Clubs building new stadia face rising interest rates and a significant increase in construction costs, but bigger teams should have few problems securing capital.
Sport finance experts tell Off The Pitch global interest rates, the Covid-19
pandemic and the war in Ukraine are raising the cost of materials, labour and
borrowing for large infrastructure projects.
Last month, Aberdeen chairman Dave Cormack said the club's new stadium was
likely to cost between £70 million and £75 million, up to £30 million more than
was estimated five years ago. Cormack blamed "construction inflation"
for the increase. The Scottish Premiership club hope to move into the stadium
by 2025.
Dutch Eredivisie club Feyenoord have also abandoned plans for a new stadium,
blaming "through the roof" prices for building materials and rising
mortgage interest rates.
Greg Carey, a managing director at Goldman Sachs with almost 40 years'
experience in stadium and infrastructure financing, says supply chain issues
are impacting the cost of projects. "Building anything right now you’re
having to deal with the temporary cost of labour shortages, an increase in
labour costs and steel prices. So costs are going up right now, you are seeing
inflation in every part of the economy," he says. "Projects are going
to cost more. It’s inflation. It’s no different to it costing more to buy
milk."
The cost of capital is also rising. Ian Dixon, director at Aldwick Advisory
Services Limited, a boutique financial advisory business focused on sport, says
interest rate costs "have gone up across the board". "The
fundamentals have changed. Undoubtedly funding costs will be more
expensive," he says.
"On the longer term, going out 30 years, there’s a gradual decline on
interest rates. But I think high interest rates are going to be with us for a
while."
Clubs who take a long-term view on interest rates are unlikely to be put off
pushing ahead with new stadia, Carey says. "Projects are going to go
ahead. The interest rate is higher than it was two years ago or four years ago
… but sport, especially football, is a global sport.
"Barcelona have had 91,500 people twice go to a women’s game. It’s a
product and there’s people that will buy it. Stadium deals aren’t stopping
because costs have gone up."
Dixon suggests most clubs building a stadium, or any major infrastructure
project, work with a trusted contractor with proven experience completing
projects of a similar scale. For funding, he recommends following the example
of Tottenham Hotspur.
"That is probably a sensible approach, particularly where you’ve got uncertainty over exactly how much the cost of building the stadium will be," Dixon says.
The difference with a football stadium compared to other infrastructure assets like a road, port or railway line, is the long term "franchise value" of the club. "And that becomes more problematical as you go down the leagues," Dixon says.
"With Aberdeen, you would say it’s likely Aberdeen will always play in the Scottish Premiership. And you could equally say it is likely if they get relegated, they will be promoted back to the Premiership.
"Funders will look at that and understand what could happen. What you don’t want is to have a club like Bolton, for example, who were in the Premier League but when they drop out, they haven’t got the strong franchise behind them to bring them back up.
With countries including the UK facing a cost-of-living crisis, might clubs – and lenders – also be concerned fans will be priced out of attending matches at new stadia? "The elasticity [price responsiveness] of the sports dollar is unbelievable," Carey says.
"People won’t go out to dinner but they’ll still support their club. It’s the buying power of sports. Low inflationary, high inflationary, if you have a big following you barely see changes. The sports spending dollar is very resilient."
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