It is well documented that Derby City Council will pay a fixed price of £45.8m to St James Securities (SJS) for the Becketwell Performance Venue, irrespective of any prevailing inflationary pressures.
The Council is paying the £45.8m on a “pay as you go” basis – it will be a Council owned property.
ASM Global is the contracted operator who will manage the venue ( events, promotions, ticketing, staffing, maintenance etc); it will pay a rental to the Council. Derby City Council will receive an additional undisclosed/unknown level of profit from the operation of the venue from ASM Global. Under a “secret deal” with SJS, a proportion of that profit due to the Council will be paid to SJS (NB – SJS have no residual ownership responsibilities after handover)
Rachel North – Council Strategic Director quoted in the March 2021 Cabinet Meeting that the income to Derby City Council will be “around £0.5m pa.”
Valuation
Under the International Financial Reporting Standard 13 on “Fair Value Measurement” it offers a number of valuation options depending on whether the asset is actively traded, specialist or income generating. It also gives a priority to “observable” inputs i.e. publicly available facts.
Whilst the Venue is unlikely to be considered to be specialised, it is also not an asset with active market data. A fair value measurement basis for reporting would be the income approach:
“Converts future amounts (eg cash flows or income and expenses) to a single current (ie discounted) amount. The fair value measurement reflects current market expectations about those future amounts (eg present value techniques, option pricing models and the multi-period excess earnings method).”
Grant Thornton ” Insights into IFRS 13″
Using a standard Discounted Cash Flow formula, based on £0.5m pa income with a 3% borrowing rate , over 30 years gives a “single current amount” of £9.8m – £36m less than the total project cost.
NB This has not been offset by the costs to the Council due to loss of earnings from the Arena (Pride Park), the borrowing costs, and potential loss of car parking receipts
The Council’s Leadership has been advised, professionally, of this issue.
Comment
The major concern around this project is the complete lack of transparency over the financial arrangements – even with Cllrs. I would doubt that even the Council Leadership know the critical details of the various contracts. None of the contract was subject to any degree of public scrutiny contrary to what was promised by the Leader, Cllr Poulter.
Even after contract signature the Council refuses to disclose any information of significance, on the basis of “commercial confidentiality”. This is, of course, a nonsense. SJS has no experience of building Performance venues ( in recent years – their projects have been confined to retail units) and therefore it is not bringing any commercial intellect to the table. It is a one-off project.
The Local Government Transparency Code 2015 requires that such information is disclosed and does not accept that confidentiality is an excuse for non-disclosure. The Council will argue that the contract prevents disclosure – a contract that was signed in the full knowledge that it was counter to the principles of Transparency!
The Senior Officers want to keep this deal “secret” as it is so catastrophically poor for the City; they do not want any degree of scrutiny or awkward questioning. In July 2020 the Cabinet delegated the decision making to Senior Officers and by-passed the internal executive process that involves examination by elected representatives from all parties.
The location in Becketwell is one of convenience for SJS and not focussed on the the success of the venue. The selection has not considered the surrounding infrastructure e.g. main road access, parking, local facilities, accommodation, bus/rail network etc. The Cabinet paper made comparisons with the Hull Bonus Arena – apart from it being of similar size, there is little comparison.
The Arena in Hull has 1200 parking spaces on site, is served directly by the dual carriageway A63 which is an extension of the M62, is adjacent to a shopping centre with restaurants and bars, and is 5 minutes walk from the bus and railway station. The Becketwell Venue has none of these which will inevitably affect its popularity and its value.
It is unclear why Senior Officers agreed to pay SJS a proportion of profits when its involvement ends at project completion – perhaps it’s a way of covering any SJS overspends against the “fixed price contract”. The public will never know as it will be deemed “commercially confidential”.
When the venue is finished in 2 years time, the auditors will require the Council to write-off ~£36m. This will not be charged against the Council Tax but through reserves.
The venue might bring more people into the City and anything is better than a derelict eyesore, however in all other respects, it’s a very poor deal for the Derby Taxpayer.
