By Ian Fraser
Published: Sunday Herald
Date: 29 August 2004
It was to be Gavin Masterton’s swansong. The Stadia Management businesses would provide a much-needed injection of finance for Scottish football and provide for the former Bank of Scotland Treasurer and director’s retirement.
The success of the business would also wipe away the bad taste left by the failed takeover battle for National Westminster in which he had been labelled the “Nowhere Man” by the target bank’s chairman Sir David Rowland.
Instead, part of the Stadia business crumbled quickly and left Masterton exposed to the kind of major financial risk that should not be faced by leading figures in banking who have normally carefully prepared for their retirement.
What is worse, Masterton is likely to face a grilling from the Financial Services Authority over claims of alleged serious breaches in corporate governance within the Bank of Scotland and then HBOS. The questions surround the time when Masterton was setting up his Stadia Management business during early 2000. Did Masterton make clear to all those with whom he did business the nature of the organisation with which they were dealing and its relationship with the BoS?
At the time, the Dunfermline boy-made-good, whose signature appeared on the BoS bank notes, was operating from the Bank’s head office on the Mound. He allegedly turned up for meetings with senior Scottish footballing executives in a BoS chauffeur-driven limousine. At least one assumed that Stadia Management was a BoS company. “As far as I was concerned Stadia Management was either part of the Bank of Scotland, an associated company of the bank’s, or a company with a strong relationship with the bank along the same lines as Teesland,” says Dominic Keane, the former chairman of Livingston Football Club, who first met Masterton at a Dunfermline vs Livingston game at Dunfermline’s East End Park back in April 2000.
The claims may raise eyebrows given that they come from someone who knows the Scottish banking scene well, having been a corporate banking manager at The Royal Bank of Scotland. Why didn’t Keane make the usual checks before going into a business deal? “I felt I was dealing with someone I could trust and certainly saw no need to carry out any due diligence,” he insists.
Masterton’s plan was for Stadia to enter into joint ventures with many of the UK’s struggling football clubs to permit them to better exploit their often under-utilised property assets – including land, leases and football grounds. He wanted to use this as a platform on which to develop related activities including “business enterprise centres” (office blocks), leisure complexes and hotels. In exchange for handing over their valuable acres, the clubs would be entitled to 70-75% of the future income stream from the joint ventures, with Masterton’s fledgling Stadia Investment Group taking the remainder.
Keane was an attractive partner for Masterton’s venture because of the Livingston set-up. The club had strong links with West Lothian Council, a local authority that had recognised the importance of having a financially sound football club in its new town. Its support could help give it a sustainable future by easing through planning permission for ancillary activities around the Almondvale Stadium. But one of the crucial questions now being asked is how Masterton represented himself, his business and its relationship with the BoS.
The former BoS treasurer cannot understand how Keane failed to distinguish between Stadia Management and the bank. Speaking from his home in Dunfermline, Masterton, told the Sunday Herald: “There was no dubiety. That [Keane’s claim] is simply not the case. He knew exactly what the structures were, his own lawyers knew exactly what the structures were. There was absolutely no dubiety whatsoever.”
One of Keane’s other central claims is that the Stadia-Livingston deal went ahead with a surprising lack of paperwork. He claims that no joint-venture agreement was formally drafted or signed – despite Keane’s apparent agreement to pay a 5% fee to Stadia Management for putting the deal together and for providing certain guarantees. Keane’s version is that once Masterton retired from the bank in June 2001, BoS officials believed it was time to tie up some loose-ends relating to Masterton’s personal business interests.
In August 2001, a belated deal was struck in which Keane was advised by DLA, BoS by Dundas & Wilson, Masterton by Burness and Forsyth Business Centres (part of the Scarborough Development Group, which were to operate the serviced office accommodation at Almondvale) by Dickson Minto. Keane claims that this arrangement was presented as a fait accompli and something that was needed to regularise the existing verbal agreement he had entered into with Stadia Management. He said: “Only at this point did it become clear that Stadia was not the bank.”
Bizarrely a key building on the Almondvale site was, according to Keane, already half completed by the time the deal was formalised. The £3.5m, 30,000sqft office building in one of the corners of the stadium was by August 2001 already being built by construction company Tulloch. At the signing ceremony, Keane says much fuss was made about “collateral warranties” for Tulloch, which he saw as a form of window-dressing since the building was already half complete.
Keane says he was told the space in that building would be let for £40 per square foot, as serviced short-term space. In fact he says they were lucky to get £15-£30 per square foot. This points to a key flaw in Masterton’s thinking. The demand for office space – and particularly for serviced office space, was simply not there in Livingston. The building remained substantially empty after its completion in May 2002. By summer 2003, Keane claims that Stadia had become over-burdened with debt. This was not least because of Masterton’s desire to sell a building which had only recently been completed and from which Keane had been expecting – and claims to have been promised – a substantial revenue stream of £375,000 per annum.
In early 2003, the Edinburgh-based chartered surveyors GVA Grimley were instructed to produce a valuation of the 8.5 to 9-acre site at Almondvale. The £5m figure they later came up with was reportedly seen as being too low by Masterton. “There had been a perception that what would be produced would be a valuation in the £15m bracket, with investment consents and the businesses that were operating from that site,” Keane claimed. The report was issued to Stadia by Grimley in March 2003 and was also released to an assistant corporate director at the BoS. Keane says that assistant director was told in no uncertain terms that “Gavin did not want it to be circulated.”
An alternative valuation was sought from DM Hall, a chartered surveying firm that had been used by Livingston F.C.. This was, according to Keane, “a much more superficial desk-top valuation which updated previous forecasts and valuations.” DM Hall produced a valuation of £15.875m for site and some of the business.
Asked why there was such a big discrepancy between the two figures, Masterton said: “I can’t recall the details. They were done on an entirely different basis. I don’t have the figures in front of me. That is really a question for Halls.”
Roy Hudghton, a partner at DM Hall, said: “From memory we were asked to do a business valuation rather than a bricks and mortar valuation. There were a number of businesses on the site including a night club, office space, a conference centre and the stadium itself. A business valuation would take their turnover and profit into account.” Andy Carswell of GVA Grimley said: “A valuation is private and confidential to our client. I have no comment on that.”
A further key question concerns the surprise decision by venture capitalists 3i in June 2003 to pump £5m into Stadia Investment Group. Keane says: “The company was effectively insolvent when 3i put their money in. Creditors were not getting paid and the fact was Stadia had no money. By November 2003, the losses could have been £500,000 a month.”
By June 2003 there was a policy change at the top of HBOS, which had loaned significant sums to both Livingston F.C. and Stadia. Separate bank managers were installed for Livingston F.C. and Stadia, which had previously shared the same manager. Keane says: “They were sent out from Uberior House to sort out the mess. The attitude had hardened.” Keane believes that, a few months later, top level executives within the Bank had decided that something had to be done to sort out the Stadia mess. By that time, according to Keane the Stadia family of companies had racked up total debts of £25m-£28m, a figure that was this weekend not denied by Gavin Masterton.
Keane claims that the bank then called on Kevin McCabe and Cesidio Di Ciacca, two directors of Scarborough Development Group, apparently regarded as safe pairs of hands, to help sort out the mess and that they set up “independent” company SDG Caledonia Holdings in late January 2004, subsequently making Stadia’s many creditors the offer of 50p in the £1. This offer is understood to have been rejected by Stadia director Gerry Connolly of Coatbridge-based GCA Architects.
Keane said: “They were negotiating an exit strategy for Gavin, something which Gavin was not accepting too well.” Masterton said: “At the time I didn’t have many options. I saw [the proposed deal with Scarborough] as a means of the Stadia concept continuing.” A corollary of this was that Livingston F.C. would have to be forced into administration. Keane believes the bank saw this as the only way in which Livingston F.C.’s 75% stake in the doomed property joint venture could somehow be retrieved and transferred to SDG’s rescue vehicle.
He was devastated when told by bank officials on January 22 that Livingston F.C. must go into administration. Keane’s view is: “I am in this mess because of the bank, they were responsible.” He argues, among other things, that had Masterton’s original promises of revenue from the joint venture come to fruition, there would have been no financial problems at Livingston F.C.. But Keane believes that he was being made a scapegoat – a fall guy – and vowed to fight any attempt to force Livingston F.C. into administration “tooth and nail”.
He also says that in January 2004, the club’s overdraft was only £3.401m, nearly £100,000 shy of the £3.5m limit imposed by BoS – and substantially less than other clubs that have been put into administation. Keane argues that the club’s financial position was no more precarious than that of other football clubs and says Livingston was one of the few Scottish clubs that had not made an application for a temporary loan from the SPL that month.
But a source with knowledge of the club’s finances questioned Keane’s business acumen, pointing out that the overdraft was about equal to the club’s total annual revenues. Livingston was finally forced into administration on February 4, 2004, with Kroll’s Fraser Gray appointed as official administrator. Three months later a creditors’ voluntary arrangement (CVA) report was put together by Gray. In this the restructuring specialist clearly stated that Livingston Stadia Management Ltd was, effectively, worth nothing. Gray wrote: “LSML has few assets and material liabilities”.
But this strongly conflicts with Keane’s view of the business as having core assets including a lease from the council, an office building, a nightclub and a conference centre. The assets were, after all, already producing an income stream which could clearly have helped to repay some debt. A Kroll spokesman told the Sunday Herald: “There is no contradiction. Livingston Stadia Management Ltd had assets including those referred to by Mr Keane but there were also significant liabilities.”
Other questions surround a statement in a separate section of the same report, where Kroll said that Livingston F.C.’s £3.7m debt would be transferred to LSML after a Company Voluntary Arrangement was approved. Why would a company with “few assets and material liabilities” be asked to shoulder £3.7m of debt? A Kroll spokesman said: “Kroll is not involved in Livingston Stadia Management Ltd’s business therefore we are unable to go into detail. We understand that the assumption by LSML of the football club debt is part of a much wider series of transactions in LSML, the effect of which should be to leave LSML in a viable state.”
However Keane remains convinced that the close juxtaposition of Livingston F.C.’s administration and Masterton’s exit from Stadia was because BoS wanted to limit potential embarrassment for it and its former treasurer and general manager. It was certainly not a welcome outcome that such a senior banking figure was behind a small company that had racked up an estimated £25-28m loss in four years. “There was no proper risk management in place,” says Keane. “No other business customer of BoS would have been afforded the sort of protection given to Stadia.”
A spokesman for BoS said: “Our senior management was aware of Gavin Masterton’s personal business interests and, as you would expect, approval procedures were in place. The process underpinning this transaction was clear. Gavin Masterton employed separate advisors to help complete the Stadia deal and the transaction was carried out in his name, and on his behalf, by his advisors. There was no possibility of any confusion between Gavin Masterton, the private individual, and the Bank of Scotland. As a matter of fact, the transaction in question was completed in August 2001, after Gavin Masterton retired from Bank of Scotland.
“It is widely known within the Scottish business community that Gavin Masterton has personal business interests in Scottish football and has been involved in football since at least 1990.”
Copyright 2004 SMG Sunday Newspapers Ltd.