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Altruism, Ambition or Obduracy – Motives Governing The Future Of The KC Stadium

The following piece is culled from an exchange of correspondence with a lifelong friend who lives in my home town, Hull, in England. A couple of months ago a story appeared in The Yorkshire Post quoting figures from a freedom of information request indicating that Hull City Council (HCC) collect very little revenue on the KC Stadium. This was a council funded project to build a 25,000 seat stadium to house Hull City and Hull FC. A Superstadium Management Company (SMC) was constituted tasked with running the stadium. The taxpayers still effectively fund the running of the stadium as the council has rented offices on the premises to the tune of £500,000 since inception. The SMC is allowed to keep various revenues including those from the car park at the venue. Since the stadium was completed, the SMC has been owned by the principals Hull City football club. The city council, under some contractual agreement with the SMC, does receive funds but it is minimal and the article quotes figures as low as £16 per week – a paltry return on a £46 million investment. The contract was originally negotiated by the Labour led HCC and it has subsequently tied the hands of successive councils for the next 50 years. The Yorkshire post has actually printed two separate articles just about a year apart. The first from October 2010 can be accessed here and the second from August 2011 is available by clicking this link. Both tell a similar story of a watertight contract where the city council has dealt itself a poor hand. I feel sure that The Yorkshire Post will follow up again in 2012 but the story never seems to catch fire in the local press.

The Back Story

The HCC owned the only privately held telephone company in the UK. A decision was made to take the company public and an IPO was set up for Kingston Communications. Many of the local subscribers as were offered shares in the company and took the opportunity to purchase a piece of the ownership. Of the funds raised, £46 million was spent on the construction of the stadium. The construction was completed in 2002.

Hull City, known as a club that dwelt in the middle reaches of the Football league for most of its existence, had experienced a reasonable degree of success under the patronage of the Needler family and with a skillful team on the pitch, gates as high as the mid 40,000 were not uncommon at Boothferry Park in the latter part of the 1960′s. A new training facility, a new stand and high tech floodlights were the tangible testimony to that success. The team was not able to maintain that success very far into the future and a succession of managers and owners heralded false dawns and the club flirted with dropping out of the football league and administration. Adam Pearson’s purchase of the club not far from its lowest point and the move to the KC led to an upturn in its fortunes and successive promotions took it to the league’s second tier. Adam Pearson, realizing his own financial limitations sold the club on. The new ownership stewarded the club into the Premier League for the first time in its 104 year history and it stayed there for 2 seasons. The drop back into the second tier highlighted financial frailties and again there were reports of massive debts due to funding a high wage bill and large squad of players. The owner, Russell Bartlett, reluctantly agreed to sell the club having made every attempt to remain in control by courting additional financing. Adam Pearson, again back at the club to resolve the financial mess in which the club was embroiled, brokered the deal with Assem Allam and his son, owners of Allam Marine, a local manufacturer.

Assem Allam is an Egyptian who has lived in the Hull area for over 40 years and has raised his family there. His son Ehab is in the family business and is involved with Hull City. The Allams also own the SMC. By any standards, the Allams are rich, the result of hard work in establishing a successful manufacturing concern. They are estimated to be worth in excess of £150 million. Now that is not Russian Oil rich or Middle Eastern sheikh rich but they are more than comfortable. Part of purchase price was the elimination of the existing debt and after the elimination of a good part of the everyday expense in player salaries; the Allams have provided funds for players with more promised in January if additions are necessary. Assem Allam has provided funds to Hull Kingston Rovers, a top tier rugby league club in the east of the city, to forge links with them and he has an ongoing relationship with Hull FC, the other top tier rugby league team which is a tenant of the KC Stadium. Hull FC was recently purchased by Adam Pearson who continues with his role as an executive at Hull City.

Mr. Allam promotes the city of Hull at every opportunity; he has recently brought a major squash championship to the city and will sponsor it for the next 3 years. He has a vision for the part of the city where the KC Stadium resides and has made no bones about the fact that he would like to purchase it and develop a sports village around the stadium to house a number of sports and provide facilities to the citizens of Hull. In what may be considered a naïve move, he has also perhaps revealed his trump card very early in the discussions with a real threat to move the club out of the KC to a purpose built stadium and sports complex outside of Hull to the west of the city in Melton. This has somewhat divided opinion on Mr. Allam’s motives and you can only take it on face value.

As I have re-read and rewritten this earlier correspondence that formed the backbone of this piece, I have tried to define in my mind the motives of those on each side of the argument and then asked myself whether a Russian oil billionaire or Middle Eastern sheikh would have elicited the same response.

The original now follows:

I think you have to go back to the origins of the stadium to get to the root of the dilemma facing the local council. If you take the stance that the original phone company was established and run for the good of the populace of Hull and that the sale of Kingston Communications brought a vast amount of “found” money into the city coffers, then that money should have been used for some project that would have benefited the city overall. If you take the position that less than 10% of the whole catchment area benefit from the stadium then you have to conclude that the money was taken out of use for the general public and directed for the benefit of the few. This is not a socialist position but one that with hindsight sees the money burning a hole in the council’s pocket and not reviewing all of its options.

The stadium has not done Hull City and to a lesser extent FC any favors. The value of these clubs is diminished because the only asset they have is the team and to a lesser extent the training facilities but of more import is the fact that they do not have the means to borrow against tangible assets and must rely upon the wealth of such as the Allams’ (real – top 30) or Bartlett (paper wealth only). Adam Pearson in his first spell with the club recognized this, admitted he didn’t have the money to progress the club and moved on.

If the stadium was built for speculative reasons because they didn’t know what to do with the money, then the council would be right to sell at a time when they have a better project in mind and when the valuation of the stadium is beneficial to them. Negotiating now or periodically in the future would be the right course of action.

If the Allam’s have the means available to build their “village” in Melton then the council could be left with a white elephant and the only recourse to pull it down and sell the land.

Obviously I don’t know the Allams and cannot judge their intentions but I am sure that there has to be something in it for them as well as their philanthropic desires to give something back. The European model is very much in line with the Allams plans. The “Sportverein” in Germany headed by a Bundesliga club provide just the facilities he is talking about for the benefit of the general public.

If the council do want to provide a legacy then facilitating the sale of the stadium and allowing Allam to redevelop the Walton St area (badly in need of it!) with the additional facilities would be in their best interest as having laid the foundation with the KC, sold it on responsibly and pocketed a load of cash for who knows what to bring more money into the city.

There was no objection from the council when they thought a casino license was coming to Hull, in all aspects the Allam plan seems a lot more wholesome and long lived.

Conclusion

The situation is obviously at an impasse. The HCC has apparently drawn its line in the sand, happy to collect no money from its investment and yet rightfully rankled that the Allams have been so heavy handed in its initial negotiations. They would want a fair price for the facility; it may also not like the idea that a private company has some radical plans to regenerate an area of the city that sorely needs it and it may even be a source of embarrassment to them; although most councils have much more embarrassing things to worry about and this should not faze them. Would the development not provide additional tax revenue and facilities for the city? There is no doubt that two years in the Premier league enhanced the reputation of the city and brought revenue in. Would an improved facility lead to more high profile events being staged in the future?

People have questioned the veracity of the Allams’ motives. They have already pumped more into the team than it is worth based on value of the players. The stadium and the team together would increase the value accordingly in the event that they needed to sell down the road. I don’t know whether they offered a fair value for the facility but you can understand the HCC wanting to get the best price possible for the people of Hull and to reinvest in another worthwhile project. The Allams would not sell their assets at a knock down price but you can understand as businessmen that they want to get the best deal possible. Obviously they want to make money but there is no evidence to suggest that their desire to give back to the city is overshadowed by the profit motive and no reason to believe that both cannot be achieved. A proposed move to Melton, if it can be achieved for the amount they are budgeting, is some years away and is a higher risk proposition. They may have to come back to the negotiating table with a shift in attitude.

I did pose myself a question earlier as to whether the Russian and the sheikh would be treated the same way in view of the amount of cash they have at their disposal. My answer is that I hope so, that the council would make deal based on sound business principles whoever approaches them. At the moment, they get nothing; selling the stadium and banking the money would reap more than they have made so far. I am sure that they have other office space they can use and save the rent they are paying the SMC. I would hope that they could find that elusive project that would provide a lasting legacy for the city of Hull and that the people of Hull get a sports complex that is second to none in the UK – however that is achieved.

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