Examining the rising costs of Tottenham’s £800m stadium

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“Brexit to blame as Spurs stadium costs double”, screamed the headlines this week, as it emerged the cost of the club’s new home has increased to an estimated £800m.

The eye-watering figure sparked concern among fans over the impact of the project on the club’s long-term financial future. In this piece, I will look at the £800m figure and the reasons why costs have increased so sharply.

Revised cost estimates

First the background: the new £800m estimate was revealed by chairman Daniel Levy in board-to-board minutes published by the THST, always one of the best sources of information on the project:

DL stated that the funds would come from different sources and that the cost of the stadium was now estimated circa £800m

In an email response to a question from a fan about why the stadium cost had seemingly doubled from the initial £400m estimate, chief executive Donna-Maria Cullen expanded further.

It is worth remembering that the original cost quoted for the stadium was some 7 years ago. This new ‘estimated’ figure relates predominantly to the stadium with some elements of substructure for the other builds particularly the Tottenham Experience. Brexit has added a straight 20% on costs for foreign goods due to the exchange rate, overtime working and increased construction costs similarly. Revised basement works also added to the cost. We are constantly managing costs and will continue to do so throughout the process along with funding plans to ensure the viability of the scheme.

Credit must go to Cullen for communicating directly with fans and attempting to ease concerns over the stadium’s viability.

As Cullen notes, this stadium project has been a long time in coming. A new stadium was first mooted in 2007, and planning permission for the old, 56,000 capacity design was gained in September 2010. The project then drifted for five years amid CPO litigation and interest in the Olympic Stadium site, before enhanced plans were approved in December 2015.

Understandably, the project cost has increased sharply over this period — it has become a bigger, and higher specification, stadium.

The first public estimate for the current version of the stadium came in December 2015. At a fan forum, Levy estimated the cost at £500m. This was in line with the financial Viability Report, which put the estimated bill for the whole scheme — this includes the housing and hotel component — at between £675m and £750m.

This £500m figure is a reasonable baseline — so if and when stadium costs hit £1bn, then we can talk about it doubling.

Explaining the jump

That said, £500m to £800m remains one heck of a jump — £300m is an awful lot of money: it is ten Moussa Sissokos, or 20 times the amount West Ham contributed to the Olympic Stadium rebuild.

In her email, Cullen outlined four key factors beyond the cost increase: the weakening of the pound due to Brexit, overtime working, increased construction costs and revised basement works.

Overtime costs are easily explained — go on the live webcams, and you’ll see workers on site for 18 hours a day, seven days a week. The timeline is phenomenally tight, with Spurs needing to complete work to a sufficient degree to ensure only one season is played at a reduced capacity WHL, and only one season at Wembley. Very soon, the club is going to have to make the decision on whether to knock down White Hart Lane — understandably, both club and contractors Mace will be want to be as far ahead at possible before crossing this point of no return.

On construction costs, the story of the club purchasing cranes is a good example of how costs can rise when the clock is ticking. The club couldn’t afford to wait for leased cranes, so instead bought new ones and will seek to recoup some money after work is finished.

Revised basement works appear to refer to changes to the design that were approved in 2015, prior to full planning permission being granted. The revised plans include more car parking and storage space, seemingly with the NFL groundshare in mind.

The final issue is the weakening of the pound, forcing up the price of imported equipment and goods.

A look at the five-year £/euro exchange rate highlights the problem Spurs have had. In early 2015, just as Spurs were at the peak stage of modelling stadium finances and cost planning, the pound strengthened considerably. For about a year, it hung there, and pretty much as the stadium was approved in December, it started to fall.

Screenshot 2017-03-07 at 6.53.42 PM

Cullen blamed Brexit — and without doubt, Brexit gave the pound a kicking. But the pound was already falling well beforehand — and if you look at the 10-year trend, we’re kind of back where we were for much of 2009 to 2013. The timing is unfortunate — Spursy? — but the club is far from alone in being caught unawares by Brexit.

In terms of magnitude of impact and the 20 percent cost increase on imported goods, it’s hard to gauge without knowing more about where materials for the scheme are coming from. We could be talking millions, or tens of millions. But either way, currency fluctuations have impacted the budget: on the plus side, the weak pound should help exports of crap squad players to the eurozone and China this summer.

Nice things cost money

Does this add up to £300m? In all probability, no. There’s one other factor that — inevitability — has led to an increase in the final costs of the stadium: the fit-out.

When the £500m project figure was first estimated, there was inevitably going to be a lot of uncertainty about internal fittings — how much do tunnel clubs, cheese rooms, sky lounges and state-of-the-art beer bumps actually cost? There is bound to be guesswork for these bespoke elements — it’s not like Levy is heading down to Ikea armed with a pre-budgeted shopping list and club credit card.

Through the build phase, Spurs have been tweaking plans for the internals of the stadium. In responses to questions I posed in the summer, it was clear that issues like in-stadium technology were very much a work in progress. It was reported that Levy was travelling around London skyscrapers inspecting lift fittings to ensure the right specification for the stadium.

This story about the Minnesota Vikings and their spectacular new stadium illustrates how costs can shift. It was decided, during construction, that another 400 in-stadium screens were required (and money was duly extracted from taxpayers), while expensive-sounding network infrastructure had to be developed to cater for increasing demands for stadium wifi. Meanwhile, stadium builders are continuously learning — during the build of the US Bank Stadium, it became clear that the new 49ers home, the Levi’s Stadium, was not sufficiently catering to fan demands for instant replay — so the Vikings increased the number and quality of in-house cameras. You can imagine Spurs doing something similar — the introduction of video-refereeing will mean fans will need to see more to understand the game. These changes are part of the future proofing of the stadium design, but potentially cost a lot of money.

Shifting financial situation

While costs have been rising, so too have club revenues.

In the 2015 financial year, club revenues stood at £196m. Figures for for FY 2016 will be released soon — they should show revenues climbing to around £210-215m, per my estimates. But from here, the increase will be sharp — FY 2017 will see the new Premier League TV deal accounted for, and should send revenues close to £275m. In the following year, revenues could potentially increase further if Spurs are able to play in front of a sold-out Wembley week-in, week-out. You get the picture.

The amount Spurs can borrow is tied to income. Initially, it was reported Spurs would borrow £350m from banks — in reality, there may be the potential now to borrow more.

In an email lambasting lack of action by local authorities that *mysteriously* found its way onto the front page of the Evening Standard, Levy mentioned the financing had not yet been finalized — in all reality, at least some portion must be in place given the scale of construction so far. It was reported that of the initial funding package, the first £200m would be loaned up front — it may be that this “bridge” part is in place, but Spurs are looking to tap more than £150m in the second phase. This is speculation, but rising costs and income, combined with recent public comments, suggests this may be a potential scenario.

In addition to Spurs earning more, as the project has progressed, the club will have gained greater clarity on feasibility of generating additional revenue. While two of the 16 non-Spurs major events are locked out by the NFL, no doubt conversations are underway in terms of other events, given the stadium is due to open in just 18 months. I have previously speculated that AEG may be involved in organising these events — a Twitter exchange with the head of AEG’s new rugby division did little to deter me from this view.

With greater clarity on how the stadium is going to be used, Spurs may be more confident in pushing the boat out on internal fit-out — more expensive sound systems, better resolution screens, or whatever it is.

In terms of other financing sources, nothing is yet confirmed on naming rights, while advanced premium ticket sales have begun — the club reported about 50 percent of premium packages are now sold. Pinches of salt no doubt required. There is some indication that Joe Lewis recently put a certain amount of money into the club — £20m or so — but this can’t be confirmed. I’m personally dying to know if the NFL is putting money in up front. But either way, with more than £100m spent on property/site prep/design and legal costs, at least £350m coming from banks, and naming rights/advance sales to roll in, Spurs are well on the way to £800m regardless.

Final thought

Given the context of the £800m figure — revealed while relations with authorities over the White Hart Lane station development are strained and amid ongoing dialogue on affordable housing — some caution is advised.

But taking the £800m figure at face value, it doesn’t appear an unrealistic amount for Spurs to spend. The club will have a lot of debt, but increasing revenues to service it. If you look at costs of recent stadiums in the US, £800m is still quite modest — the Vikings stadium cost $1.2bn, while the new Falcons stadium in Atlanta will cost around $1.6bn.

The next few weeks promises to be the most stressful of the entire project.

Brent Council’s decision on Wembley, due March 23, has a multi-million pound impact on Spurs — being able to play in front of 90,000 rather than 51,000 next season will make a huge difference to the club’s bottom line.

Meanwhile, the club has to make the agonizing decision on whether to knock down White Hart Lane. Any delays after this happens — for example during the demolition and excavation of the old ground — could leave Spurs homeless and at the mercy of the FA, who have another tenant — with a lot more money — lined up to take Wembley once we’ve moved out.

Just because costs are increasingly sharply, doesn’t mean they are spiraling out of control. It’s a high-wire act — but if Spurs can pull it off, the rewards are huge.

Thanks for reading. Please follow me on Twitter for more Spurs chat.

 

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13 thoughts on “Examining the rising costs of Tottenham’s £800m stadium

  1. Adrian John Digby

    The increased costs from GBP500m to GBP800m from 2015 estimate do not surprise me and as both a Civil Engineer and a Spurs fan nothing worries me as yet. If we look at affordability based on a multiplier of revenue then revenue of GBP175m which was close to the 2014 figure I believe and the one a 2015 estimate must have been based on ( possibly actually 2013 dependant on timing) and the likely increase to GBP275m for 2017. Easily provides increased affordability in line with the discussed increase in costs. ( multiply both by 3 you have a similar increase in affordability value from GBP525m to GBP825m). So Spurs may prudently have decided that increased affordability should be invested to maximise future revenue benefits.

    To get a massive complicated scheme off the ground I have never know the estimator at that stage include every ‘what if’. The cost is also inevitably pre-tender. That initial jump from rose tinted expectation of the architects and engineers to the contractors reality often adds 10%. at best to a complex build. So we have GBP580m as real 2015 costs straight away. i use that as my base-line for further inflation but I guess we have GBP77m in increased specification for the project mainly to make New White Hart Lane a entertainment venue including the NFL.

    Extra Foundations GBP20m
    The extra foundation requirements are a big cost I would estimate coming in late and not fully programmed and costed before work commenced. The extra two levels of excavation if it covers effectively most of the pitch and North Stand will likely cost GBP30m alone ignoring the delay effects.

    Programming costs due to Extra Foundation Work GBP12m
    I can imagine separating the contractors into two work periods will cost. The structural concrete specialists having completed the stands for the existing site rising before our eyes, They may have to remobilize when the new South Stand and SE side area needs working on. Overtime costs etc mentioned may be partly attributable to revising the programming and tightemning deadlines.

    Retractable Pitch GBP20m
    The retractable pitch I have no idea about, never built one, but say its GBP20m minuimum

    Higher Facilities Spec GBP25m
    As you say there are a whole rake of new design costs from micro brewery to video systems and in particular the facilities for a US Football side which is 150 people each team that has to be accommodated under the stands. This must add at least another GBP20-30m

    Thats an initial cost of likely GBP580 now up at GBP655

    Inflation
    Then we have the inflationary costs over approximately 6 years 2014-2019 inc on the basic design should amount to GBP28m making a final cost at GBP683m

    Sterling Weakness
    Not just imported goods but all the major engineering concerns are now working in a world market and their returns are required in a world market with many contracts not in GBP or if in sterling have a exchange rate compensation clause. The 26% negative drop in Sterling form 2015 to 2017 should shove the costs up to GBP860m . There may be savings in local costs that moderate this to some extent but I am thinking of GBP850m by 2019 as a cost. But hopefully with 2018 revenue up at GBP285m we would still be in line at that cost. (x3=GBP855m)

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    1. thespursreport Post author

      Thanks for the comment — brilliant detail and I think your number seems realistic and the right sort of ratio. The pitch makes me v curious — have no idea how much it’ll actually cost

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  2. Martin Stevens

    A vey good read well done a great insight to is gong on at my club keep up the good work and keep us informed 👍👍

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  3. Josh

    Very interesting post as always. In relation to the Spurs being caught between a year at Wembley and then not having the build completed. It was reported that DL had secured a one year deal with the option for another year with the FA if required. Was that correct or are the club just adamant that they will only move away for 1 season max as they’ve stated. The PL allowed Liverpool to play Burnley away first game of the season when they were scheduled to be at home due to their construction overrun, do you believe Spurs would consider such a request for 1-4 games to ensure only 1 full season away ? Would the need to have an official opening game and multiple trial run games for operations and logistics mean that opening the stadium in the actual season isn’t possible. With regard to naming rights I’ve seen many varied figures bandied about but if Spurs and it’s DL after all, can get even 50% the money front loaded on a long term deal plus soaring TV right money and a locked down squad contractually then surely that will alleviate a lot of the stress of funding or is this just wishful thinking on my part. How are these rights deals normally agreed ? front loaded payment or incremental.

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    1. thespursreport Post author

      Only public comments from DL on Wembley is that Spurs only plan to be away from WHL for a year. But, yes, it was reported that there was a contingency clause in Wembley deal — just hope it’s no needed. Spurs asked the PL to block out final set of fixtures this season, but their request was declined by league. A similar request will no doubt be made for start of 18/19 season. PL are VERY inflexible on stadia, which is adding a lot of risk to Spurs — can’t, for example, play a half-season at Wembley. It’s all or nothing. Understand issue of competitive balance, but league doesn’t seem to understand/care about complexity of what Spurs are delivering.

      On naming rights, wrote about it in detail a while back — nothing has changed since then. We’ll know when we know!

      https://thespursreport.wordpress.com/2016/09/17/naming-rights-and-wrongs-spurs-begin-the-search-for-stadium-sponsors/

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  4. Rohan

    A great thought out and well rounded article and replies. Makes a change from the shouting and scaremongering going on on theboyhotspur website. I will share this with as many Spurs forums as possible. Cheers

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  5. Andrew Warren RICS

    That’s all good and well, but isn’t the real question here: why didn’t Levy have a fixed price contract? If he did, that transfers all of the risk of price fluctuation – such as currency movemeant – onto the contractor. I don’t buy it that someone as economically shrewd as Daniel Levy effectively gave Mace a blank cheque.

    You’re right to call out the social housing element. There is disagreement between the club and Haringey over the trigger points for profit sharing. I know this first hand. Floating a vastly inflated build cost figure into the public domain appears, to me, to be a rather underhand tactic – much in the same way that Levy’s shouty email also became known of.

    £800m? Someone’s telling porkies.

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  6. joshk577

    When I saw that new figure last week it unsettled me. There doesn’t seem to be much appreciation in the media that it’s going to leave Spurs by far the most heavily-indebted club in the history of world football. That status is currently held by Manchester United, whose £338 million debt is going to be absolutely dwarfed by the sum THFC will owe.

    With this huge debt looming, the most immediate concern is that Spurs won’t be able to offer Toby, Dele, Danny Rose, etc, anything like the wages they’ll likely be offered this summer by circling predators. And if any of those were to go, how would that alter the perceptions of Poch, Harry K, Verto et al? This will have to be faced even before the giant debt begins to be serviced.

    Let’s be honest, eight hundred million pounds – less interest – is a figure that would make even the likes of Chelsea, Barca, Man U and Real Madrid gulp; clubs with records of sustained on-field success that guarantees them huge outside investment. (And the fact Levy’s willing to admit this figure publicly makes one suspect the eventual bill will be higher still. Moreover, that figure seems to relate only to the stadium itself, and doesn’t include the cost of the new apartment tower, hotel, etc).

    There’s no question a much higher capacity was needed for Spurs to stay among the biggest clubs. But need it have come at this crippling cost? In your very well-researched article on the NFL angle last year, you suggested the revenue generated from hosting 20 NFL games over ten years would not amount to much more than £20 million. So why is our club paying far more than Arsenal or Celtic did to build a 60,000-seat stadium, largely to accommodate American football facilities?

    My concern is simply this: Spurs’ rivals are already far ahead in terms of what they’re able to pay for and to players. (By all accounts, THFC pay £100 million less a year in wages even than Liverpool – likely the reason why poch didn’t get his first choice last summer, Mane). In coming years not one of those rivals is going to be hamstrung by almost a billion pounds of debt. Only Spurs. And so far I’ve heard no mention of any massive outside investment that would make a significant dent in that figure.

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    1. Andrew Warren RICS

      Josh, whilst your concerns are well articulated, your language is somewhat melodramatic. Yes debt is an obvious concern to any business, however you appear to be seeing only one side of its coin. The £800m figure does need to be taken with, not so much a pinch, but more a dump truck full of salt. There is no transparency to that number at all; no breakdown of costs, and people are being extremely naive to simply accept it. If £110m of that figure is attributable to land acquisition, that doesn’t represent “debt” as it’s a sunken cost.

      Of course, significant investment to grow the business will unquestionably deliver commensurate growth to our revenue capability. Our global profile will be bigger and we will see this reflected in stronger commercial operations. The development also creates commercial value insofar as Stadium Naming Rights and supplemental partnering agreements. It is to be seen, but the former could be worth into the hundreds of millions, whereas the latter will easily secure into the tens thereof.

      The risk to the squad IS real though. When Tottenham approaches the banks to restructure its Phase 2 debt, it will need to have paid down a significant degree of capital, and in order to do this strategically, operating profit will need to be ring fenced. It is disingenuous for Levy to claim he could build a stadium and not let it effect its core business. Not possible. Tottenham will feel pain for 3yrs before they can refinance and relax.

      For me, Phase 3 is undeliverable, at least by Tottenham anyway. At a guess, I’d say that phase would be around £100m, and riddled with all the risk which comes with dabbling in both the residential and commercial hotel sector. You need to have an extremely strong balance sheet with rock solid financing in order to enter that arena, and Tottenham won’t have either; rather, it’ll be focused on derisking and shedding debt it’s already incurred.

      A lot of people talk about Joe Lewis, yet Joe Lewis has never put significant capital into Tottenham; at least, not to a degree which is relatively material. He will not be underwriting any part of this development, which I’ve also seen speculated. No chance, why would he risk getting burned twice after Bear Stearns? Yes he likes a risk, but he’s not an idiot. He’s never shown much interest in Tottenham other than viewing it as an investment, so why spoil the habit of a lifetime?

      I think a sale is highly likely, perhaps there’s even a buyer already lined up. Levy would obviously ask a very big number – in excess of £1bn would be reasonable – and how better to stand that figure up than to give yourself more kerb appeal; spend more on the stadium, make it multi-use, bobs your uncle – mass appeal. That Levy is no fool. Fools many people – yes, but he’s no fool himself. Not even close.

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  7. thespursreport Post author

    Thanks for your detailed and heartfelt response. I’ve had a number of people raise similar concerns — Spurs essentially footing bill for NFL’s expansion. I’m very keen to fund out whether NFL is contributing financially up front, or not.

    On the cost issue — one thing to bare in mind is it isn’t all debt. Initial bank debt was going to be £350m, the rest through other sources (advanced sales, naming rights, equity contributions, club profits). LIkely, Spurs will now borrow a bit more, but prob not much more than 50 percent of total. Still a huge amount, still a huge gamble, but there’s a fairly clear pathway to funding this and no need to sell players. Issue is more limiting who can be bought — but unless we get bought by Qatar, we’d never be able to compete with likes of City or Chelsea anyway in pure financial terms.

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  8. Pingback: Building a brighter future, on and off the pitch: Analysis of THFC’s accounts for the 2016 financial year | The Spurs Report

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