The march of the white elephants

Despite concerns that South Africa’s World Cup stadiums could become a burden to host cities, municipalities are confident they will be able to keep them running successfully once the tournament’s gloss is gone.

Experts say there is potential for the stadiums to be a success, provided they are managed innovatively.

The stadiums made up around R15-billion of the R40-billion spent by the government on the World Cup, said Michael Goldman of the Gordon Institute of Business Science.

And although South Africans have benefited from this spending on infrastructure, he said: “Worldwide, stadiums are difficult to run profitably.”

They can be seen as part of the social infrastructure, being a public good but not necessarily producing financial returns, said analysts.

Authorities often argue that returns cannot be measured in terms of revenue alone and that the goodwill and publicity generated by a stadium justify wasting public money, said Goldman.

Gillian Saunders, director of business consultancy firm Grant Thornton, said international experience shows that it is rare for stadiums to provide a return on the many billions spent to construct them.

The “normal” usage rate of a stadium is 8% of the year, or 30 days, with a 60% occupancy rate, but at this rate it is not necessarily profitable.

But major host cities such as Cape Town are confident that the stadiums will not become white elephants or burden municipalities with debt.

The Cape town stadium, in Greenpoint, cost the city R4,4-billion to build, with the bulk of the money funded by national government, said Pieter Cronjé, spokesperson for the City of Cape Town.

An outstanding R650-million will have to come from the city, but this will be financed through ticket sales from World Cup matches, savings made in the final stages of construction and the sale of the commercial rights to the stadium.

The city has handed over the operational management and daily running of the stadium to a private company, as have a number of other municipalities. In the case of Cape Town, it is a joint venture between local company Sail and French-based Stadefrance.

The company takes over the stadium in November and will pay for the operational and maintenance costs through a 30-year lease. The city will earn 30% of the profits before tax. Until the company takes over, the city will treat the stadium as a going concern, for which it has budgeted, said Cronjé.

“The company is putting together its final events plans but the World Cup has already sparked numerous inquiries, which is encouraging,” said Cronjé. But the city expects that it will take some time to build up the momentum behind the events.

Cape Town has a number of other stadiums that will compete with the behemoth left behind by the World Cup, including the Philippi and Athlone stadiums. But, said Cronjé, they are sufficiently spread out across the city and vary enough in size to cater for diverse spectators and events.

Securing anchor tenants such as sports teams is desirable but cities need to look beyond sports events to generate revenue, said Goldman.

The City of Joburg did not respond to questions on the issue, but spokesperson Virgil James said Soccer City would not become a white elephant. The stadium will be used for a host of sporting events, including Premier Soccer League (PSL) and rugby matches, where possible. It will also host non-sports events like concerts. The city will hand the stadium over to a private company to run and manage, he said, and is in the final stages of this process.

Smaller host cities appear to have already realised this and are confident that their stadiums will leave a positive legacy.

The Nelson Mandela Bay stadium, built at a cost of R2-billion, faces an annual operating cost of R19-million. Anticipated stadium partnerships, and an average of 30 sporting and other events per year are expected to raise the necessary cash. Company Access Facilities and Leisure Management (Pty) Ltd was appointed in March 2009 as the stadium operator.

To ensure a “full line-up in the stadium calendar”, chief executive Stephan Pretorius said, the two future anchor tenants will be rugby and soccer. Negotiations to bring big soccer tournaments such as the PSL and the Vodacom Cup to Port Elizabeth are under way.

The stadium operator hopes to host lifestyle events such as wine and trade shows, car shows and concerts. It wants to turn the stadium into a “hub of communal activity”, with a cycle track, public gardens and “concerts under the stars”, Pretorius said.

The Rustenburg stadium, owned by the Royal Bafokeng tribe, has become a job-creation tool for the community.

“The Royal Bafokeng stadium is owned by the Bafokeng community—making it rather different from the other World Cup stadiums,” said information office manager Martin Bekker.

The community uses the facility mostly for football, rugby, athletics, community gatherings, memorial services and religious gatherings. The upgrading cost was “around the R400-million mark” and the annual operational budget is “in the region of R2,5-million”, Bekker said.

The Free State stadium was renovated at a cost of R350-million—“all within budget”, said spokesperson Lele Mamatu. The annual revenue is R5-million and covers the total operating cost of R3-million a year. This figure includes any costs associated with maintenance, run by the stadium operator and the Free State Rugby Union.

The stadium will continue to be used mainly for soccer and rugby matches and requires at least another six local and two international soccer matches every year, in addition to one rugby Test match, to be profitable, Mamatu said.

Mbombela stadium’s project manager and the chief executive of Platinum Sports Consulting, Neil Fourie, said the idea that having a resident sports team is required to make a stadium profitable is a “misconception”.

The stadium was designed as a multipurpose arena, at a cost of R1,13-billion and can be used as a conference centre or wedding venue. It faces running costs of R5-million a year, said Fourie.

He says negotiations are under way to get a number of PSL and rugby franchises to agree to play half their fixtures at the stadium each season.

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