The former Olympic Stadium, now home to West Ham United, is facing operational losses running into millions of pounds for years to come due to problems finding a naming-rights partner and hugely increased costs for retractable seating, the Guardian can reveal.
In the wake of the London mayor, Sadiq Khan, ordering an inquiry into the rising costs of converting the stadium into a venue suitable for football and athletics, the sobering figures are likely to reignite the debate over whether West Ham’s £2.5m-a-year rent represents value for money for the taxpayer.
Proponents of the deal, including the former mayor Boris Johnson, always argued that only football offered a future for the stadium free of public subsidy.
And yet it is understood that after a naming-rights deal fell through in the summer and the full extent of the increased costs of moving the seats back and forth to make way for a running track became clear, there is a black hole in the budget that makes it unlikely the stadium will break even for the foreseeable future.
The cost of moving rows of seats from football mode to accommodate the running track, and back again, every summer has soared from an estimated £300,000 to an extraordinary £8m.
That would have to be paid every year to fully move the seats back from the pitch, although if the lower tier of the east stand remains in place – a configuration that would still allow athletics to take place as at this year’s Anniversary Games – the likely bill drops to between £3m–4m.
However, for next summer’s World Athletics Championships it is understood all the stands will have to be rolled all the way back. The Guardian has learned the problem began when the stadium owner, faced with rising costs over the new roof and other factors, plumped for the cheapest option available when it came to retractable seating.
However, it soon became clear it would take at least 15 days to remove the lower tiers, even with a team of labourers working 24 hours a day, and the same again to put them back.
Lessons to be learned from Wembley’s woes
Costs are so high partly because the seats have to be stored off-site in a specific configuration to enable them to be put back again, like a giant jigsaw puzzle. That will hit profits when staging non-sporting events like concerts – a major revenue generator for E20 and its operating company LS185.
If the process of reconfiguring the stadium takes more than a fortnight, that will leave less time to host concerts before athletics takes over for its mandated five or six weekends each year. Depeche Mode are among those due to play at the London Stadium next summer.
The original quote for moving the seats was given by Alto Seating, a company that went into liquidation in October 2015. A new tender document is based on the assumption that the total cost would be around £8m if all four stands were to be moved, although it is hoped that figure could be reduced over time.
The soaring cost of the retractable seating, always considered a prerequisite by West Ham if the stadium was to be suitable for football, will now be one of the major focuses for the wide-ranging inquiry ordered by Khan.
Although the mayor is believed to have been advised the contract with West Ham appears to be legally binding, he is determined to look into the “full range” of financial issues now that the cost of converting the stadium has risen by a further £51m to £323m, taking the overall cost of the stadium since the Olympic bid was won to £752m. The Football Association spent £757m building the new Wembley, which opened in 2007.
A proposed naming rights deal with Mahindra, an Indian conglomerate, fell through in the summer when negotiations collapsed because E20 – a joint venture between London Legacy Development Corporation and Newham council – felt the offer was too low. It hopes to bring in more than £4m a year from naming rights.
But sponsorship experts have warned that finding a naming-rights partner for the stadium will become increasingly difficult in an unfavourable market as time goes on; the venue was established as first the Olympic Stadium and now the London Stadium. The operational issues experienced during the opening months of West Ham’s tenancy, including the crowd trouble during last week’s EFL Cup tie with Chelsea, are also expected to make it less attractive to sponsors.
There is also understood to be concern over whether the stadium configuration can be returned to football mode following the World Athletics Championships in time for West Ham to play their first home game of the 2017-18 season, despite the fact they already have agreement from the Premier League to play their first two matches away from the London Stadium.
Finding a naming-rights partner was always a key part of the business plan under the original contract agreed with West Ham because the first £4m annually of any contract goes directly to E20, with any sum over that amount being shared with West Ham.The east London club’s costs are capped at the £15m it pledged towards the stadium conversion and the £2.5m a year, variable depending on performance payments and various other revenue-sharing clauses, it pays in rent. It is more than four years since the LLDC’s predecessor, the Olympic Park Legacy Company, first began searching for a naming-rights partner.
Khan has described the financial situation surrounding the stadium as “a real mess”. Damian Collins, the Conservative MP who chairs the culture, media and sport select committee, welcomed the inquiry. He said it should look into the decisions taken during Johnson’s tenure as mayor, but also those taken before the Olympics when it was decided to press ahead with a semi-permanent design that could be “demounted” to become a 25,000-seat athletics stadium after the Games.
“I do welcome this inquiry and I think it should also go back to before the building of the stadium to consider the design of it,” said Collins.
“They hoped they would find a use for it afterwards and there was no advance planning. If there had been they would have been much more effective at keeping their options open.”
Collins said the select committee would consider the outcome of Khan’s review before deciding whether to follow up with its own inquiry.
It is understood Khan and his City Hall team found out only recently about the issue with the additional £51m overspend and ongoing increase in operational costs related to the seating problems.
Yet the LLDC had always indicated it had invested heavily in a retractable seating solution that was state of the art. “The big decision was to go for full retractable seats,” said the then LLDC chief executive, Neale Coleman, in an interview with the Observer last year. “You either do it properly or you don’t do it at all.”
The LLDC is likely to argue that any operating losses on the stadium can be covered from revenues generated elsewhere on the Queen Elizabeth Olympic Park, including housing developments.