Just because we should doesn't mean we can.

Following the article last week, Harry B reviews the practical challenges on building a new main stand

Just because you should, doesn't mean you can.

Last week we wrote about the necessity to spend on the infrastructure of Celtic Park and to make improvements on things such as improved accessibility to the North Stand, East Stand and West Stands. But the crux of the piece was the requirement to build a new Main Stand. It wasn't just about increasing capacity (there is an argument that that should not be done). It was about the fact that the main stand should be the prestigious, pre-eminent part of the stadium structure. It is the part of our building the visiting clubs come through. It is a part of the building where a prospective signing will come through. It is where the media facilities are hosted and it should be where the premium corporate facilities are located. For all those reasons, it should be the premium stand, but also it should be at least acceptable accommodation for the ordinary punters who use it on a week-by-week match day basis and it patently is not.

But just because we should do something, does that necessarily mean we can do something?

As stated last week, each day that passes where we don't develop the stand is a day closer to the point when we are forced to develop the stand and that may not be at a time of choosing to us either financially or in terms of the footballing requirements at the club. Of course, there are multiple practical considerations that need to be reviewed before anything could happen. There is the question of what we do with the current Main Stand patrons while it's getting built, and there's also the question of how we pay for it - two huge considerations.

What to do with the people?

We have a full ground. The reason why we are writing about whether we can do this or not is because we have a full ground with a large waiting list. If we had empty seats everywhere, whilst it would still be necessary, it might not be as pertinent…or would it?

The point about doing this at a time of our choosing and not when it's imposed upon us by necessity is that an ideal time to have done this would've been the period when there was no Rangers Football Club (of either vintage) playing in top-flight domestic football. With 10 to 15,000 Old Firm supporters within our fan base, we had the opportunity to relocate main stand supporters for a season or two whilst these works were ongoing. We do not have that luxury today.

We have seen some stadiums get new stands getting built whilst the old stand remains in situ (specifically, I'm thinking of the works at Liverpool). I am not an expert on football stadia construction and therefore I do not know how easy or difficult that would be to achieve this at Celtic Park. I tend to live in a world where everything is possible-at a price. And of course, that might be the challenge - one of the main obstacles in getting such a project up and running and moving forward will be funding.  It may be that it is not possible to build around the existing stadium and we must decant supporters and that would create challenges due to the number of people we currently have within our supporter base and within our season book base.

One of the things that we have to make sure if we were to undertake such a project is that we do not skimp on cost, but of course nobody has a limitless budget.

We have seen with the delays and challenges created by cost-cutting at Tynecastle and Ibrox that being penny-wise can lead to being pound-foolish, where the consequent delays of not properly planning and trying to save on the margins results in a bigger problem. If we were to build a new stand, it would need to be a proper project, properly funded and properly costed with all relevant contingency amounts accounted for.

The next element within this potential project is the cost.

As stated, we've seen at Ibrox and Tynecastle recently that scrimping and saving to try and cut the cost by 5%-10% can result in buying cheap, paying twice. Consequently, we would need to do this properly and that's going to be expensive. It's around eight years since I've been actively involved to have an detailed knowledge of the cost of building a football stadium, but my understanding is that "a box" like stand, like St Mirren is coming in at about £3,000 to £4,000 a seat and Hearts came in at around £5,000 to £6,000 a seat and therefore, a proper high-quality main stand that will last for the next 50-plus years with all the appropriate modern media facilities and corporate facilities is going to come in in the region of £10,000+ per seat.

Maintaining existing capacity means that this would come in at £70 million. But if one of the reasons for doing this is to marginally increase capacity to facilitate a part repayment of the cost of the stand, utilizing the large supporter season book waiting list to provide an additional year-by-year financial advantage over any Scottish competitor, then you're looking at £80 to £100 million for this stand. By any consideration, that is a lot of money for a club playing in Scotland.

So the question is, do we have the financial capacity for such a project?

The first question when you consider the Celtic is run by a conservative board with financially-minded board members and shareholders would be whether it is financially cost-effective, i.e., does the spending of this money add any value to the turnover of Celtic?  If you improve the corporate facilities, then the pricing you can charge for corporate hospitality increases, but they do not increase at a rate that pays the £70 to £100-million. And so this would necessitate an increasing of capacity. But of course, we only need to look back a handful of years to see a time when the average attendance at Celtic Park was below 50,000 (14,000 below the capacity at the time).  If we were to increase capacity by, e.g., 5,000, that's nearly 20,000 empty seats in the stadium. That period, so recent in the mindset, would be one of the biggest barriers to this project going forward. But based on current numbers, it does appear to be viable.

As stated earlier, it is a little while since I've been operating with corporate lending and the numbers have changed dramatically in the last few years with the changes in interest rates. But there are options available.

There is straightforward borrowing from financial institutions, here is a rights issue, and there is the retail bond market.

Option 2 - a rights issue.  The Celtic share price is now hitting £2 a share. It is at its highest ever rate. This would be an optimum time to sell additional shares, use some of the money sitting in the bank, and raise money, perhaps on a 50-50 split in terms of expenditure and revenue raised and undertake a rights issue. Unfortunately, I cannot see this happening as it would dilute the shareholding of "the Irishman" unless he decided to buy into the share issue and so in effect, he would be funding the main stand. Nothing in the history of Dermot Desmond's ownership of Celtic would imply that he wants to do that.

I'm not close enough to financial institutions to understand the appetite that exists for banks, etc, to lend this type of money to Celtic on a capital project. No doubt one of the challenges that Celtic would have in such financing would be the recent history in Scottish football of clubs walking away from their debt. And whilst previously the argument would've been that these were the lesser clubs, in the last 15 years we have seen one of the largest clubs in Scotland go bust and walk away from tens of millions of pounds of debtors. This would no doubt make these institutions exceptionally cautious about lending such a large amount of money into Scottish football, which is not the most financially robust football setup in European football. That does not mean it is off the table. I am not close enough to know how easy it would be.

The final option is something that I do know a little about and that is the retail bond market. Very similar to lending in terms of the end product (money at a fixed interest rate for a period of time), but it can be done in a slightly more innovative way. Exeter Chiefs used the retail bond market around 10 years ago for stadium development and a quick Google will illustrate that it is commonplace for corporate entities to go and get monies. Very similar to debentures that were used at Ibrox by the old Rangers and at Hampden, you can keep interest rates pegged back by offering additional benefits to bond holders, which might include reduced rates for a period of time on corporate facilities, seats in the new main stand, et cetera, et cetera. And a scan of the retail bond market shows that some well-known institutions have been getting finances in the region of 1.25-4% above BoE base 6.5% to 9% for 10 to 15-year money.

There is then the question as to whether Celtic will have the capacity to be able to take on this level of debt.

In the last set of accounts, Celtic had around £70 million in the bank. Over the course of the next six to eight weeks, we'll see what the revised situation is in terms of money in the bank, but I don't expect it to be differing much from this figure. Celtic are a very conservative entity and with the new financial controls that are coming into place across Europe and with the changes to Champions League qualification for Scottish teams, we will no doubt be looking to retain a large amount of cash on our balance sheet. Taking that into consideration, it is still reasonable that we could spend up to half the money that we've currently got and borrow the rest. The question then becomes is a £40-million debt serviceable by Celtic. I would argue based on the information available (despite what some people think Celtic are exceptionally open and provide lots of data as a PLC) that the answer is YES!

Celtic state that they have a closed 30,000-person waiting list. I'm not sure how robustly and how regularly this waiting list is interrogated and no doubt there's an element of waste within that, i.e., people will be told you're now at the front of the queue, “do you want your season book ?” and for whatever reason will not take it up. So let's just say that the real number is 20,000. That is still a large group of potential customers. We also have to be able to maintain customer numbers for the length of the period of debt (circa 15 years to make it payable). So we also have to look at the use of the waiting list. So if we say that the real number is 20,000, my understanding is that we have roughly 5% season book turnover per annum. That is roughly 2,500 people who drop off existing season books and 2,500 people who come off the waiting list per annum. So that would leave 17,500 of the 20,000 that we would need if we are utilising 2,500.

So for cautious accounting, we want the list to remain at four times that 5% (the list should be auto-renewing as people become older, but it still gives us a four-year runway of eating into that list). So we want the list to still have 10,000 names on it. That would mean we could rebuild the main stand and get an extra e.g., 6,000 seats comfortably and not impact the business model with regards to the waiting list.

These would be premium seats within the ground. So if we have roughly 6,000 extra seats at £800, that is £4.8 million a year for debt servicing without impacting the current business model (and ignoring the improved revenue from superior corporate facilities). With retail bonds currently doing around 7.5% (that is capital and interest), our repayment profile at 7.5% for 15 years would be circa £4.25 million.  That would be £4.25 million over 15 years on £40 million, which would be covered by the 6,000 additional seats.

Obviously, the devil's in the details, but on a headline level the question of should we, but can we appears to be YES we should and YES we can. I stated the devil will be in the detail of any financial offering and the devil will be in the detail of how we manage the 7,000 people who currently sit in that main stand while it's constructed and how we do that properly so that we don't end up in the farcical position that both Hearts and Rangers recently found themselves in. But in principle, for practical reasons and for financial reasons, the development of a new stand is a must.