Rating Manual section 6 part 3: valuation of all property classes

Section 420: football and rugby football league stadia

This publication is intended for Valuation Officers. It may contain links to internal resources that are not available through this version.

1. Co-ordination

Football and rugby football league stadia are subject to co-ordination as set out in the relevant Practice Note.

2. Background information

Economic trends

The member clubs of the Football League are often said to be in a state of financial crisis and whilst in many cases this is true it must also be remembered that this appears to be a near permanent state of affairs. Lower attendances compared to 25 years ago, the high level of players’ wages, the cost of the transfer market for top players, and the expenses of modernising facilities are all cited as reasons for lack of profitability.

The creation of the FA Premier League in 1992 has, during the mid to late 1990s led to an increasingly polarised situation. Clubs regularly competing in the Premier League have benefited from its increased exposure and the lucrative television agreements. They have also been best placed to benefit from the increase in merchandise sales and to exploit other commercial opportunities. The overall result is that the richer clubs are becoming richer.

In contrast, clubs relegated from the Premier League are often in a position of either having to gamble on achieving a speedy return, and therefore retaining a ‘Premier League squad’ at appropriate wages and sustaining a (hopefully) short-term loss, or accepting that they must sell players to cut costs to a level more appropriate to a club outside the Premier League.

The increased players wages in the Premiership, and increased cash available from the TV deals, coupled with ‘the Bosman ruling’, have led to an influx of overseas footballers into the English leagues, and the Premier League in particular. This is in turn causing difficulties for those lower division clubs which have traditionally relied on incoming transfer income to remain profitable, spotting and developing young players and selling them on to the larger clubs. Studies have shown that increasingly money on transfers is being spent on players from outside the UK. As a generality, clubs in the lower divisions of the Football League struggle to cover their costs. In some cases clubs have developed ground-sharing arrangements, often with rugby league clubs, to maximise use of the stadium.

As a general proposition, it would appear that league football is not carried on entirely for commercial profitability and the national picture has shown that individual clubs, even in their more extreme financial crises have generally avoided receivership and in some cases taken the opportunity to restructure their finances and become profitable ventures again even at reduced levels of attendance.

Trends in design of football stadia

In the 1970s and 1980s in particular, a number of disasters, mainly at football stadia, led to additional safety measures to avoid a repeat. The deaths of 66 people in a crush at an exit staircase at Ibrox Park in Scotland resulted in the Wheatley Report of 1972 which itself led to the Safety of Sports Grounds Act 1975. The Popplewell inquiry followed the Bradford City fire disaster of 1985 and the Taylor Report arose from the Hillsborough disaster of 1989.

The recommendations of the Taylor Report, which were accepted, apply to all sports grounds designated under the Safety of Sports Grounds Act 1975, in effect those capable of accommodating more than 10,000 spectators. The requirements resulting from the recommendations are that spectators are only to be admitted to seated accommodation at designated grounds, although this requirement was subject to phased timing so that all English First and Second Division Clubs and those in the Scottish Premier Division were required to have all-seater grounds by 1994, and all other designated grounds by August 1999. The latter requirement was later relaxed in respect of stadia occupied by second and third division clubs.

The result of the Taylor Report has therefore been a replacement of terracing with all-seater stands. At the same time, the larger clubs saw an opportunity to exploit additional revenue trends, and the new stands built often incorporated significant hospitality and conference facilities, executive boxes, and other catering outlets. Also, the increased demand for merchandise connected with football clubs has lead to an increase in the size and quality of club shops, with some clubs also opening a number of outlets away from the stadium itself.

The inevitable consequence of replacing terracing with seats was a reduction in capacities. In rough terms the majority of Premier League clubs saw the capacity of their stadia reduced from between 40,000 - 50,000 to between 30,000 and 40,000 as a result of bringing in all-seater stadia. Prices for seats are however generally higher than for standing on the former terracing.

The change to all seater stadia occurred at around the same time as the introduction of the Premier League, and the combination of the higher profile enjoyed, the better facilities and the higher prices (which it is said have alienated some traditional supporters) have led, to some extent at least, to a change in the characteristics of people attending football matches.

3. Case Law

The rating of football stadia has been the subject of a number of appeals before the Lands Tribunal and above. The attention of valuers is drawn to the following cases:

Hardiman (VO) v Crystal Palace Football and Athletic Club Ltd (1955) 48 R&IT 91 in which the Lands Tribunal effectively rejected the contractors test valuations presented by the parties in favour of a close scrutiny of the Club’s accounts.

West Ham United Football Club Ltd v Smith (VO) (1957) 59 R&IT 313 where the relationship between net annual value and net gate receipts was first canvassed.

Tomlinson (VO) v Plymouth Argyle Football Co Ltd and Plymouth City Council (1960) LT 51 R&IT 815, CA 53 R&IT 297 is the leading case on this class of hereditament. At the Lands Tribunal the VO defended a valuation based on a contractors test, whilst the ratepayers contended for an assessment based on a percentage of gate receipts. The Tribunal rejected the latter approach and adopted the contractors test of the VO, but the Court of Appeal held that the Tribunal had misdirected itself in not taking cognisance of the fact that the club was the only possible occupier of the hereditament. The Court of Appeal remarked

“here on the evidence it seems clear that the ratepayers were the only possible tenants and I can find no evidence that supports the possibility of any other. It has been argued by counsel for the VO that it would be possible that a reconstructed club could arise if the ratepayers got into inextricable difficulties, but that would still leave only one bidder, since both clubs would not be in existence simultaneously. It is of great importance that one should ascertain the exact state of the market in an unusual hereditament of this kind. The hereditament is not hypothetical and must be valued as it is rebus sic stantibus; but the landlord and the tenant are hypothetical. The Court must not assume hypothetical tenants for the hereditament if there is in respect of that particular hereditament no reasonable possibility of such tenants existing.”

The Court went on to conclude

“therefore, it was important for the Tribunal to try to decide what in the higgling of the market would be the resulting rent of this special hereditament as a result of the probable negotiations between the lessors and the ratepayers. Each had powerful bargaining arguments. The lessors needed a tenant for a valuable hereditament which demanded some thousands of pounds to be spent on it annually by way of repairs. On the other hand, the ratepayer’s existence depended on their taking the hereditament. I cannot but think that they would have arrived at some reasonable compromise and that compromise would represent the rent.”

Although this case was decided in 1960, when football operated in a very different financial and economic environment than in the late 1990s, the principle set out in this decision will still hold true for the majority of clubs.

4. Valuation Considerations

Bearing in mind the various decisions of the Lands Tribunal and above in the matter (see above supra), Football and Rugby League stadia generally fall to be valued on the premise that the only hypothetical tenant in the market to rent the hereditament is the actual occupying Football or Rugby League club.

This in turn leads to the conclusion that “the rent at which it is estimated the hereditament might reasonably be expected to let from year to year” is in practice the rent which the club might be expected to pay at the relevant period in time.

However, the rental bid of the club is not determined solely by reference to its accounts; the motivation of a club to continue playing and thus needing to retain its ground can be properly reflected.

The financial success or otherwise of a club closely follows its “fortunes on the field”; when these are good, gates are high, receipts increase and a revenue surplus accrues. There is no doubt that a club in such a position could pay a substantial rent for the ground it occupied. On the other hand, many clubs not enjoying current success are in revenue deficit, and not in a position to pay any large sum in rent. In these circumstances the hypothetical landlord would know that he has no alternative but to accept the best rent that the club can pay.

5. The Current Scheme for Valuations

Details of the approach to the valuation of Football and Rugby League stadia for a particular rating list is set out in the relevant practice note.

6. Common problems likely to arise during the Currency of a List

The following paragraphs deal with problems in the assessment of Football and Rugby League stadia which may arise during the currency of a Rating List.

6.1 Change in Divisional Status

Promotion or relegation can cause a dramatic change in the revenue of a Football League club, in particular as a result of changes in income from TV. It may be contended by agents acting on behalf of a relegated club that one or more of the matters referred to in para 2(7) of Schedule 6 to the LGFA 1988 applies, and hence the assessment should be reviewed. Current VOA policy, following legal advice, is that promotion/relegation do not come within para 2(7), and hence stadia should be valued assuming the hypothetical tenant (generally the occupying club) is a member of the division/league in which it played at the relevant AVD but also having regard to the then prospect of continuance in that division/league.

6.2 Policing Costs

The history of crowd violence at football matches in particular has resulted in a situation where policing costs are frequently the highest match day expense to be met by a club. The cost of policing can be assumed to be one of the economic factors pertinent at the AVD and can be reflected in valuations at that date. Subsequent changes in costs post AVD should not be reflected as they do not come within the provisions of para 2(7) of Schedule 6 to the LGFA 1988.

6.3 Newly Erected Stands

The erection of a new stand is a material change of circumstances which may result in the VO making an alteration to the List. In these circumstances the valuation must be at the AVD level but reflecting the physical circumstances at the date of alteration. It follows that any change in receipts brought about by the new facilities should be adjusted to levels at the AVD.

6.4 Executive Boxes

The creation of executive boxes after the material day should be reflected in valuations on a material change of circumstances by adjusting gross receipts to the level that could have reasonably been foreseen as flowing from the letting of the boxes had they existed at the AVD. The creation of such boxes may of course affect the remaining ground capacity.

6.5 Pitch Heating

The loss of a scheduled fixture due to adverse weather conditions causes loss to the club; even if the fixture can be re-arranged at a time when the gate will equal that at the schedule date, there is a loss on programmes, perishable foods, etc.

In order to combat this, several different methods of pitch heating have been installed by various clubs, ranging from an inflated polythene beneath which hot air is pumped, to electric cables placed at a critical depth beneath the turf. As the latter form part of the hereditament, any increased profitability from fewer postponements that the hypothetical tenant could have anticipated at AVD should be reflected in the assessment.