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Newham Council exits London Stadium partnership as report on transformation costs released

PUBLISHED: 10:24 01 December 2017 | UPDATED: 17:02 01 December 2017

The London Stadium in Queen Elizabeth Olympic Park is the home of West Ham Utd

The London Stadium in Queen Elizabeth Olympic Park is the home of West Ham Utd

Archant

A “bungled decision-making process” led to the soaring costs of the London Stadium’s transformation, a report has revealed.

The independent review, carried out by accountants Moore Stephens, revealed a catalogue of errors that saw more than £133 million more paid out to turn the former Olympic Stadium into a Premier League football ground.

Commissioned by mayor of London Sadiq Khan in March, it found that decisions made by former mayor Boris Johnson led to the taxpayer - rather than West Ham - shouldering the cost and financial risk of the transformation.

The review says the investment by the public purse will not only never be recovered but has forecast that unless further action is taken, the stadium will continue to lose up to around £20m every year.

Mr Khan has announced he is taking control of the stadium to put it on a more secure financial footing, with Newham Council withdrawing from the E20 partnership - although it will continue to provide community benefits to those living in the borough.

He said: “I ordered the review into the finances of the London Stadium to understand how key decisions were made about its transformation and why costs were allowed to spiral out of control.

“What has been presented is simply staggering. Not for the first time, it reveals a bungled decision-making process that has the previous mayor’s fingerprints all over it.”

Mayor of Newham Sir Robin Wales added: “It is regrettable that the finances of the stadium have not followed the expected course.

“It was vital for Newham however that the stadium remained a public asset in public ownership, to maximise its regeneration, community and other financial benefits.”

The council had originally invested £40m into the stadium business, with a further £12.2m in working capital between February 2015 and June this year - which it accepts will now not be repaid.

The new deal will see Newham relinquish its ownership in return for community and regeneration benefits for the next 100 years, including free tickets for sporting and entertainment events.

Sir Robin added: “Our decision to invest was based on the entirely reasonable assumption that the previous mayoral administration carried out its contract negotiations for E20 with due diligence.

“Those contracts have now been found to be onerous and, if the stadium is to return to profitability, they must be revisited by the new mayor of London and his team.

“We remain committed to working with Sadiq Khan to ensure the stadium is a success in Newham.”

Mr Khan, through the London Legacy Development Corporation, has said he will seek to work with anchor tenants West Ham, UK Athletics and other stadium partners to address the flaws in existing arrangements.

He said: “I am determined to put the London Stadium towards a stronger financial footing and secure its long-term future, but I’m under no illusion that this is going to take time and some real commitment from all partners to make this work.”

The 169-page report higlighted five key decisions that led to the financial problems - the original design, the planning for post-Olympic use, the bid process, transformation of the stadium and operation of the stadium.

Contracts were signed with West Ham before the costs of conversion was properly understood, and before the Olympics, insufficient attention was paid to possible operating models for the stadium’s long-term future.

The report found that “operating costs of the relocatable seating [..] now represent the largest annual expense to E20”.

It added: “The [stadium operator] LS185 was expected to generate commercial income for E20, and this additional income was

expected to exceed the cost paid to them as operator.

“In fact, the commercial income generated is far below the level expected and so the payments to the stadium operator represent a net cost to E20.”

The report added that naming rights deals had been sought, first with Tech Mahindra in 2016 and then Vodafone this year, but neither were completed.

All business plans produced for the stadium since March 2013 had assumed a naming rights deal, bringng an income of at least £4m a year for the stadium.

In addition, the matchday costs of staging a game at the London Stadium currently stand at £220,000 a game - exceeding the fixed fee of £2.5m paid by West Ham to have up to 25 matches a season there.

The report stated: “Reflecting utilities and business rates and the fixed fee of the stadium operator, the required breakeven usage fee rises from £2.5m to around £11.5m.”

A statement released by West Ham said that the agreement was a “watertight, legally binding contract signed in 2013 in good faith by West Ham United, who remain absolutely committed to its terms for the entire 99-year duration”.

It added: “We fully concur that West Ham United has played a significant part in the most successful regeneration programme in the history of the modern Olympics, however the stadium itself craves renewed leadership and direction and we welcome the Mayor’s decision to step in and deliver this. West Ham United is firmly behind him.”


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