Council hopes to get £54m from Arena deal – in 46 years time

Martin Shipton

Cardiff council has revealed that it expects to recover a £54m surplus from a 15,000-capacity indoor arena planned for Cardiff Bay that will wipe out its contribution to the project – but only after a private operator has run it for 46 years.

The council is pressing ahead with the Arena despite concerns about its funding model raised by opposition councillors and Cardiff Civic Society. The Arena is intended to plug a gap in the capital’s suite of entertainment venues.

Lyn Eynon, planning lead for the society, has analysed as much of the project’s finances as he could, given that some information is contained in confidential papers that have not been released. In a briefing note he said: “[Liberal Democrat council group leader] Rodney Berman raised concerns about a contribution of £27.3m that the [recent] cabinet paper states council is making towards the project.

“This is to pay for land assembly and preparation. Importantly, this expenditure will not be covered by the Arena lease payments from Live Nation [the private sector operator]. In fact, this expenditure will now be substantially larger than this figure, first used a couple of years back, due to inflation. I don’t have access to the breakdown, and some of the money may already have been spent, but this could now amount to £35-40m. I don’t know if the confidential papers explain this.

“[Tory councillor] Joel Williams pointed to the apparent contradiction between council policy on transport and its plans for a multi-storey car park (MSCP) .He is right that prudent management would have delayed decisions on how to fund the Arena until the car park business case was ready. [Labour councillor] Jackie Jones pointed to the cut-and-paste nature of the equalities part of the council paper. She is quite right. Like the well-being of future generations this has become a ritual insertion into cabinet papers with no substantial content.

“It is particularly relevant to the Arena given the history of the local community’s marginalisation from the Cardiff Bay waterfront development. As yet, there is little to explain how they will benefit from the Arena, with most of the operating jobs being zero-hour on minimum pay, although there may be more, but temporary, opportunities in construction.”

Surplus

A spokesperson for Cardiff council responded: “The council’s capital contribution to the Arena project remains the same at £27m. However, we expect to recover a £54m surplus from the Live Nation lease by the end of the term which should offset this contribution in due course.

“As part of the Arena project the council is also obliged to deliver a new MSCP which can service the Arena and enable a wider regeneration of the Atlantic Wharf site.

“The new MSCP, which will be council owned and self-funding, is included as an obligation in the Arena contract to give assurance to the Arena developer that it will be delivered. The new car park will see a reduction on the current amount of parking in the area, and allows vast swathes of what is currently surface car parking to be turned into a vibrant new quarter for culture and leisure for people to enjoy.

“Any risks associated with the projected income from the car park will be addressed as part of the Atlantic Wharf regeneration proposals coming forward to cabinet in the New Year.”

Self-financing

Responding, Mr Eynon said: “The cabinet paper includes the statement: ‘All borrowing costs are intended to be self-financing in the long-term from Arena operator rental income, and in the financial model forecast this materialises with a surplus for the council anticipated at the end of the 46-year contract.’ That sentence is immediately followed by the admission: ‘However, there remains a risk that if interest rates remain higher for longer this will negatively affect that outcome.’ The council is therefore carrying the burden of that risk rather than Live Nation.

“The £54m claim has not previously been put in the public domain. It is presumably hidden from view in the confidential appendices, as is the financial model on which it is based. It is argued that publishing those appendices could undermine the council’s negotiating position. I can understand that, but it is not acceptable for officers to then use numbers said to be confidential while still hiding the data and model behind those from public scrutiny.

“According to the March 2023 cabinet update, the overall cost (excluding the MSCP) had risen from £180m to £280m. The redesign will have reduced that somewhat (the number is hidden) but not by the full £100m, so presumably the council will now need to borrow more than £138.1m to cover this, or is Live Nation now paying some of the cost up front rather than through the lease? We have not been told. Similarly, can enabling costs (running into the next financial year) really be kept within the affordability envelope given inflation?

“Replacing surface parking with an MSCP will indeed save land, which can then be better used. But the cost of this must raise some questions. It is worrying that the council seems to have entered into a commitment to Live Nation to deliver the MSCP before its full business case has been approved. Does that not subvert the democratic process?

It’s not easy trying to work this out when the financial detail is not visible to the public, so I can’t guarantee that I have all of this right.”

Recovered

Responding further to Mr Eynon, the council spokesperson said: “The £27.3m council contribution would be recovered in full in the event of a potential £54m surplus being realised. As this is dependent on the rate at which the council locks in its long-term borrowing, the £27.3m is not currently listed for recovery. That would change should the potential surplus be realised. Also, the council contribution is capped, so any further cost of the Arena is to be fully covered by Live Nation.

“The council agreed to commit to delivering the MSCP because the wider regeneration of the Atlantic Wharf site needs it – replacing the current surface parking that will be removed when that land is put to better use. While the MSCP is a commitment associated with the Arena, which the council must deliver, its purpose is more than that.

“The cabinet report flags a risk relating to future decisions needing to be made on the regeneration of the Atlantic Wharf site for the projected income from the MSCP to be realised, and costs covered. The risk of delaying the Arena project until the work on the MSCP has been completed is considered to be far greater than the risk associated with progressing the project now.”