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Operational Viability of the Garden Bridge
A Review of the Draft Operations and
Maintenance Business Plan (March 2016)
By:

Dan Anderson
Director
Fourth Street
July 2016

REVIEW OF GBT BUSINESS PLAN

Contents
1

Introduction....................................................................................................................... 3

1.1

Purpose of this Report ......................................................................................................................... 3

1.2

Executive Summary .............................................................................................................................. 4
1.2.1

A Flawed Business Model ....................................................................................................... 4

1.2.2

Ambitious Income Projections ................................................................................................ 5

1.2.3

A High Fixed Cost Base ............................................................................................................ 7

1.2.4

Repayment of TFL Loan........................................................................................................... 7

1.2.5

Alternative Scenarios .............................................................................................................. 8

1.2.6

Lack of a Robust Challenge Process ...................................................................................... 10

2

The Business Model ........................................................................................................ 11

2.1

Summary of the Operations and Maintenance Business Plan (2016) ............................................... 11

2.2

Business Model versus Business Plan ................................................................................................ 12

2.3

The Garden Bridge Business Model ................................................................................................... 13
2.3.1

The Risk of Optimism Bias..................................................................................................... 14

2.3.2

Interdependency of Income Streams ................................................................................... 15

2.3.3

Moral Hazard ........................................................................................................................ 17

2.4

The Garden Bridge is not The High Line ............................................................................................. 17

3

The Business Plan ............................................................................................................ 21

3.1

Introduction ....................................................................................................................................... 21

3.2

Income Projections ............................................................................................................................ 21

3.3

3.2.1

Garden Bridge Gala ............................................................................................................... 21

3.2.2

Commercial Event Hire ......................................................................................................... 22

3.2.3

Corporate Membership ........................................................................................................ 24

3.2.4

Contactless Donations .......................................................................................................... 26

3.2.5

Endowment........................................................................................................................... 28

3.2.6

Programme Sponsorship....................................................................................................... 30

3.2.7

Individual Patrons Scheme.................................................................................................... 32

3.2.8

Merchandise ......................................................................................................................... 32

Expenditure Projections ..................................................................................................................... 33
3.3.1

Contingency .......................................................................................................................... 34

3.3.2

Fixed Costs versus Variable Costs ......................................................................................... 34

3.4

Summary of Financial Scenarios ........................................................................................................ 35

4

Servicing the Debt ........................................................................................................... 37

4.1

Terms of the Transport for London Loan to Garden Bridge Trust ..................................................... 37

4.2

Loan Repayment Scenarios ................................................................................................................ 38

5

About the Author ............................................................................................................ 44

2

REVIEW OF GBT BUSINESS PLAN

1

Introduction

1.1

Purpose of this Report
On 22 June 2016 in response to a written question about The Garden Bridge from Caroline Russell AM,
London’s Mayor Sadiq Khan issued the following statement:

“My decision [to continue funding the project] was based on a full analysis of all the future costs and benefits of
the project.
If the remaining funding for the Garden Bridge were to be withdrawn this would likely cause the cancellation of
the project. In that case, no benefits would be realised and there would be some winding-up costs that would fall
on the public sector.
If the public funding is maintained and the project is completed then the remaining public contribution will deliver
the £330 million of benefits described in the project's business case as well as the repayment of TfL's £20 million
loan to the Garden Bridge Trust.
The maintenance costs for the bridge after completion will be met by the Garden Bridge Trust, which has a
credible business plan in place to raise the funds needed to meet those costs.
On the balance of benefits and public costs, I have concluded it is in Londoners' and taxpayers' interests for the
bridge to be completed.” (London Assembly, Ref.: Question 2016/1967)

In principle – and from a strictly financial perspective – the logic that underpins this statement is sound.
Remarkably, some £37.7 million of the £60 million of promised public funding has already been spent. If the
project is stopped, then £22.3 million of public funding would be saved, but little or none of what has already
been spent can be recovered. If, on the other hand, the project is allowed to continue through to completion,
then £20 million of the £60 million would theoretically be recovered over time through repayment of Transport
for London’s (TFL) loan and a further £22 million would be recouped by the Exchequer through VAT payments
over the course of the project.
One can justifiably question how a capital project can spend nearly £40 million – or more than 20% of its total
budget – on preliminary works before all of the required land has been acquired and before all of its planning
conditions have been discharged. The “£330 million of benefits” from £60 million of public funding towards a
£175 million capital project could also be challenged on the basis that it ignores the opportunity cost of the
investment. The economic benefit of an investment, after all, can only be assessed by reference to its next
best alternative; and one has to assume that the same level of transport investment in areas that are genuinely
disconnected (e.g. East London) would surely generate an economic benefit that is orders of magnitude greater
than The Garden Bridge.

3

REVIEW OF GBT BUSINESS PLAN

But challenging the capital budget and the original Business Case is not the purpose of this paper. The purpose
of this paper is to objectively test the strength of the Business Plan.
As the Mayor intimates in his statement, his position is predicated on the strength of the Business Plan, a draft
of which was published – at his insistence – in May 2016. This is the Draft Operations and Maintenance
Business Plan (OMBP) dated March 2016, which describes the Trust’s business model and its projected income
and expenditure over the first five years of operation. 1
In a series of other recent statements – notably in response to questions at the State of London event on 30
June 2016 – The Mayor has insisted that no more public expenditure on the project should be sanctioned. This
principle was repeated and described as a “manifesto commitment” by the new Deputy Mayor for Transport:
“The Mayor’s manifesto commitment is no more public money on this project.”2

Here too, the Business Plan is critical, because the project’s planning consent is conditional on the Greater
London Authority (GLA) guaranteeing the project’s operating costs in perpetuity.3
It follows that if the Business Plan is not credible then these two important commitments cannot be met.
(1) If the Garden Bridge Trust cannot generate sufficient income to meet the project’s running costs, then
the resulting deficits will need to be bridged by the GLA, which implies more public funding than has
already been committed.
(2) Furthermore, if the operating surplus of the Bridge is not sufficient to repay its £20 million debt, then
the logic trail that says it is cheaper to complete the project than to stop it, is no longer valid and the
money already spent should be treated as ‘sunk cost’.
The position taken by The Mayor’s Office on the future of the Garden Bridge therefore rests fundamentally on
the strength of the Business Plan.
The purpose of this paper is to objectively evaluate that Plan and its key assumptions and thus to test the
taxpayer’s exposure to any further financial risk.

1.2

Executive Summary
After detailed analysis of the Operations and Maintenance Business Plan it is this author’s considered opinion
that the basic business model is flawed and the Business Plan targets are optimistic at best, but more likely
unachievable.

1.2.1

A Flawed Business Model
Before delving into the detail of individual line items and their underlying assumptions, Section 2 of this report
considers the business model in its broadest sense. The Trust’s business model is largely based on ‘voluntary
income’ – i.e. individual philanthropy and corporate sponsorship. The OMBP leans heavily on the precedent

1

http://content.tfl.gov.uk/garden-bridge-business-plan-march-2016.pdf
Val Shawcross, Deputy Mayor for Transport, City Hall Transport Committee Meeting, 13 July 2016
3 As per the Mayoral Decision of 22 April 2016: MD1647 Garden Bridge Guarantees
(https://www.london.gov.uk/decisions/md1647-garden-bridge-guarantees)
2

4

REVIEW OF GBT BUSINESS PLAN

set by large cultural attractions that operate under very different circumstances. All the same, it is worth
noting that while voluntary income represents between 10% and 30% of total income at cultural attractions
like Tate, V&A, Science Museum, Kew and the Royal Parks, it amounts to almost 70% of projected income for
The Garden Bridge.
The implications of this observation are significant:
1.

It introduces a high risk of ‘optimism bias’ (Section 2.3.1), which is not acknowledged in the OMBP
through any form of sensitivity or scenario analysis. In fact, even a cursory examination of the Business
Plan suggests that optimism bias is affecting the financial forecast.

2.

A large proportion of projected income is composed of interdependent income streams (Section
2.3.2). The Trust’s claim to have “a diversity of income opportunities and sources [that] reduces the
risk profile” (p.11) is simply not true. In fact, most of these voluntary income streams (representing
68% of all income) are inter-related and ultimately dependent on a single variable: the public’s
perception of the Garden Bridge. That so much of the business model rests on that single variable
makes it remarkable that no serious effort has been taken to objectively test market sentiment
towards the Bridge.

3.

The peculiar way in which The Garden Bridge has been shepherded through planning – which now
requires a GLA guarantee of operating costs – introduces a high risk of ‘moral hazard’ (Section 2.3.3).
This is the risk that potential donors and sponsors have a disincentive to give, knowing that the
taxpayer will ultimately have to bear these costs.

The principle of funding a major public garden through mostly voluntary income is not unprecedented and
proponents of The Garden Bridge will naturally point to New York City’s High Line as a model. It is true that
some 70% of the High Line’s operating expenditure is met by a not-for-profit conservancy, The Friends of the
High Line (FHL), and most of their income is, in fact, raised through sponsorship and donations. There are,
however, material differences between the High Line and The Garden Bridge, which are discussed at length in
Section 2.4.
Foremost among these is the fact that the sponsoring department of the High Line is NYC’s Department of
Parks and Recreation, whereas the sponsoring departments of The Garden Bridge are Transport for London
(TFL) and the Department for Transport (DFT). The High Line’s only function is to be a public garden; it makes
no pretence to being a vital transport link. Consequently, the High Line enjoys both the space (as it is nearly 5
times the length of the Garden Bridge) and the freedom to offer a particularly rich programme of public events
and activities. It is the programme, not the architecture, that provides such a valuable inventory for donors
and sponsors to support. By contrast, The Garden Bridge is not only constrained by limited space, but it also
has to at least pretend to serve some critical transport function. Under these circumstances, it is difficult to
imagine how The Garden Bridge could develop the kind of public programme that would consistently raise
comparable levels of corporate sponsorship and charitable giving.

1.2.2

Ambitious Income Projections
Within the detail of the Business Plan itself, it is the income projections that seem particularly optimistic.

5

REVIEW OF GBT BUSINESS PLAN

In some cases, there are logical flaws in the reasoning that undermine the forecast. Projected income from
Contactless Public Donations (Section 3.2.4), for example, is derived by taking the average donation from a
largely incomparable set of museums and applying that to the total number of expected users of The Garden
Bridge. This ignores the fact that the Trust’s own projections expect that some 65% of all Bridge users are not
‘visitors’ in the traditional sense, but commuters using the Bridge purely as a transport link. The latter must
surely have a much lower propensity to donate, especially if they are using the Bridge once or twice a day.
Simply making this key adjustment reduces projected income by some £200,000 per annum.
Projected income through Endowment interest (Section 3.2.5) is also problematic. The Business Plan assumes
that income from a full £15 million endowment will begin from Year 1. This implies that the Trust’s capital
shortfall at the time of writing is not the £30 million that is frequently reported, but nearer to £43 million if the
Trust intends to launch with the Endowment Fund in place. 4 To close that gap in the time available seems
ambitious.
In other cases, ambitious claims are made about fundraising and sponsorship with virtually no explanation of
what the Garden Bridge Trust will do to raise these funds. Corporate Membership (Section 3.2.3), Programme
Sponsorship (Section 3.2.6) and the Individual Patrons Scheme (Section 3.2.7) fall into this category. Ingenuous
comparisons are made to organisations like Tate Modern, Historic Royal Palaces, the National Portrait Gallery
and the Royal Opera House, ignoring the fact these are all large, established and multifaceted organisations
with rich programmes and large inventories of benefits that can be packaged and ‘sold’ to patrons, members
and sponsors. Depending on the package that it buys, a corporate member of Historic Royal Palaces, for
example, can offer its employees free or discounted access to crowded, admission-charging properties like the
Tower of London, Hampton Court Palace and Kensington Palace. They get special deals on venue hire and
guided VIP tours of areas that are inaccessible to the general public. This is a significant inventory of benefits
that has a calculable monetary value. The Garden Bridge – which has to maximise free and unfettered public
access – is unlikely to be able to assemble an inventory that is anywhere near as valuable.
Closer scrutiny of the Business Plan also hints at the likelihood of ‘optimism bias’ as described in Section 2.3.1.
The consolidated overview of income and costs in the Annex of the Business Plan (OMBP, Figure 26, p.33)
appears to show an earlier iteration of the financial model that was later amended in the main body of the
report. The resulting inconsistencies are in the Contactless Donation, Programme Sponsorship and Individual
Patrons Scheme lines. The most likely explanation for these inconsistencies is the following:
(1) Projected income from Contactless Public Donations was incorrectly modelled. An average donation
of 10p per visit was applied to 7 million visits per annum, forgetting that the GBT visitor forecast is
actually for 7 million visits in Year 1, falling to 5.25 million visits per annum from Year 2 onwards.

4

Despite publishing a list of donors to date in May 2016, it remains unclear exactly how much private funding The Garden
Bridge Trust has actually secured. Some £40 million in the schedule provided has come from unidentified sources listed as
‘anonymous’ or ‘confidential’ and the Trust has separately acknowledged that – at least in some cases – this is because
donations have not been contractually secured. So the outstanding funding gap could be even greater than £43 million if the
Trust expects to start operations with a £15 million endowment in place.

6

REVIEW OF GBT BUSINESS PLAN

(2) This error was identified and corrected in later iterations of the model and the relevant sections were
changed in the body of the report (but not in the Annex). This reduced projected income from
Contactless Donations by £175,000 per annum from Year 2 onwards.
(3) Instead of showing a £175k reduction in projected income, however, the loss of income from
Contactless Donations was compensated by simply increasing projected income from Programme
Sponsorship and Individual Patrons by a similar amount.
Without knowing exactly what prompted these changes in the financial model, the preceding explanation is
obviously just speculation. It is a reasonable theory, however, as this type of ‘adjustment’ is typical of a targetdriven business plan that is insufficiently supported by relevant research. Because fundraising projections are
difficult to challenge, it is an unfortunate tendency of new destinations to treat sponsorship and donations as
the ‘balancing items’ in the P&L forecast – casually flexed up or down to achieve the desired result on the
bottom line.

1.2.3

A High Fixed Cost Base
Expenditure items are dealt with only in the broadest terms and it is difficult to make a judgement as to their
accuracy. On balance, however, and by comparison to the garden maintenance contracts at other destinations,
they appear to be of the right order of magnitude.
The cost base is mostly ‘fixed’ though and this is problematic when income is mostly voluntary and highly
variable. When (not if) something unexpected happens and income is adversely affected, it is difficult to see
how costs can be substantially reduced in response. This too is unfortunately typical of visitor destinations –
which is precisely why most of the comparators used in the OMBP have business models that are based on a
high proportion of grant-in-aid.
It is also worth noting that all of the expenditure lines are inflated at 2%, except for the Impact Payment of
£250,000 per annum, payable to the London Borough of Lambeth. This is perhaps appropriate over a 5-year
horizon, as the impact payment is meant to be reviewed annually on an open-book basis and adjusted upwards
or downwards on the basis of actual costs incurred by the Borough. Over the 55-year horizon needed to assess
the project’s likelihood of repaying its debt, this is not appropriate. The impact payment will either increase in
line with inflation or its value to the Borough will be steadily eroded.

1.2.4

Repayment of TFL Loan
Critically, the Operations and Maintenance Business Plan makes no mention whatsoever about the need to
repay the £20 million loan by Transport for London.
This can be partly explained by the terms of the Loan Agreement, which affords the Trust a 5-year grace period
from the anniversary of opening before any re-payment must begin. Thereafter, no interest is charged, but the
outstanding loan balance is indexed to inflation, up to a ceiling of 2% per annum (despite the fact that average
inflation over the past 10, 20 and 30 years has always been nearer to 3%). The implicit rate of interest is
therefore a maximum of 2% per annum. The terms of the Loan Agreement are summarised at Section 4.1.

7

REVIEW OF GBT BUSINESS PLAN

Alternative Scenarios
Taking into account all of the concerns raised above, this paper posits and compares three separate long run
financial scenarios. These are described at length throughout the paper, culminating in the different loan
repayment scenarios described at Section 4.2.
(1) The Garden Bridge Trust Scenario (GBT) takes all of the assumptions as given in the OMBP and simply
projects them forward by a further 50 years at 2% inflation. The outcome is illustrated below in Figure
1. It shows that the Garden Bridge Trust can theoretically service and repay its debt (potentially with a
full repayment of the inflated loan balance by Year 30), subject to the following conditions: (a) the
Trust consistently achieves its income targets even though – as this paper demonstrates – some of
these are optimistic; and (b) most of the Trust’s retained profit and unspent contingency is spent on
debt repayment, leaving the Trust vulnerable to unexpected events that could adversely affect income
and/or expenditure.

Figure 1: Garden Bridge Trust Scenario
ASSUMPTIONS

£2,250k

£2,000k

Repayment of principal

Interest payments
£1,750k

£1,500k

Accumulation / (expenditure) of GBT profit
GLA Gap Funding
GBT Surplus / (Deficit) after Finance

£1,250k

£500k

3. Loan repayment as per terms
of TFL-GBT Loan Agreement
(November 2015)

6. Any further deficit that cannot
be met through GBT Income or its
accumulated contingency fund is
met by recourse to GLA
Guarantee.

£250k

£250k

2. Average Inflation @ 2%
(compared to 30-year average of
3.5%)

5. Operating deficits first met
through accumulated
contingency and retained profit
before any recourse to GLA
guarantee.

£750k

£0k

1. Based on published GBT
Operations and Maintenance
Business Plan (OMBP) March
2016

4. Average Rate of Interest is
equivalent to Rate of Inflation up
to a ceiling of 2%

£1,000k

2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
2051
2052
2053
2054
2055
2056
2057
2058
2059
2060
2061
2062
2063
2064
2065
2066
2067
2068
2069
2070
2071
2072
2073

1.2.5

7. No outstanding loan balance
by Year 55.
8. No early repayment of
outstanding loan balance.

£500k

£750k

(2) A more Realistic Scenario (REAL) makes a series of adjustments to the Business Plan assumptions to
correct for some of its more obvious inconsistencies or errors. Projected income from Contactless
Donations, for example, is divided into donations from Garden Bridge ‘visitors’ at 10p per visit and a
much lower average donation from commuters. Endowment income still assumes that the full £15

8

REVIEW OF GBT BUSINESS PLAN

million endowment will be in place before Year 1, but the Realistic Scenario assumes that this will
remain static over time instead of growing through the benefit of unspent contingency. Income from
Programme Sponsorship and Individual Patrons is taken as the lower of the two figures shown in the
OMBP. The outcome of this more Realistic Scenario is shown in Figure 2. Already it is clear that The
Mayor’s commitment to “no more public funding” would be a challenge to meet, as it is likely that – in
order to fully service the £20 million debt – the Trust would need to fall back on the GLA guarantee.

Figure 2: Realistic Scenario
ASSUMPTIONS

£1,000k

1. Based on the 'realistic'
assumptions in this report

2. Average Inflation @ 2%
(compared to 30-year average of
3.5%)

£750k

3. Loan repayment as per terms
of TFL-GBT Loan Agreement
(November 2015)

£500k

4. Average Rate of Interest is
equivalent to Rate of Inflation up
to a ceiling of 2%

5. Operating deficits first met
through accumulated
contingency and retained profit
before any recourse to GLA
guarantee.

£0k

2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
2051
2052
2053
2054
2055
2056
2057
2058
2059
2060
2061
2062
2063
2064
2065
2066
2067
2068
2069
2070
2071
2072
2073

£250k

Repayment of principal
£250k

Interest payments
Accumulation / (expenditure) of GBT profit
GLA Gap Funding

£500k

6. Any further deficit that cannot
be met through GBT Income or its
accumulated contingency fund is
met by recourse to GLA
Guarantee.
7. No outstanding loan balance
by Year 55.
8. No early repayment of
outstanding loan balance.

GBT Surplus / (Deficit) after Finance

£750k

(3) A third scenario considers the possible financial ‘Downside’. It assumes, for example, that the Trust
has not raised the full £15 million Endowment Fund before Year 1 and that this is, instead, built up
over the first five years. It also assumes that several of the voluntary income streams erode over time
as the novelty effect of The Garden Bridge wears off. Should any combination of these downside risks
be realised – and they are unfortunate, but hardly ‘extreme’ – the Trust would almost certainly default
on its debt and would likely need to be bailed out by the public sector. This downside scenario is
illustrated in Figure 3 and, in this case, it would probably be in the taxpayer’s interest to have the debt
written off.

9


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