Select Committee on Culture, Media and Sport Minutes of Evidence

Examination of Witnesses (Questions 40 - 59)



  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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