PtG Article 26.08.2016

West Ham's Olympic deal

On August 21, West Ham played their first home Premier League match in the newly converted London 2012 Olympic Stadium, but unlike opponents Bournemouth or any other club in the world’s richest league the hosts are getting a free ride courtesy of the British taxpayer.

When London bid for the Games, the main stadium was to be converted into a 25,000-seat multipurpose stadium focused on athletics to include a ‘house of sport with training facilities, offices and sports science and sports medicine facilities’.

Instead, nearly £1 billion of mostly public money has been spent building then converting the stadium for a privately-owned football club. The legacy of the stadium has been criticized as a ‘give-away’ by charities, who recently called for £425 million in National Lottery funding used to build the project to be returned.

The club has also signed a 99-year lease to be the main tenants with E20 Stadium Limited Liability Partnership, which is a joint venture between the London Legacy Development Corporation (LLDC) and Newham Council and owns the stadium.

The Olympic Stadium Coalition – a group of 14 supporters’ trusts and groups – fought a long battle with the LLDC over publication of this lease.

Citing commercial confidentiality, the LLDC tried to suppress publication but in April, a tribunal supported the OSC in a 21-page ruling. West Ham’s annual rent of £2.5 million a year was disclosed after the contract was published.

“The basics tell us and the general public that this is not good value for the general public,” says Richard Hunt from the Charlton Athletics Supporters Trust (CAST), which is one of 14 members of the coalition.

The contract runs to 207 pages and the OSC, whose 14 members are all voluntarily, want commercial lawyers to go through each clause of the contract to confirm the benefits to the taxpayer as the full implications are only just being understood.

Unusually high level of public subsidy

What is becoming clear is the extent of the public subsidy, particularly when compared to a similar deal struck by Manchester City Football Club for the 2002 Commonwealth Games stadium.

Since Manchester City was bought by Abu Dhabi United Group, the stadium has been the catalyst for a major regeneration of the run-down area surrounding the ground. In contrast, the catalyst for the regeneration of Stratford was the publicly-funded 2012 Olympics. 

There are many other significant differences between the Manchester and Stratford Stadiums (see box), including a clause in the lease which means that West Ham – unlike the 19 other Premier League clubs – do not have to pay for policing and stewarding. 

In the 2012/13 season, West Ham paid out £704,350 to the London Metropolitan Police for policing the club’s old stadium, the 35,000-capacity Boleyn Ground according to the Freedom of Information (FoI) Act, which allows the public to request data that state-controlled bodies do not always want to release.

London football club sources suggest that an annual stewarding bill for 750 staff could reach £900,000 or even £1 million a year. And that would come before other costs, such as policing.

“All clubs pay the police and it’s a tough negotiation between the police and the club to establish the cost of the footprint around the ground,” says Hunt. “No-one at West Ham has to do that because E20 has to do it.

“Policing was what [LLDC] wanted to keep quiet. I would argue that was because their highly paid consultants didn’t realize how much they were. I didn’t realize until I started putting in FoI requests.”

Other Premier League clubs declined to discuss the decision to allow West Ham to pass on stewarding and policing costs to E20, but privately some clubs are understood to be unhappy.

Subsidy of privately-owned clubs

E20 ’s revenue comes from West Ham’s rent and a share of match-day catering, and Hunt questions what happens if the partnership company goes bust. “We suggest that someone might come in and say ‘we can take the stadium off your hands’ and we know who that might be,” says Hunt

The subsidy of privately-owned sports clubs is anathema to British sporting tradition, particularly as Premier League clubs have signed a new £8 billion TV rights deal with Sky.

Even the bottom club this season will get around £100 million and this rise has inflated the value of all Premier League clubs, which are increasingly becoming targets for acquisition by overseas investors.

Last month, London financial newspaper City AM published an analysis of other clauses in the lease, including those surrounding a potential sale of West Ham by its owners, 67-year-old David Sullivan, and 79-year-old David Gold.

The newspaper claimed that the deal ‘could represent a personal windfall’ to Gold and Sullivan because the club has debts of £91 million, which must be cleared before any sale.

According to the analysis, a sale of the club for £125 million or more in the next 10 years would benefit the British taxpayer. But City AM claimed that based on latest financial information, if the club was sold for £215 million the taxpayer would not get anything but ‘Sullivan and Gold, meanwhile, would stand to pocket at least £165m – a profit of around £31m on their investment – in that scenario,’ wrote City AM.

In response, West Ham insisted to City AM that a sale is not likely.

The club did not respond to requests for a comment on the stadium deal, but the LLDC defended the decision to cover policing.

“As the Stadium operator, it is E20 Stadium LLP’s responsibility to pay for the venue’s overall policing costs under safety and security legislation,” said the LLDC to in a statement.

“As a tenant, these costs are included in the rent paid by West Ham. E20 Stadium LLP has worked closely with the Metropolitan Police to create an appropriate policing strategy for all Stadium events.”

A shift towards a US model

The Olympic deal is a shift towards a model more prevalent in North America, where taxpayers fund the building of new stadia to attract major sports franchises.

Roger G Noll, a professor of economics, who specializes in this area, says: “The West Ham stadium deal … seems broadly similar to the arrangements that US teams have for publicly owned facilities. Typically the local entity gets an annual rent plus a share of profits from activities in the facility. Usually, but not always, a corporate affiliate of the team - a separate company owned by the team or the entity that owns the team - has a contract to operate the stadium. But these deals can be complex.”

Noll cites the Levi Stadium in San Francisco, which is home to the city’s American football franchise, the 49ers. A corporation that is owned by the team is in charge of day-to-day operations, such as field maintenance, stadium clean up, scheduling events other than 49ers games, hiring day-of-game staff, leasing sales stalls to concessions says Noll.

A corporation owned by the city actually owns the stadium and is in charge of stadium repairs and upgrades. The first company pays rent to the second, and the second receives a share of the profits from events other than 49ers games. The costs of maintaining the field are deductible from rent.

Noll adds: “One difference from West Ham is that the corporation owned by the city is responsible for paying off the debt that was used to finance the stadium. In theory, the rent plus profit sharing is supposed to cover this.”

At the Levi Stadium, the 49ers are supposed to reimburse the city for the cost of police but this has led to a controversy over whether this compensation is adequate.

This seems likely to occur in London too. The Olympic Stadium is an iconic landmark in an urban area and in close proximity to Westfield Stratford City, which is one of the largest urban shopping centres in Europe.

“What if the whole of the Westfield Centre is affected by West Ham games and they have to start policing that?” asks Hunt. “I can see the police costs spiralling.”

The Met describes this cost as ‘unrecoverable’, which would mean yet more cost to the public purse.

The true legacy of the Olympic Stadium seems to be one that offers a privately-owned football club a chance to grow substantially and compete with bigger rivals, which will only increase the costs to the British taxpayer.

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