In this article, DWF Public Funding lawyers Jonathan Branton and Alexander Rose look at similar major sports and entertainment infrastructure investments and their surroundings considering the Subsidy Control implications of such investments.
Background
Manchester United has unveiled its plans for a new 100,000-seater stadium at Old Trafford which is set to be totally transformed to include a vast steel and glass canopy (capable of harvesting energy and rainwater) supported by three 200m high masts. The stadium will seat 100,000 spectators (making it larger than Wembley Stadium) and the wider regeneration project will include new transport infrastructure, 17,000 new homes and public realm that the designers Foster + Partners say will be "twice the size of Trafalgar Square".
The famous OId Trafford stadium is over 100 years old and situated in an area which has suffered from longstanding deprivation. Indeed, according to the 2019 Index of Multiple Deprivation, over a fifth of the neighbourhoods in Greater Manchester fall into the bottom 10% of most deprived neighbourhoods nationally in respect of employment and income.
The club says the new stadium, including the wider regeneration project, has the potential to deliver an additional £7.3bn per year to the UK economy. This includes creating up to 92,000 new jobs, more than 17,000 new homes and attracting an extra 1.8m visitors every year. That is obviously a very significant effect on the economy of Greater Manchester and goes a long way beyond merely football.
Basics of the subsidy regime in the UK
Public support to public funded projects is governed by the Subsidy Control Act 2022 ("the Act"), which came into force on 4 January 2023. This replaced the EU State aid regime that was in place until the end of the Brexit transition period on 31 December 2020, and the provisions that followed in the interim.
As part of its commitment to "seize the opportunities arising from Brexit", the government aimed to design a permissive regime that enables public authorities to provide interventions quickly and flexibly, while minimising distortions to UK competition and investment. Rather than obtaining pre-approval from a regulatory body, public authorities are required to carry out a self-assessment against a series of rules. If the public authority considers the subsidy complies with the Act, they can proceed with the award. Transparency is the final key element of the regime, in the sense that by making sure subsidies provided are made public knowledge via a National Transparency Database, which enables interested parties to challenge such provision within a short period thereafter should they believe any subsidy to have been provided improperly.
For cases involving the highest value of subsidies, public authorities are required to refer the same to the Competition and Markets Authority (the "CMA") in advance of awarding them. Those subsidies are then the subject of further scrutiny and the CMA publishes advisory opinions, but stops short of approving or prohibiting any award, which is ultimately the preserve of the funder concerned only.
Typical issues encountered in major sports and infrastructure projects
While there is as yet little track record of challenges under the Act given its infancy, there is a long track record of EU State aid cases for sports projects. Few sectors inflame passions more strongly, with fans of different clubs never wanting to see their rivals benefit from any help that they themselves might not have had, with competition (in the sense of league positions and winning trophies) being paramount. It is also true that major sports clubs are a pivotal part of local infrastructure within many regions across Europe and beyond, with the highs and lows of local sports teams having a major bearing on local economies. For these reasons many towns and cities across Europe at least have an interest in local stadia and in many places the big local stadium is owned by the municipality and let to a professional sports club or clubs. Such stadia and the key clubs that play in them often provide an anchor around which so much investment and other economic activity revolves.
A modern state-of-the-art stadium is among a professional sports club's biggest assets but they are very expensive to build and there are few professional sports clubs with resources deep enough and long term confidence enough (noting that a club which risks relegation year on year will normally be more cautious) to contemplate the highest levels of investment. For these reasons it is common that such major investment projects, even when viewed entirely in isolation and without considering other benefits to an area, face major viability gaps in their financing. This is based on a common disconnect between projected investment costs (in building the new facility) and projected future operating profits and asset values from which commercial borrowing to pay for the investment costs can be repaid.
What often leads or at least contributes to the viability gaps, particularly in built-up urban areas like Trafford, are significant further costs arising from having to deal with the surrounding site, including how to deal with local transport links, crowd management issues, a vast array of health and safety concerns, and planning generally. This means it is critical to work with local public authorities in order to coordinate the project to best effect (i.e. the club will rarely be able to do it alone). With such major disruption occurring on and around the intended site it is normal to have to deliver a multitude of other issues alongside the stadium itself. It is also often a golden opportunity to do things – for example key underground transport and utilities connections – that would be too disruptive to contemplate otherwise.
This explains the Manchester United announcements, which make plain the breadth of issues that the stadium project will bring about to regenerate the wider area. While stadium projects often show viability gaps of themselves, the more ambitious they are for local regeneration the more likely they are to show wider viability concerns for the surrounding area, and the more likely they are to create costs which will be for the benefit of the community more than the club. This is where public assistance often becomes critical and can be the difference between such major investment projects happening or not.
Application of the subsidy rules to typical sports infrastructure projects
The statements to date from Manchester United have said the Club would not seek public support against the costs of delivering the new stadium, but there would be a need for public intervention in the wider regeneration programme for the surrounding area, for the optimal benefits from such a programme to be secured. This is not inconsistent with support provided in many other major stadia projects.
There are a wide variety of ways that public authorities play a collaborative role in stadia projects (and for which entertainment venues are not dissimilar), often without being found to have provided a subsidy to the sports club at all. Examples of such potential interventions from public authorities include site assembly and preparation of brownfield land prior to selling on at market value, having absorbed any abnormal costs associated with such preparation, and/or delivery of local general public infrastructure including the provision of public roads, footpaths, cycle paths and other public amenities. In all such cases provided the general public infrastructure is sufficiently generic in nature and part of the general fabric of the local area (rather than clearly a bespoke benefit to the sports club only) then the fact they are in proximity of a major sports stadium need not change anything, and such public funding is not deemed a subsidy to anyone. In our experience a wide variety of the above and more have been deployed in facilitating regeneration projects with a major sports stadium at their heart.
In other situations public authorities can openly provide subsidies directly to sports clubs building a new stadium. EU law provides a ready made exemption for this within its General Block Exemption Regulation, which automatically allows investment subsidy of up to €33m or the total costs exceeding €110m per sports infrastructure provided this is no more than the difference between eligible investment costs and operating profit (i.e. viability gap), alongside a few other stipulations such as the making available of the infrastructure to other users for 20% of capacity.
Since Brexit, UK law has no such precise allowances from which to offer legal certainty, but equally the flexibility of the Act means that in theory much is possible provided it meets a series of criteria set out in the Subsidy Control Principles at Schedule 1 of the Act. This includes the public funder being satisfied of an overall public policy purpose in making the intervention to begin with, being satisfied that the value of benefit provided is no more than necessary to secure the relevant public policy objective, and that efforts are made to limit any distortion of competition to the minimum required to secure the public policy objective. Any individual subsidy in excess of £10m will need to be referred to the CMA prior to award, but two years into the functioning of the Act it can be seen that the CMA referral process is operating as intended and while this adds to public scrutiny it has not generally acted (yet) as a barrier to public authorities proceeding with a wide variety of subsidy awards.
Concluding remarks
A 100,000 seater stadium is a statement of ambition and its design is so distinctive that it is likely to be considered iconic in years to come. What the sports infrastructure investment does at Old Trafford is allow public authorities in the area to work with developers to unlock a wider, transformational regeneration project. These regeneration benefits can be unlocked through targeted investment in the local area using public funding, which then brings in significant private sector investment.
In this manner, the sports investment complements the regeneration investment. Such projects normally require years of significant cooperation between local, regional and national stakeholders before any announcement is made. The Manchester United announcement is both an exciting regeneration project revolving around a stadium development, and vice versa. Investment from public authorities can help the wider regeneration project achieve its maximum potential recognising that there are many different ways to deliver both within the law whilst mitigating risk effectively throughout.
DWF Law LLP is one of the UK's leading Government & Public Sector law firms, with expertise in delivering multiple major projects of wide variety, and shaping policy. The authors have been involved inn multiple stadium and other venue investments and the surrounding regeneration benefits. If you have any questions about the issues raised in this article or have other questions linked to public funding, rights and powers, please do get in touch.
