Balls up
Stadium finance (outside the US) may be one of the newer areas of
project finance, but that still cannot account for the
unbelieveable mess that the UK's Football Association (FA) has got
itself into over the redevelopment of the country's foremost
football venue, Wembley Stadium. A replacement for the venue was
first proposed in the early 1990s and a new stadium was designed
and revealed in 1999. At that stage the full cost of the project
was put at around £240 million ($384 million), but three years
later costs have ballooned to £660 million, the new design is under
heavy criticism and the FA ? which has mandated JP Morgan Chase to
arrange the deal ? can't seem to find anyone prepared to pay for
the thing. Following on from the debacle of the Millenium Dome, is
this project doomed to become yet another high-profile financing
fiasco, or is stadium finance just a more complex and challenging
discipline than the FA realised?
The new stadium is being developed by a special purpose subsidiary of the FA, Wembley National Stadium Ltd (WNSL). Plans for the new stadium have been under fire from day one after the ambitious nature of the new stadium design was revealed 18 months ago. The new structure has been designed by Foster and Associates, together with stadium specialists HOK + Lobb, at a reputed cost of £18 million. The latter have been involved in the design of more than 50 stadiums in the US and also worked on Australia's Olympic stadium, Stadium Australia. The new 52 metre high Wembley Stadium will be significantly taller than its predecessor and incorporate a 133 metre high arch. It also has a sliding roof, which can be moved to line up with the touch line to combat shadows on the pitch. There is a single bowl, which can house 90,000 spectators, and the original design included a controversial ?removable? athletics track. The FA also decided to include of 100,000 square feet of office space, a 200 bedroom hotel and a conference and banqueting suite on the site ? hugely increasing the cost.
The most frequent comparisons made in terms of cost are between Stade de France, Stadium Australia, Cardiff's Millenium Stadium and Wembley. Stade de France was built at a cost of 80,000 and cost $376 million, Stadium Australia has a larger capacity than the new Wembley site at 110,000 and cost $434 million and the Millennium Stadium houses 80,000 and cost $260 million. The WNSL stadium will house just 10,000 more than Cardiff and cost an additional $750 million.
While the criticism of the scale and cost of the project has raged since it was first mooted, one event over the last year signalled that the project was in serious trouble. That was JP Morgan Chase's inability to attract any interest in lending to the project. The bank was first mandated for the deal in March 2000, largely on the basis of its successful financing of the Dallas Arena project. The £660 million cost of the stadium was to be met partly by a National Lottery grant of £120 million, partly by a construction loan of £410 million and partly by an equity injection from the FA. This equity injection originally took the form of a £100 million backstop facility pre-completion which firms up into a committed facility post-completion. Chase is understood to have approached around 30 potential lenders with the deal ? and been unable to sign up a single one. One individual closely involved in the transaction confirms that 30 banks were approached but says that 20 of these remain interested in the transaction and want to see the reworked proposals.
?With stadium deals, your first concern is always: where is the revenue going to come from?? says Roscow Lucas, head of syndication at ANZ Investment Bank in London. ANZ was one of the four lead underwriters on the Stadium Australia deal but has not been approached for this transaction (it has not traditionally done much project work in the UK). ?It is often not obvious where the money is going to come from, especially when it is a new build,? he says. This seems to be the crux of Wembley's problems: costs are too high and revenue projections too low.
So why is this stadium so expensive? Firstly, there is the issue of land. When a new stadium was first proposed for Wembley, it was hoped that it could be developed as a joint venture between the original owners of the site, Wembley PLC and Sport England, which distributes National Lottery funding to sports entities in the country. This plan was, however, superceded by the decision of the FA to buy the existing stadium from Wembley PLC (a private company) for £103 million and develop it itself. The result? An additional £103 million immediately added to the cost of the project. This should be borne in mind when costs are compared with those of other stadiums ? the land for Stadium Australia was donated to the project by the Australian government and Stade de France was built on reclaimed land.
The cost of the site has raised many justified questions about why this stadium is being built on such a small, cramped, expensive site at all. There are clear emotive arguments for keeping the stadium at Wembley, but this entails huge cost in terms of the logistics of building such a structure in a congested, urban space and the cost of upgrading transport links. Brent Council, which oversees the area, originally demanded £30 million from the project in order to upgrade local facilities but this has subsequently been negotiated down to £17 million. But one feature of the contract that the banks will have studied closely is Brent Council's demand that the number of events to be held at the stadium be limited to 30 sporting events and 12 concerts a year in order to ease congestion in the area. This will have clear negative implications on revenue generation. ?Brent Council has imposed an event cap,? confirms one individual involved in the deal, ?but it will only be imposed until Section 106 (infrastructure and transportation upgrading) works are completed. After that there will be no cap on the number of events held at the stadium.? Section 106 works are due to take around three years after commencement of construction.
Another clear reason why costs are so high is the inclusion of the office and hotel facilities in the project. Not surprisingly, therefore, there have been growing demands for the project to be scaled down in size, and focus just on the core stadium. But, as Lucas at ANZ predicted, it is revenue concerns that were uppermost in the banks minds when they turned down the original loan proposal. ?The main issue of concern was the robustness of the premium seating revenue projections,? explains one banker.
The current revenue projections are based on the sale of 14,000 VIP or premium seats at each event. This is a huge increase from the VIP capacity at the old stadium (which was built in the 1930s) which stood at just a couple of hundred. ?Although VIP seating was severely limited at the old stadium, Wembley used to sell between 6,000 and 8,000 illegal VIP packages for each game,? claims a deal insider. ?The concern is whether this 14,000 target can be met ? which it can, it is a no-brainer,? he claims. The potential syndicate members remain to be convinced, however.
The other important concern that banks approached by Chase raised was the equity commitment of the FA to the scheme. It has been erroneously reported that the organisation had agreed to commit just £20 million equity to the scheme, but it did commit £100 million from the outset ? with conditions. The lenders did not like the fact that the FA's pre-completion equity commitment was merely in the form of a backstop ? designed only to support any failure in marketing pre-completion. The banks want this commitment to be unconditional both pre- and post- completion, and it seems unlikely that Chase will get any syndication away without this crucial change in documentation.
The failure of the first round of syndication brought things to a head at WNSL, which held an emergency meeting at the beginning of December to assess the best way forward.
The project is now essentially on hold until WNSL comes up with a definitive decision how to proceed. Much of the blame for the mess has been directed at WNSL chairman Ken Bates, who was unceremoniously ousted from his position at the end of December. He was replaced by Sir Rodney Walker, chairman of UK Sport, Leicester City and the Rugby Football League. He has a daunting task ahead of him unravelling the current mess and trying to return the project to some sort of schedule.
The first problem to sort out is what the stadium will actually be for. Under Bates there was a huge bias towards football, and the decision was taken to scrap the ?removable? athletics track from Foster's design and keep the stadium as an all-football venue. This decision meant that WNSL had to return £20 million of its Lottery grant in order for an alternative athletics track to be built elsewhere. There are strong indications that Walker will consider reintroducing the athletics track, especially as the UK is due to host the 2005 Athletics World Championships. This should go down well with the banks as an additional source of revenue.
The other pressing problem for Walker is how to get costs in line with what level of revenue the venue can realistically generate. In order to do this it faces four stark choices. It can continue with the current plans but delay completion of the ancillary services (restaurants, hotel) until tenants are found. This would mean that the stadium could open on schedule in 2004 but it would only save the project £24.5 million. A second option is to scrap the ancillary services altogether. This would mean the architects going back to the drawing board and starting again ? delaying completion of the project until 2005. Savings would also be reduced by new design costs and could be as low as £3 million. Thirdly, WNSL could design a completely new, smaller 80,000 capacity stadium which could save around £120 million but would delay the project further until 2006. The fourth option is to renovate the existing stadium but this would take even longer and capacity would only be 55,000.
It is unclear which of these options would be more palatable to the banks. Certainly continuing with the plans as they are seems an unlikely course to take and the sensible thing to do would probably be to opt for the cheaper 80,000 seater facility. But this would be a humiliating climbdown for the FA and a PR disaster for the project. But Walker's determination to bring the whole project back under control seems unquestionable ? and was underscored by news in early January that he plans to cut the size of the loan that JP Morgan Chase is being asked to syndicate. There have been suggestions that the £410 million facility could be cut in size by anything up to 25%, but a deal insider dismisses this as incorrect. ?Discussions are now underway with the various parties that are likely to include a scaling down of the loan,? he confirms. ?But the 25% figure is not accurate.? What this cost cutting applies to is unclear, but it will almost certainly be the alteration or scrapping of the office and leisure facilities. The FA will also almost certainly be asked to firm up its pre-completion equity commitment to the project and in the present climate may even need to commit more in order for the deal to get done.
Responsibility for the problems that this project has so far faced can be laid squarely at the feet of the FA which has been overambitious in its designs for the site and undergenerous in its commitment to help pay for them. ?This project suffers from the fact that it is not a stadium with a home team that will be playing there every weekend,? says one banker. ?That is the kind of revenue stream you need in order for the numbers to start making sense.? But it is easy to forget that even the most successful of new stadiums have often encountered problems along the way. Stadium Australia had to be bailed out by the New South Wales government on a number of occasions during construction and underwriters ANZ, ABN Amro, Deutsche Bank, Hambros Australia, Macquarie Bank and Multiplex Constructions (which is also building the Wembley Stadium) had to make up the shortfall when the deal's IPO fell flat in September 1996. But the situation at Wembley is unforgivable and does nothing for the reputations of all involved.
The new stadium is being developed by a special purpose subsidiary of the FA, Wembley National Stadium Ltd (WNSL). Plans for the new stadium have been under fire from day one after the ambitious nature of the new stadium design was revealed 18 months ago. The new structure has been designed by Foster and Associates, together with stadium specialists HOK + Lobb, at a reputed cost of £18 million. The latter have been involved in the design of more than 50 stadiums in the US and also worked on Australia's Olympic stadium, Stadium Australia. The new 52 metre high Wembley Stadium will be significantly taller than its predecessor and incorporate a 133 metre high arch. It also has a sliding roof, which can be moved to line up with the touch line to combat shadows on the pitch. There is a single bowl, which can house 90,000 spectators, and the original design included a controversial ?removable? athletics track. The FA also decided to include of 100,000 square feet of office space, a 200 bedroom hotel and a conference and banqueting suite on the site ? hugely increasing the cost.
The most frequent comparisons made in terms of cost are between Stade de France, Stadium Australia, Cardiff's Millenium Stadium and Wembley. Stade de France was built at a cost of 80,000 and cost $376 million, Stadium Australia has a larger capacity than the new Wembley site at 110,000 and cost $434 million and the Millennium Stadium houses 80,000 and cost $260 million. The WNSL stadium will house just 10,000 more than Cardiff and cost an additional $750 million.
While the criticism of the scale and cost of the project has raged since it was first mooted, one event over the last year signalled that the project was in serious trouble. That was JP Morgan Chase's inability to attract any interest in lending to the project. The bank was first mandated for the deal in March 2000, largely on the basis of its successful financing of the Dallas Arena project. The £660 million cost of the stadium was to be met partly by a National Lottery grant of £120 million, partly by a construction loan of £410 million and partly by an equity injection from the FA. This equity injection originally took the form of a £100 million backstop facility pre-completion which firms up into a committed facility post-completion. Chase is understood to have approached around 30 potential lenders with the deal ? and been unable to sign up a single one. One individual closely involved in the transaction confirms that 30 banks were approached but says that 20 of these remain interested in the transaction and want to see the reworked proposals.
?With stadium deals, your first concern is always: where is the revenue going to come from?? says Roscow Lucas, head of syndication at ANZ Investment Bank in London. ANZ was one of the four lead underwriters on the Stadium Australia deal but has not been approached for this transaction (it has not traditionally done much project work in the UK). ?It is often not obvious where the money is going to come from, especially when it is a new build,? he says. This seems to be the crux of Wembley's problems: costs are too high and revenue projections too low.
So why is this stadium so expensive? Firstly, there is the issue of land. When a new stadium was first proposed for Wembley, it was hoped that it could be developed as a joint venture between the original owners of the site, Wembley PLC and Sport England, which distributes National Lottery funding to sports entities in the country. This plan was, however, superceded by the decision of the FA to buy the existing stadium from Wembley PLC (a private company) for £103 million and develop it itself. The result? An additional £103 million immediately added to the cost of the project. This should be borne in mind when costs are compared with those of other stadiums ? the land for Stadium Australia was donated to the project by the Australian government and Stade de France was built on reclaimed land.
The cost of the site has raised many justified questions about why this stadium is being built on such a small, cramped, expensive site at all. There are clear emotive arguments for keeping the stadium at Wembley, but this entails huge cost in terms of the logistics of building such a structure in a congested, urban space and the cost of upgrading transport links. Brent Council, which oversees the area, originally demanded £30 million from the project in order to upgrade local facilities but this has subsequently been negotiated down to £17 million. But one feature of the contract that the banks will have studied closely is Brent Council's demand that the number of events to be held at the stadium be limited to 30 sporting events and 12 concerts a year in order to ease congestion in the area. This will have clear negative implications on revenue generation. ?Brent Council has imposed an event cap,? confirms one individual involved in the deal, ?but it will only be imposed until Section 106 (infrastructure and transportation upgrading) works are completed. After that there will be no cap on the number of events held at the stadium.? Section 106 works are due to take around three years after commencement of construction.
Another clear reason why costs are so high is the inclusion of the office and hotel facilities in the project. Not surprisingly, therefore, there have been growing demands for the project to be scaled down in size, and focus just on the core stadium. But, as Lucas at ANZ predicted, it is revenue concerns that were uppermost in the banks minds when they turned down the original loan proposal. ?The main issue of concern was the robustness of the premium seating revenue projections,? explains one banker.
The current revenue projections are based on the sale of 14,000 VIP or premium seats at each event. This is a huge increase from the VIP capacity at the old stadium (which was built in the 1930s) which stood at just a couple of hundred. ?Although VIP seating was severely limited at the old stadium, Wembley used to sell between 6,000 and 8,000 illegal VIP packages for each game,? claims a deal insider. ?The concern is whether this 14,000 target can be met ? which it can, it is a no-brainer,? he claims. The potential syndicate members remain to be convinced, however.
The other important concern that banks approached by Chase raised was the equity commitment of the FA to the scheme. It has been erroneously reported that the organisation had agreed to commit just £20 million equity to the scheme, but it did commit £100 million from the outset ? with conditions. The lenders did not like the fact that the FA's pre-completion equity commitment was merely in the form of a backstop ? designed only to support any failure in marketing pre-completion. The banks want this commitment to be unconditional both pre- and post- completion, and it seems unlikely that Chase will get any syndication away without this crucial change in documentation.
The failure of the first round of syndication brought things to a head at WNSL, which held an emergency meeting at the beginning of December to assess the best way forward.
The project is now essentially on hold until WNSL comes up with a definitive decision how to proceed. Much of the blame for the mess has been directed at WNSL chairman Ken Bates, who was unceremoniously ousted from his position at the end of December. He was replaced by Sir Rodney Walker, chairman of UK Sport, Leicester City and the Rugby Football League. He has a daunting task ahead of him unravelling the current mess and trying to return the project to some sort of schedule.
The first problem to sort out is what the stadium will actually be for. Under Bates there was a huge bias towards football, and the decision was taken to scrap the ?removable? athletics track from Foster's design and keep the stadium as an all-football venue. This decision meant that WNSL had to return £20 million of its Lottery grant in order for an alternative athletics track to be built elsewhere. There are strong indications that Walker will consider reintroducing the athletics track, especially as the UK is due to host the 2005 Athletics World Championships. This should go down well with the banks as an additional source of revenue.
The other pressing problem for Walker is how to get costs in line with what level of revenue the venue can realistically generate. In order to do this it faces four stark choices. It can continue with the current plans but delay completion of the ancillary services (restaurants, hotel) until tenants are found. This would mean that the stadium could open on schedule in 2004 but it would only save the project £24.5 million. A second option is to scrap the ancillary services altogether. This would mean the architects going back to the drawing board and starting again ? delaying completion of the project until 2005. Savings would also be reduced by new design costs and could be as low as £3 million. Thirdly, WNSL could design a completely new, smaller 80,000 capacity stadium which could save around £120 million but would delay the project further until 2006. The fourth option is to renovate the existing stadium but this would take even longer and capacity would only be 55,000.
It is unclear which of these options would be more palatable to the banks. Certainly continuing with the plans as they are seems an unlikely course to take and the sensible thing to do would probably be to opt for the cheaper 80,000 seater facility. But this would be a humiliating climbdown for the FA and a PR disaster for the project. But Walker's determination to bring the whole project back under control seems unquestionable ? and was underscored by news in early January that he plans to cut the size of the loan that JP Morgan Chase is being asked to syndicate. There have been suggestions that the £410 million facility could be cut in size by anything up to 25%, but a deal insider dismisses this as incorrect. ?Discussions are now underway with the various parties that are likely to include a scaling down of the loan,? he confirms. ?But the 25% figure is not accurate.? What this cost cutting applies to is unclear, but it will almost certainly be the alteration or scrapping of the office and leisure facilities. The FA will also almost certainly be asked to firm up its pre-completion equity commitment to the project and in the present climate may even need to commit more in order for the deal to get done.
Responsibility for the problems that this project has so far faced can be laid squarely at the feet of the FA which has been overambitious in its designs for the site and undergenerous in its commitment to help pay for them. ?This project suffers from the fact that it is not a stadium with a home team that will be playing there every weekend,? says one banker. ?That is the kind of revenue stream you need in order for the numbers to start making sense.? But it is easy to forget that even the most successful of new stadiums have often encountered problems along the way. Stadium Australia had to be bailed out by the New South Wales government on a number of occasions during construction and underwriters ANZ, ABN Amro, Deutsche Bank, Hambros Australia, Macquarie Bank and Multiplex Constructions (which is also building the Wembley Stadium) had to make up the shortfall when the deal's IPO fell flat in September 1996. But the situation at Wembley is unforgivable and does nothing for the reputations of all involved.
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