Examination of Witnesses (Questions 40
- 59)
THURSDAY 1 MARCH 2001
SIR RODNEY
WALKER AND
MR BOB
STUBBS
40. Before, Mr Bates was talking about a 19
month delay whilst things have been in a turmoil. How much more
overall cost is that on the project itself from the original costings?
(Mr Stubbs) There were probably two or three delays
that occurred over the last couple of years. The first was probably
three or four months' delay in terms of getting planning consent—there
was a great deal of to-ing and fro-ing and negotiation under section
106. I think the debate about athletics probably delayed us by
several months and, more recently, the delay in terms of financing,
so probably we are a year to 18 months behind because of that
cumulative effect of delay. With a project requiring an investment
of somewhere around £450 to £500 million with inflation
running at, say, five per cent, it is not too difficult to calculate
that the cost of inflation alone is a couple of million pounds
a month when you are investing that kind of money, so the delay
on a very crude basis, and it depends on your definition of delay,
must be somewhere between £20 and £30 million.
41. Do you think the completion date will happen?
(Mr Stubbs) I am not sure what that question means.
If we complete, it will happen. I do not understand your question.
42. December 2004 is the completion date; is
it going to happen or is there too much interference?
(Mr Stubbs) Once we start, in many respects, power
in terms of how the project progresses, starts to rest with the
banks. They will tend to drive the project to a given schedule
and there are quite strict reporting lines. If we start this summer,
we are absolutely convinced that we will finish by late 2004/early
2005. That is the way the contract is structured. It is a fixed
price contract with severe penalties for failure to deliver by
the contractor. The penalties imposed upon the contractor are
circa £1 million per week for being late, so he has a huge
incentive to deliver it early. It is the same contractor that
built Stadium Australia and there they delivered in advance of
the set time, so we are fairly convinced that, if we start, we
will finish on time or before.
(Sir Rodney Walker) May I just add to Mr Stubbs's
answer. The fact is that you will I am sure know that, immediately
following my appointment, I looked at the whole prospect of staging
the 2005 World Athletics Championships at Wembley and because
I am committed to going back to the City to obtain the necessary
finance only when I am convinced that we shall get a positive
answer, the certainty of the completion date, even now, is in
doubt although I expect it to be around the end of 2004. The fact
is that my conversations with David Moorcroft of UK Athletics
in early January and indeed having been part of the bid team for
obtaining the 2005 World Athletics Championships led me to know
that what that project needed more than anything was certainty
and that is why it was that, in the middle of January, I decided
that there was too much doubt about whether Wembley could or could
not even provide an alternative venue that I ruled it out for
the World Athletics Championships.
Derek Wyatt
43. It may be that Mr Stubbs can answer this
rather than Sir Rodney. Mr Bates has just said that it was Barclays
or Chase Manhattan. Could you tell us what the difference was
in approach between Barclays and Chase Manhattan and why, in the
end, Chase was chosen.
(Mr Stubbs) It is probably best to describe the general
process and how we arrived at where we reached. We prepared an
information pack describing what the project was, how it would
be put together and the size of funding. We circulated that to,
I think, 12 major banks. They prepared initial responses and we
cut it to a short list of, I think, six or eight banks. We went
through a fairly intensive process of interviewing those banks
and we did get it down to Barclays versus Chase. What was in Chase's
favour was that they had a specialist sports division which was
focused in the States but, in the States, it is quite normal to
have a substantial amount of private financing in new stadia and
they actually understood our core business and understood things
like commercial rights and splits of revenues and so on, so they
had some empathy with the business rather than just the banking
side of it. Barclays had done a considerable amount of finance
in stadia in this country, but most of that was Premier League
or league clubs and there is a big difference between a national
stadium and a Premier League club. Also, Barclays had an organisational
structure where the people had been pulled together from three
or four different offices, so they did not look like they were
all part of one organisation, they were all wearing different
hats. So, what Investec saw and to some extent we saw was a firm
which was unified within Chase, it had substantial commercial
expertise in the States and that swayed Investec and ourselves
that it was probably best to go with somebody who actually understood
the core business.
44. In your original tender document that went
to the banks, or if it was not in the tender document you ruled
it out because there was a decision before then, did you ever
anticipate floating as a stock market company?
(Mr Stubbs) No. Within the Lottery Agreement, we are
entitled to sell off 49 per cent of the equity. It was not regarded
at that point and still is not regarded as a viable option for
us to float 49 per cent off and it goes back to an issue in relation
to the relationship between the various event owners in the stadium.
If you think about it, at the moment, it is largely the FA money
going round in a circle in terms of how it structures it and you
would have to be much more scientific about how that was structured
to protect both sides' interest and, in particular, I think there
would be huge structuring problems of the FA's commitment if it
did not own 100 per cent of the stadium. I would not rule out
that, at some point in the future, 49 per cent is sold off or
floated off but, at the current time, it is just not realistic.
It also does not help the financing. If you think about the rates
of return, the banking rate of return is, say, 10 or 12 per cent
by the time you take principal repayments and the equity return
would be much higher than that, so therefore you will not be able
to attract on a pound for pound basis more equity than debt. It
just does not make sense at the current time.
45. When you finally made the choice of Chase
Manhattan, there was no guarantee from them of underwriting it
if they could not raise it on the commercial market.
(Mr Stubbs) At various stages, they have offered to
underwrite it but the issue has been that, as they probed at the
project, more and more costs have been added for items such as
contingencies and various insurances, so at one point they were
talking about underwriting it—and there has always been
a perceived gap between what they were willing to underwrite and
the total funds—but they have never been in a position to
100 per cent underwrite.
46. Was it 80 per cent or what was the gap?
(Mr Stubbs) From recollection, if you take our funding
requirements as circa £400 million, £325 million was
the kind of number that they were comfortable underwriting at
one point.
47. So the FA could have come back in, or alternatively,
and said, "We will make that difference up."
(Mr Stubbs) That was at one point early on in 2000,
but again one of the things, with the benefit of hindsight, is
that, initially in early 2000, there was a very strong funding
market but, by the time we went to the market in November, largely
because of Telecoms and the rest of it, the market had changed
somewhat and Chase's view had changed about underwriting. So,
with the benefit of hindsight, there were other options which
could have been pursued.
48. Sitting here, it still seems madness for
me that if you are going to spend, maybe it is six figures, £95
million at Picketts Lock whereas the platform was at that stage
when we last met you £30 million, if you just look at the
alternative figure, it is horrendous. However, you are saying
it is not possible now, yet you are also saying, as Sir Rodney
has just said, that you think you will finish the Wembley Stadium
project with a fair wind and a bit of luck perhaps in December
2004, which is exactly what the deadline is for Picketts Lock,
so presumably you could both go over to March or April 2005, but
it looks a bit of a sweat both ways to me.
(Mr Stubbs) First of all, I think the platform is
circa £20 million but let me explain the basic funding problem.
At the moment, the structure of our project is that effectively
we open as and when we finish, which is a statement of the obvious
but there is no fixed date as with, say, the Millennium Stadium
in Cardiff which was forced to open for the World Cup or the Millennium
Dome which had to obviously open for the millennium. We do not
have that time constraint. As soon as you place a time constraint
that we must open by December 2004, then a banker's perspective—and
this does revolve around the bank—will be that there is
an increased risk that has now been imposed upon the stadium company.
That risk has to be funded and they would start to estimate that
risk requiring a contingent funding of tens of millions and we
do not have tens of millions to put in a business plan to fund
that contingent risk and it is a simple risk issue. We could not
take that risk to commit to be open by a given date because we
are then possibly held to ransom by all sorts of parties who do
not deliver and our costs would go up. It is a risk we could not
take commercially.
49. It seems to me, just looking at it from
the outside, obviously with the support of the DTI, what you really
need is an infrastructure of funds, some billions of pounds, that
you are able to bid to as part of the stadium project.
(Sir Rodney Walker) I wonder if I could bring Mr Wyatt
up to date. Since I assumed the chairmanship in effectively the
New Year, I have, as you might imagine, explored in great detail
the circumstances leading to the refusal of the banks to support
the project and indeed the role of Investec and Chase and I think
Mr Bates, in his evidence, has acknowledged that perhaps things
might have been done differently. I am however satisfied that
Investec certainly remain committed but that Chase remain totally
committed to assist in securing the funds and I have been encouraged
by their attitude and I think they will, in the end, provide the
necessary support that we need to go to the City to secure the
funds we are looking for.
Mr Keen
50. I do not like looking back but I think we
have a duty as a Committee to look back. There are arguments about
whether Lottery money is public money compared with taxation but
in a way it is all our money and I regard the FA's money as part
of my money because it is supposed to be a democratic body and
all of us contribute, through payment to Cable or directly through
the turnstiles, to this sort of money, so the money belongs to
us. If we take a decision not to have a new national stadium and
just to refurbish Wembley, what difference in cost would it have
been up to this point now if we decided to do that?
(Sir Rodney Walker) I will give Mr Stubbs a little
time.
51. I am not asking whether you think we should
have a national stadium or we should not but what would the cost
have been in refurbishing Wembley?
(Sir Rodney Walker) I was interested in some of the
questions that were put to Mr Bates and I think it is worth reminding
ourselves as to how this whole project started. Committee members
will know that I was Chairman of Sport England, then known as
the English Sports Council, up until late summer 1998 and I was
certainly Chairman at the time the National Lottery was launched
at the end of 1994. It was early or mid-1995 when the proceeds
to the Sports Council from the National Lottery were much higher
than had been initially anticipated that Mr Casey and I conceived
the notion of investing an amount of money—it turned out
in the end to be £120 million—into a new National Stadium
for England. We went through, as the Committee knows, an elaborate
bidding process and narrowed it down to four and I think it is
fair to say that, of the five bids that were brought forward for
detailed interview and scrutiny, perhaps the bid from Birmingham
had commended itself certainly to me, I cannot speak for Mr Casey.
The problem was that we had a letter from Solihull where the stadium
was to be constructed saying that they would not grant planning
consent. This left us, in our judgment, with the obvious choice
of Wembley and we interrogated Wembley as a site exhaustively.
We looked at every conceivable alternative site within the M25
and we invested large amounts of money in recruiting the advice
of many experts and we were left with the very clear conclusion
that the new National Stadium would be best built on the site
of the existing Wembley Stadium. The simple facts are that I think
it has been known and certainly felt by the paying spectators
for some time that Wembley Stadium, as is, is no longer suitable
in terms of its provision for spectators in terms of space per
seat, facilities in terms of toilet accommodation and so on, so
it was decided that the money would be spent at Wembley. We have,
even in the last four or eight weeks, explored the options that
we think are available to us, which includes a refurbishment of
the existing Wembley Stadium, but that is not without substantial
cost and that cost, we estimate, could be as much as £200
million, but it would leave us with a stadium with improved facilities
and improved spectator space per seat but with only a capacity
for 60,000 people. So, both the Wembley National Stadium Board
and indeed the FA Board have ruled out that option. I think it
is worth reminding ourselves—and I include myself in this
as much as anyone else—that we are trying to create a world
class stadium, a stadium in which the whole country can be justifiably
proud. All aspects of the proposed stadium have been investigated
and continue to be investigated and I think that, when Mr Bates
says to you that he thinks the stadium will be constructed largely
unchanged from the existing design, that is probably true. We
continue to look for cost savings, as you would expect me to do,
but I have become increasingly confident that, when I return to
the City having got an increase in appropriate level of support
from the Football Association, we shall achieve the necessary
support we are seeking to enable us to start work at the earliest
possible date.
52. If it were decided to leave things as they
are, I know the stadium is not up to modern standards but everybody
fights for tickets to get there, if we stopped now, how much has
been spent?
(Sir Rodney Walker) I think it is about £135
million.
(Mr Stubbs) If you broke it into two elements, it
was about £106 million to acquire the stadium and roughly
£30 million on sunk costs on design, development and management
costs so far, so it is about £130-odd million.
53. Some people do say that it has been a bit
of a shambles, not the individuals doing the specific tasks that
were assigned to them, people have worked very hard at that, but
it seems to me that it is the major decisions taken elsewhere
or sometimes by people involved, such as the bid for the World
Cup that added a tremendous amount of cost to the situation by
maybe trying to do things too quickly and not getting the proper
solution, and then the possible Olympic bids have complicated
the issue tremendously. How much extra cost has that added because
of those muddled decisions?
(Mr Stubbs) In terms of 2006, our position always
was that it was irrelevant to us in terms of both the design and
the time-frame. It was never factored in, 2006 was never in the
business plan, we were totally indifferent to it as a freestanding
business. There were other reasons why it was important and it
was coincidental that the timing worked the way it did that we
would have been open for 2006. The Olympics have not added a huge
cost to it; the only issue around athletics and the Olympics has
been the delay caused. I think any talk of refurbishing the existing
stadium is mainly done in a vacuum where people really do not
understand what we would end up with. We would end up with a 60,000
seater stadium of Premier League-type quality costing all up,
including the land purchase, somewhere around £350 million.
It would not be UEFA five star standard, which means it could
never hold major European or World competitions and you would
have invested somewhere around £350 million to create a stadium
in many respects worse than the one that you started with. It
does not make a lot of commercial business sense.
Ms Ward
54. Sir Rodney, a little earlier you appeared
to reaffirm your confidence in Chase Manhattan, as you did in
the submission to this Committee in December, contrary to the
view we have just heard from Ken Bates. What influence or role
did Chase Manhattan or indeed any of the other financial advisers
have in the removal of Ken Bates as Chairman?
(Sir Rodney Walker) To the best of my knowledge, none
whatsoever. Remember that I was not involved in the detailed discussions
with Chase. I was a member of the Wembley National Stadium Board
of course but inevitably in these circumstances detailed discussions
take place between Chairman, Chief Executive and the people with
whom they deal. I think that the circumstances that led to the
lack of support from the banks were many and varied, not least
of which is that I think some of the essential elements that were
necessary to provide confidence in the project were missing and
that is why I say that I will not return to the banks until I
am satisfied that the business case that we put to them is capable
of being supported.
55. I am not quite sure that that was an answer
to the question I asked. What I am asking is, you have clearly
given support for Chase Manhattan, whether you are ready to return
to them or not with a new business case. You have clearly given
some confidence in them. That is not the view of your predecessor
and in fact he has clearly made allegations of the belief that
they were involved in his removal in some way. Mr Stubbs, are
you able to personalise this?
(Mr Stubbs) I have never heard Chase Manhattan make
any statements which suggest that there was a linkage between
Ken Bates being Chairman and the failure to raise funding. That
has not been suggested by Investec either. The decision for Ken
to be removed as Chairman of the company was made on a number
of bases. I was not present when it was made, but to my knowledge
none of the banks ever suggested that the pre-condition for funding
was that Ken had to be removed.
(Sir Rodney Walker) For the avoidance of doubt, there
has been some rumour, some speculation, that the banks had a concern
about Mr Bates. What I can say categorically is that Chase have
said to me directly that the presence of Mr Bates as Chairman
was not a problem.
56. You were previously obviously involved in
the quangos that we have heard referred to in terms of Lottery
money, what is your view about Government involvement in this
project?
(Sir Rodney Walker) To the extent that the project
as it now exists will only be sustainable because of the revenues
that football by and large create, there will be revenue from
events provided by my old sport of rugby league but, to a large
extent, it is the revenues that football will provide that will
underpin the business case that we take forward to the banks.
Therefore, I think football are entitled to have the opportunity
to proceed with this project without undue interference. I think
I accept, as present Chairman of UK Sport and former Chairman
of Sport England, that inevitably in projects of this size, Government
have more than a passing interest. I think it is also true to
say that it epitomises what, in an ideal world, would be a public/private
partnership because reference has been made earlier to the infrastructure
around Wembley and indeed I have had, I think, three meetings
with Wembley plc during January to explore their own plans for
their 50 acre estates surrounding the proposed new stadium and,
if we are to have a national stadium for England in which football,
the country and the Government can be proud, then we do need investments
in the estate around Wembley, not just Wembley plc but the investment
by London Underground and that is why I worked hard with Sir Alan
Cockshaw to encourage the setting up of the Wembley Task Force
which I think is so important to ensure that the transport links,
both underground and roads and indeed rail, to the new stadium
are worthy of what will be a 21st century stadium.
57. I think it is quite right to highlight the
need for that public-private partnership, particularly on the
other factors to make the stadium work. Do you think then that
with hindsight it might have been better not to have had Sport
England money but to have had more money from the FA given the
involvement of football?
(Sir Rodney Walker) I think I am content with the
decision that Sport England took at the time to make available
£120 million for an English national stadium. It is worth
remembering, I think, that the only money from the public, whether
you describe it as public money or the public's money, has been
the £120 million provided by the English Sports Council,
Sport England. Support from the Millennium Commission we know
was given to both the Millennium Stadium in Cardiff for a population
much smaller than England and, indeed, Millennium Commission money
was given, I believe, to Hampden Park Stadium, again for a country
with a much smaller population—
Mr Maxton
58. One sixth.
(Sir Rodney Walker) Thank you. We have to consider
that here we have a country—forgive me if I am not precise
with the exact figures—of around 45 million population in
England that is seeking to build what we hope will be the finest
stadium in the world when it opens, all being well, at the end
of 2004. I am personally content that the decision we took at
the time was right and is defensible.
(Mr Stubbs) Can I perhaps contrast this with the French
situation as well. There is a recent French Government's auditor
report from Stade de France and everybody holds out Stade de France
as a shining example of what we should do. What the auditor's
report reveals is that in today's terms the French Government
invested somewhere around £700 million in the Stade de France
to make it work. Now some of it was off site in terms of infrastructure
and some of it direct support plus an ongoing subsidy. What we
tend to get in this country is a sense of we want to be like Stade
de France but then the funding is not provided to match that.
There is a consequence of not providing that funding.
(Sir Rodney Walker) It is also interesting, just to
remind ourselves, the Stadium Australia, which is a truly outstanding
Olympic Stadium, also failed with its funding the first time round.
59. Perhaps if you were to have more funding
from the Government, whether directly or through other sources,
you would now be suggesting that the Government would have more
entitlement to be involved in it?
(Sir Rodney Walker) Well, it is a matter that, you
would expect, I have discussed in a number of fora during the
month of January, that if Government were inclined, and I do not
believe they are inclined, to want to make an investment in the
new stadium, then there would almost certainly be a greater degree
of involvement by Government should that be the case.
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