Doubts over funding of new Cardiff Arena

Martin Shipton

Plans to build a controversial 15,000-capacity indoor Arena in Cardiff Bay are moving forward – but critics continue to express doubts about the financing of the project.

Cardiff council cabinet member for investment and development Russell Goodway said: “Delivering a new indoor Arena has been an ambition for successive council administrations for over 20 years and was a key pledge we [Labour] made at both the 2017 and 2022 elections.

“The [latest] report to cabinet is significant as it clearly shows that the arena is deliverable and affordable, both for Live Nation [the private sector events group that will operate the venue] and the council.

“The Arena and wider masterplan are a significant investment into the local economy, kick starting the next phase of regeneration of Cardiff Bay, creating jobs and opportunities for local people while acting as a catalyst for further investment into this historic part of the city.”

Implications

But Lyn Eynon, planning lead for Cardiff Civic Society, said: “The paper has to be deciphered, as its implications are not immediately obvious, especially as the detail is – as always – hidden in confidential appendices. But what can be extracted from it will not surprise anyone who has read my earlier warnings about the Arena’s financial risks.

“The economy and culture scrutiny paper on the proposed funding strategy is more readable, if not always clearer.”

“Deciphering” the scrutiny paper, Mr Eynon said: “The council can find the money to continue the project but that comes with additional short-run costs, even though the Live Nation consortium is responsible for covering the projected cost overrun of £100m. The council may be able to cover these from ‘an existing earmarked reserve’’(not identified in the public papers) but that means the money in that reserve would not then be available for other contingencies, at least until repaid (if ever).

“The council is gambling that high interest rates (which increase repayments on its borrowing to build the Arena) and high inflation will not continue, at least at the levels seen recently. Inflation is a risk as while Live Nation lease payments will increase with RPI, that increase is capped at 4%, above which the council would see a shortfall.

“The council is still hoping that it will in the end see benefits rather than costs from this. But the phase ‘self-funding in long term’ depends on hoping for surpluses from the later years of the lease above those originally forecast. It believes the Arena will ‘unlock associated benefits in the longer term, both financial and non-financial’ but the cabinet paper does not explain these, which are largely down to its hope that the Arena will revitalise Cardiff Bay.

“The multi-storey car park (MSCP) to replace the existing Atlantic Wharf surface parking and make room for the Arena and other developments has become a financial risk. Originally costed at £46m, this will now cost far more (perhaps £70-80m) to be covered from operating income. This gives the council a financial incentive to encourage visitors to travel by car rather than sustainable transport modes, contrary to everything it purports to want.

“The cabinet paper recommends ‘the council move towards more developer-led solutions for major projects that do not rely on the council increasing its levels of borrowing or risk exposure further until the council has greater certainty of affordability and sustainability of Arena/MSCP costs and income proposals’. This is likely to reduce or delay the claimed benefits from the Arena as an ‘anchor project’ for Atlantic Wharf. It also implies that social objectives will play an even smaller role in the city’s development.

“Not brought to the scrutiny committee’s attention, and not yet adopted by the cabinet as policy, is the proposal that the council should ‘consider reviewing and amending council accounting policies to enable capitalisation of interest for significant major projects such as the indoor Arena, as well as allowing for a minimum revenue provision holiday for this project’.

‘‘Capitalisation means transferring council expenditure (in this case interest on the loan to build the Arena) from its revenue budget to its capital budget. … it would ease the immediate squeeze on short-term revenue budgets, but the costs would eventually have to be met.

“Accounting rules probably allow this transfer only until the Arena is open and Live Nation start paying lease fees. In effect, this would postpone some of the impact on council finances in the hope these will improve. Capitalisation is usually justified by arguing that current costs will lead to future revenues but here the driver is higher interest rates, which do not bring any future gains.

“The cabinet paper also notes that the council has already committed substantial investment to the Arena (including contractual obligations to the consortium), which would have to be written off if it were cancelled.

Jigsaw

Mr Eynon denied Cllr Goodway’s claim that the Arena “also forms the missing part of the jigsaw in Cardiff’s music offering, as identified within our Music Strategy”.

He said: “Not so. Neither the April 2019 cabinet paper on the Music Ecosystem Study nor the newsroom briefing on the Sound Diplomacy study notes the council’s commitment to an Arena but – diplomatically – makes no comment.

“It expresses concerns about a shortage of dedicated, well-equipped venues with a capacity somewhere between bars, small clubs and arenas, with greater cultural and gender diversity. Sound Diplomacy’s strategic recommendations do not include the Arena but do include ‘increase affordable music spaces and places available to artists and music professionals in Cardiff’.

“The Arena will not contribute to this. Indeed, there is a significant risk that it will undermine rather than boost the independent music scene. At a time of cost-of-living squeeze, people buying expensive Arena tickets will have less money for other events. The constraints that the Arena is now acknowledged to place on other council spending will reduce opportunities to provide support to local performers and venues.

“I remain unconvinced that the Arena will bring the promised benefits to Cardiff for the costs and risks that it entails. There are better ways to spend this money.”