Annex 17
Letter, 4 September 2000, from Sport England
to DCMS
ENGLISH NATIONAL STADIUM
Following our recent discussions, I am writing
with a further briefing on the issues related to the removal of
athletics from the Wembley project, and the proposed payment of
£20 million from the FA. As you are aware, we have been working
and continue to work on the basis that the Secretary of State
had agreed with the FA that £20 million would be repaid over
a five year period, in return for the removal of athletics obligations,
as set out in his letter to Ken Bates of 7 January. As you are
aware we have been pressing this point on the FA since earlier
in the year.
However, it is clear that the FA/WNSL maintain
that key commercial restraints, for example, naming rights, anchor
tenant and number of corporate seats were also to be relaxed as
part of their agreement with the Secretary of State.
In this context, there appear to be three options.
OPTION A
Our preference remains that the issue should
be resolved prior to entry into the forthcoming financial agreements
related to the project. The process would be as follows:
— WNSL would apply for a relaxation
of the athletics obligations within the Lottery Funding Agreement
in return for a payment of £20 million scheduled for payment
over five years from December 2000. (Please note that it is the
responsibility of the applicant to initiate changes to the purpose
of the project).
— We would then formally consult with
the key parties involved, notably UK Athletics, the British Olympic
Association, and DCMS.
— The proposal, and response to the
consultation exercise would then be presented to the Council for
decision.
— If approved, changes to the LFA would
be implemented prior to entry into the financing agreements. There
are a number of other technical issues related to the mechanics
of the payment, which would also need to be addressed at this
stage.
OPTION B
However, should the FA/WNSL maintain that in
return for the £20 million payment commercial restraints
should also be relaxed, we assume that they would apply on this
basis. Based on this option, we envisage a similar process of
consultation leading to presentation to Council for decision.
I must advise, however, that it remains far from certain whether
the Council would approve the relaxation of commercial restraints,
given that they represent fundamental objectives in respect of
the identity, use and financing of the stadium. This is the basis
on which the co-financing agreement among ourselves, Chase Manhattan
and WNSL has been drafted.
Furthermore, as we have discussed, we are keen
to ensure that commercial rights such as naming rights are retained
by the Council as a potential contingency during any future period
of financial difficulty.
In the event that the Council was not prepared
to accept the relaxation of the restraints it would then be open
for WNSL/FA to agree Option A, or pursue alternative courses of
action. Should no agreement be reached, then there is clear potential
for delay.
OPTION C
This option involves moving forward with the
financing agreements now, and then addressing the athletics issues
and the £20 million payment at a later date. There are certain
advantages to this approach, notably:
— Every effort could be directed to
ensuring the financing agreements are signed, and the project
progressed, at the earliest opportunity without the potential
for delay whilst the £20 million issue is resolved.
— The issues could be addressed once
the project is committed and moving forward.
— It is not yet critical to the cash
flow of the Lee Valley Project.
However, against this it should be borne in
mind that the main impetus to resolve this issue is prior to entry
into the financial agreements. Once the agreements are signed,
there are then few negotiating levers with WNSL/FA. The main negotiating
lever now is our first charge over the stadium—the project
will not proceed unless this is subordinated to Chase. It must
be appreciated, therefore, that this option involves a high degree
of risk that the £20 million payment may never be paid, with
among other matters, consequent funding shortfalls for the Lee
Valley project.
We are pursuing discussions with WNSL and the
FA to seek resolution to this issue, on the basis of Option A.
However, their preference is for Options B or C. I will keep you
updated on progress as discussions move forward. However, in the
meantime, I would welcome your view on the options outlined in
this letter.
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