[Part one of this series can be found here]
The most curious, and talked about, aspect of the new Spurs stadium scheme is the NFL connection. Why are Spurs, a prudently run Premier League club, going to what appears a considerable amount of trouble to incorporate facilities for American Football?
In part one of this series, I looked at the Viability Report for the scheme, and examined the huge financial challenge facing Spurs. The report also contains a couple of interesting references to the NFL provisions: I plan to explore these in detail.
While my last piece built upon what was stated in the Viability Report, this piece is inherently more hypothetical nature. Without wishing to come over all Donald Rumsfeld, there are a few “known unknowns” in play here
To repeat, the Viability Report is a document produced by KPMG for Haringey Council and the Greater London Authority. It does exactly what it says on the tin — assesses the feasibility of what Spurs are setting out to do with its stadium scheme. Its primary source is information provided by the club.
From the outset, it is important to make one thing clear: Spurs did not need to include NFL facilities in the new stadium. The club had planning permission for a 56,000 seater stadium in place, and was building a new stadium regardless.
Initial planning permission was granted back in September 2010, but as the project stalled amid the legal battle with Archway Sheet Metal Works, new plans were hatched. The first hints that something more substantial was being planned came in October 2013, when it was reported that Spurs had switched architects from KSS, which designed the training facility at Hotspur Way, to Populous, a major US architect which designed Wembley, The Emirates and 13 current NFL venues.
Spurs may well have wanted to increase the capacity from the original 56,000 before the NFL became involved. There’s the “willy waving” desire for a bigger arena than Arsenal, for one thing, but also the fundamental principle of maximising potential — if the site could, at a push, hold something bigger than 56,000, then it should be considered.
But going back for planning permission on a new stadium, and squeezing in even more into what remains a small site in a poorly connected, residential area of the capital, carried risks, in particular due to the need to demolish listed buildings.
The expanded scheme may never have been in serious danger of being rejected by the local authority. But, due to the heritage concerns and the technical challenge of incorporating a first-of-its-kind retractable pitch, there may be a risk of further delays. In 2014, Arsenal brought in £100.2 million in match-day revenue, while Spurs managed £43.9 million. Every home match, we fall further behind. Delays are seriously expensive.
In this article, I am going to examine the cost and potential benefit of Spurs having an NFL-equipped stadium, the rationale that led the club to take this gamble, and what the potential long-term implications could be.
A retractable revenue stream
Even if Spurs were always eyeing a more substantial stadium, the scheme has become significantly more expensive with NFL provisions such as the retractable pitch.
How much more? It is very hard to say — I have not seen a breakdown of stadium expenditure that spells out exactly how much each part costs, and would welcome any input.
Retractable things are expensive though. The last time Populous attempted something of this nature in the UK, adding a roof on top of Wimbledon’s Centre Court, it ended up costing between £80 million and £100 million, way more than originally planned. A similar cost is expected when a roof is added at Arthur Ashe stadium in New York.
These are very different projects (and sports) of course — adding structures to venerable existing facilities — and Wimbledon’s spend included new corporate facilities and more seats. But it hints at the cost of such engineering.
Spurs aren’t sliding out a pitch into open space like has been done at the Populous-designed University of Phoenix stadium in Arizona. Spurs are sliding the pitch under the stadium and other parts of the development, where there is little or no access. Issues such as drainage and environment (ensuring the grass is not harmed while the stadium is in NFL mode) will be to the fore. Also, it fundamentally has to be a high-spec piece of retractable kit — or to put it another way, I can’t imagine it is going to be a case of sending someone under there with a wrench if it isn’t working properly.
In the deal struck between Spurs and the NFL, Spurs get to host a minimum of 20 NFL games at the stadium over the next 10 years. From the reports I’ve read, Wembley’s profit from the NFL games there is between £500,000 and £1 million per game. Let’s assume Spurs are able to strike a very good deal that enables the club to match what Wembley brings in, despite fewer tickets being sold. That would be £10 million to £20 million over 10 years. Is that enough to cover the cost of adding a retractable pitch? I strongly doubt it.
Even if the club has reasonable assurances that the 10-year deal would be extended, it feels like we’re talking about marginal amounts in a £675 million to £750 million project. Added to this is the risk, as stated earlier, that comes from installing a first-of-its-kind piece of technology, both in terms of cost but also from the potential for delays (should the technology not work as envisaged, say).
The Viability Report considers the NFL provisions, as they stand, a negative.
In a section analysing the “internal rate of return” (a measure of potential return for investors in development projects such as this), the IRR for the amended scheme is lower than for the original, smaller stadium. The NFL facilities are pinpointed alongside the larger stadium size and the high-specification corporate facilities as dragging down the expected return.
“This principally arise because capital costs have increased significantly between the two applications, partly because of the construction of NFL facilities, whereas income streams are not forecast to increase in the same ratio”, the KPMG report notes.
Per KPMG, it would appear that the additional cost of incorporating NFL facilities may not be worthwhile.
In reaching that conclusion, one imagines KPMG will have considered both the income from the deal between Spurs and the NFL, and the other revenue that may be derived due to the installation of a retractable pitch.
The Spurs stadium project has always been more than just a football stadium — it has long been sold as a multi-purpose venue that will bring visitors to Haringey year-round.* A retractable pitch may make the new stadium more attractive for hosting other events, such as boxing or concerts, or enable Spurs to host more events than could be hosted at Wembley, the Emirates and the Olympic stadium where there is concern over damaging the playing surface. A sell-out title fight, or a sell-out Coldplay gig, could be just as lucrative an earner for the host stadium as an NFL game.
But this must be very difficult to accurately project, not least due to the incredible competition that Spurs face in luring stadium-filling acts. London is the stadium capital of the world: Wembley and Twickenham host over 80,000 people, the Spurs stadium and Emirates will both hold 60,000, the Olympic stadium 54,000. Other venues over 20,000 capacity include Stamford Bridge (which is about to get a lot bigger and no doubt plusher), Lords, The Valley, Selhurst Park, Craven Cottage, the new stadium in Brentford, and the Oval, not to mention the O2 arena. No other city in the world comes close.
A retractable pitch offers Spurs a competitive advantage in terms of the frequency it can host events — and a good thing too, as judging by that list Spurs will need an edge. Wembley has its own competitive advantage in terms of capacity, and the Olympic Stadium has an edge in terms of transport links and size of its in-stadium area (this is useful for things like Race of Champions, but is going to suck for football as West Ham may discover…)
There is one other revenue source that should be considered: additional marketing income. In my previous piece, I discussed naming rights, and several people pointed out that a deal with the NFL and exposure to the US market at least twice a year will enable Spurs to potentially command more. How much? Again, it is a “how long is a piece of string” assessment — the examples of previous NFL stadium rights deals I cited in my last piece may offer guidance, or they may not. Certainly, it is safe to say that once naming rights negotiations begin, the subject of the NFL deal will come up.
It was also suggested in feedback from my last piece that there may be additional marketing upside in terms of the exposure that an NFL stadium deal will give to Spurs itself. I’m sure there are very smart marketing people who can put a value on this, although personally I’m pretty cynical — this stuff gets tangential and fast. A more specific relationship between Spurs and an NFL franchise may have greater benefits, but we’re into fuzzy territory here.
In sum, Spurs appear to be making a considered gamble that the addition of NFL facilities will eventually bring in sufficient revenue, through hosting events and through a better naming rights deal, that it justifies the additional cost of installing them, and the risk from delays. The 20-game NFL agreement is a nice little hedge in case it doesn’t work out, and may be seen as a precursor to a larger hosting agreement if the number of NFL games taking place in London increases.
It is quite visionary, in its own way, and appears a reasonable roll of the dice.
So why then does a staid Viability Report produced by the accountants of KPMG hint that a bigger gamble is being made?
The London Spurs
When assessing how the rate of return for potential investors in the stadium development could increase, the KPMG report outlines five scenarios:
1 Reduced construction cost
2 Better than estimated on-field performance (all calculations, sensibly, are based on Spurs not participating in the Champions League)
3 The club spends less than the forecast 45 percent of revenues on player costs
4 The club secures an NFL franchise
5 Greater than forecast revenues from commercial development
Number 4 jumps out a bit, doesn’t it?
Yes, it is hypothetical, but the fact that it is was even stated as a potential scenario, and so specifically (the wording is not, say, “The stadium hosts an NFL franchise”) in this document suggests it has been discussed as a possibility between KPMG and Spurs. Remember, the primary source of this Viability Report is information from the club.
(More cynically, I’d also add this may prove a rather useful line in the smoke-and-mirrors world of naming rights negotiations, but for now let’s not disappear down that particular rabbit hole.)
Is THIS the play? It’s not that ENIC is gambling on Spurs hosting more NFL games, or even hosting an NFL franchise, but is instead gambling on actually owning an NFL franchise?
It is an interesting possibility to explore.
Generally, the assumption is that, if and when the NFL finally pushes the button on having a team in London, an existing NFL franchise will move. The most likely contender is the Jacksonville Jaguars — it is owned by Shahid Khan (think Fulham and moustaches), has agreed to play one game a year in London until 2020, and is a small-market team with a (by NFL standards) relatively old stadium.
But there is another possibility to be considered: the league expands, something it has continued to do through its history.
The last NFL expansion was in 2002 when the Houston Texans were added, making the league 32 teams. If the league does expand, London will be high on the list of potential cities. A crucial factor in deciding which city gets a team is stadia. Spurs will own an NFL-ready stadium, in a market the NFL has invested heavily in. This is quite an advantage.
NFL franchises, potentially, make a lot of money. In 2014, each franchise earned $226.4 million in “revenue sharing” — this primarily means income from the league’s TV rights sales. There is “local income”, or merchandising and ticket sales, on top.
For what it’s worth $226.4 million is around £154 million at current rates — under the next Premier League TV deal, the team that finishes first would receive £146 million.
There is a catch though: a wannabe owner can’t just stick its name in a hat, and hope it gets lucky. A franchise owner must pay a fee, and a potentially astronomical one at that.
When the league expanded in 2002, the owner of the Houston Texans, Bob McNair, paid a cool $700 million for his franchise fee — adjusted for inflation, that is $923 million in today’s money. Back in 2002, under the TV deal in place then, annual revenue sharing was $2.6 billion. The figure is now $7.3 billion. The Rams franchise owned by Arsenal’s Stan Kroenke is paying a $550 million fee to relocate from St Louis to Los Angeles. That is the relocation of an existing franchise: one can only wonder how much a new franchise would cost, but certainly the figure would be huge.
As mentioned in my previous post, ENIC (via Joe Lewis) surely has sufficient funds that it can fill any gaps in financing the stadium through equity investment. But securing an NFL franchise is a whole different ball game. ENIC, in the grand scheme of things, is small fry.
As for Lewis, Forbes list his net worth at $5.3 billion, and ranks him comfortably ahead of, say, the Texans owner McNair. But has there ever, in Lewis’ ownership of Spurs, been any suggestion that his net worth is there for the spending? Let alone to the degree required for an NFL franchise? Is his ambition, really, to become an NFL owner too?
I just can’t get there: Harry Kane probably knows more about the NFL than anyone does in the Spurs boardroom.
In fact, the more I think about it, the less likely it seems. But the idea that ENIC don’t really know all that much about the NFL leads onto another scenario, which is much less edifying for all concerned: Spurs are being played.
The fool’s errand
As I have stated, the NFL gambit has always struck me as an odd one for ENIC to take.
Daniel Levy, having been in charge of Spurs for 15 years, knows a tremendous amount about running a football club and the business of football (yes, there are plenty of jokes that could be inserted here, particularly during a transfer window). But it isn’t clear from what is known about his CV that he has any knowledge at all about the US sports business.
ENIC is in new territory here, and as smart a businessman as Levy thinks he is, it is at risk of being taken advantage of by a league, and a group of immensely wealthy owners, that hold all the aces in terms of awarding of franchises and making decisions on where games are played.
The NFL has made no secret of its desire to expand the league outside of North America, starting in London. Its International Series at Wembley has been a huge success: the games, now up to three per season, are generally sell-outs and earn an estimated £3 million a time. The league already sells season tickets for dedicated fans wanting to attend all games. Slowly but steadily, the league is building up its fan-base in London in preparation for adding a team in the city permanently.
It was reported that the NFL, in 2012, bid to become the anchor tenant for the Olympic Stadium, but were rebuffed. If true, this interest showed the NFL was aware that Wembley was not a viable long-term option.
With the Spurs project stalled due to the Archway dispute, but the club desperate to push ahead as soon as possible with a new stadium, could this be the opportunity the American league was looking for in terms of having an NFL-equipped stadium in London?
There is some debate over whether an NFL franchise will ever be located in London due to logistical issues such as travel and time difference. But personally, I think the NFL is sincere in wanting to expand to London and take the sport beyond North America — they’ve put a huge amount of effort into this project.
The NFL has tried to internationalize before, albeit unsuccessfully, with NFL Europe — in fact the now-defunct London Monarchs even played at White Hart Lane for a while. In a more globalised world, a sport like the NFL risks becoming parochial if it doesn’t reach beyond North America. The league must look on at the global TV rights secured by the Premier League with envy.
Arguably, the hardest step for the NFL in London was finding a stadium — it now has accomplished this through its deal with Spurs. As discussed above, the 20-game agreement is quite modest compensation in terms of the outlay Spurs are likely making. Did the NFL try to encourage Spurs into taking the risk by dangling the carrot of NFL ownership? It is hardly beyond the realms of possibility.
Nor is the idea that they appealed to the reptilian side of Daniel Levy’s brain — the part that thought spending £26 million on 28-year-old Roberto Soldado or appointing Juande Ramos, say, were good ideas — through some convincing talk of future marketing or revenue-generating possibilities.
Perhaps a gambler was encouraged to up his stake, and the NFL, London base achieved with minimal cost and effort, is rubbing its hands with glee?
Those who take a more negative view on Levy’s chairmanship may be inclined to agree.
But there is a counterpoint to this theory, which is only fair to suggest. Sure, Levy may have been naive, but he may also have been very smart indeed.
Levy the Investor vs Levy the Fan
In researching this article, I came across the Guardian’s original report on ENIC’s securing of a majority stake in Spurs back in 2000. ENIC paid £22 million for then plain old Alan Sugar’s 27 percent stake, taking its total shareholding to 29.9 percent. The deal valued the club at around £60 million.
“Levy hates publicity and has no desire to take on the chairmanship, preferring instead to find a figurehead and pull the strings in the background,” the report stated, before adding, optimistically, that Levy’s first priority would be “to put together the plan to bring the glory days back to White Hart Lane.”
Interestingly, the article also identified a dichotomy that has never really gone away throughout ENIC’s tenure. Describing Levy as a season-ticket holder, the Guardian noted he was “certain to invest in the club but will not let his passion for the team overrule his business sense.”
“Levy the Investor” versus “Levy the Fan”. We’ve seen the fruits of this conflict throughout the last 15 years. The long-term vision of, say, investing in a world-class training facility, versus the knee-jerk impulse to sack managers after a poor run and the manic switching between continental and English footballing philosophies.
For Levy the Investor, Spurs has been an incredible success. In 2007, ENIC brought out Sugar’s remaining stake for a further £25 million. This time, the deal valued the club at £209.5 million. Nothing that has happened recently suggests the investment hasn’t performed extremely well since. The £1 billion valuation put about by the club amid the Cain Hoy interest appeared purposefully high, but the idea that the club has at least doubled again in value since 2007 is hardly unlikely.
The biggest constraint on Spurs’ value has been the small stadium capacity that limits its ability to compete with rivals such as Arsenal. Right now, the club is making a huge, and risky, investment to change this. While debt will increase tremendously, revenues will increase once the stadium is built, and so will its value.
For Levy the Investor, it may be a tempting time to cash out. And in the NFL, he may have been handed the tools to cash out in a truly spectacular fashion.
Think of the pitch: with Spurs, you’re not just getting an established Premier League club (TV money ranging from £99 million to £150 million per season, at least the same again in match-day and commercial revenue). With an NFL-equipped stadium in a desirous market, you’re also getting the potential keys to an NFL franchise (revenue sharing £154 million, plus local revenue on top).
Your pockets are going to have to be deep, to cover both buying out ENIC and a potential franchise fee. But if it is within your range, and you are serious about investing in sports ownership, it’s not a bad play. My thoughts instantly go to someone like Guggenheim Partners, not just due to the Cain Hoy connections. Guggenheim Partners has $250 billion of assets under management, and in 2012 it was part of a consortium with Magic Johnson that bought the LA Dodgers baseball franchise for $2.15 billion. I’m not saying “it will be them”, but rather giving an example of the type of party that may be interested.
The NFL additions would make Spurs more appealing to US investors specifically — even more appealing than they already are as a highly profitable club in the Premier League. ENIC may not be able to realise the club’s maximum value as it lacks sufficient resources to secure an NFL franchise itself, but this is the sort of upside that may appeal to a group with deeper pockets and the right knowledge and connections.
The risk of installing a sliding pitch appears a very reasonable gamble from the view of significantly increasing the value of an asset before a sale, with a deliberate market in mind.
I don’t doubt that if ENIC wants to cash out after the stadium is built, it could. The question is whether Joe Lewis and Levy want to? With Premier League TV cash pouring in from all corners of the globe, it may be a tempting to sit back and count the money as it rolls in.
On a human level, Lewis is now 78. We really know very little about him, although this piece by David Hytner from the giddy summer of 2013 was an interesting glimpse. Is Spurs just a part of the Tavistock group, to be bought low and sold high, or is it more to him and his family than that? It is impossible to say.
And what of Levy? If Levy the Investor may be tempted to cash out, could he sell the idea to Levy the Fan?
Levy is 53, and has been running the club for 15 years, a good part of his professional life. Surely, you would think, there comes a point when he decides that he has had enough of negotiating with agents, firing managers and dealing with snotty fans. He has already made a fortune from his time with Spurs — both in salary and the fact that he and his family are “potential beneficiaries of a discretionary trust that ultimates owns 29.41 percent” of ENIC. Selling his stake would take him to the next level of wealth, and may significantly reduces his stress.
But does this quite match up with reality?
Love him or loathe him, Levy is at the Spurs games, home and away, week-in and week-out. Fifteen years on, he still appears to engage in transfer negotiations with relish, in particularly driving fellow executives such as Messrs Aulas and Peace to distraction. He is deeply involved in the stadium project — at the final planning meeting in December, which stretched late into the night, he was sat in the front row even though it was another Spurs executive, Donna-Marie Cullen, who was representing the club.
His son, Josh, who works as an investment banker, increasingly accompanies him at matches. Is Spurs going to go the route of many a sports team, and become a hereditary asset that is more than a mere investment? Levy is a Spurs fan, is getting to run Spurs, and is getting rich doing so — why walk away from that? Or to put it another way, what on earth would Levy do with himself if he wasn’t running Spurs?
Once the stadium is completed in 2018, by which time the NFL’s future in London may be more clear, the logical play from an investment standpoint may be to sell.
But this is football, where logic is generally checked at the door.
As stated, much of what I have discussed here is hypothetical. As the KPMG report itself notes, Spurs are investing up to £750 million in a new stadium development, but the “ever-changing nature of the industry in which it operates” poses inherent risks. Much of what is to come is unknown — including by those making the decisions.
By installing NFL facilities, Spurs are taking several risks. There is the increased cost of installing them, the potential for delays either in planning or construction, and the gamble that, once installed, the club can derive the anticipated benefits.
The 20-game NFL deal offsets some of the cost, and the planning permission has now been secured. The key now will be project management to ensure the stadium is built on time, on budget, and to specification.
Whether the ultimate goal is merely enhanced hosting and marketing revenue, as Occam’s Razor would suggest, or something altogether grander, will become clear in time. But to me, it appears Spurs are taking a calculated and reasonable gamble. It is certainly imaginative.
Whatever happens, Spurs are set for a fascinating period, both on and off the field. I’ll be watching both aspects, closely.
Thanks for reading, please follow me on Twitter for more Spurs chat, my handle is @spurs_report. I’d welcome any feedback on this article.
Part One of this deep dive can be found here.
* Update via HotspurSam, who has added some very insightful comments this series: “It is worth noting that in the old consented scheme there was only provision for to 4 additional events per annum. In this scheme it is for up 10 non-THFC sporting events and 6 non sporting events (concerts)”
** I’ve also changed the headline from “anatomy of a gamble” — it’s my blog, I can do these things