan-country league is established. Such a move may see significantly larger television and commercial deals arise. That’s quite a long odds bet in both if and when it might happen, in my opinion. UEFA would certainly strongly oppose and seek to head it off.

Conclusion

These are genuinely exciting times for Scottish football, which is a rich environment of stories, history and character.

Celtic should embrace the new challenge.

They should also be fully apprised of the threat environment and continually look to improve their football operations.

We will continue to discuss all these developments on the Huddle Breakdown with no apology because a) they are important to Celtic and b) we cannot trust the local media to inform us impartially and transparently.

See you all in a week or so.