Agenda Item No

29^th October 2003

 

 

 

To the Mayor and Members of Cabinet

 

Doncaster Community Stadium - Concept, Image and Financial Implications.

 

Cabinet Member(s)   Councillor Ian Spowart - Special Projects   Councillor John Hoare – Economic Development   Councillor Margaret Ward  - Culture, Sport and Young People

Relevant Overview and Scrutiny Sub-Committee     Regeneration

Wards Affected       All

Key Decision         Yes

 

Purpose   

 

1.         The purpose of this report is twofold. Firstly to update members of Cabinet of the final outcomes and recommendations of Stages 1 & 2 and the Leisure Capacity Audit as earlier approved for the Community Stadium procurement process. Secondly to seek approval in principal and subject to the satisfactory resolution of the outstanding issues referred to in recommendation 6, for the actual procurement of the Stadium by the Council via its Transformational Projects Investment Programme. The Community Stadium Steering Group chaired by Councillor Ian Spowart has overseen the project and has approved conclusions from the early stages.

 

Recommendations

 

2.         That members of the Cabinet

 

1.      Note the progress made since approving the way forward at its meeting of the 27^th November 2002.

 

2.      Endorse the outcomes from Stage 1 identifying the Community Stadium concept and the Leisure Capacity Audit as detailed paragraph 8.

 

3.      Endorse the view that Concept 2 in paragraph 15 best reflects the Councils aspirations for a Community Stadium.

 

4.      Approve the view that Design 1 paragraph 17with a capacity of 10,000 seats represents the most viable and flexible option.

 

5.      Accept the conclusion from the Stage 2 report that the only viable procurement route for the Community Stadium is by the Council.

 

6.      Approve commencement of the procurement process for a Community Stadium with a seating capacity of 10,000 at Doncaster Lakeside at an estimated cost to the Council at today’s figures of £17.7million. Such procurement is on the basis that construction contracts will not be awarded until the satisfactory outcome of

·        Negotiations with the clubs as authorised by recommendation 8

·        The final financial position once agreements have been reached outlined in recommendation 9

The procurement will be funded through the Councils Transformational Projects Investment Programme over the 2003/04 - 2006/07 financial years.

 

7.      Approve Mechanism 5 paragraph 22the establishment of a Stadium Management Company (SMC) comprising the three sporting clubs and the Council as outlined in the Stage 2 report.

 

8.      Authorise commencement of negotiations to reach binding legal agreements with the three sporting clubs to establish the detailed basis for their use and involvement in the Community Stadium.

 

9.      That a report outlining the final financial position covering inter alia grant funding, revenue streams and third party contractual agreements be presented back to Cabinet.

 

10.Pursuant to recommendation 6 above an appropriate Professional Team be appointed in conjunction with 3D to deliver the Stadium.

 

Background

 

3.         On the 27^th November 2002 Cabinet approved a 3-stage process for delivery of a Community Stadium.

·        Stage 1 was the identification of the ‘concept’ of a Community Stadium in Doncaster i.e. which other particular uses, in addition to the sporting clubs, would be compatible or complimentary and when included within the mix would therefore constitute a ‘Community’ stadium.

·        Stage 2 would provide a series of indicative architectural proposals and the associated financial details predicated upon the outcomes of Stage 1. The financial information would be based on two aspects, a financial model capable of testing different capital and revenue scenarios and also a business plan showing probable cash flows.

·        Stage 3 is actual procurement of the stadium subject to approval from Cabinet after consideration of the financial impacts for the Council. The procurement would be on the basis of the agreed outcomes for Stages 1 & 2.

 

4.            Arising from Stage 1 was the need for an additional piece of work             relating to existing and spare leisure capacity in the local market, which             would help advise the whole process. Some of the complimentary uses             proposed for the Stadium were already being provided nearby and             within a very competitive market e.g. Health & Fitness and Hotels. The             requirement for this study was to determine the market capacity in             these fields and ensure there was spare capacity for the uses             proposed without damaging existing provision notably the Dome or             competing with other Council sponsored projects such as Town Moor.

 

5.            Running in parallel with this process was an extensive community             consultation exercise. The Stadium Community Engagement Group             was launched on the 8^th February 2003 with a remit to involve and             seek opinions from a wide spectrum of the community. A detailed             questionnaire distributed by this group seeking views of various             stakeholder groups has indicated strong and widespread support for a             Community Stadium. This is detailed in the Consultation section.

 

6.            Underpinning the whole of the 3 Stage process was a desire from all        the parties involved Doncaster Rovers, Doncaster Dragons and             Doncaster Belles to have a new Stadium which could be delivered             within the 2005/06 playing season.

 

Options Considered and Reasons for Recommended Option

 

Stage 1 - Considerations

 

7.         The requirement of this section was to determine an acceptable concept for what the Community Stadium in its widest sense would comprise. It also sought to formalise the basis of the Sporting Clubs involvement in the scheme. The considerations at this stage were therefore

·        Types and compatibility of Community uses in the Stadium

·        Discussions with the 3 clubs to determine their operational requirements

·        Capacity of the Stadium

·        Facilities required within the Stadium to support the sporting clubs

·        Consideration of complimentary sporting activities around the Stadium

·        Identification of any supporting commercial opportunities

·        Identification of potential developers and/or private sector operators

 

Stage 1 – Conclusions

 

8.            Proposed Community uses compatible with the concept included

·        Education Suite linked to Doncaster College Sports

·        Flexible community space

·        Non match day hospitality facilities

·        Potential Learning Zone

·        Negotiated access to 5-a-side, Health & Fitness etc

·        Draft Heads of Terms agreed for the 3 clubs Rovers, Dragons and Belles outlining the basis of their usage of the Stadium. These are detailed in the Stage 2 section.

·        15,000 capacity venue subsequently reduced to a seating capacity of 10,000 (due to the lack of a credible business case for the larger capacity) on cost and business case grounds with the following facilities

·        Admin and ticket offices

·        10 Executive Boxes (capable of expanding to 20)

·        Restaurant for 250 covers

·        Supporters bar for 500

·        Directors/Sponsors Bar

·        360 Corporate car spaces + 40 disabled car spaces

 

·        Complimentary sporting activities such as an Indoor Skate park, Outdoor Athletics Track, Youth Club and Golf Simulator were considered but eventually excluded on compatibility, location or cost grounds.

·        Supporting commercial operations were identified and these were proposed as

·        5-a-side Football operation

·        Health & Fitness

·        Hotel

·        Casino

·        High quality Food and Beverage

·        Martial Arts Centre

 

9.         Three companies who are particularly active in stadia development             and operation were identified.

 

10.       The findings from Stage 1 were presented to the Stadium Steering Group and senior Council officers. They were discussed in great detail resulting in the final conclusions as listed above. These have since formed the basis of the Stage 2 analysis. The Stadium Steering Group chaired by Cllr. Ian Spowart also involves other relevant Cabinet members Cllrs. John Hoare and Margaret Ward.

 

 

Leisure Market Capacity Study – Considerations

 

11.       The proposals from Stage 1 recommend a substantial increase in leisure activities not only in the stadium itself but also in the Lakeside area. Some of this would be entirely new provision such as a Casino but others would be additional capacity in what is obviously a very competitive market e.g. Health & Fitness. To advise on the appropriateness of the recommendations and also to look at impact on existing provision such as the Dome further work was sought. The study required analysis on the following factors

·        Identification of the scale and capacity of the local market and a recommendation of what could be accommodated in the following fields

·        5-a-side Football operation

·        Health & Fitness

·        Swimming

·        Athletics

·        Hotel

·        Casino

·        High quality Food and Beverage

 

Leisure Market Capacity Study – Conclusions

 

12.       The study analysed the current market provision, participation rates and market trends within the stated areas. It also pinpointed Doncaster’s mix of socio-economic groupings which when compared to national averages showed a distinct shortage of people in the highest category. This obviously impacts on spare capacity particularly at the quality end of the market but the statistics did show the following

·        Clear capacity for 5-a-Side Football and a Casino

·        Opportunity for 1 further Health & Fitness operation

·        Market capacity for a 4* Hotel plus one budget operation in the area

·        Food & beverage –opportunities at the quality end of the market. This would conflict with current disposals on Lakeside and therefore would not be included at this time.

·        Athletics – a clear strategic gap noted but provision should not be on this location

·        Swimming – no additional demand identified

 

13.       On this basis the proposals to be taken forward and worked into Stage 2 were for a 5-a-Side football operation that could also include a Health and Fitness element. These could be integral within the stadium construction. Additional commercial elements, potentially able to support the stadium in terms of finances, could be in the form of a Casino, (subject to legislation), and a hotel probably budget as the 4* would be within the Town Moor development. At this point Swimming, athletics and additional food and beverage other than Stadium hospitality would be excluded.

 

Stage 2 – Considerations

 

14.       The following points outline what are the key decision making areas in defining the final scheme, procuring the stadium and also managing a completed stadium. The following analysis are based upon Stage 1 findings which are

·        Stadium with a seating capacity of 10,000 and with function / hospitality facilities.

·        Sports bar

·        Education facilities for Doncaster College.

·        two natural turf football / rugby pitches.

·        5-a-side football center with Health & Fitness.

·        Martial arts centre.

·        The options under consideration as part of Stage 2 were

·        Stadium Concept i.e. what should it include

·        Design options – 4 initial designs were produced by the architects

·        Procurement Options for securing the Stadium

·        Management of the stadium on completion

·        Stadium Finances – Capital and Revenue implications

 

Stage 2 – Conclusions

 

Stadium Concept

 

15.            Although Stage 1 recommends a workable mix of uses to create a Community Stadium there is still an option for the Council to vary the specification.  The 3 recognised scenarios are as follows:

 

Concept 1 - Stadium only - basic premise is for sport only. Will be used exclusively by the clubs with little or no community use.

Concept 2 - Stadium plus Community Uses - i.e. 5 a side football, College facilities, IT suites, Martial Arts Academy.

Concept 3 - Stadium, Community and Commercial uses - All above plus hotel, casino, pub, quality restaurant and fitness suite.

 

 

16.            Concept 1 fails to meet the Councils aspiration of a Community Stadium and would probably be difficult to support in relation to the Councils fiduciary duty in terms of just providing a simple replacement-sporting stadium.

 

Concept 2 is the most deliverable solution and is very much in line with the Councils vision and aspiration for a Community Stadium.

 

Concept 3 would need a huge amount of capital provision currently not earmarked in TPIP. Ideally this scenario would best be suited if the venture was attractive to a private developer. However because the rentals and returns are low market testing with relevant developers has indicated that the private sector is not interested in this package. Retail, Office and/or residential would need to be added; however they would impact on other projects at Lakeside as agreed in the approved Masterplan.

 

The conclusion is therefore to provide a Stadium with Community uses – Concept 2.

 

Stadium Design Options

 

17.       There are 4 designs proposed, all originally based on a capacity of 15,000 seats, each with a differing cost per seat depending on the quality and specification of the architectural designs. Once the professional fees and fixtures and fittings are added to the basic construction figures the expected out-turn figures for a ‘turn-key’ operation are as follows

 

Design 1             Block stands on each side -                total cost £13.35m

Design 2            Bowl around the whole pitch -              total cost £16.85m

Design 3            Box & Bowl shaped design  -            total cost £19.5m

Design 4            Snail with an open side -              total cost  £22.85m

 

Not included in the above are costs associated with adding in the Community components such as Educational facilities, Community space, changing (other than for the clubs), outdoor training pitches and 5-a-side. With the exception of out door activities the majority of these facilities will be provided within the fabric of the stadium. This will add a further £5.175m to each of the above figures.

 

18.       These four designs including costs were presented to the Stadium Steering Group for consideration. Feedback from the group suggested that designs 2, 3 and 4 were too costly and that the seating capacity should be considered at 10,000 in the absence of a credible business case.

Design 1 was therefore the preferred design based upon a seating capacity of 10,000.

However during the design phase the feasibility of including an amount of standing space would be considered. Inclusion of a standing terrace would be subject to acceptability in design terms, eligibility of grant monies and no adverse impact on revenue streams.

This design also presented the greatest degree of flexibility in terms of future development and capacity. It offers alternatives for expansion either by adding a tier or filling in the corners. It also has the potential for converting commercial space to community uses or vice versa as the market dictates. The corners could also be used to incorporate commercial opportunities such as a hotel or even an office development subject to favourable market conditions.

The recommended conclusion is therefore to provide a stadium with a seating capacity of 10,000  based upon the design in Design 1.

The amended cost due to a 10,000 seat stadium would be as follows

Block stands on each side -                        £11.35m

Community components -                                     £5.175m

(Education, 5-a-side, training pitches etc)

Additional Infrastructure -                                    £3.0m

(Public Realm, Road, Main Car Park etc)

Pre-procurement costs -                                £0.7m

(Professional, Adviser & Legal fees etc)

 

 

Total Capital Cost (Without Grant) -                        £20.225m

 

19.       Grant Support could in a worst-case scenario be zero or as high as £4.018m and from a variety of sources. The most likely to be realised is the Football Foundation Grant, which is potentially the largest contributor at about £2.25m, and therefore with other smaller contributions a realistic grant figure is viewed as £2.5m.

Total Cost (Without Grant) -                       £20.225m

Realistic grant support -                                     £2.5m

 

Likely net Capital cost -                  £17.725m

 

Procurement Routes

 

20.       It was recognised early in this process that three distinct methods of procurement presented itself for the project.

Route 1 -            Complete provision by the private sector

Route 2 -            Joint Venture (JV) with a developer/private sector partner

Route 3 -            Council acts as developer

 

21.       Each of the above routes present specific advantages and disadvantages in terms of control, risk and delivery timetables. Ideally the Council would have favoured the first route thus eliminating any risk and/or future liabilities. However the lack of any commercial attractiveness has ruled out private sector interest. Similarly with Route 2, although initial interest was established with 3 of the current major stadia developers this has since waned once the mix of acceptable uses formalised. Direct approaches to the companies have confirmed that the modest revenue generating aspects are insufficient for the risks involved. To make it attractive would necessitate the inclusion of retail, residential and office consents within the scheme.

The only option for delivery of the Community Stadium is therefore direct procurement by the Council, Route 3.

 

 

 

 

 

Management of the Stadium

 

22.       Five potential mechanisms have been identified for managing a fully functional stadium. These are:

Mechanism 1            Direct Management and operation by the Council

Mechanism 2Management and operation by one of the sporting bodies

Mechanism 3Management and operation by a national Stadium Management Company

Mechanism 4Management and operation through a Trust Company (Trust Co)

Mechanism 5Management and operation by a developer/local Stadium Management Company

 

23.      Extensive analysis of these various options and detailed discussions with relevant organisations including our advisors on the project has       led to the supposition that Mechanism 5 is the most appropriate and       workable solution.

 

24.       The conclusion therefore is to establish a Stadium Management       Company with a board of representatives from Doncaster Council,       Doncaster Rovers, Doncaster Belles and Doncaster Dragons to       oversee and appoint a highly professional team to operate and       mange the Community Stadium – Mechanism 5.

 

Stadium Finances

 

25.       Whilst working with the consultants to determine the financial implications for the preferred Community Stadium option the project steering group worked on two suppositions

a.     To minimise the amount of Council capital contribution to the scheme by considering joint ventures and enabling developments

b.     To focus specifically on the resulting revenue implications to minimise future liabilities to the Council and Council Tax payers.

 

However due to the lack of interest by the private sector and that potential enabling development can also be concentrated on the revenue side the full capital cost of the project has fallen to the Council.

 

Capital

 

26.       The capital cost of the preferred Stadium option has been outlined       earlier in this report. Delivery of a Stadium with a seating capacity of       10,000 will cost the Council around £17million. Increasing the capacity       to 15,000 would add a further £2.5million, however the stadium will be       designed in such a way so that expansion can be achieved at a later       date. The design process will also investigate the feasibility of       incorporating limited standing accommodation.

 

 

 

Revenue

 

27.       The revenue implications of this scheme are very complex and relate       to a whole series of variables that need to be agreed as a fixed basis.       These include type of stadium, size, number of games, management       set-up, ticket pricing and community uses. A list that is far from       exhaustive. A financial model capable of varying these factors has       been developed and a series of different ‘exhibits’ have been produced       for 3 options plus the preferred one. The exhibits effectively detail a       profit and loss account for a Stadium Management Company on the       basis of all 3 sporting clubs using the Stadium plus additional sporting       and other events.

 

28.            Revenue projections are based on realistic attendances at matches             throughout the season and these have been agreed with the clubs. A             sensitivity analysis is included in the report on the robustness of these   figures and what the impact would be if they change.

 

29.       A crucial area for consideration by all partners is the establishment of         an appropriate user fee mechanism. There are several variations             employed at stadiums around the country and these will be analysed             and discussed with the clubs as to which is the most appropriate. It is             essential that the whole basis of usage for partners is fair, equitable             and reasonable and that the mechanism selected provides a             sustainable structure for future management of the stadium.

 

30.       An overview of the financial situation from a Council perspective is             provided within the Financial Implications of this report.

 

Risks & Assumptions

 

31.       The following risks have been identified. The table highlights the risk,     an assessment of probability and the impact/consideration for the             Council. Other financial risks have been included in the Financial             Implications section.

 

Risk	i.                                                  Probability	Impact	Action/Mitigation
One or more of the clubs going bankrupt or into liquidation	MEDIUM	HIGH	Seek alternative uses for the Stadium or land
One or more of the clubs being relegated	MEDIUM	HIGH	Gate receipts would be reduced below our budget threshold. Undertake sensitivity analysis for implications
Stadium Management Company (SMC) going into liquidation	LOW	HIGH	Council as one of the SMC partners may have to underwrite debts
Anticipated crowd levels not materialising	LOW	HIGH	Revise income and revenue accounts. Seek alternative income streams
Additional usage other than Sport in the Stadium not materialising as anticipated	LOW	LOW	Figures currently based on a very low alternative usage level
Closure of one or more of the commercial concerns e.g. 5-a-Side Football, Health and Fitness Suite	LOW	HIGH	Currently very active markets. Tender to another operator
Lack of ownership from the local community	LOW	HIGH	Widespread consultation has already been undertaken showing wholesale support
Planning refusal for one or more of the Community/commercial elements	MEDIUM	HIGH	Undertake sequential tests for the sensitive operations Outline application currently submitted

 

Consultation

 

32.       As part of the process of developing proposals for the community stadium a detailed consultation was carried out between February and July this year.  More than 800 people representing local schools, the borough-wide Youth Forum, Doncaster Rovers, Doncaster Dragons, Doncaster Belles, Ethnic Minorities, Disabled Supporters, the borough-wide Community Forums, Adult and Community Learning professionals, and local residents took part in the consultation and by far the majority of people agreed on many aspects of the project.  These included:

·        Widespread approval of the stadium proposals for the Lakeside area

·        Agreement that the stadium would lead to more local people taking part in sport and that it would raise Doncaster’s sporting profile

·        Shared views that the stadium should offer a wide range of sporting activities, as far as possible meeting the needs of all users including family based sporting activities

·        A belief that the needs of disabled users should receive particular attention.

 

33.       A questionnaire was distributed to a cross section local people       resulting in a good response with reasonable numbers returned.       Analysis of the returns has indicated the following specific levels of       support.

 

34.       95% of those who responded said they approved of the Community             Stadium proposals. 87% approved of Lakeside as the proposed site,     and 95% felt that the council was right to consult a broad cross-section             of the community.

88% of those polled felt that a community stadium would lead to an increase in the numbers of local people taking part in sport. While 92% thought that Doncaster’s sporting profile would be raised locally, regionally and nationally and that the general levels of sporting achievement in the borough would increase.

 

35.       89% felt that a community stadium at Lakeside would lead to increased             economic activity in the area, and provide much needed jobs for local             people. Only 18% and 20% respectively felt that a stadium             development would lead to unacceptable levels of traffic congestion,             and environmental pollution from litter and noise.

77% felt that a community stadium should not only be for established sports, such as rugby and football, but should offer a wide range of sporting activities, including some minority sports. There was strong support for the idea that a community stadium should be multi-purpose and offer a wide range of sport-based and non-sport-based educational opportunities, with 94% of people in favour of a high quality educational facility in the development. 79% of respondents also felt that a stadium offering a range of educational facilities would provide healthy, alternative forms of entertainment for disaffected young people.

 

36.       There was 80% support for family-based sporting activities and amenities, and 72% support for sporting and non-sporting activities alike. 95% of respondents felt that the stadium should try as far as possible to meet the needs of all potential users, with 99% believing that the needs of disabled users should be given particular attention.

 

Legal Implications

 

37.       The Council may use its " well-being " power to implement the actions             recommended by this report. Part 1 of the Local Government Act 2000             provides the Council with power to do anything it considers likely to             achieve the promotion or improvement of the economic, social and / or             environmental well being of its area or inhabitants. Using this power,             provided that a promotion or improvement of well being is a likely             consequence, the Council may incur expenditure, provide financial             assistance, staff, accommodation and services and enter into             arrangements with others.

 

38.       The Council may also rely on section 19 Local Government (Miscellaneous Provisions) Act 1976 (which deals with the provision of recreational facilities, including the power to make grants or loans to voluntary organisations) and section 2 Local Authorities (Land) Act 1963 (general power to develop land for the benefit of an authority's area) and will need to consider section 123 Local Government Act 1972 (best consideration) and the associated General Disposal Consent. 

Participation by the Council in the stadium management company will require consideration of the Local Government and Housing Act 1989.

Furthermore, dependent on the structure and nature of the contractual arrangements the Local Government (Contracts) Act 1997 may be relevant, at least to avoid challenge by the parties themselves. 

 

39.       In exercising its power the Council must have regard to its Community             Strategy. Government guidance in relation to this duty indicates that      the requirement is not intended to limit the scope of the well-being             power nor to encourage a "check-list" approach to its use and not       every use of the power needs to be referenced in the Strategy. The             Council's duty is to consider what effect any particular use of the power             will have on the achievement of the goals and objectives set out in its             Community Strategy.  In any event, the Council may take the view that      this project is consistent with (at least in part) and, in any event,             supports elements of its Community Strategy, e.g. those elements             relating to access to IT, increased visitor numbers and rising retail             commercial and leisure values, increased profile of the Borough, social             inclusion, the development of the young and the promotion of health             improvement, and with the overall vision which includes "a substantial             increase in educational attainment, the consolidation of commercial             strength and widespread improvements in quality of life". 

 

40.       In exercising its power the Council must not act irrationally and must             do so in accordance with its fiduciary duty to its ratepayers. It must    come to its decision rationally taking into account all relevant             considerations and ignoring irrelevant ones. As with any other decision             the Council is obliged to act prudently and in a business-like manner             deploying its resources to the best advantage and with due regard to             the interests of ratepayers.

 

41.       At this stage the Council is considering the correct issues, i.e.:

 

(i)                 It has obtained what appear to be a thorough review from experienced consultants as to the options available to the Council and the viability of the project. 

(ii)               It will be considering the effect of the project on the deliverability of the Community Plan and the Transformational Projects Implementation Plan.

(iii)             It has undertaken and is considering an initial risk assessment through the risk matrices that are within the reports

and, in the first instance, it appears that the Council has the necessary powers to bring the project forward.  However, it is clear from the initial appraisal that at an operational level the project is only marginally profitable and, on the assumptions made at this stage, it seems that there is no financial projection that demonstrates a commercial return to the Council on the risk capital it may be putting in to this project.  This does not in itself cause a problem, but:

(a)              The Council needs to be clear that it is giving the correct resources to this project (having regard both to the benefits it sees itself achieving through this project and to other priorities that there may be) and that delivery of those other priorities are unlikely to be hampered by this project.  It is right that the Cabinet is clear that:

(i)                 to do nothing is an option.

(ii)               it is not practicable within appropriate timescales to fund the project through land sales with the additional community uses being funded through planning obligations.

(iii)             it is indeed not practicable within appropriate timescales to fund the (capital costs of) provision of the stadium through planning obligations. 

(b)              The Council will need to test again the assumptions (both financial and as to other risk issues) at regular points and certainly prior to letting any construction contract.  That is underlined by paragraph 9 under the heading 'Recommendations' in this Cabinet Report but is likely also to be needed to be undertaken during negotiations.

It is right that the approach that the Council is adopting is that commercial arrangements with the clubs and the stadium management company (with associated third party funding) are in place before the final commitment is made.  The Council needs to be clear at the outset that bringing all parties together at the same time is indeed viable and the next stage should be to test this out (if it has not already been done).  Experience shows that it may be difficult to secure third party funding sources in suitable timescales.

(c)               As part of (b) the Council will need to test further (including to the extent practicable at this stage) for example:

(i)                 the financial viability of the clubs.  Their existence at the stadium is what will make it work.  Can their creditworthiness and sustainability be enhanced in any way?

(ii)               the extent to which the clubs believe that revenue streams from gate receipts etc are robust at the levels assumed.

(iii)             the length of commitment that the clubs, the College and other key users are prepared to give.  In other words, what residual use risk is the Council taking here for a facility that may not have an obvious alternative use?

(iv)              the likely ongoing maintenance costs of the stadium, not just in terms of repairs and maintenance but also life cycle renewals and the risks surrounding regulatory change, e.g. surrounding safety certificates.  There is reference in the papers to whole life costing but does this term cover these issues?  Although this risk may be laid off initially to the stadium management company, the Council is likely to bear the residual risk if that company fails.

(v)                how the funding of improvements will be regulated and who bears what risks.

(vi)              what opportunities may exist for further commercial exploitation which may either not today be appreciated or which may only be available should the clubs be more successful. 

(vii)            an analysis of the project in terms of tax.  This does not appear to have been undertaken in the reports to date, save in the context of a discussion as to the merits or otherwise of a charitable body being the stadium management company.  The following implications arise:

(A)              to the clubs;

(B)              to the College (which is likely to be a charity);

(C)             as to whether capital allowances might be lost;

(D)             of whether any potential corporation tax liabilities might be avoided otherwise than through the creation of a charitable body;

(E)              of VAT.

(viii)          a further review of whether a charitable organisation does need to be involved given prospective changes to the view as to what are charitable uses.  Given the intent that there should be significant community use associated with the stadium, this may be relevant.

(ix)              The assumptions made in the business plan.

(x)                 the assumptions made in the risk matrices generally.

42.       Initial advice has been received from external legal advisers as to         State Aid implications arising from the project.  State Aid is defined as             any aid granted by a member state or through state resources (as with     the Council) in any form whatsoever which distorts or threatens to         distort competition and which affects actually or potentially trade             between EC member states.  State Aid is prohibited unless and until it is notified to and approved by the EC Commission.  The EC             Commission has the power to order the repayment of unlawful State             Aid from the recipients of such.

 

43.       The preliminary views of the external lawyers in relation to the             commercial activities anticipated are that State Aid issues are only             likely to arise in relation to the arrangements with SMC and the Clubs             but not in connection with the procurement of the Stadium itself which             comprises “direct development and confers no benefit too another             undertaking”.  Assuming, as is anticipated, that any disposal to SMC   will be at open market value (established by independent valuation)             then the principal State Aid concerns relate to the Council’s proposed             participation in and revenue funding of SMC.  It is arguable that such             subsidy would not be considered to comprise aid if looked at over the             medium to long‑term the investment might generate appropriate             returns to the Council.  A stronger argument against such subsidy             amounting to State Aid is that the SMC would only be operating in a             local market and not capable of distorting Member State Trade on the basis that Stadium management services are unlikely to be provided in             the UK by non-UK companies and the SMC will not itself trade outside             its locality.  Provided that the Clubs receive no commercially             preferential treatment (here again disposals at full market value are             anticipated) then State Aid issues are considered unlikely.

 

44.            External lawyers therefore consider that the proposed arrangements are unlikely to offend against State Aid Rules but recommend informal discussions with DTI to establish their view.  It is the DTI which has the final view on whether or not proposed arrangements ought to be notified to the European Commission.  However a notification (if necessary) will have timing implications.  In a straightforward case an approval by the Commission could take between 3 and 9 months and aid could not be granted until such had been approved.  Informal consultation with DTI will give early direction to the Council and need not delay the commencement of the procurement procedure.

 

 

Financial Implications

 

CAPITAL

 

45.       The Community Stadium project is part of the Council's 10-year             Transformational Projects Investment Programme (T.P.I.P.), and as        such the Council capital contribution to this project will be funded by        the Borough Investment Fund (B.I.F.).  The original T.P.I.P. report to         the Cabinet Ratification Committee on the 13th February, 2002,             approved the establishment of a B.I.F. of £100m for the purposes of             providing the Council contribution to the T.P.I.P. over a 10 year period.

46.       The B.I.F. is currently planned to be resourced from non-housing             capital receipts, revenue contributions, trading surpluses and             unsupported borrowing.  The revenue contribution to B.I.F. and the             amount of unsupported borrowing to take out are both key variables in             the 3 year financial planning model to be used in the 2003/04 Policies,             Priorities and Resources (P.P.R.) process to inform the Mayor's budget             proposals for 2004/05 and to develop a 3 year financial strategy for             2004/05 to 2006/07.

47.       The facility to take out unsupported borrowing is part of a new             proposed system of capital finance, which is planned to be introduced             from the 1st April, 2004.  Local Authorities will be able to raise finance             for capital expenditure without Government consent provided they are      able to meet the costs of repaying debt without Government support.              A Prudential Code is being developed by the Chartered Institute of             Public Finance and Accountancy (C.I.P.F.A.) to support local             authorities in taking their decisions to take out unsupported borrowing.              The key objectives of the Prudential Code are to ensure, within a clear             framework, that the capital investment plans of the Council are             affordable, prudent and sustainable.

48.      The total estimated capital cost of the proposed Community Stadium is             £20.225m which consists of:-

 

            £m

Pre-procurement costs0.700 
Stadium 11.350 
Community Facilities5.175 
Infrastructure outside Stadium site3.000 
           
               20.225

 

49.       The Council (with the Club's support) may be able to attract grant             funding up to a maximum of £4.0m from such as the Football             Foundation, Coalfields Regeneration Trust, Community Club             Development programme and the Neighbourhood Renewal Fund.  We             are advised that the most the Council could realistically expect from             this source would be £2.580m.

50.       B.I.F. resources have already been allocated to fund approved capital             budgets in 2002/03 and 2003/04 totalling £700,000 to meet the             estimated pre-procurement costs.

51.       The Council contribution to procure the project is, therefore, estimated             to be within the range of £15.5m to £19.5m.  Most of the forecast             expenditure, as per the outline programme, would be in the last quarter             of 2004/05 and 2005/06.  The planned expenditure on the Stadium, if             approved, would be a major component of a 3 year T.P.I.P.             programme for 2004/05 to 2006/07 for which the Council's contribution             will be met from the B.I.F.  Clearly a B.I.F. requirement of £15.5m to             £19.5m would be a very substantial commitment of B.I.F. resources             and would inevitably constrain the resources available to support other             transformational projects over the 2004/05 to 2006/07 period.

 

REVENUE

 

52.       The revenue implications of the resourcing of the B.I.F. will depend on             the amount of unsupported borrowing in total, which the Council             budgets to take out to provide a B.I.F. to support a planned 3 year             T.P.I.P. programme for 2004/05 to 2006/07.  As stated earlier this will       be a key variable built into the 3 year financial model for the 2003/04             P.P.R. process and will be influenced by the amount of non-housing             capital receipts forecast to be achievable for the B.I.F. from a proposed             accelerated disposal strategy and the size of the T.P.I.P. programme             which the Council wishes to progress.

53.       The proposed C.I.P.F.A. Prudential Code requires Councils to ensure             that their decisions to take out unsupported borrowing are affordable             (in terms of Council Tax), prudent and sustainable.  To comply with this             proposed good practice and for illustrative purposes only, if the Council             had to finance the total estimated capital cost of procurement of             £19.5m wholly from unsupported borrowing, it is estimated that a             revenue contribution to B.I.F. of £1.1m per year would be required for             25 years from 2004/05 to ensure that this borrowing is repaid over that             period.

54.       Under the proposal the Council would own the Stadium which when operational would be subject to an Asset Rental charge in accordance with the current accounting code of practice.  The actual Asset Rental would depend on such as expected life of asset, residual value, classification of asset (e.g. operational building or community asset) but for the purposes of this report an estimate of an Asset Rental of £1m per annum is provided.  Under current accounting arrangements this would be reported as increased Council expenditure and potentially effect relevant performance indicators, but would not impact directly on the Council's revenue budget.  The Office of the Deputy Prime Minister is currently consulting on a long term aim to move to depreciation-based accounting, the implications of which for the procurement of new assets is not yet clear.

 

55.       If the S.M.C. proved to be financially non-viable, it would be forced into receivership, administration or liquidation, and the Council would have to take financial responsibility for the operation and maintenance of the Stadium whilst alternative operating arrangements were determined.  This worst-case scenario would obviously have significant implications for future Council revenue budgets, which would have to be taken into account within the Council's financial planning process at the time.

 

56.       This project is high cost and high risk.  The principal issues which could impact on the successful implementation of it are set out below, along with suggested actions to mitigate the risks.

 

Risk	Probability	Impact	Action
Capital cost higher than anticipated	MEDIUM	HIGH	Appoint a suitably qualified professional team to deliver project to budget and timescale.  Monitoring of spend during the construction phase.
Grant support not received	HIGH	HIGH	All grant applications progressed quickly.  Implications for Council's financing of project identified and planned for.
Unsupported borrowing facilities not available until 1st April, 2005.	MEDIUM	LOW	Resourcing of B.I.F. to plan for this scenario as part of 2003/04 P.P.R. process.
Clubs unable to pay User fees when Stadium opens.	MEDIUM	HIGH	S.M.C. to be established and conclude negotiations with Clubs quickly
Operating costs of Stadium higher than forecast	MEDIUM	HIGH	Appointment of high quality experienced staff by the S.M.C.  S.M.C. to operate adequate financial control systems.
S.M.C. not financially viable	MEDIUM	HIGH	Contingency Plan in place.
External audit view the project as unlawful	LOW	HIGH	Close involvement of auditors in the development of the proposals. Full compliance with internal procedures. Proper professional advice considered at key decision points.

 

Other Implications

 

57.       Clearly there are considerations of the land take at Lakeside. However the provision of a Community Stadium on this land is in line with the approved Lakeside Masterplan and therefore there is no lost opportunity cost to the proposal.

 

58.       There will be a number of implications arising from implementation of the report more especially related to delivery of developments. These will obviously fall under the remit of 3D and will need to be picked up by that vehicle once it is constituted. However 3D has been involved in the process to date and is comfortable with delivering the Stadium should the decision be given.

 

59.            Planning have been consulted throughout this process and have advised that some elements will require sequential testing. An outline planning application was submitted in mid July to agree the basic stadium components. Other planning implications are outlined more fully in the Risks and Assumptions section under Planning Risk.

 

Conclusions

 

60.       The following is a summary of the conclusions contained within this             report

·        The basic premise is for a stadium with a seating capacity of 10,000 and with Community elements based at Doncaster Lakeside

·        Standing accommodation will be considered as part of the design process subject to no adverse impacts on grants or revenue streams

·        There is no Private Sector interest in delivery of a new Stadium in Doncaster

·        The only viable method of procurement is for the Council to fund the project

·        The likely capital cost to the Council for the preferred option is approximately £17million with a minimum of £15.5million to a maximum of £19.5million

·        The most viable and flexible option is for a typical four stand Stadium with open corners.

·        The corners will be treated in an architectural pleasing manner but offer scope for future additional capacity and/or commercial development

·        The best method for management is a joint venture between the Dragons, Rovers, Belles and the Council

·        Detailed legal agreements and leases still need to be formalised and these could impact upon the final capital and revenue figures

·        There a number of risks associated with the development some of which are outside the control of the Council

 

Delivery stages and Timetable

 

61.       The brief outline of the delivery stages and the anticipated completion dates below is based upon a definitive decision at Cabinet in October 2003. Further work or consideration of other options will inevitably result in the timetable slipping.

 

Detail Design	Commissioning of architects will need to be through OJEC. Once the final stadium option is agreed, detail design can commence	OJEC will take 3 to 4 months   Detail design 6 – 8 months   October 03 – September 04	Will follow decision from Cabinet
Construction Contract	Construction of a scheme this size will also need to be via OJEC but could be part of a design & build commission i.e. these two stages done together. The exact contract timetable will depend on what other uses are included along with the stadium	OJEC if separate from design will take 3 to 4 months     Construction period 15 – 20 months.   October 04 – May 06	Will follow decision from Cabinet
Project Completion		Provision of the completed Stadium in 2005/06 season.	The Critical Path envisages that the stadium will be completed towards the end of the 2005/2006 football season, although every effort will be made to complete earlier.

 

Contact Officer

Tim Johnson – Economic Development Manager

 

 

Report Author

Dave Hazard – Economic Programmes Group Leader

                        736751

 

 

Background Papers

Stadium Options Paper – Cabinet Report 27^th November 2002

Feasibility Study, December 2000 - May 2001

 

 

 

 

 

Janet Dean

 

Executive Director

 

Borough Strategy and Development