Is Brazil throwing away stadium marketing revenue?
Brazil‘s preparations for the FIFA World Cup 2014 are lagging behind schedule, particularly concerning the stadia. The renovation and new construction work on all of the 12 planned venues should have got underway in March 2010. After work had started on just three of the stadia by the deadline, Jérôme Valcke, General Secretary of FIFA, voiced his criticism of the organisation in Brazil publicly in May.
The delays in stadium construction and renovation can primarily be attributed to a lack of finance and political unrest. The planned World Cup stadia in São Paulo, Curitiba and Porto Alegre belong to clubs from these cities and will not receive any public funding. In the case of the Morumbi Stadium in São Paolo, when it was also impossible to find a private investor, it was announced in June 2010 that none of the matches in the 2014 tournament would be hosted by the venue. The owners of the stadium, São Paulo FC, wanted to avoid debts arising from the renovation costs.
95 percent of stadia funding from taxpayers‘ money
Currently, therefore, the largest and most financially significant city in Brazil will not host any FIFA World Cup 2014 matches (the opening match was supposed to take place in the city), although two alternative venues in São Paulo are being considered at the moment (see Graphic 2). However, Curitiba and Porto Alegre, where clubs are also the owners of World Cup stadia, are also having serious problems financing renovation work.
Even the seven arenas owned by regional governments have been unable to find private investors. State bank BNDES therefore provided a loan of almost 2 billion Euro in October 2009, which may be used for a maximum of 75 percent of the construction costs for each stadium. Overall, 95 percent of the funding for the venues, costing a total of over 2 billion Euro, is provided by taxpayers‘ money.
Refinancing is difficult for private investors
The reservations of private investors, however, are understandable. Almost half of the venues are not even present in the top flight of Brazilian football, Série A. In addition, the planned stadia are too big, at least for normal league matches. Capacity usage was at an average of 40% in the top flight in the 2009 season. Compared with the leagues in Germany, England or the Netherlands, (approx. 90% usage), Série A is far behind. Questions regarding the sustainability of the arenas also remain partially unanswered. At the moment, nobody knows how the match venues in Cuiaba and Manaus will be used following the World Cup, as neither of the cities plays a significant role on Brazil‘s football landscape. The delays in construction also contribute to the fact that sustainable concepts are threatened by the need to complete venues rapidly.
Naming Rights are not widespread in Brazil
As a result, publicly-owned stadia hardly offer any opportunities to generate return on investment for private investors. Additional partnerships with clubs are required to generate advertising contacts at football matches. Essentially, potential would be provided by awarding naming rights. However, the marketing of Brazilian stadia is still finding its feet, in particular on the part of the public authorities. This is demonstrated by the fact that the only stadium naming rights deal to date in Brazil was at a privately-owned venue: from 2005 to 2008, the Arena de Baixada in Curitiba was named after the Japanese company, Kyocera. However, the engagement did not prove to be the trigger for a naming rights boom in the country; currently, not a single football ground bears the name of a sponsor.
However, the marketing of stadium naming rights offers a source of income that could develop similarly to club jersey sponsorship, which has increased consistently for many years (approx. 60 million Euro in 2010). In total, SPORT+MARKT estimates that the naming rights to all the top flight stadia are worth 20-25 million Euro per year. Of course, this sum would not cover all the costs for required construction work on the World Cup stadia. However, private investors would receive a certain degree of return on their outlay.
Political action is required
In addition to the lack of stadium marketing, the Brazilian authorities are also stirring up political problems. In Rio de Janeiro, it is threatened that the city will be unable to finance the FIFA World Cup and the 2016 Olympic Games in the event that the majority of proceeds from oil production off the coast of Rio are to be distributed to the rest of the country, as approved by Brazilian congress. This would mean the city losing 3 billion Euro annually, which would endanger the budget for staging the two major events.
In case of emergency, public funds would again be expected to bear the cost. The regions and venues estimate costs of approx. 40 billion Euro for improved infrastructure in the direct vicinity of the World Cup stadia. The costs for the required extension of the airports alone are rated at 5 billion Euro. The state is providing over 8 billion Euro for the funding of the projects. In total, the Brazilian government is investing around 690 billion Euro into nationwide infrastructure for the FIFA World Cup 2014 and the 2016 Olympic Games (including a rail connection between Rio de Janeiro and São Paulo, airports and ports, regional public transport and traffic networks).
The state‘s high investments are based on strong social motives. The FIFA World Cup and Olympic Games are intended to create 120,000 new jobs until 2016. The World Cup itself is expected to lead to the investment of 60 billion Euros into Brazil‘s economy. The country‘s boost and the upcoming major events are primarily intended to reduce poverty, unemployment and crime.
The organisers have until 31st December, 2012 to complete the stadia for the tournament’s dress rehearsal, the Confederations Cup. So far, only six of the twelve stadia have been approved by FIFA. The clock is ticking and a lot of work and expertise is required to meet the high expectations.
Contact
Marcel Cordes
CEO SPORT+MARKT
Marcel.Cordes@sportundmarkt.com
Telephone: +49 - (0) 221 - 430 73 0
