"I really can't believe it," said McGhee, whose own team will begin their UEFA Cup campaign next month.
"I didn't think Rangers would have an easy time over there but I just couldn't envisage them going out.
"It's unbelievable. It puts a dampener on everyone."
McGhee told BBC Five Live: "Scottish football looks forward to Celtic and Rangers' Champions League campaigns, the TV, the nights at Ibrox and Parkhead.
"For them to be robbed of that immediately it just lessens the whole season ahead."