Management and financing of the
project
57. We stated in May 1999 that the redevelopment
of Wembley "appears to us to be well-managed under the auspices
of the Football Association".[141]
Last year we considered the financing and costs of the project
briefly during our inquiry centred on the Stadium's suitability
for athletics. We noted that the estimated costs of construction
stood at £334 million, a sizeable increase attributed to
a growth in the planned capacity of the Stadium, enhancements
to spectator provision and additional commercial facilities that
were expected to be "self-funding". The construction
costs are higher than for comparable stadia because Wembley is
intended to offer a broader range of business opportunities, with
a hotel and other facilities as well as the Stadium itself.[142]
The direct construction costs have not increased since we last
considered the project. Indeed, a construction contract has been
agreed for £326.5 million, slightly lower than the total
provision for construction in early 2000.[143]
However, the funding sought for the project has increased markedly.
58. The estimated cost of the redevelopment as a
whole in January 2000 was £475 million.[144]
By December 2000 the complete project budget was said to be £660
million. There were three factors behind this increase. First,
as we have already noted, a contribution of £17.2 million
is to be made by Wembley National Stadium Limited towards the
costs of improving local infrastructure. Second, a payment of
£20 million is to be made to Sport England as part of the
agreement concerning the removal of athletics from the Stadium
plans. Third, the total of £35 million allowed for project
management and funding costs in January 2000 has been replaced
by a provision of £191 million for professional fees, finance,
management, pre-opening and all contingency costs.[145]
59. Wembley National Stadium Limited decided to raise
the funding sought through a syndicated loan. In January 2000,
we were told that there would be "a lead bank who will underwrite
the whole loan".[146]
In February 2000, Chase Manhattan Bank was selected as lead arranger
for the loan syndication.[147]
Mr Stubbs informed us during the present inquiry that Chase Manhattan's
probing of the project had led to some of the additional provision
in the budget and to the position in which Chase Manhattan was
no longer underwriting the budget.[148]
60. Although work on demolishing the existing Stadium
was not planned to begin until after financial completion, the
Stadium was closed at about the same time as syndication was launched
in anticipation of success of that process.[149]
Sir Rodney Walker accepted that, in the light of subsequent developments,
it might have been better not to have closed the existing Stadium
so soon.[150]
However, the nature of the staging agreement between the Football
Association and Wembley National Stadium Limited is such that
the latter organisation continues to receive reliable income from
the Football Association regardless of whether the Stadium is
open or not. This arrangement is considered essential to the viability
of the project. In consequence, the premature closure of the existing
Stadium does not affect the financial position of Wembley National
Stadium Limited.[151]
61. On 8 December 2000, the Football Association
and Wembley National Stadium Limited announced a delay in the
project's financing process to enable them to tackle a number
of issues raised during syndication.[152]
A variety of factors have been invoked to explain the project's
failure to conform with its target for financial completion in
December 2000.[153]
Mr Stubbs considered that difficulties with planning permission
had added three or four months to the project.[154]
He also claimed that "the debate about athletics probably
delayed us by several months".[155]
Taken together, he said that those delays led to funding being
sought for the Stadium in a far less strong market than had been
available in early 2000.[156]
While Mr Bates, as Chairman of the Company at the time, was prepared
to accept some share of responsibility for the failure, he criticised
the performance of both Chase Manhattan and the Stadium Company's
financial advisers, Investec.[157]
62. Mr Bates also considered that the turnaround
in Ministerial attitudes towards the project after July 1999 contributed
to diminished confidence in the project within the City.[158]
He contended that the financing would have been successful if
Ministers had done what he thought they should do, namely be "on
the sidelines cheering us on".[159]
Mr Bates alleged that the Minister for Sport encouraged press
stories critical of the project.[160]
Sir Rodney Walker told us that the project in the form in which
it had gone to the market in late 2000 had lacked "some of
the essential elements that were necessary to provide confidence",
but was not more specific.[161]
He did, however, observe that revenue from football rather than
Government funding underpinned the business case and that football
was "entitled to have the opportunity to proceed with this
project without undue interference".[162]
63. The Minister for Sport thought that the decision
to remove athletics from Wembley National Stadium "made no
difference whatsoever to the delay in terms of when they went
to the City for their money". She considered the imputation
by Mr Bates that Ministerial involvement had somehow caused the
delay to be "absolute nonsense". The Minister for Sport
added that she had been "too busy" to worry about the
other allegations levelled against her by Mr Bates.[163]
64. Following the unsuccessful syndication of the
project, Mr Bates was asked to step aside as unpaid Chairman of
Wembley National Stadium Limited. He agreed to do so and was replaced
as Chairman, now paid, by Sir Rodney Walker.[164]
Mr Bates was asked to remain as unpaid Executive Vice-Chairman
and initially accepted that suggestion, but subsequently resigned
from that position, citing the lack of support for the project
as it was then conceived within the Stadium Company and the Football
Association and the absence of direct contact up to that point
between the new Chairman and him, the Company's putative Executive
Vice-Chairman.[165]
65. Upon taking up his post, Sir Rodney Walker initiated
a wide-ranging review of the project, including both the business
case and the design proposals. Sir Rodney Walker told us that
this review had not led to any significant changes to the project
and that he thought "the fact that I have been unable to
identify any significant errors in any aspects of the Stadium
is itself a tribute to Mr Bates and the work that he has done
on the project".[166]
In particular, Sir Rodney confirmed that he was "happy to
defend" the proposals "to incorporate vastly improved
back-of-house facilities", such as catering, in the project.[167]
The design promoted by Mr Bates remains "essentially unchanged"
and Sir Rodney Walker endorsed the view of Mr Bates that the Stadium
was very likely to be built according to that design.[168]
66. As part of his review of the project, Sir Rodney
Walker undertook extensive consultations about the possibility
of staging the 2005 World Athletics Championships at Wembley.[169]
He personally decided that it would not be appropriate to do so,
but made clear in evidence that this was "simply because
of uncertainty on time", and not because he had yet come
to a definitive position on whether the design proposed under
his predecessor and endorsed by him would be capable of staging
athletics events.[170]
He said that the existing timetable for completion of construction
by December 2004 was contingent upon the success of the next attempt
at syndication and he could not give an absolute guarantee that
financing would be sought and obtained on the timetable currently
proposed.[171]
Mr Stubbs added that the firm deadline for completion implied
by a commitment to stage the 2005 World Athletics Championships
would add risks to the project which would entail increases in
contingency.[172]
67. In the near future, Wembley National Stadium
Limited will be making a second attempt to secure funding for
the Stadium project from the City.[173]
The Football Association has agreed to make an enhanced financial
commitment to the venture.[174]
Sir Rodney Walker said that he was committed to returning to the
City to obtain the necessary finance "only when I am convinced
that we shall get a positive answer".[175]
He added that he had "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".[176]
If Sir Rodney Walker's confidence proves justified, demolition
of the existing Stadium will begin in June 2001.[177]
68. There are a number of factors that contributed
to the initial failure of syndication of the loan to fund the
Wembley National Stadium project, some within the control of Wembley
National Stadium Limited and some not. The combined delays to
the project led to funding being sought in a less favourable financial
climate. With the benefit of hindsight, it now appears that the
Company, its financial partners and the Football Association did
not react to this changing climate as effectively as would have
been desirable.
The proposed payment of £20
million
69. In our Report on Wembley National Stadium
we considered the circumstances that led to a proposal that the
Football Association or Wembley National Stadium Limited pay £20
million to Sport England, agreement on which was announced at
the time that the Secretary of State finalised his decision that
the new Wembley National Stadium should not be a venue for athletics.
We return to this matter, because evidence received since our
last inquiry has shed further light on the circumstances of that
proposal and because those circumstances may help to explain why
the payment appears to remain even now a notional transaction
without firm contractual foundations.
70. In our Report on Wembley National Stadium
we stated that the proposal for the payment of £20 million
"was first made by Mr David Richards, the Chairman of the
FA Premier League", on 16 December 1999, at a meeting at
No. 10 Downing Street.[178]
Earlier this year, the Secretary of State said in evidence to
us:
"I certainly do not
know of any discussions which may or may not be claimed to have
taken place at 10 Downing Street".[179]
Yet, when Mr Bates told us on 1 February 2000 that
the idea of a payment from football "was suggested"
at No. 10 Downing Street, his claim was supported only two days
later from another source—a parliamentary answer by the
Minister for Sport:
"An informal proposal
was made by David Richards ... on 16 December 1999 in the margins
of a meeting at No. 10 [Downing Street] to discuss the proposed
Football Foundation. This was relayed to ... the Secretary of
State by Department for Culture, Media and Sport officials and
followed up by more formal discussions between my Department and
the Football Association."[180]
71. Although the meeting that may well have given
rise to the concept of a payment slipped the Secretary of State's
mind, he did acknowledge the involvement of his Department's "officials"
in discussions with the Football Association.[181]
That supports the previous claim by Mr Bates that Mr Geoff Thompson
had had conversations with officials of the Department subsequent
to the meeting at No. 10 Downing Street.[182]
What is completely absent from previous accounts given by Ministers
of that episode is any reference to the pivotal role played by
someone who is not an official of the Department for Culture,
Media and Sport but a private individual—Sir Nigel Mobbs.
72. We learned last year of the role played by Mr
Thompson, the Chairman of the Football Association, in discussions
with officials.[183]
During the present inquiry, Mr Thompson told us that Sir Nigel
Mobbs was a party to the discussions, having been asked by the
Secretary of State "to consider what compensation might be
payable if Wembley were released of the obligation to have athletics".[184]
We then invited Sir Nigel Mobbs himself to give oral evidence.
73. Sir Nigel Mobbs confirmed that he had been asked
by the Secretary of State to examine the recovery of Lottery funds
from the Stadium Company and had then been asked by the Secretary
of State to negotiate with the Football Association.[185]
Sir Nigel Mobbs informed us that "the original request from
the Secretary of State was for £40 million".[186]
The Football Association was concerned about whether such a sum
was affordable. There had then been "haggling" which
"led to a figure of £20 million, which was acceptable
to the Secretary of State".[187]
In consequence, there was "a hand-shake agreement" between
Sir Nigel Mobbs and Mr Richards that £20 million would be
paid.[188]
During the present inquiry, the Secretary of State confirmed that
he had asked Sir Nigel Mobbs to "assist as an honest broker
between the various parties".[189]
74. Mr Bates has previously told us that he himself
was not a decisive player in the agreement to pay £20 million.
He met the Secretary of State on 22 December, but was "not
party to the discussions that took place; I was merely the errand
boy sent from on high to resolve the matter".[190]
The Secretary of State also told us that the meeting on 22 December
was "a confirmation meeting; it was not a negotiating meeting".[191]
When it was put to him that his previous accounts had not made
this clear, he said that "precisely how we arrived at that
position did not at the time appear to be material".[192]
75. In the course of discussions between the Football
Association and Sir Nigel Mobbs, the possibility was raised that
restrictions on commercial exploitation of the new Stadium that
were imposed by the Lottery Funding Agreement might be relaxed.[193]
Mr Bates implied that he raised that issue with the Secretary
of State on 22 December.[194]
The Secretary of State has stated that no agreement on easing
of commercial restrictions was made on 22 December or subsequently.[195]
76. On 7 January 2000, the Secretary of State wrote
to Mr Bates setting out his understanding of the agreement. Mr
Thompson understood from Mr Bates that the issue of commercial
constraints had arisen in discussions between Mr Bates and the
Secretary of State and so wrote to the Secretary of State on 31
January 2000 as follows:
"You were also kind
enough to say that in your view the Lottery Funding Agreement
should, and could, be amended to reduce the amount of grant to
£100 million, and to release some of the commercial constraints
on Wembley National Stadium Limited so that it can generate funds
to enable the payments by the group".[196]
77. In his reply to that letter on 9 February 2000,
the Secretary of State did not take the opportunity to contest
the accuracy of the claim in Mr Thompson's letter. Instead, he
stated that it had been confirmed with Sport England that:
"it seems wholly reasonable
to consider, with legal advice, amendments to particular conditions
of the Lottery Funding Agreement which are requested by parties
to the original Agreement. While this could include relaxation
of the existing commercial constraints upon Wembley National Stadium
Limited, such as naming rights, we will have to take a view on
the proposals once the detail has emerged."[197]
According to Sport England, differing interpretations
of the scope of the agreement reached on 22 December 1999 between
the Department for Culture, Media and Sport and Wembley National
Stadium Limited in relation to commercial restraints on matters
such as naming rights caused a delay of several months in progress
on the documentary, legal text giving effect to that agreement.[198]
78. In September 2000, there was a "successful
resolution" on the issue of commercial rights. Wembley National
Stadium Limited agreed to pay £20 million to Sport England
in return for the removal from the Lottery Funding Agreement of
the requirement to stage certain athletics events. The parties
agreed that relaxation of commercial restraints would not form
part of the changes to the Lottery Funding Agreement, but that
the Football Association and Wembley National Stadium Limited
would reserve the right to make an application for such relaxation
in the future, on the understanding that Sport England would have
the unfettered right to approve or reject such a request.[199]
79. The revision of the Lottery Funding Agreement
proposed by the Football Association and Wembley National Stadium
Limited to give effect to the payment of £20 million was
considered by Sport England on 6 November 2000, but a decision
was deferred, in part because of uncertainty about the development
of the alternative venue for the 2005 World Athletics Championships
at Picketts Lock.[200]
On 4 December 2000, Sport England agreed to the proposed payment.[201]
However, before the arrangement could be finalised, the possibility
that Wembley might stage the 2005 World Athletics Championships
was reconsidered by Sir Rodney Walker. In consequence, discussions
are continuing and the necessary changes to the Lottery Funding
Agreement have not yet been made.[202]
Although Mr Bates argued that the payment ought not to be made,
both Sir Rodney Walker and Mr Geoff Thompson thought that there
was a "moral obligation" upon Wembley National Stadium
Limited and the Football Association to make the payment.[203]
80. From 22 December 1999 onwards, it was envisaged
that the payment of £20 million would be made over a period
beginning in December 2000 and ending in December 2004.[204]
The first payment has not yet been made, and the Government and
Sport England both accepted that payments were unlikely to begin
until the funding of the new Stadium had been assured.[205]
The Secretary of State and Sport England both expected the remainder
of the original timetable to be adhered to, with the final payment
in December 2004.[206]
Wembley National Stadium Limited appeared to envisage a longer
timetable, with the final payment made 48 months after the amendments
to the Lottery Funding Agreement have been signed, implying that
the final payment would not be received until at least the Spring
of 2005.[207]
81. Sport England accepted that there was a difference
of opinion about the payment timetable and said that it was seeking
to clarify the matter with Wembley National Stadium Limited, but
Sport England viewed the Department for Culture, Media and Sport
as best-placed to end the uncertainty about the timetable for
payment, in view of the fact that the original agreement was between
the Secretary of State and Mr Bates.[208]
The Secretary of State saw no reason why the original timetable
should not be adhered to, and was prepared to express that opinion
to Wembley National Stadium Limited, but saw such details as a
matter for Sport England because he said that it was "an
agreement ... between Sport England and the Football Association
brokered by ourselves in Government".[209]
However, there remains uncertainty about the nature of the original
agreement that the money should be paid. That uncertainty has,
ironically, been heightened by two unsolicited letters received
by this Committee since the conclusion of this inquiry. These
letters purport to clarify the situation, but in fact confuse
it, even though—or perhaps because—both letters have
been signed by Mr Trevor Brooking, the Chairman of Sport England.
Mr Brooking wrote to the Chairman of the Committee on 22 March
saying that he "thought it might be helpful if I clarified
a number of points which emerged during yesterday's hearing"
(the hearing at which the Secretary of State gave oral evidence).[210]
In that letter, Mr Brooking said:
"I must beg to differ
from the suggestion that the £20 million payment was 'agreed
between the Football Association and Sport England'. As we indicated
in our evidence to the Committee, this agreement was reached between
the Secretary of State and Ken Bates (the then Chairman of Wembley
National Stadium Limited) on 23 December 1999, without any Sport
England involvement."[211]
In his oral evidence on 21 March, the Secretary of
State had made reference to the letter that he wrote to Mr Bates
on 7 January 2000 that explicitly refers to "the agreement
we reached".[212]
Mr Brooking's letter of 22 March had insisted that the only agreement
about the payment of £20 million was that reached between
the Secretary of State and Mr Bates.[213]
However, the Chairman of the Committee then received a further
letter, dated 27 March, signed by the Secretary of State and also,
perhaps disconcertingly, by Mr Brooking, in which a different
version was provided:
"The offer made by the
Football Association and Wembley National Stadium Limited to pay
£20 million from the original grant of £120 million
was agreed by the Secretary of State and the Football Association
on 23 December 1999. The application to amend the terms of the
Lottery Funding Agreement to effect payment and the removal of
athletics was made by the Football Association and Wembley National
Stadium Limited on 29 September 2000 and, after extensive consultation,
was agreed by the Sport England Council on 4 December 2000. The
formal agreement between Sport England, the Football Association
and Wembley National Stadium Limited will be concluded once financial
close has been achieved on the package of debt financing."[214]
82. The continuing dispute, despite attempted
clarification, about precisely who are the parties to the agreement
to pay £20 million represents a symptom of the uncertainties
that have surrounded the payment since its inception. The payment
appears to have originated with a handshake between Sir Nigel
Mobbs and Mr David Richards, Chairman of the FA Premier League.
It was then the subject of a second handshake between the Secretary
of State and Mr Bates. More than fifteen months after those handshakes,
the agreement has still not been given final documentary and legal
form and even the timetable for payment remains open to doubt.
The delays and difficulties arise from the extremely unusual manner
in which the payment was negotiated.
111 HC (1999-2000) 164, paras 4-5. Back
112 Q
203. Back
113 QQ
51, 53. Back
114 HC
(1999-2000) 164, para 19. Back
115 HC
(1998-99) 124-I, paras 131-132; HC (1999-2000) 164, paras 6-8,
11-15. Back
116 HC
(1998-99) 124-I, pp lxv-lxvi; HC (1998-99) 124-II, pp 123-133. Back
117 HC
(1998-99) 124-I, paras 129-140. Back
118 Government
Response to the Fourth Report from the Culture, Media and Sport
Committee, Session 1999-2000, on Wembley National Stadium,
Cm 4686, March 2000, paras 8-9, 10-13, 16-17; Q 532. Back
119 HC
(1999-2000) 164, paras 47, 107-109, 139. Back
120 HC
Deb, 14 March 2000, col 154W; Department for Culture, Media and
Sport press notice 49/2000. Back
121 Cm
4686. Back
122 Q
361. Back
123 HC
(1998-99) 124-I, para 140. Back
124 HC
(1999-2000) 164, paras 39-40, 45; Cm 4686, para 4. Back
125 HC
(1998-99) 124-I, p lxv; Ibid, para 134. Back
126 HC
Deb, 1 December 1999, col 312. Back
127 QQ
363, 367, 374, 376. Back
128 Q
532. Back
129 Cm
4686, p 6. Back
130 Ibid,
para 16. Back
131 HC
(1998-99) 124-I, p lxv. Back
132 Ibid,
p lxvi. Back
133 HC
(1999-2000) 164, paras 139, 147. Back
134 QQ
363, 365. Back
135 QQ
374-375. Back
136 Evidence,
p 170. Back
137 Evidence,
p 6. Back
138 Q
356. Back
139 Q
361. Back
140 Q
360. Back
141 HC
(1998-99) 124-I, para 138. Back
142 HC
(1999-2000) 164, para 18; QQ 479-484. Back
143 Evidence,
p 6; Q 12. Back
144 HC
(1999-2000) 164, p 40. Back
145 Ibid;
Evidence, p 6. Back
146 HC
(1999-2000) 164, Q 133. Back
147 Evidence,
p 6. Back
148 Q
45. Back
149 Evidence,
p 7. Back
150 Q
38. Back
151 QQ
39, 71-72, 273-275. Back
152 Evidence,
p 46. Back
153 Evidence,
p 7. Back
154 Q
40. Back
155 Ibid. Back
156 Q
47. Back
157 Q
24; Letter from Mr Ken Bates to Mr Adam Crozier, Chief Executive
of the Football Association, 7 February 2001, pp 2-3. Back
158 Q
3. Back
159 Q
8. Back
160 QQ
23, 25, 26. Back
161 Q
54. Back
162 QQ
56, 59. Back
163 Q
466. Back
164 Letter
from Mr Bates to Mr Crozier, 7 February 2001, p 3; Q 271. Back
165 Q
23; Letter from Mr Bates to Mr Crozier, 7 February 2001, passim. Back
166 Q
36. Back
167 Q
61. Back
168 Evidence,
p 9; QQ 12, 26, 51. Back
169 Q
60. Back
170 Ibid. Back
171 Q
42. Back
172 Q
48. Back
173 Evidence,
p 9. Back
174 Evidence,
pp 9, 46. Back
175 Q
42. Back
176 Q
51. Back
177 Evidence,
p 10. Back
178 HC
(1999-2000) 164, para 113. Back
179 HC
(2000-01) 56-II, Q 677. Back
180 HC
(1999-2000) 164, Q 289; HC Deb, 3 February 2000, col 734W. Back
181 HC
(2000-01) 56-II, Q 678. Back
182 HC
(1999-2000) 164, Q 289. Back
183 Ibid. Back
184 Q
269. Back
185 Q
358. Back
186 Q
370. Back
187 Ibid. Back
188 QQ
358, 368. Back
189 Q
528. Back
190 HC
(1999-2000) 164, Q 302. Back
191 Q
529. Back
192 Ibid. Back
193 Q
382. Back
194 QQ
18, 20. Back
195 HC
(2000-01) 56-II, Q 680; Evidence, p 203. Back
196 Evidence,
p 41; Q 270; Letter from Mr Thompson to the Secretary of State
for Culture, Media and Sport, 31 January 2000. Back
197 Letter
from the Secretary of State for Culture, Media and Sport to Mr
Thompson, 9 February 2000; Q 537. Back
198 Evidence,
p 41. Back
199 Evidence,
pp 41, 7. Back
200 Evidence,
pp 41-42. Back
201 Evidence,
p 42. Back
202 Evidence,
pp 46-47, 10. Back
203 QQ
32, 66, 269. Back
204 Evidence,
p 203. Back
205 Evidence,
pp 203, 47; Q 490. Back
206 Evidence,
pp 203, 41. Back
207 Evidence,
p 7. Back
208 Evidence,
pp 290-291. Back
209 QQ
491-497. Back
210 Appendix
1. Back
211 Ibid. Back
212 Q
498; Letter from the Secretary of State to Mr Bates, 7 January
2000. Back
213 Appendix
1. Back
214 Appendix
2. Back
