Green Point stadium in the red
Issue # 115 - May 2009 Reader's comments Print this article
The Cape Town City Council has kept suspiciously quiet about the details of its lease agreement with the long-term operator of the new Green Point mega-stadium, being built at FIFA’s behest for the 2010 soccer World Cup.
The agreement was advertised for public inspection and comment just twice – once in English and once in Afrikaans – and then only in the form of one of those small-print municipal notices that begins: “Notice is hereby given ...”, as if this were in the same league as a call for tenders to clean the Civic Centre’s windows.
It can only be concluded that the council didn’t want to draw ratepayers’ attention to an arrangement that does not guarantee them financial return on their huge investment, yet leaves them carrying most of the risk.
Not that anyone should be surprised. Nose94 exposed the shakiness of the financial case for the mega stadium. And that was before construction costs went from R1.2bn to R4.4bn, or the world economy began buckling at the knees.
Persuading a credible operator to take on the place as a commercial venture after the World Cup was never going to be easy. After a dismal response to the first call for tenders, the city council was immensely relieved when its second appeal attracted a submission from a quality outfit – a consortium formed by the international stadium operator Stade de France and local sports marketing specialists SAIL.
Given the circumstances, the council was in no position to haggle. Still, noseweek is told, it put up a creditable struggle for about six months before finally agreeing to terms which would make no sense were this a normal business deal.
The lease, still to be signed, gives the SAIL/Stade de France operating company exclusive rights to the expensive public asset for the next 10 to 30 years, in exchange for 30% of the after-tax profits. Well, not actually 30% as the stadium rates will be deducted from the City’s share.
In the not-so-unlikely event that no profits are forthcoming, the operator will pay its landlord just R1 year (and the rates due).
But, in credit or in debt, the city will remain responsible for the expensive business of maintaining the high-tech structure, including its extremely elaborate glass, steel and PVC roof. And stadium maintenance, as any former World Cup or Olympic host will tell you, is a bottomless pit. So bad, in fact, that some have elected to demolish rather than maintain them, clearing the way for more sensible development.
While the lease transfers much of the burden of risk from the operator to the city’s ratepayers, it’s still going to be an uphill battle for the consortium to make a go of the place. Among the analysts who have poured cold water on the city’s over-heated financial forecasts for the stadium is PricewaterhouseCoopers. When they crunched the numbers, they concluded that the only chance the venue might have of making money would be to lure Western Province Rugby there, or to add a commercial element like a hotel or office premises.
So far, Western Province Rugby has refused to bite – they’d first have to sell their Newlands stadium; no juicy prospect in the current property market – and the city has dismissed any notion of changing the zoning from “public amenities”, which means no commercial development will be allowed.
In addition, the operator will be expected to manage the urban park next to the stadium, which is likely to put even more of a strain on its resources.
But the operators are not rookies: Stade de France manages the very successful stadium of the same name in Paris, and SAIL is well established in the local sporting and sponsorship community. So what’s their plan?
According to local residents, it’s to “sweat the asset” by cramming as many events into the venue as possible. And the bigger the better.
“They will have to put on at least 45 to 50 events a year,” says a member of the De Waterkant Ratepayers’ Association, who asked not to be named.
David Polovin, chair of the Green Point Common Coalition, says the effects on the neighbourhood will be dramatic: “I don’t think people in the area realise the disruption that it will cause: the volumes of traffic and people, the noise, the light pollution, the security issues...”.
Much as one sympathises, one hopes he’s right – if that’s what it’s going to take for the place to earn its keep. But even when the number of seats is reduced from 68,000 to 55,000, after 2010, it is difficult to envisage what kind of events could fill the stadium week after week.
Neither of Cape Town’s two Premier League clubs are likely to use the venue much because they will be ensconced in their own newly upgraded grounds close to where most of their fans live – Santos will remain based at Athlone, while Ajax will move to the new stadium at Phillippi.
In any case, the only time either of these teams attracts more than a few thousand fans is for a couple of big home games a season – and if these are played at Green Point, the clubs will want a share of the gate.
Which leaves music concerts, political rallies, new car launches, the Cape Minstrel Carnival and maybe the occasional international soccer or rugby match.
Noseweek asked SAIL director, and executive chairman of the consortium, Morné du Plessis, (yes, that Morné du Plessis), whether that would be enough. He replied that discussions with the soccer clubs were continuing, and that there would be many other revenue opportunities, such as conferences, merchandising, hospitality, office rental, parking and stadium tours.
Office rental?
“Most of these commercial activities are permissible in terms of the record of decision and municipal zoning and regulations, and, if not, we will follow due process to promote the acceptance of these activities.”
The neighbours won’t like that, and nor will the owners of the established malls and office blocks on the neighbouring V&A Waterfront.
He also mentioned the high-performance sports and fitness centre which has long been touted as a money-spinner for the stadium, but has yet to be built.
“To achieve these income streams, considerable capital expenditure will be required either by [the consortium] or third party investors.” Indeed.
Du Plessis concedes that the challenges are considerable, and that a permanent sports tenant would be a big help.
“We are under no illusions as to the challenges to render the stadium financially viable in the future. We are continually reminded how difficult this will be.”
But he remains tenaciously confident. He believes the venue will break even by 2012 even though it is expected to host only between 15 and 20 major events by 2013. The neighbours will be relieved.
“We consider this a business opportunity and a chance to be part of and contribute to this historic 2010 event in South Africa. We are determined to make this work and will require all the positive energy and support of stakeholders.”
But it will take more than that to convince the sceptics. The ratepayers’ associations of Green Point, Sea Point, Mouille Point and De Waterkant (the kind of people who do read obscure municipal notices) are all believed to have submitted objections to the lease agreement.
David Polovin says there is a “palpable sense of desperation” about the terms. “The lessee got the deal of a lifetime. The city said yes to everything the operator wanted,” he says.
“Why did they agree to a profit share instead of a share of revenue? The operator will make damn sure there are no profits. Any intelligent stadium operator has thousands of different ways to hide income in expenses.”
Polovin says the cost of maintenance alone means that the city will “continue to pour huge amounts of ratepayers’ money into the stadium for years, with no direct return”.
“They couldn’t even maintain the old Green Point stadium properly. How are they going to be able to take care of this incredibly complicated structure? They will probably have to fly experts in from overseas to fix the roof.”
Of course it’s easy to blame the Cape Town City Council for the situation, but it’s not really their fault.
It was not the city council which decided Cape Town needed a 68,000-seater megastadium for the World Cup – it was Fifa.
And it was not the current administration which chose Green Point as the site. It was the previous city leadership and the provincial government under Ebrahim Rasool, who had connections with a Dubai company which had its eye on a big piece of land between the stadium precinct and the V&A Waterfront.
Nor did the current council have much say over the design of the structure, although they did manage to eliminate the original retractable roof, in a vain effort to cap the budget. Whatever savings were achieved were soon swallowed up as construction costs ballooned, doubling the city’s own contribution from R500m to over R1bn
Still, it could be worse. At least Cape Town has found an operator.
According to Du Plessis, Green Point was the only one of the five new World Cup stadia considered potentially sustainable by Stade de France.
What that means for the expensive new venues going up in Mbombela, the Nelson Mandela Metro, Polokwane and Ethekwini will only become clear when the FIFA circus leaves town.
Noseweek asked the city council to provide the projected maintenance costs over the next 30 years, but they had not responded by the time of going to press.
