Out of the 12 stadiums to be built or refurbished in preparation for the 2014 World Cup, at least seven could become “white elephants” after the event. The high cost of the construction work, together with an unreal estimate of post-Cup demand, could make possible investors stay away, leaving the Government a negative heritage.
This conclusion has been reached by consultancy firm Crowe Horwath RCS, which has just brought out a study on “Management of the stadium as an asset - Economic and financial feasibility of stadiums and arenas for the 2014 World Cup”.
According to this study, Brazil shall invest some R$ 5.3 billion in World Cup stadiums, of which R$ 4.8 billion, or 92% of the total, shall come out of state funding. The National Bank for Economic and Social Development (Banco Nacional de Desenvolvimento Econômico e Social) opened a special credit line of R$ 400 million per arena.
In the case of the 2006 World Cup, held in Germany, the opposite was the case. Out of the total sum of US$ 1.9 billion spent on stadiums, only 38% was funded by the Government, which proves the feasibility of such developments in the European country.
According to the calculations made by the consultancy firm, a stadium worth R$ 500 million should have a net cash flow of some R$ 10 million per year, over a period of 15 to 20 years, just to break even. For this to become an attractive business opportunity, this figure should hover between R$ 18 million and R$ 25 million.
“At present, no Brazilian stadium has this level of return”, says Amir Somoggi, who is the Total Sports Department Head at Crowe Horwath RCS. In his opinion, the stadiums of Brasília, Cuiabá, Cuiabá, Fortaleza, Manaus, Natal, Recife and Salvador are strongly tipped to acquire “white elephant” status after the World Cup.
Cost Reduction
According to the study, the secret to prevent the World Cup arenas from making losses is that of cutting costs. The R$ 5.3 billion should be brought down to somewhere around R$ 4 billion. “In addition, only projects that are integrated with certain segments of private enterprise, such as the property and hotel businesses, and also the strengthening of local football, could bring return on investment, in the case of certain stadiums”, adds Mr. Somoggi.
For return on investment, according to the study, the clubs need to combine the income from ticket offices with the generation of new income from marketing and also from general services. Once again, the example comes from Germany, where investments made in stadiums have catalyzed the increase in income generated by football.
From 2003 to now, the income of the 36 teams that make up the German First and Second Divisions, the Bundesliga, has risen from € 1.28 billion to € 2 billion, making it the second most profitable in Europe. From stadiums alone, the income reached a level of € 425 million in the 2008-2009 season.
According to the study, Brazil has a daunting task ahead if they wish to collect a legacy at least comparable to that of Germany. Indeed, in 2008 the income from stadiums in the top two tiers of the Brazilian League (Série A and Série B) came to only R$ 190 million, most of which is from ticket sales.
The consultancy estimates that, by 2014, this figure could rise to R$ 400 million, mainly through the diversification of the services offered and also the increase in the average ticket prices, which have already risen by 15% per year since 2005.
Even so, the big challenge here is to entice the Brazilian football fan to the stadiums. While in Germany the average attendance at football matches comes to 42,565 per game, in Brazil it comes to only 17,897 spectators per match, which is even less than in the J-League of Japan, which has an average attendance of 19,278 people per match.
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04/05 | News
