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. International In-house Counsel Journal ISSN 1754-0607 print/ISSN 1754-0607 online 2 Gerallt Jones & Rhodri Lewis 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. Joint Ventures 3 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. 4 Gerallt Jones & Rhodri Lewis 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.