In the third of his series on Moore-Stephens Blind Hammer looks at what terms West ham should require in the Mayoral renegotiation.
After the publishing of the delayed Moore-Stephens report in December Sadiq Khan made the renegotiation of the concessionary Agreement with West Ham a high priority. This was slightly odd. What Moore-Stephens clarified was that it was facilitating Athletics which had the most adverse impact on the Stadium Business Case. The budget for relocating seats alone dwarfs any other costs, representing at least 4 times West Ham’s annual rent. A secure financial future for the Stadium will inevitably, at some stage, have to grasp the nettle of compensating Athletics to relocate.
Despite this the Mayoral Press Release focused on the West Ham concession as the first avenue. However, should West Ham agree to renegotiation?? On the face of it, if they genuinely have the Deal of the Century, it would seem foolish to allow any amendments which could financially penalise them. This was, after all, an agreement that they have negotiated in good faith. Given that the structural misfit of hosting Athletics represents the overwhelming financial flaw in business planning, they could conceivably just sit on their hands. They could instead suggest that it is with UK Athletics that Kahn should concentrate his renegotiation efforts.
Despite this there are a number of reasons why West Ham will be forced to renegotiate. Firstly there will be political pressure for them to show willingness to help resolve Stadium issues and continue as good tenants. This is despite the evidence that E20 have shown increasing reluctance to act as good landlords. There are signs that E20, if not hostile to the West Ham occupancy, have exhibited what could be described as a “work to rule” approach. This is reflected in a range of strategies surrounding Stadium issues. These allegedly include some petty responses such as not providing desired catering services. Stadium responses are typically couched in terms that these services are not precisely specified in the concessionary agreement. More seriously West Ham has been blocked from in investing to improve Stadium fitness. Specifically the club wanted colour contrast pitch surrounds. These were designed to assist players in visualising pitch dimensions. In an impressive feat of logic churning West Ham was told that they could make this investment but only if the colours did not provide this necessary contrast. It appears that this difficult relationship will persist until West Ham agrees to renegotiate.
Most seriously of all West Ham have been prevented from executing plans to increase capacity to 60,000 and eventually 66,000. I covered the issues surrounding capacity in my last article on MooreStephens which you can find “here”:https://www.westhamtillidie.com/posts/2017/12/21/moore-stephens-part-2-seating-capacity
I argued then that West Ham and indeed E20 should welcome expansion of Football capacity as the correct delivery of Legacy for the Stadium.
I will return to the advantages of maximising Stadium Capacity in a future post but for the moment will simply assume this is in West Ham’s interest.
In that post I described how Stadium Capacity is the major weak point of the concessionary Agreement. There is no guarantee that even the current 57,000 CAN BE maintained. There is only an obligation to provide 53,500 seats. This is the Sword of Damocles hanging over West Ham, if there is any further crowd trouble Stadium capacity could be pruned even further.
Given E20’s Health and Safety and Governance accountabilities they have the determining responsibility to apply for Stadium Safety Certificates. It is also clear from their reference to “commercial” considerations that they do not have any intention of doing so in advance of any renegotiation.
So West Ham has 3 Strategic nuts to crack from any renegotiation.
Firstly they should create the most inclusive “nag sheet” of issues which need to be resolved as their condition for entering a renegotiation process. So all of the infrastructural issues and service issues, including catering and pitch surround need to be addressed positively rather than obfuscated and hindered.
Secondly some kind of genuinely independent arbitration process for resolving these infrastructural issues needs to be agreed so that hidden agendas do not hinder future Stadium development. If this is not agreed E20 and West Ham will be wasting lots of money in potential legal disputes during the life of the agreement.
Finally and most crucially the perverse incentive of E20 to restrict Stadium Capacity in order to achieve strategic leverage over West Ham needs to be broken. West Ham will never be able to replace E20 as the vehicle for Safety Certificate application. However what they can do is to remove any financial incentive to reduce Stadium Capacity. The most straightforward way to achieve this would be to agree that Stadium Rental should rise, but that this increase must be directly related to any increase in capacity. In other words both E20 and West Ham should share the strategic interest of maximising crowd capacity.
The value for West Ham will lay in building brand and supporter base rather than seat income. Despite this we need to scope out some ball park revenue streams to see what is potentially up for grabs in the renegotiation.
The starting point should be any extra seating over the Current 57,000. There are a range of ticket options available in the stadium but given the likely location of extra seating and the availability of concessionary pricing, I have assumed a possible modest seat income of £25 per seat, per game. This means for every 1,000 extra seats West Ham could potentially achieve £25,000 a game. If Stadium Capacity went up to 60,000 this would rise to £75,000 a game, and din the event of the full 66,000 being sell out an extra £225,000 per game would be generated.
Per season the income generation figures would not be that significant. By these figures increasing capacity to 60,000 would only generate an additional £1,425,000. There will also be some inevitable infrastructural costs apart from the installation of the seats, for example in extra toilet facilities which could defray any extra income. However if capacity can reach the desired 66,000 then extra income will increase to a rather more significant £4,275,000.
These sums, large in the non-football world are relatively small in the insane world of football finance and TV revenue. However they do provide scope for West Ham to significantly upgrade the payment of their tenancy from the current £2.5 million per annum. My own view is that West Ham, provided they can achieve positive ongoing strategic and operational Stadium relations, should welcome re-negotiation. Subject to these provisos West Ham should, in my estimation even consider a potential 100% increase in rental terms linked to a sliding scale up to the achievement of a final capacity at 66,000. In this way West Ham would pay extra rent every time capacity is reached along a sliding scale, and less if capacity is not reached. This would ensure both West Ham and the Stadium Operators would have a shared interest in maximising Stadium usage.
Whilst this would mean that the club would have to find an additional £2-£2.5 million a year, this could be funded through the extra ticket revenue. I think West Ham should even be prepared to help with the extra infrastructural costs associated with the installation of extra seating in the Stadium.
In the end these measures will not dislodge the structural problems of financing Athletics at the London Stadium, but it would allow the usage of the Stadium to flourish further. The benefits of extra capacity for West Ham will in the end have little to do with the extra seat revenue but in other areas. In my next article I will address why the issue of capacity matters.
COYI
David Griffith