The Blind Hammer Column
West Ham and Moore-Stephens- The £3 Billion Cost of Athletics
In the first of a series on Moore-Stephens Blind Hammer explains why Athletics have no future at the LS.
Last week saw the long awaited Moore-Stephens Report into the financial chaos of the London Stadium. The Mayoral Press release focussed on the “deal of the century” struck by West Ham. Predictably the press followed this with lazy headlines implying that the root of the problem lay with “West Ham fleecing the Tax Payers. Whilst the report does criticise the LLDC negotiation, this analysis does not accurately reflect the substance of the findings. The support of the Mayoral slant is probably perpetuated by Journalists who have relied on the Press Release and not bothered to read the full report. The Mayoral description of the conclusions seems designed to exact public pressure for a renegotiation with West Ham. In reality any renegotiation will only scratch the surface of the financial meltdown. I will however, address the whole issue of renegotiation in a future article.
So what does the report really tell us?
It is clear that West Ham is not the problem for the Stadium but an integral part of the solution. The Stadium has a viable financial future only with West Ham as anchor tenants.
Consequently the problems associated with the viability of the Stadium are not related to the aspirations of West Ham. The current financial Problems and Tax Payer burden actually have their roots in the legal challenge mounted by Daniel levy, supported by Barry Hearn. The pressure of this challenge caused a flawed reaction by the then Mayor Johnston. In a fatal error of judgement he withdrew support from the plan to transfer the Stadium to West Ham. Under this arrangement liability for the Tax Payer would have been capped at £35 million. Instead he cobbled together a plan to rent out a “multi-use Stadium under public ownership. This is the structure which underlies all the current problems. Moore-Stephens is crystal clear on this point.
In particular, fatefully, this decision transferred all the risks of Stadium development from West ham to the tax Payer.
Ever since There have been a legacy of problems. The outstanding issue going forward is the cost of annual Stadium conversion. Until now we have not known the financial costs associated with facilitating summer athletics. What the Moore Stephens report lays bare is a situation far worse than any could have imagined.
A key passage Copied from the report appears below.
““The income and expenditure items that have differed most from amounts expected in E20 business plans are:
The operating costs of the relocatable seating which now represents the largest annual expense to E20.
These costs are in excess of £10m per annum, which is over 300 times greater than the figure budgeted (of £300k). This cost is not just limited to one year, but is an ongoing issue as the movement of seats is required every year, and this level of operating cost is not expected to be reduced without a new solution for seating being implemented, at considerable additional capital expense.””
I suspect Moore-Stephens calculator may have been on the blink as I make £10 million a factor of 30 and not 300 times the original estimate of £300,000. Whilst this may be embarrassing for the financial credibility of the analysis, nevertheless the general point still holds. It is important to note this annual capital outlay is wasted investment with no long term return. Apart from the benefit of staging a 2 week Athletics meeting. It is the investment plan equivalent to spending £10 million a year digging a hole and then filling it in again. It is the infrastructural plan of the mad house. The Tax Payer spends over £10 million a year in capital investment but at the end of the process UK Athletics are in exactly the same position as it was before the start of the investment.
So there is no returns apart from allowing the stadium to host a 2 week Athletic event. What this means is that even ignoring inflation the tax Payer will, over 10 years, subsidise Athletics to the tune of £100 million for staging Athletics for just 20 weeks.
When you consider the vast sums involved in building projects it is sometimes hard to contextualise. However this is serious money which could do a great deal elsewhere. For comparison sake the cost of building The Northumbria Specialist Emergency Care Hospital in 2015 was £75 million. So in just 8 years moving seats for athletics will start to dwarf the cost of building a small hospital. The value of a Hospital building will support thousands with critical care all year around, 24 hours a day, and last for at least a generation. The seat relocation investment provides value only for an annual 2 weeks Athletics window. By any reasonable scrutiny this is a colossal waste of public money.
£10million for seat relocation is astonishing. Even rejecting Moore Stephens incorrect estimate it is still 30 times larger than the sum budgeted for in the original Business Plan. There is no doubt that if the actual cost of seat relocation had been properly scoped, the whole Multi-use Plan would have been jettisoned at birth.
A further problem is that these conversion costs will increase rather than decrease over time. The original vision of a hi-tech 21st Century technological solution with sliding smooth retractable stands has long disappeared. This has been replaced by 19th Century labour intensive scaffolding technology. By massive deployment of brawn brain and muscle, an internal stadium is effectively demolished and constructed every year. The largest part of the relocation budget will be wages sensitive to inflation.
Ignoring inflation, the current Stadium Project is already schedule to accrue cost of £1,000 million over the life of the lease. In other words a billion pounds. This is a budget more suited to running Government Departments than putting on an Athletics event.
When we consider inflation the situation is even worse. In 10 years the annual cost of seat relocation will be, assuming 2% inflation, over £12 million a year. By the end of the planned lease based again on an average 2% inflation the annual cost will be nearly £70 million and the state would have invested £3 billion in order to stage Athletics for 2 weeks a year.
I have compiled a financial analysis of the costs over the terms of the lease, including inflation which can be downloaded from “here”:https://www.sendspace.com/pro/dl/vqyw67
So the unavoidable conclusion is that seat relocation has no practical future. The real question then is whether the Stadium has a future with Athletics as the anchor tenants with West Ham relocating elsewhere. The answer is no. The unavoidable consequence then is that it is Athletics which will have to relocate. It is only with Premiership Football that the Stadium has a future.
This will undoubtedly disrupt the vision for legacy. It is not in dispute that Athletics needs a national home but this must be invested in another place. The State must commit to providing a world class legacy for Athletics. This was the vision of 2012 and should be honoured. It just cannot be honoured at the London Stadium.