Stadiums Seek The Holy Grail Of Long Term Use

AECOM

The Spartak Otkritie Arena will be the soccer team's first permanent home.

Legacy use is the buzz phrase in major international sporting events: how to ensure that once the four-week competition is over, the stadiums and† transport infrastructure is not simply used, but remains financially viable.

Several major private developers are building stadiums, including VTB Development at the VTB Arena, IFD Capital at Spartak Stadium and Gazprom at the Zenit Arena.

The state corporation Sport Inzhiniring will build seven of the new stadiums for the 2018 World Cup. Supervised by the Sports and Tourism Ministry, the corporation was charged in August with spending $3 billion on new build and reconstruction. Sport Inzhiniring will build six stadiums, in Volgograd, Kaliningrad, Nizhny Novgorod, Rostov-on-Don, Samara and Saransk. It will also redevelop the Yekaterinburg stadium.

FIFA requires a minimum seating capacity of 45,000. Those hosting semi-finals and finals require at least 60,000 seats according to FIFA's regulations. However, architects and developers consider this too big for regular use after the end of the World Cup. So several designs, especially in regional capitals, include plans to reduce the seating and even the height of stadiums after the close of the World Cup.

Fully closing roofs have so far been ruled out as too expensive, even for a Russian winter. But operators are expected to remove the natural pitch which FIFA requires, and substitute all-weather surfaces.

Russia will be hosting the FIFA World Cup 2018 in July of that year, in 12 stadiums, located in 11 cities. The final list comprises Moscow, St Petersburg, Kaliningrad, Kazan, Volgograd, Nizhny Novgorod, Samara, Saransk, Rostov-on-Don, Sochi and Yekaterinburg.

The scale of the challenge is illustrated by the fact that the new Spartak stadium in Tushino, due to open in 2014, with a capacity of 47,000 seats, is the first such project since the Soviet era, though Lokomotiv stadium was rebuilt in 2002.

Scott Antel, partner at lawyers DLA Piper in Moscow, specializing in hospitality and sports, warns that many sports organizations lack the marketing skills and fan base to fill stadiums after the World Cup. "If you look at the legacy of the Olympics: Barcelona reinvented itself as a tourist destination, and Los Angeles built into existing university infrastructure. But Atlanta? No. Athens and Beijing; ghost towns. Sydney, a decade later is developing a viable residential zone near the main site. London was fabulous. I've been to the last seven Olympics. It was incredibly well organized; but is Stratford really going to be regenerated? The jury is out. And that's after a very extensively thought through "legacy" plan."

Many regions do have a huge demand for sports and entertainment facilities: ice rinks, pools and quality gyms for the public. "But these arenas can be too big," says Antel. "If you look at the existing demand in these cities and what the World Cup requirements are, there is a big mismatch between the two".

Alf Oschatz, head of sports in EMEA for AECOM, worked on World Cup projects for Germany 2006 and South Africa 2010. He also agrees that FIFA's interests are quite different from those of the local football federation, which is the contractor. "Countries who have no recent experience in hosting a major sports event can find themselves in a weak position and doomed to repeat the mistakes of other countries.

Oschatz insists that the building of sports and transport infrastructure for the four-week World Cup must be a catalyst. "There should be no development linked to these events that is not needed afterwards. If there is a need for an upgraded airport or train system and this can be accelerated or can be realized in preparation for an event then its great. But if there is no need, and it is just for the event, then it makes no sense. And if it is a stadium or any other facility it must be used afterwards to avoid a situation where the city ends up with a white elephant."

Kazan, which has already built its stadiums, also constructed a new airport, and aero express train from the city center, and new roads in time for this summers Universiade. Kaliningrad has also built new transport infrastructure. On the other hand Sochi, like Rio, is belatedly addressing transport infrastructure. "If you cannot get people to and from the games it does not matter how good your stadium is. You have to know how to organize the transport in your city in the tournament period," said Oschatz.

Even when the stadiums and infrastructure are complete, police and municipalities will still need to improve their methods of crowd control, says Antel.

"At the Olympic Games in London, Sydney, Athens they were controlling people so that not too many people waited on the train platform. They had volunteers telling jokes and passing the time. Or at the athletics world championships in Helsinki and Berlin. What did they do at the Moscow athletics last month for crowd control? They locked all the doors to the metro except one so you had to funnel your way through, one by one. Policing a crowd in a non-intimidating way is a lesson to be learned if you want to leave a good impression."

AECOM's team examined the development strategy of Samara and Nizhny Novgorod. "You have to look at the market situation, does it make sense to put a shopping mall next to the stadium and another hotel if hotels already oversupply the city? Does the development of the city focus on sports, culture or tourism?"

City center and suburban locations for stadiums each have their advantages. Rostov has gone for the suburban option, Nizhny Novgorod for the city center.

"It is important to integrate the stadium into the city environment. In Nizhny Novgorod the stadium is planned to be in a very attractive position on the river with beautiful views and it should be integrated into a waterfront development — otherwise it does not make sense to put a stadium in such a nice position and then not develop it."

City center stadiums can be an attraction in their own right, says Antel. "If I visit the Millennium Stadium in Cardiff, Wales, it is central. I can go for a walk, find a restaurant and it works."

Technical design, from the roof to surrounding facilities, is critical. But maintenance can be even more important. Only 20 to 25 percent of the cost of a stadium is construction, says Oschatz. Maintenance and running costs are 75 to 80 percent. There is a huge difference between a modern stadium and one built 30 years ago, not just in terms of the spectators but everything which is "behind the scenes", and needed from a technical perspective to run a modern stadium.

Professionals in the entertainment business stress that content is king, more important than the most high tech stadium. "People think if you build the stadium you will be a great football club and people will come. No, you have to develop that through a business model, not just state funding. You need a marketing plan, a fan base." The television marketing of sports events is undeveloped in Russia, and even the timing of hockey matches, beginning at 6pm on a weekday is too early for fans just leaving the office.

Most sports teams have been funded by state companies/organizations as a side line rather than a going business concern, says Antel. "Commercial running of sports teams has not yet become the business model. Maybe that will change — it has to."

Events and stadiums share the need for sponsors. Russian venues will almost certainly be branded with the name of a corporate sponsor, but the level of income the stadium attracts depends on the strength of the team, and the stadium's character and appeal. The naming rights, soft drinks and liquor, maximizing all forms of revenue are crucial. "You won't make it from 30 football games and a few rock concerts," says Antel.

The population also needs to be able to afford ticket prices which are high enough for promoters to make a profit, says Mikhail Yakubov, Associate Director, Strategic Consulting, Jones Lang LaSalle.

"Traditionally in Russia sport†and entertainment, especially for the mass sector, is considered to be affordable. That is why it's sometimes shocking for Russians to become aware of the cost of a football season ticket for the English Premier League for example. Due to current income levels it is only Moscow and St. Petersburg that can provide sufficient demand for a commercially-priced, quality mass entertainment and†sports."

VTB Arena Park is one of the higest profile development projects, although it is not one of the venues for the World Cup. With a more modest 27,000 seat capacity, instead of the originally planned 45,000, the project includes a new Dynamo stadium (the 1928 stadium was demolished), a sports academy, and a combined hotel, office and apartment complex. The new Dynamo stadium is scheduled for completion in 2017.

Though, in terms of hotel accommodation it is not in the center, it combines the type of mixed use and all-year-round attraction that industry experts say is essential to long-term financial success.

Brian Kabatznick, Vice President Business Development, AEG Facilities Europe, leads the team that is helping to develop the VTB Arena & Dynamo Moscow Stadium. AEG's highest profile project is the redevelopment of downtown Los Angeles to create one of the world's biggest entertainment complexes. AEG's expansion into Europe began with the O2 in London, developed at a cost of £370 million. It operates four venues in Stockholm on a long-term partnership, including two football teams, but also the Ahoy in Amsterdam, and Glasgow's Hydro.

Speaking at the Adam Smith Conferences' Russian Real Estate and Urban Development Summit, Kabatznick explained how the project differed from, for example, its other projects like Rio's Maracana, Baixada Fluminense and in Sao Paolo and Recife.

"CSK basketball, they do 30 matches a year, in a 20,000 seat arena. If you look at Moscow football they do 25 home matches per year with a much bigger stadium. The economics to building an indoor building is very different to building a much larger outdoor building. For indoor buildings not only do you have one or two teams playing in there, so that is 30 or 60 events per year but you will also have 30 concerts or family events so 100 to 150 dates. That's pretty good: one out of every two days. For big stadia the challenge is: you'll have 25 sporting events but after that there are very few concert events, very few family events so if you take 25 football matches and if you are lucky you get 10 more dates. That's the challenge and it's difficult."

The core of AEG's business is 15,000 to 20,000 seat arenas or sports stadiums from 30,000 to 50,000 seats. But Katatznick cautions that a typical, mid-sized performance venue would be 2,000 to 4,000 seats for concerts or the performing arts. VIP boxes for 500 to 1,000 people can also have a corporate or social function, such as weddings. "Our sports and entertainments business delivers 200 live events a year. What happens to the other 150 days? Well, with restaurants, cinemas, museums and retail you are able to drive additional footfall and traffic even on a quiet day. "

"Arenas and stadiums are very expensive to build and expensive to operate. You need a lot to go right or else the legacy impact is difficult and the cost on the owners, whether municipalities, state governments or private ownership is difficult. We love Moscow like Berlin, Shanghai or London because it's a major market. The question is when you look at Rostov on Don or Yekaterinburg that is where the challenge comes in," Kabatznick said.

As well as the VTB Arena Park, AEG is helping to develop the Galactica Park and a theatre near Skolkovo.

Another development with a strong entertainment focus is Galactica Park, which covers 22 hectares at the junction of Mkad with Varshavskoye shosse. Developer Rusinkom plans about 1 million square meters of buildings, Scheduled to open in 2018, it will include an indoor Universal Studios theme park, an indoor Universal Studios water park, hockey and basketball arenas, a dining, shopping and entertainment complex, two hotels with 1100 room capacity, 250 metre-tall office towers, a 120,000 square meter retail shopping complex and four levels of underground parking.

Alexander Beloborodov, representative of Rusinkom, the owner and developer of Galactica Park said the challenges range from restrictive legislation and protection for intellectual property, to demographics.

"When you start talking about investment projects that have a maturity to 10 to 15 years, then you start speaking about a customer deficit. One of the reasons we chose NBC Universal over Disneyland is because when we open the whole thing, there won't be many children… when you come down to the numbers, that's what it is. As we hit the demographic trough there will be a lot of elderly people and those who don't have children, so we are counting on the demographic boom which we have just had, turning into teenagers."

The difficulty of measuring the potential tourist market in Moscow has already caused one investor to leave the project. The standard estimate of four million tourists annually includes an unknown number of business people traveling on tourist visas.

On the positive side, the developers are confident that they can create something different. Beloborodov said customers find the same brands at every shopping center and therefore rarely stray from their local mall. Galactica Park would change that, he said, helped by its proximity to two airports, Domodedovo and Vnukovo, 30 minutes or less away.

"One of the benefits of our project is that in Russia, everything is concentrated in Moscow and within three hours' drive of our project we have one seventh of the country's entire population — and the wealthiest part."