The report commissioned by London Mayor Sadiq Khan has outlined foreseeable losses and cost overruns at the London Stadium (Olympic Stadium). Most recently, the rent agreed for West Ham, £2.5m per year, does not cover the costs of operating the stadium. The current publicly owned operator, E20, is losing £10-£20m a year, the report states – including losing £2.25m hosting West Ham to play football, which costs £4.75m a season.
Newham borough council, which loaned £40m towards the conversion of the stadium for West Ham, has accepted it will not see that money repaid and has withdrawn from the E20 partnership. Khan announced that he, through the mayoral body the London Legacy Development Corporation, will take control of the stadium and seek to staunch its losses.
Moore Stephens Olympic Stadium (London Stadium) Review – Executive Summary
The Olympic Delivery Authority (the “ODA”) decided for the Olympic and Paralympic Games, the required stadium (“Stadium”) would be an 80,000 seat stadium, deconstructed into a 25,000 seat bowl to be used for athletics. In mid-2010, the Olympic Park Legacy Company (“OPLC”) re-examined the legacy options for the Stadium, concluding that a transformation to a multi-sports stadium with lease to a sports club anchor tenant was the best option. It then planned to transform the Stadium to a facility with 60,000 seats, roof coverage for all spectators and a warm up track.
OPLC pursued a competition and bids were received in September 2010, with the two shortlisted bids received from consortiums led by football clubs, West Ham United (WHU) and Tottenham Hotspur (THFC). In both options, the Stadium would effectively be transferred to the anchor tenant, who would have responsibility for transforming and operating the Stadium. The public sector contribution to transformation works for both options would be fixed at £35m.
In February 2011 OPLC selected the joint bid by WHU and the LBN (the “WHU-LBN” bid) as the preferred option. However, the process was subject to legal challenge from unsuccessful bidders and an anonymous State Aid complaint. OPLC decided that whilst these legal complaints, particularly in relation to State Aid, were live, no progress should be made in relation to development of the Stadium. At around this time it was also decided to bid to host the 2017 World Athletics Championship in the Stadium.
With the legal issues ongoing and the delays and uncertainty these caused to the overall delivery timetable, in early October 2011 the bid process was aborted. At the same time it was announced by OPLC and the Mayor of London that a new competition would be run, but that stadium would remain in public ownership, under a different operating structure. Under this arrangement, OPLC would retain a greater degree of day to day control and users would pay for their use of the Stadium. Given that the Stadium would be retained as a public asset, the liability for transformation and future running costs for the Stadium would fall to the public.
The second competition, launched in December 2011, was a straightforward competition for one or more users, the specification being a 60,000 seat capacity with a full, permanent roof, enhanced hospitality facilities, permanent toilets, catering and turnstiles. Four bids were received and once again WHU was selected as the first ranked bidder in December 2012, after which negotiations commenced. Following negotiations, the concession agreement with WHU was approved and signed in March 2013. The business case at the time, expected the transformation costs to be £190m (although this was based on limited design work) and the operating result to be a surplus of £3.2m before repair and maintenance expenditure.
However, when the transformation works started, not all of the design work had been completed and it quickly became clear that the transformation costs were going to be in excess of the budget previously set. Together with further acceleration required prior to final opening in summer 2016, the transformation budget estimate of £190m was exceeded by £133m, with the total cost being £323m.
Rather than operating the Stadium itself, the public sector Stadium owner (“E20”) appointed an operator, Vinci, through a tender process. In the approved business case, there was a forecast operating surplus in excess of £3m for the stadium, before repair and maintenance expenditure.
This has not materialised, and instead E20 is faced with substantial deficits. The cumulative forecast deficit over the first ten years is expected to be in excess of £140m. The March 2017 business plan forecasts the annual deficit to be as high as £20m in 2018, with the most positive year still expected to result in a deficit in excess of £10m.