KPMG has published the results of research on the role of stadiums in explaining the varying success of clubs in generating different match day revenues.
The research identifies Russia's potential from the perspective of preparing the requisite football infrastructure for the 2018 World Cup. Russia could join the Big Five European football leagues, if the country takes on board state-of-the-art methods in the construction and utilization of stadia. KPMG has analyzed trends in the construction and utilization of stadia and also the performance indicators of different clubs, and highlights the available commercial opportunities.
Over the past two decades, football in Europe has become one of the most important types of business. In the 2009/2010 season the European football market recorded modest growth. Furthermore, despite falling profits, the leading clubs earned revenues of over EUR 11 billion.
Football is a concentrated market: just over 10% of clubs generate almost 70% of the aggregate revenues of European teams playing in their top divisions. In addition, approximately 80% of clubs reporting more than EUR 50 million in revenues play in the so-called Big Five leagues of England, France, Germany, Italy and Spain. It is no coincidence that these are the five largest countries in the European Union with the most significant consumer spending power.
Football clubs generate their operating revenues from three main sources:
Clubs from the Big Five leagues generated more than a fifth of their revenues from match day receipts. However, they generated the largest proportion of their revenues (46%0 from contracts relating to the sale of TV broadcasting rights and another third from other sources. Western European clubs, other than teams playing in the Big Five leagues, generated an even higher share of revenues from match day sources, which attests to the significance and potential of this revenue stream. However, the revenues of clubs from Eastern Europe break down differently. Owing to low attendance figures, the lack of modern stadia and relatively low ticket prices, match day revenues tend to account for a far smaller proportion of the revenues of these clubs (less than 10%).
Increasing match day revenues is contingent on the careful calibration of the stadium's size, the design and correlation of different type of seats with market requirements, and also the development of an effective pricing strategy. Although the sports results and financial performance of clubs are inextricably linked, utilization of the stadium is a controllable factor that can change the long-term dynamics and accordingly the club development path.
Analysis of the revenues generated from one match (hereinafter revenue per match) shows that this difference is attributable to the ownership structure (state/municipal or private) of the stadium, differences in the international popularity of clubs and leagues, their performance and also the size, age, design and structure of the stadium facilities and the services on offer.
A comparison of the match day revenues generated by leading European clubs shows that privately owned stadia outperform state or municipally-owned stadia. This is party attributable to the fact that the stadia included in the sample, which are state or municipally owned, were as a rule built a long time ago, whereas some of the privately owned stadia were built recently and considerable importance was placed on revenue generation during their design and construction.
In the research KPMG also analyzed the top teams based on a comparison of revenue per seat. This measure makes it possible to determine the amount of money that clubs make from a stadium seat on a daily basis, irrespective of whether any matches are held on a specific date. Such information makes it possible to assess the efficiency of the stadium from the perspective of revenue generation and capacity utilization. A ranking of top clubs using this measure generates virtually the same results as the standard ranking of clubs by annual match day revenues, apart from some notable exceptions. For example, Chelsea and Juventus rose several positions in the ranking, which is attributable to the relatively small sizes of their stadia.
A comparison of international data on stadium capacity, attendance and utilization makes it possible to identify several interesting facts, which attest to the challenges and opportunities related to structural design specifics of stadia. Comparative analysis of data on how top-level leagues from different European countries utilize their stadia throws up some interesting results. It is worth noting that the Big Five leagues stand out as a separate group, as their stadia are characterized as a rule by large capacity and utilization of over 60%. Smaller, developed Western European countries form another group, where the average stadium capacity amounts to less than 25,000 people, while utilization exceeds 55% (in particular in Holland in the 2009/2010 season stadium utilization reached 90%, in Austria 63% and in Switzerland 58%).
The leagues of Central and Eastern European countries form the third group, together with some underperformers in Western Europe (such as Greece and Portugal), where average stadium capacity is far lower and utilization is under 50%. For example, in Russia the average stadium capacity in 2009/2010 amounted to 25,034 people, while the utilization ratio reached 50%, and match day revenues per club came to EUR 1.2 million.
Situation in Russia
Even though GDP per capita in Russia is comparatively low, the country demonstrates strong growth prospects. Coupled with the undoubted advantage attributable to the country's large population, this can enable Russia, together with Turkey, to challenge the Big Five football leagues of Europe. In other words, if the Big Five football leagues become the Big Six or Big Seven in the foreseeable future, it is highly likely that this will be due to the inclusion of the Russian and/or Turkish leagues. For that to happen, both countries should apply state-of-the-art methods for the construction and operation of stadia.
Major sports events help to increase interest in sport and attract new spectators. Through the hosting of the World Cup in 2018 Russia will have an excellent opportunity to modernize its football facilities all over the country. Sixteen sites have been announced for the potential construction and reconstruction of stadia. According to FIFA, in the end 12 of these sites should be selected for the World Cup.
In the research KPMG also presents the main data on the sites that are being considered for the hosting of the 2018 World Cup in Russia, from the perspective of stadium capacity, the necessary investments and their current state of preparedness. For example, at least five of the 12 stadia are already operational and need to be renovated by the World Cup or construction work is in full swing.
Stepan Svetankov, Associate Director, Infrastructure, Construction and Real Estate, noted: “The main stadium for the 2018 World Cup, Luzhniki in Moscow, with capacity for 89,318 spectators, will be subject to major renovation as it is 60 years old. Initially on the orders of Moscow Government a consortium of international consulting companies submitted a project on the transformation of the entire Luzhniki Olympic Complex, which included – as well as the renovation of the large and small sports arenas - the construction of a film and concert hall, other sports attractions, two hotels and other sports entertainment facilities at a total cost of EUR 1.6 billion. However, it is expected that the total amount of investments will be revised downwards to EUR 500 million, including costs on the renovation of the football stadium of approximately EUR 200 million, primarily owing to a reduction in the declared scope of the work. A final decision of Moscow Government on the concept for the renovation of Luzhniki has still not been adopted.”
Svetankov added: “In addition, renovation work started recently on the oldest football stadium in Russia – Dynamo, which was built in 1928. There are plans to build here a complex group of sports facilities and real estate properties named VTB Arena Park. Total investments in the construction of the complex have been projected at a little over EUR 1.1 billion, of which approximately EUR 220 million will be spent on the construction of the football stadium, with the capacity to hold 44,920 people. In addition, construction of the new Spartak football stadium has started in Moscow with capacity for 43,000 spectators and at an estimated cost of EUR 300 million. At the same time, it is possible that only one of these two Moscow stadia will be selected for World Cup football matches.”
At the same time, in 2007 the construction of one of the most comprehensive sports facilities started in Europe – the Gazprom Arena, including the new stadium of F.C. Zenit. The project evoked considerable criticism from experts owing to the high cost of the project, which is expected to reach EUR 850 million. Moreover, as a result of modifications to the project in accordance with FIFA and UEFA requirements, including an increase in capacity and the development of the new design of the dome for heating the stadium, the cost of the project may increase to EUR 1 billion. Shopping pavilions will also be located in the complex in addition to the football arena. It is anticipated that the stadium with capacity for 69,501 seats will host one of the 2018 World Cup semi-finals.
A new football arena is being built in Kazan for F.C. Rubin, which has recently become a regular participant in European football championships. Construction rates are truly impressive – the work only started in May 2010, while the commissioning of the facility is scheduled for December 2012, which is attributable primarily to the inclusion of the stadium in a bid to host the Universiade Kazan 2013. It is planned that approximately EUR 200 million will be invested in the construction of a football stadium with capacity for 45,105 spectators.
When designing all the aforementioned football stadia, the architects tried to take account of all the standard conveniences characteristic of state-of-the-art stadia: restaurants, retail and leisure facilities, hotels, conference halls, VIP loge boxes, etc. Clearly the underlying goal is make stadia an effective source of income for football clubs, and thereby balance or at the very least materially reduce the volume of state financing.
However, a closer study of the construction plans for the remaining stadia in Russia discloses that they are all being designed proceeding from the minimum requirements imposed by FIFA on the stadia of the countries hosting World Cup games. The standard sizes of the designed stadia and the identical number of VIP seats across all sites attest to the inadequacy of current efforts to create sports facilities that reflect local demand. To avoid significant issues relating to utilization of the sports facilities after this World Cup (legacy issues), more detailed business planning should be performed prior to the actual construction.
From the perspective of legacy issues, the situation will develop according to different scenarios, taking into account significant differences in such parameters as population, size, economic development potential, the success of club teams and national football leagues. Based on the results of our analysis of these parameters, it can be stated that Russia has more compelling reasons for embarking on a large-scale program for the construction and renovation of football stadia than Poland or Ukraine, for example, owing to improving sport success, the anticipated growth of the economy and the current size of the market, which is comparable to that of the Big Five nations.
However, the construction of large stadia will not in itself guarantee the continuing successful growth and development of the Russian football business. General economic conditions also need to be stabilized, while the construction blueprints for the new stadia require careful modifications and adjustments to the market conditions of specific regions, and also need to take account of local demographics. If the construction of the new stadia are carefully and professionally managed, together with issues relating to their use after the hosting of the sports events, Russia may indeed become one of the top European football nations.
© 2017 KPMG Audit LLC, the Mongolian member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.