cost model: stadium construction
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In a changing landscape for major sporting infrastructure schemes, what does it take to develop and operate stadiums and arenas?TRANSCRIPT
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Monday16 June 2014
Cost model: Stadium construction12 June 2014 | By Hein le Roux and Eugene Corrigan
In a changing landscape for major sporting infrastructure schemes, what does it take to develop and operate
stadiums and arenas? Hein le Roux and Eugene Corrigan of Aecom report
Source: London 2012
The Olympic Stadium, Stratford, London
01 / Introduction
More is demanded from modern stadiums than ever before. Designers must interpret and link the needs of fans, the
latest standards, aspirations of clients and understand the design elements that drive revenue. The 2014 World Cup
stadium developments have not been without problems. Nevertheless, they serve as an important reminder of the
complexity in designing, planning and constructing stadiums - particularly when it comes to safety. Looking back 20
years, plainly much has changed - some may recall Lord Justice Taylor’s report of the inquiry into the Hillsborough
Stadium Disaster, which recommended that all top-tier stadiums should be converted to all-seated stadiums by
1994.This recommendation was enforced and as a result the majority of stadiums in the UK are in relatively good
condition and are, in the most part, safe. However, times have changed once more. Despite the stadiums themselves
being in good condition and continuing to operate as home stadiums, the expectations of fans have changed leading
to the introduction of new challenges for clubs.
02 / Design considerations
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Every club, every stadium has a long list of valuable assets: a loyal fan base and brand reputation to name two.
However, not all clubs use these assets to their fullest potential and the development or redevelopment of a stadium
or arena is, as a result, complex - with the need to develop an asset that can:
Drive revenue;
Be an icon within the community;
Represent the community and all it stands for;
Be maintained affordably;
Comply with safety, licensing and regulatory bodies;
Ultimately pay for itself.
Designers play a key role in interpreting these issues appropriately such that the stadium evolves from the ground up,
or, in the case of redevelopment, from an existing asset into an enhanced one. Developers must understand their
operating environment and recognise the various constraints, whether positive or negative, that exist within their
organisations, or which may arrive from external factors. A balanced and complementary approach is therefore
required to manage these competing issues.
Access to finance is essential - whether through the operator (the tenant or local sports club) or ultimate owner (this
might be a consortium, sovereign wealth fund, individual) - to enable major upgrades and also to maintain and operate
the building. Pre-1990 stadiums may have already been remodelled to greater or lesser degrees during the nineties,
though it is likely that significant remedial work would now be required if further development was undertaken. The
requirement to improve or enhance existing facilities is often sufficient motivation to undertake a development -
providing revenue gains are achieved for a reasonable cost. Our cost model suggests that remedial work, including
works in cutting back adjacent roofs, asbestos removal and reinforced concrete repairs, could be in the order of
£600,000. This is a significant addition to the overall budget and a key cost driver, particularly where the design
element is linked to existing seats.
Certainty in having the appropriate budget and knowledge of the cost drivers is essential, but a robust business case
does not only depend on capital costs. Understanding the subtleties of the design, and the influence this has on the
ability of the stadium to generate the right type of revenue is critical. It is often the elements of cost that have a
relatively small impact on the overall budget, have the greatest impact on the functionality of the building, and
therefore its operational efficiency and influence on revenue. The chart below highlights space requirements of
functional areas and the value they drive.
Useable areas, such as concessions and kiosks, which only require a small amount of space (0.05m2 usable area
per seat), are capable of generating a large amount of revenue compared to concourses (0.50m2 usable area per
seat), which are more space-hungry yet generate little or no revenue. Two options exist to address this design and
revenue equation: (i) make these spaces, such as plant, concourses, back of house and the WCs as cheap as
possible or (ii) explore opportunities to allow some of these spaces to generate revenue. Understanding the sensitivity
of changes to overall cost and revenue at a particular point in the design is also important. These factors in each
stadium and corresponding variation often mean there are unique design, cost and revenue considerations on any
stadium redevelopment.
Redevelopment may reduce opportunity cost, but mitigating seat loss is a key consideration.
The advantages arising from redevelopment versus new build are difficult to define. One of the potentially salient
advantages of redevelopment over new build are the demands, or design and operational standards, to which new
construction must comply, for example row depths and tread. In most cases, increasing row depths and seat widths
(particularly in corporate locations) of stadium terracing dramatically reduces the overall number of seats. This may
prove to be counterproductive when the primary reason for redevelopment is often to increase capacity. In our cost
model, we have identified an allowance in the order of £1m for re-profiling approximately 9,000 existing seats given
modern standards.
03 / Cost / function / revenue
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Cost drivers in stadiums today are in many instances the same as they were 10 years ago - however, what’s
changed is the emphasis on the aspects of design, build costs and derived value. Nowadays it is critical to
understand the revenue potential that can be derived through capital expenditure.
Traditional cost drivers include:
Location
Capacity
Type of roof
Size
Tier arrangement
While these factors are critical in relation to buildability, overall capital cost and programme, it is their evolution that
must be considered in a new cost and revenue environment. The relationship between, cost, function and revenue is
sensitive to differential changes in each of these issues. For example, adding additional rows of general admission
seats at the back of the upper tier may appear to be a lower cost option, but only if the impact on the roof, terrace
and frame is within a particular threshold. If not, there is potentially an exponential step change in cost, although
revenue remains constant.
While cost modelling can address the impact of most design changes at an early stage, the impact on revenue and
operating costs are also essential aspects that owners and operators need to understand. Aecom’s new Stadium and
Arena Investment Tool (SAINT) enables detailed analysis of these interdependent relationships.
Stadium operations are not only about maintenance regimes and life cycle, they should aim to generate the
maximum possible revenue from all possible operational and income streams. Stadium development is therefore
usually necessary to achieve this objective.
Revenue generated by stadiums can be split into three groups: matchday, non-matchday and season. Matchday
revenue accounts for all of the revenue generated when the stadium is hosting a fixture. This includes tickets, food
and beverages sales, and merchandise sales. Season accounts for revenue generated by the season tickets. Non-
matchday revenue is where the majority of stadiums fail to reach their full income potential. Many clubs are opting to
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expand and open their stadiums for non-matchday events. Stadium tours, conference centres, retail units, exhibition
spaces and concerts are all examples of broader services offered from the stadium asset. The benefits of this
additional revenue enables the stadium to become more than just a venue to host the club’s fixtures.
To guarantee revenue from non-Premier League games, such as the Uefa Champions League, the stadium must also
abide by the standards set out by Uefa. These include pitch size, players’ facilities and hospitality. Typically, Premier
League games are priced on an A, B, C scale - ‘A’ games include derby fixtures, or matches against long-term rivals
and other top flight teams. The average split of these games is generally 6:7:5 and the inclusion of Uefa Champions
League games can account for up to five additional ‘A’ games.
The demands of today’s players have raised expectations too, and stadiums need to make adequate provision for the
latest playing requirements and facilities. Inevitably, total renovation becomes a key consideration, especially where a
step-change in club facilities is required. Aecom’s cost model suggests provision in the order of £2m, but depending
on the size, arrangement of existing space and existing services, and extent of remodeling, this allowance could vary
considerably. Providing entirely new facilities is likely to cost significantly more, but is also dependent on the extent
and level of required quality.
Arsenal’s Emirates Stadium
04 / Building a brand
Developing a brand and image is a key aspect of ensuring the success of a venue. However, club operations have an
advantage over national facilities because they have an existing regional and club identity. The latest trend in
attendance figures show that average attendance for Premier League stadiums is approximately 90%. Stadium
capacities vary from 20,000 to 75,000 yet average attendance remains the same. But 90% is not 100%. A building
such as a stadium, which generates the majority of its revenue from fans, should strive to have attendance figures of
100% or close to 100%. But there are a number of challenges facing clubs and stadiums in attaining a 100%
attendance metric, such as season ticket holders, seats with poor sightlines, unused seats in the away areas and
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corporate/VIP seats remaining empty. It can be difficult for clubs to determine the right or appropriate mix between
General Admission, VIP guests and corporate tickets.
The identity of a stadium, however, and its link to a recognised brand (club or team), and in turn a loyal and constant
fan base provides access to other streams of income. Naming rights of stadiums, sponsorship of shirts and training
gear are the primary sponsorship deals that clubs negotiate. Smaller deals such as food and beverage sponsorship
also supplement these larger commercial agreements. Although these deals are small when compared to the income
generated by shirt sponsorship, they do have a large affect on the overall operational costs of a stadium.
Stadium reinvention
A true fan is the biggest asset that a stadium owner or operator could have. However, complacency is no longer an
option - stadiums have to reinvent themselves to remain attractive destinations. A primary revenue stream for
stadiums is from supporters and fans. This is not only represented in ticket sales but merchandise, food and
beverage sales. Clubs and owners should not just look at fans as a source of income because, after all, it is the fans
that create the stadium’s atmosphere, and, regardless of league position or team form, provide the stadium with its
central purpose. Today’s fans expect an overall stadium experience. They no longer wish to arrive, watch the fixture
and leave. They want to embrace the atmosphere of the stadium and enjoy the pre and post-match experience.
Stadium facilities are expected to meet or exceed those of rival clubs, and reflect the prices paid for match tickets.
In terms of corresponding capital cost, additional amenities do add cost, but the relative advantages in terms of
revenue uplift must be considered. The cost model highlights that the catering (kitchens, concession, bars,
associated servicing, etc) element alone contributes approximately £4m - which relates to circa £220/head or seat.
Over an average season this equates to under £11 per match.
Programme and procurement considerations
Redevelopment schemes bring added complexity compared to new-stadium construction and understanding these
programme constraints is essential to the successful delivery of any project. Furthermore, it is not just construction
issues that must be addressed. Often there is an imperative to ensure any new design is integrated into the history of
the club and, in so doing, gain its acceptance with the club’s loyal fan base.
Benefits to the wider community
Stadium development or redevelopment also offers a number of benefits to the wider community. Because of Section
106 agreements, clubs are now required under planning to give back to the local community, generally in the form of
improvements to the local areas. Local businesses benefit from stadium development, too, as the opportunity exists
to sell to a larger match-going market. In reference to Section 106 it is worth bearing in mind the extent of
negotiations and consultations that individual developers need to undertake in order to determine such costs.
Successful stadiums are seen as integral to regeneration frameworks given their ability to attract business and
individuals to a location - they become destinations in their own right.
Source: Alamy
The City of Manchester / Etihad Stadium
05 / Supply chain restrictions
The demand for new build stadiums has declined in the UK, with the majority of clubs instead choosing to redevelop
their existing facilities. Since the Emirates Stadium opened in 2006, Cardiff City Stadium has been the only new build
Premier League stadium constructed in the UK. In that time only four Premier League stadium redevelopments were
undertaken. This decline has presented a number of problems for clients, one of which is reduced competition in the
marketplace amongst constructors. Knock-on effects introduce additional commercial complexities. Where this is a
factor, higher than expected tender prices because of constrained supply chains are not to be unexpected,
particularly on complex structural or M&E elements. The attached cost model highlights the significant costs
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associated with these construction elements, which account for 9% and 23% respectively (excluding provision for
photovoltaic panels, which could cost in the order of £250/m2 or £1,750/KWp). It is worth noting that the 9%
associated with the roof accounts for one third of the superstructure cost.
Further, maintaining a live environment and mitigating seat loss is fundamental to delivery, but this introduces
procurement complexity, as this limits the size of the contractor pool able to deliver a scheme with such construction
requirements. Constructors with limited experience of stadium projects are often less equipped to manage the
stringent programme demands that stadium construction presents. Often a narrow timeframe exists when stadiums
can be redeveloped without leading to seat and revenue loss. The close season in the UK is roughly 12 weeks,
depending on competitions and corporate commitments to host friendly events. Careful planning and communication
between all stakeholders is therefore essential. Where more than one stand is being redeveloped, phasing the work
should be explored. Alternatively, work can progress on two stands simultaneously, depending on the impacts to
access and existing operations. The cost model suggests the level of preliminaries allowance required is in the order
of 15%-16% for a redevelopment project, given the extent of phasing, out-of-sequence working, partial possession
requirements, obligations to make safe for match days (during a league season), temporary access, and other ad hoc
requirements relating to safety or logistics. Typically, a scheme of this nature is likely to span two closed seasons,
and an overall timeframe of at least 18 to 20 months is expected.
Source: Alamy
The Emirates Stadium in Holloway, London
06 / Unlocking the Financial potential of a project
The progression of cost modelling through the integration of design tools like BIM is invaluable, but integrated
financial models that bring together operational, programme and cost data, such that design can be informed, are
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more powerful and change the way stadiums and arenas are developed. Aecom’s SAINT (Stadium and Arena
Investment Tool), does just this: allowing the client to fully understand the potential of their stadium development or
redevelopment at the earliest possible stage. It takes into account all the different fundamental aspects of stadium
development, as discussed above, and understands how they are all linked, enabling the client to gain a clear and
concise picture of the stadium they both want and need.
Based on some initial design parameters in accordance with very wide development objectives (overall capacity, for
example), SAINT begins by determining the potential construction cost of a stadium based on the client’s
requirements, and, in parallel, generates the potential revenue and running cost of the stadium, taking into account
the various revenue streams open to the client including match day and non-match day revenue opportunities, food
and beverage, retail, sponsorship and media.
Through their integration of design, cost, programme and operational elements, modelling tools are highly sensitive to
the various difficulties that stadium redevelopment presents, such as working during the closed season, limited cash
flow and the stringent standards that stadiums have to abide by including The Green Guide and both Uefa and Fifa
standards.
This financial model allows a client to control their project, producing a detailed financial appraisal which brings clarity
to the complicated dynamics of any stadium. It easily and effectively demonstrates how small changes in the design
- a change in number of boxes, change in GA to premium ratio, varying ground conditions, etc - affect both the cost
and the revenue of the stadium and ultimately impacts to the scheme’s viability. It allows the client to tailor the
design to meet their needs as a business, while benchmarking the results (utilising the global parametric cost data
available through Aecom’s international benchmarking and project performance indicator database, Global Unite).
Along with taking construction cost and potential revenue into consideration, it also calculates the payback period of
the development, determines loan amounts, interest rates and inflation to ensure the client fully comprehends all of
the project requirements.
07 / Cost model
(based on a redevelopment of a corporate/main stand; on a UK stadium at current prices; the existing stand capacity
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is about 9,000)
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