Examination of Witnesses (Questions 260
- 279)
TUESDAY 21 MAY 2002
MR MICHAEL
JEFFRIES, MR
MICHAEL CUNNAH,
MR ROGER
MASLIN AND
MR NIC
COWARD
260. Let me sum that up. Sport England then,
from what you tell us, and we shall be seeing Sport England later
this morning but your side of the understanding is important,
knew that you were conducting a process that was contrary to the
Lottery Funding Agreement?
(Mr Maslin) No. Let us be clear again. We launched
a competitive process in July 1999 to 11 parties from which we
had five tenders back. At that time we had this other offer from
Multiplex which again seemed in that sense very attractive. We
were not sure commercially whether that would fly in the market
and therefore we did test that possibility in the market at the
time because at the end of the day what we were trying to do on
a limited budget was get the best competitive offer and the lowest
cost and hopefully the best value for money. Looking at it in
hindsight, we perhaps should have thought through some of the
pressures that were likely to arise at the time and got a process
in place for dealing with those in advance and make sure that
there was a clearer system of keeping everybody informed. I believe
that is now in place. We have learned from that. We did not have
completely transparent processes. I believe we have moved on from
there.
261. Did Sport England know that you did not
have completely transparent processes? Did they know the processes
when they were conducting this? Mr Cunnah said, in a phrase for
which I do not criticise him but which has a certain redolence,
that you were in partnership with Sport England. I regard it as
utterly inappropriate that Sport England as a Lottery funder should
be in partnership with you. Did Sport England know of the processes
which you were using which we now know through the James report
were contrary to best practice?
(Mr Cunnah) To clarify the question as to which procedures
we were using, to come to your question, sir, initially we sought
clarification and received it that in order to satisfy the Lottery
Funding Agreement we did not need to follow the OJEC procedures.
Sport England were aware of that and agreed with that at the time.
As to the departures from best practice on, let us call them procurement
procedures, I think Sport England became aware of those departures
and deficiencies that Mr James outlined at the same time as the
rest of the board did and dealt with them appropriately.
Mr Doran
262. My understanding of the Lottery Funding
Agreement was quite specific. Going back to Mr Maslin's point,
if what you say is correct how is it that in Schedule 6 of the
Berwin Leighton Paisner report, part of David James' inquiry,
they can say quite specifically as far as the appointment of MPX
as preferred contractor is concerned, "we have not reviewed
any evidence which indicates that Sport England's formal prior
consent was or was not obtained in awarding this tender which
was potentially in breach of the terms of the Lottery Funding
Agreement in terms of the process which had been followed in its
procurement". One of our interviewees has confirmed that
Sport England were in fact not directly involved in the decision
to appoint MPX as preferred contractor. That seems to be totally
at variance to what you are telling us today.
(Mr Maslin) Again, our intention at the time was to
get the most competitive procurement process. We had monthly board
meetings where Sport England were party. As I said earlier on,
it is fair to say that perhaps we did not provide sufficient transparency
throughout the whole tender process.
263. Let us move on. This is obviously an extremely
important project, not just for the FA but for the country. If
we look at the Tropus report, the James report and the report
from Berwin Leighton Paisner, there are serious deficiencies in
the ways in which WNSL, and perhaps also the FA who also have
some responsibility here, have handled the whole project. We have
heard from Mr Cunnah and other witnesses that efforts have been
made to put everything right, but do you accept that you have
a big job to do to restore confidence in this project and to restore
confidence in the WNSL and their ability to deliver this major
national stadium?
(Mr Cunnah) We have already started to rebuild that
confidence. We have offers of financing in place. Those offers
would not be there if the banks were not confident about our ability
to deliver the project. As I said before, we have had stringent
reviews from people like the Office of Government Commerce, who
have looked at all our resources and our procedures and said that
we are really well placed to make this a very successful project.
As you alluded to before, we believe we are very close to getting
all of the banking in place. We believe that we will sign the
mandate, the heads of terms, within a week, and documentation
for completion of the process will follow as soon as is appropriate
thereafter, making sure that we do everything right to get everything
in place.
Mr Fabricant
264. Mr Cunnah, you spoke at some length about
the various stakeholders, as you put it, in this arrangement.
I just want to really establish the legal position regarding the
relationship between the Football Association and WNSL. WNSL is
a limited company. Who owns the shares?
(Mr Cunnah) The ordinary shares are 100 per cent owned
by the Football Association. The golden share is owned by English
National Stadium Trust which represents Sport England.
265. I am quite interested in the relationship
of the golden share, but we will come back to that in a moment.
Are there any guarantees that the FA has made in order to seek
to limit the independence of liability that WNSL enjoys by virtue
of the fact that it is a body corporate? If you are unclear what
I am asking, let me give you an insight. We will all be familiar
with ITV Digital which is a wholly owned subsidiary of some very
senior and major broadcasters, but those major broadcasters say
that any debts to the Football League need not be payable other
than from assets owned by ITV Digital. In other words, it could
be argued that Granada and Carlton are hiding behind the body
corporate nature of ITV Digital. Similarly, is the Football Association
independent and separate from any liabilities that might be incurred
by WNSL?
(Mr Coward) I will try and answer that on behalf of
the FA.[3]
I have heard the comparison between the two and the comparison
is not a correct one.
266. Why?
(Mr Coward) The reason is this. The disputes between
the Football League and Carlton and Granada is that there may
or may not have been, depending on which side you take, a parent
company guarantee from ultimately Carlton and Granada through
to ITV Digital, through to the Football League. As between Sport
England, Wembley and the FA there is no dispute that at any time
there was a parent company guarantee in the contracts between
us.
267. Can I clarify that? There were a couple
of negatives there. You are saying that there is no guarantee?
(Mr Coward) There is no guarantee.
268. So WNSL stands on its own?
(Mr Coward) The Lottery Funding Agreement sets out
the obligations which the FA have to Wembley National Stadium
which it had agreed with Sport England at the time. Those are
extensive obligations and one of the key ones relates to the staging
agreement that the FA entered into—it had to enter into—with
Wembley National Stadium Ltd in 1999 in order to ensure that Sport
England could be confident of the "bankability", as
they described it, of their grant to Wembley National Stadium
Ltd. That staging agreement was renegotiated at the time to the
satisfaction of Sport England and that is in effect a key element
of the security package which Wembley has had to grant to Sport
England for the Lottery money. As I understand it, it is a comprehensive
security package over the entire business.
269. Let us be clear now. There is £120
million which has been given by Sport England, public money. You
are saying that there are agreements between WNSL and the Football
Association who guarantee that money. Are you saying that in
extremis—you are not saying?
(Mr Coward) No.
270. Let us just clarify this. Let us take the
worst example. In the worst example £120 million would have
to be returned to Sport England. Who would be responsible for
that repayment?
(Mr Coward) Wembley National Stadium Ltd is liable
for any such repayment under the Lottery Funding Agreement. What
would happen at the time is that the stakeholders, the partners,
of Wembley National Stadium Ltd, I am sure, would be called together
by the company, those being Sport England, the FA and, I would
assume, Government—the partnership approach has been adopted
in the last six months—in order to address that issue there
and then.
Chairman
271. Let us just clarify that. This is something
I want to be absolutely clear on, and that is that of the £120
million, however it was paid, whenever it was paid and in whatever
tranches it was paid, all of it was paid to WNSL; none of it was
at any time even at the earliest stages paid to the FA?
(Mr Coward) That is correct.
Mr Fabricant
272. But, Mr Coward, you just said to me that
when the money was passed over Sport England needed to be satisfied
that WNSL would be in a position to repay it and you said that—I
cannot quote you exactly but we will look at the record later
on—some sort of guarantee or comfort, if I can paraphrase,
was given by the Football Association. I am not interested in
any discussions that might happen if the worst comes to the worst.
I am interested in what has actually happened so far, so what
guarantee has the Football Association given to Sport England
that gave them the comfort? You just said "none" so
how could they get comfort from it?
(Mr Coward) There is no guarantee. What Sport England
had to do at the time, and you are seeing them after this session,
I understand, was to satisfy themselves that they had good security
for the Lottery funding that they were providing to Wembley National
Stadium Ltd. As part of that they took a security over the entire
business. That includes as a key element a staging agreement with
the FA. That staging agreement is an agreement by which the FA
must, whether it is the old stadium or the new stadium, take its
events to Wembley National Stadium and pay a price for that. At
the time Sport England had to satisfy itself that that contract,
together with the rest of the security package, was bankable for
the grant it was making available to Wembley National Stadium
Ltd.
273. The money needs to be bankable. In David
James' letter to the former chairman of Wembley National Stadium
Ltd he says, "I understand that abandonment of the Wembley
project—I hope that will not happen—at the present
date"—and the date was 17 December 2001—"would
involve a write-off of £75 million". What would be the
write-off if there were abandonment now?
(Mr Maslin) If the project did not go ahead, as Nic
Coward has said, the liability falls to WNSL. The cost itself,
if you like, would probably be in the order of £70 million.
Chairman
274. Could I just interrupt there? This seems
to be as good a time as any to ask two questions. First of all,
are you confident that the project will go ahead? Are you confident
that you will have an agreement with West LB?
(Mr Maslin) As you know, we are in discussion with
West LB. We have had an offer in principle from the board of West
LB where the West LB board and the FA board are in agreement,
along with the WNSL board. We are going through the usual process
of due diligence. In order for the West LB board to get their
approval we have had to take the due diligence to a sufficient
state. That is being done and therefore we have got the approval.
This is a complex project. There are a lot of legal documents
to put together and over the course of the next weeks—weeks
rather than months—we are confident, yes, very confident,
that we will bring a successful funding through.
275. So you are confident that you will be able
to go ahead, that you will get the money to build the new Wembley
stadium?
(Mr Maslin) Correct.
276. Can you tell us when you believe that this
will be signed, sealed and delivered?
(Mr Maslin) Chairman, as I said, this is a complex
process. It will take, I am afraid, as long as it takes but it
will be weeks rather than months.
277. So you believe that the whole thing will
be tied up and you will be ready to go some time before the end
of June?
(Mr Maslin) As I said, it will take as long as it
needs to take but it will be weeks rather than months.
Mr Fabricant
278. I am still concerned about the process
of the relationship between Sport England, who are the stewards
of public money, and the bankability—words you used and
quite rightly so—of public money in the hands of WNSL. You
said that the write-off would be £70 million if this does
not go ahead. You have also said that only WNSL would be in a
position to be liable because the FA, although they are 100 per
cent shareholders of the ordinary shares, have given no guarantees
over and above the guarantees that have been used for the venue.
My question is this. If, in the unlikely event—and hopefully
it is an unlikely event—that the project does not go ahead,
how much is WNSL going to be able to repay? Is it the £50
million, which is the difference between £70 million and
the £120 million? Is it merely £30 million, which is
the money suggested by my colleague, Frank Doran, and a number
of people have said is the value of the loan? Do you think as
a Finance Director that Sport England showed due diligence themselves
in determining what is bankable and what is not?
(Mr Maslin) Clearly, if we got to that situation,
that we could not obtain funds from, say, West LB, then immediately
we would have an urgent discussion with all stakeholders, the
FA and Sport England. As Michael alluded to earlier, there are
a number of options open to us. We do still have an operating
staging agreement with the FA and provided we can provide the
services available at Wembley Stadium, we can hold the FA to bring
their games to Wembley, so one of the options that we would be
looking at would be clearly whether we would have to re-open the
old stadium.
279. But you would still be liable, is that
not correct, under the Lottery Funding Agreement, to return the
£120 million?
(Mr Maslin) Yes, it is quite clear in the Lottery
Funding Agreement. It is WNSL and WNSL alone which is liable for
the £120 million.
3 Footnote by witness: The widely reported
(April-May 2002) discussions concerning ITV Digital have been
between ITV Digital and the Football League, not the FA. Back
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