It was an ambitious deal which was supposed to secure the future of Southsea’s landmark leisure centre and get it off the council’s hands.
But the multi-million pound project to hand the Pyramids Centre over to a private company could end with Portsmouth City Council £2m worse off – and yet still having to pay out for its day-to-day running costs.
As previously reported in The News, the city council agreed for a company, Southsea Community Leisure Limited (SCL), to take over the centre after it promised to revamp it and keep it going as a pool, concert venue and leisure centre.
It also agreed to underwrite a £2m loan taken out by SCL to carry out major improvements. That meant the council was liable to pay the full sum back if SCL was unable to meet repayments.
That decision is now coming back to bite Portsmouth City Council as SCL runs into cash flow difficulties. Last month, the council agreed to set aside just over £1m after SCL said it was unable to meet repayments for the next 14 months.
Today there were warnings that the council could end up footing the bill for the whole £2m if SCL is unable to stay afloat. And in that scenario, the council would still end up with the centre on its books – effectively sending it back to square one.
The decision to set aside the £1m won support from councillors from all three groups, though only a minority of Tory councillors joined Lib Dem and Labour colleagues to vote in favour.
Not everyone agrees it was the right move – and some fear the worst.
Tory resources spokeswoman Cllr Donna Jones, said: ‘We’re propping up a profit-making company, at a time when we’re making cuts to jobs and services. I and many others fear the business plan from the company won’t work. The whole deal may just go bang, and we’ll be left to pick up the pieces, which will include paying a £2m loan and having to run the centre ourselves.’
SCL took over the centre, in Clarence Esplanade, which had previously been run by private firm Parkwood Leisure, in March last year.
Founders Gary Milne and Simon Jervis promised to operate the centre at no cost to the council, saving £800,000 per year, and to plough all profits back into the facility.
SCL took out a £2,069,304 loan from Alliance Leisure, which describes itself as ‘working with local authorities and trusts that want to improve or expand their leisure facilities.’
But because refurbishments, which included a new spa, a soft-play area, a gym and conference facilities, as well as restoring the centre’s pool, overran by three months, SCL was left unable to make a December loan payment of £28,389.
SCL’s cash flow issues were exacerbated because, in April 2010, its primary investor walked out, leaving it with just £170,000 working capital, instead of the £350,000 the council had demanded to ensure it could run the Pyramids.
Mr Milne and Mr Jervis hoped to secure an overdraft of £100,000 to £130,000, but were refused because Mr Jervis’ firm Urban Renaissance Bar Ltd went into administration. The council agreed to make the loan payment, but was asked for more money last month, as problems continued.
Cllr Jones said: ‘I hope the company’s business plan succeeds, and SCL will be profitable by 2013.
‘But we are spending a huge amount of money. And if it fails, because we underwrote the loan, we will have to pay all the money back, then take over and attempt to operate the centre, at huge cost. We should have sold it to a private company, or paid someone to come in and run it.’
Supporters of the deal, including council leader, Cllr Gerald Vernon-Jackson, say the council had no realistic alternative to underwriting the loan, and stepping in to help SCL.
He said: ‘SCL offered the best deal, and without us underwriting the loan, it couldn’t have happened. In hindsight, I think we can all agree the deal was too good to be true, but there are other things to consider.
‘SCL has only been running the Pyramids as a fully-open centre for two months, and it’s quite common for new firms to need some assistance. It’s a non-profit making organisation, so we aren’t helping out a normal private enterprise.
‘The Pyramids is an excellent centre. Work has been done to improve it and we want to keep it open for the benefit of the whole community. It would have cost us up to £1m to shut it.’
The council has now developed a deal which SCL must stick to. Its key points include the removal of director Simon Jervis, and the appointment of between three and six new directors, forming a new trust to assist the centre’s managing director Gary Milne. They will be appointed by the end of this month.
SCL must pay back the loan as soon as it becomes profitable, as well as paying the council five per cent of its gross revenue income each year.
Cllr Vernon-Jackson said: ‘They’ll pay us back the money we are lending to them, we’ll receive cash each year from the profits, and by setting up a new trust, it’s effectively a takeover by us.’
Mr Milne, the firm’s managing director, said: ‘Mr Jervis remains an employee of SCL, but is no longer a director. We’re looking forward to the trust, which would have happened earlier except for the building work over-running.
‘We hope we won’t need all the money the council has offered. We are improving the Pyramids, and the centre’s about its staff and the community which uses it. We’re very confident we’ll be in profit by 2013 at the latest, and that will be paid back into the centre, to continue its improvements.’