Sports Direct has dramatically backed down from its legal battle with Rangers football club and abandoned efforts to prevent disclosure of the pair’s joint venture, which has made the Old Firm club about 4p from every pound spent in its Ibrox store.
An interim gagging order was imposed last summer, blocking Rangers from publicly revealing details of its agreement with the retailer, which contains swingeing clauses and was already subject to commercial confidentiality agreements. By continuing with efforts to extend the order, Sports Direct’s founder, Mike Ashley, who owns 55% of the nationwide chain and about 9% of Rangers, faced being called to the high court to give evidence.
In agreeing to Sports Direct’s request to abandon its case, the high court judge Mr Justice Peter Smith said he was keen to curtail “this ridiculous piece of litigation”. He also allowed Rangers to discuss parts of the confidential agreements that are already in the public domain or in order to correct inaccurate statements made by Sports Direct.
Sports Direct had already lost legal moves to have the Rangers chairman, Dave King, found guilty of contempt of court and sent to prison for allegedly breaching the order, resulting in the retailer’s business tactics being criticised by Smith.
The retreat by Sports Direct comes after the Scottish club’s supporters demanded that the retail deal was renegotiated, arguing that it is heavily weighted in favour of the FTSE 100 company.
A Guardian analysis of the Rangers accounts suggests that the club’s joint venture with Sports Direct, Rangers Retail Ltd, has paid the Scottish championship team dividends of about £559,000 since the deal came into effect almost four years ago. During that time, the Rangers store has taken more than £13m through its tills from fans, while a previous retail deal with JJB Sports saw the club receive an initial payment of £18m, with a guaranteed minimum annual royalty of £3m.
Over the same four-year period, the accounts also suggest that Sports Direct was paid three times Rangers’ dividends, totalling about £1.8m. On top of those payments, it has also earned hundreds of thousands of pounds from the joint venture for providing retailing services. Despite the difference in the amounts received by each party, Rangers owns 51% of Rangers Retail, while Sports Direct holds the remaining 49%.
The agreements between the pair also include:
- A seven-year notice period to break the contract
- A confidentiality agreement that binds Rangers but not Sports Direct
- Obligations for Rangers Retail to buy stock at a “higher cost than its retail value”
- A clause allowing Sports Direct to force Rangers out of its shareholding in Rangers Retail if the relationship between the club and the retailer is “deadlocked”
- A further clause that forced the football club to pay Sports Direct £620,000 for closing down two former Rangers stores in Glasgow and Belfast
- Zero upfront payment to Rangers for awarding the retail deal to Sports Direct in 2012
- A controlling vote for Sports Direct on “financial matters” concerning Rangers Retail
For 11 months of last year, Rangers lost control of Rangers Retail after the club handed over 26% of the subsidiary’s shares to Sports Direct as security for a loan. During the time Rangers had a minority interest, the accounts show a £300,000 dividend paid to the football club, which suggests that Sports Direct received £900,000. The club now holds 51% of Rangers Retail again after repaying the £5m debt.
The seemingly one-sided nature of the deal between the sporting brands has contributed to the evaporation of a functional working relationship between Ashley and King, who owns about 15% of Rangers.
In January, Sports Direct was accused by a high court judge of abusing the legal system to “intimidate” the Rangers chairman and pursue a vendetta against Ashley’s rival.
Sports Direct claimed that Rangers breached the terms of a confidentiality agreement between the retailer and the football club, as well as the court gagging order, and attempted to have King sent to prison.
Smith, who cleared King of contempt, said: “From start to finish, [the request to imprison King] was designed to intimidate rather than seek a proper sanction for an alleged breach. It was a muscular tactic using the threat of committal that the court should deplore.”
Sports Direct did not comment on the retail deal with Rangers or the outcome of its legal case on Wednesday.
Ryan Mowat, a partner at Rangers’ law firm Kingsley Napley, said: “Rangers are pleased that Sports Direct have today discontinued their claim for a permanent injunction … Fortunately, the judge has been alive to the ‘game playing’ of Sports Direct, which has helped to expose the case for what it is.”
The methods employed by Sports Direct and its founder have come under a barrage of criticism since December, in the wake of a Guardian investigation that found that the retailer was effectively paying thousands of temporary warehouse workers below the minimum wage.
The coverage led to an urgent question and debate in parliament, calls for an investigation by HM Revenue & Customs, and a denunciation from the Institute of Directors, which described Sports Direct as a “scar on British business”.
On New Year’s Eve, Sports Direct pledged £10m for a pay rise for staff from the start of this year.
