International In-house Counsel Journal Vol. 9, No. 33, Autumn 2015, 1

Millennium Stadium Experience Joint Venture: A Busy (Legal) Year

RHODRI LEWIS Head of Legal Affairs, Welsh Rugby Union Group, UK & GERALLT JONES Head of Corporate and Banking, Hugh James, UK

Introduction The Millennium Stadium in Cardiff, opened in 1999, was recently voted the best rugby stadium in the world. Its city centre location and fully retractable roof (the first in the United Kingdom) have ensured that it is a 74,500 capacity ‘must play, must see’ venue. At the time of writing, the Millennium Stadium is hosting matches in the 2015 Rugby World Cup – the third time that the Rugby World Cup has been hosted in Cardiff, the stadium being the venue for the 1999 Rugby World Cup final. But it is not only rugby that is played there. The Millennium Stadium has hosted FA Cup Finals, football matches in the 2012 Olympics and other international football matches, motor sport and a number of high profile concerts from the likes of Madonna, Rihanna, Bruce Springsteen, Oasis, Take That, Paul McCartney and U2. Messi, Ronaldo or Bale could be among the latest sporting heroes to grace the turf of the Millennium Stadium, following the recent announcement that the stadium will be the venue for the UEFA Champions League final in 2017. Given the global TV audience for the UEFA Champions League and the exposure that Cardiff will receive as the host city, this will be another opportunity for the Millennium Stadium to showcase its ability to host world-class international events. These are exciting times for the Millennium Stadium. Built with funding from the then Millennium Commission, use of the word “Millennium” in the stadium name was a condition of the funding arrangement. It was also recently announced that it will be renamed Principality Stadium with effect from January 2016, following a ten-year naming rights deal with the Principality Building Society, which has its headquarters in Cardiff. This is a landmark arrangement and is a continuation of the investment made by the Principality Building Society in Welsh rugby over the past decade. Background Another announcement made in relation to the Millennium Stadium over the last year did not achieve quite the level of publicity accorded to the awarding of the UEFA Champions League final or the completion of the naming rights arrangement for the stadium, but probably has a greater long term impact and which required no less input for its lawyers. This was the announcement that Millennium Stadium plc (MS) and Compass had entered into a joint venture for the operation of the catering and hospitality services at the stadium. Compass is a global food and support services company with annual revenues of around £17.1 billion in the year to 30 September 2014.

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Catering and hospitality for a capacity event at the Millennium Stadium are mammoth operations. Over 1,100 catering staff are engaged on an event day to service both the public and the almost 3,000 VIP guests being entertained in one of the 113 hospitality suites and six hospitality lounges at the stadium. A typical event will see the sale of around 90,000 pints of beer and 7,000 hot dogs in the public areas, while hospitality guests will consume:  400 kg of potatoes;  600 pints of milk;  1,500 fillets of beef; and  3,000 chocolate rugby balls. Although the joint venture, named Millennium Stadium Experience, is a new approach, Compass has been involved in catering at the Millennium Stadium since its opening. Compass was appointed to provide catering services in the stadium on a traditional basis back in 1999, but was not involved in the marketing and selling of the increasingly important hospitality offering at the stadium for rugby matches of the Welsh national team, which was carried out by stadium employees. It was decided that a joint venture arrangement would be a better ‘fit’ and would enhance the hospitality and catering offering at the Millennium Stadium. Instead of the previous relationship based on a royalty mechanism (see box entitled “Standard stadium catering model”), combining the sales and operations expertise of the two parties would result in a collaborative approach to maximise commercial returns, whilst ensuring quality of delivery. Standard stadium catering model While the recent trend for a joint venture approach has been successfully adopted in other stadia, the “standard” model for the relationship between a stadium owner and a catering provider is that the provider supplies and services hospitality and public catering units including the supply of all food and beverages, catering staff and items such as cutlery, tablecloths and glasses. Typically, the catering provider pays a fee in respect of the relevant rights and a royalty share would be agreed. In addition, the catering partner might be granted certain rights to exploit non-event day catering and banqueting (such as Christmas parties). These are usually long-term arrangements, to provide sufficient opportunities for the catering partner to recoup its investment.

Structure Millennium Stadium Experience was the culmination of many months’ planning and negotiation involving MS, its parent company The Welsh Rugby Union Limited (WRU) (the governing body for rugby union in Wales), its legal advisers Hugh James and its tax and accounting advisers PricewaterhouseCoopers, working together with Compass’s executive team and Senior Legal Counsel Michael Owen. Key elements of the structure included: 1) The establishment of a joint venture company, Millennium Stadium Experience Limited (MSEL), jointly owned by WRU and Compass. The parties’ ownership percentages were determined following a detailed due diligence and valuation exercise to determine the value of the contributions made by both parties. The exercise involved complex financial modelling taking into account profits generated under the existing model, assets to be contributed by both parties, costs savings arising from the joint venture and other factors to calculate and agree the ownership structure.

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2) The transfer of assets from WRU, MS and Compass to MSEL. These included the kitchen equipment needed for the catering operation, ranging from ovens to freezers, bars to hot dog chutes and tills to pallet trucks. 3) The granting of licences by WRU/MS to MSEL to: a) provide hospitality services at the Millennium Stadium; b) use intellectual property including the words “Millennium Stadium” and the logos relating to the stadium (which will now need to be revisited given the impending change of the stadium name!); and c) enter into and use certain areas within the Millennium Stadium to allow it to provide the hospitality services. 4) A shareholders’ agreement between WRU and Compass in relation to the ongoing management of MSEL. This contained standard provisions regarding the appointment and voting of directors and a list of reserved matters which was the subject of some negotiation. 5) A catering agreement between MSEL and Compass governing the provision of catering services to MSEL by Compass. In broad terms, this was a continuation of the services previously provided by Compass to MS under the “standard" model – however, given that the intention was to ensure that the joint venture would result in both parties working more closely together, interesting (and, at times, difficult) issues needed to be resolved regarding risk, liabilities and responsibilities. 6) Secondment agreements dealing with the terms on which employees of both Compass and WRU/MS are seconded to MSEL to provide services under the new arrangement. Challenges The main focuses of WRU/MS are of course rugby and events at the Millennium Stadium. The seasonal nature of this business means that there are huge peaks in activity at certain times of the year. During the intensive six-week duration of the RBS Six Nations rugby tournament, for example, the organisation and preparation for each game is a Herculean task, which can be extremely time intensive for the executive team. The WRU/MS in-house legal capacity is two. In addition, during the period when the joint venture with Compass was being negotiated, the executive team had to deal with other major issues including the following.  Negotiating and concluding a £60 million rugby services agreement between the WRU and its four professional regional rugby teams. The agreement provided a new and positive contractual relationship between the WRU and the four regions for six years and followed several months of intensive negotiations under considerable press and public scrutiny.  The arrangements leading to the removal of the whole of the pitch at the Millennium Stadium and its replacement with a new “Desso” surface, which intertwines grass turf with millions of artificial fibres. This took place during a short window between games being played at the stadium.  The full refurbishment of the hospitality areas at the Millennium Stadium in which the joint venture would be providing its hospitality services.  Negotiating, agreeing and documenting new broadcasting and commercial deals with organisations including the BBC for the transmission of the autumn rugby internationals and the hosting arrangements for the 2015 Rugby World Cup.

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The unique ownership structure for the Millennium Stadium, which reflects the stakeholders involved in its construction in the late 1990s, led to an additional challenge. Since a significant amount of the funding to build the new stadium was provided by the Millennium Commission, consents for the new arrangements had to be sought from the Big Lottery Fund (as successor to the Millennium Commission) as well as the Millennium Stadium Charitable Trust (whose income is generated through a levy on every ticket purchased for public events at the stadium), Cardiff Council and the WRU’s bankers. WRU/MS are very grateful to these stakeholders for supporting the joint venture. The arrangements also had to deal with the increasingly common requirement for leading sports stadia to be able to deliver a “clean stadium” for high profile events such as the Olympic Games and the Rugby World Cup (see box entitled “Clean stadium” events). MS’s ability to deliver a “clean stadium” was critical for it to be able to host the 2017 UEFA Champions League final. “Clean stadium” events A growing number of organisers now require the venue for their events to be delivered as a "clean stadium”. These will typically require existing rights holders (including stadium caterers) at the venue to vacate for the duration of the event and a period before/after the event, so that event owner/operator can maximise its commercial returns. Not only does this require stadium owners to provide facilities free of sponsorship, branding and ticketing rights and opportunities, it also requires any branding for third parties (including, for example, those found on soap dispensers and hand dryers) to be covered or removed. Stadium owners who want to attract major events such as the UEFA Champions League final must therefore ensure that they are contractually able to vacate the property and deliver a “clean stadium” with no incumbent rights, without breaching any existing obligations. One particular challenge is to ensure that there are sufficient safeguards in any long term agreement – such as with a stadium caterer – to provide the ability to exercise such rights. Conversely, a stadium caterer will be looking to protect its investment to the extent possible and may look to ensure that it is provided with an opportunity to bid for the official catering rights at the “clean stadium” event. The challenge that faces a stadium owner in such circumstances is that, increasingly often, the right to host the event and the catering rights are awarded at different times – the event owner may also have its own preferred caterer.

The joint venture in practice The joint venture was concluded only days before the first events were held at the Millennium Stadium under the new structure in November 2014. The new branding was immediately introduced across the board – from uniforms to menus and from signposting to advertisements. Effectively combining the workforces of two separate organisations through secondments had to be managed carefully and sensitively, mindful that a ‘them and us’ attitude did not emerge. This also included the need to integrate two separate IT systems, with different invoicing and ordering functionality. Around 1.3 million people came through the turnstiles of the Millennium Stadium over the last 12 months. Behind the scenes, although much less obviously, it has been a busy year too!

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*** Rhodri Lewis joined the WRU Group in August 2010 as the Head of Legal Affairs and is responsible for all legal matters in relation to both the WRU and Millennium Stadium. Rhodri trained at the international law firm Freshfields Bruckhaus Deringer and qualified with the firm as a Corporate Associate. During his time at Freshfields, his work included advising the London 2012 Olympic Bid Team on the corporate aspects of the bid and drafting documentation in relation to establishing and governing LOCOG, the company responsible for delivering the London 2012 Olympic and Paralympic Games. In 2005, Rhodri joined the Legal Commercial team at UEFA, the governing body of European football, based in Switzerland. During his time at UEFA, Rhodri was responsible for legal commercial matters across all of UEFA's properties, including media rights, sponsorship and licensing agreements for UEFA EUROs, the UEFA Champions League and the UEFA Europa League. Whilst at UEFA, Rhodri worked at the FIFA 2006 World Cup in Germany and UEFA EURO 2008 in Switzerland and Austria. He also trained and worked as a Venue Director for the UEFA Champions League, managing the stadium on match days. Before joining the WRU Group, Rhodri was the Senior Solicitor at The FA Group, where he was responsible for a broad range of matters in relation to both The Football Association and Wembley Stadium, including sponsorship agreements and media rights agreements in relation to the England football team and The FA Cup. Rhodri was named In House Lawyer of the Year at the 2015 Lawyer Awards. The Welsh Rugby Union (WRU) is the governing body of rugby union in Wales. The WRU is responsible for the running of Welsh rugby, including 320 member clubs, the Welsh national teams and National Leagues and Cups. The Welsh Rugby Union has a major role in the development of coaches, referees and players throughout all ages for both men and women. It is also the parent company of Millennium Stadium plc, the owner and operator of the home of Welsh rugby union, the 74,500 capacity Millennium Stadium, Cardiff. Gerallt Jones is a Partner and Head of the Corporate and Banking Division at Hugh James. Since joining Hugh James in 2005, Gerallt has led the transformation of the corporate department into a leading market player, advising clients including the Welsh Government, Finance Wales, RBS and the Welsh Rugby Union. He now leads a thriving practice that has attracted high calibre local, national and international clients and has recruited quality lawyers from the City and rival local firms. Gerallt is admitted as a solicitor in Hong Kong as well as England and Wales. Gerallt trained at Slaughter and May in London and then worked in London and Hong Kong for both Slaughter and May and Freshfields Bruckhaus Deringer before returning to Cardiff in 2005. Hugh James is a long-established Top 100 firm of around 600 people, including 44 partners. The firm offers its clients – who range from owner-managed businesses and private individuals to multinational corporations, financial institutions, public bodies and not-for-profit organisations – the range, strength and depth of expertise they need.