FIFA World Cup 2018: Expensive Calories
According to professional builders of sports facilities, a calorie of cold is seven times more expensive that the one of heat. This means that any winter sports facility typically costs seven times more that a summer sports facility to build. Nevertheless, the budget of the Football World Cup that Russia will host in 2018 is comparable to the Sochi Olympics budget.
According to professional builders of sports facilities, a calorie of cold is seven times more expensive that the one of heat. This means that any winter sports facility typically costs seven times more that a summer sports facility to build. Nevertheless, the budget of the Football World Cup that Russia will host in 2018 is comparable to the Sochi Olympics budget.
Many Russians believe that the main event of 2010 was the fact that Russia won the right to host the FIFA World Cup in 2018 for the first time in its history. Alexei Kudrin, Russia`s Deputy Prime Minister, announced the World Cup budget: 300 billion rubles, or $10 billion, which is in line with the Sochi Olympics budget. Only a small part of it will be used to finance construction of sports facilities, while the main costs relate to infrastructure of those 14 Russian cities where football matches will be held. The list of the cities to host the 2018 World Cup is as follows: Moscow, St. Petersburg, Kaliningrad, Podolsk, Nizhny Novgorod, Yaroslavl, Kazan, Saransk, Samara, Volgograd, Rostov-on-Don, Krasnodar, Sochi, and Yekaterinburg.
In addition to the announced budget, Russia plans to build 7,711 km of roads and 2,024 km of railways, whose total costs are estimated to exceed $35 billion. According to Russia`s Prime Minister Vladimir Putin, the necessary expenses will be included in federal, regional, and municipal budgets starting from 2011.
Enough Money
Luzhniki stadium in Moscow (88,000 spectators) is currently the only finished sports facility ready to host the World Cup games. The remaining stadiums will be built from scratch or totally renovated. According the FIFA estimates, Russia will have to spend approximately $3.8 billion to build the said stadiums, of which federal and regional budgets will spend 85%. Russia`s state officials also mention $11 billion needed to develop tourist infrastructure. Another $1.4 billion will go to finance reconstruction of local air terminals (except for Moscow and Sochi, where the airports function more or less properly). Thus, the total budget for the FIFA championship is no longer the announced $10 billion, but at least $21 billion, less new road construction costs. However, a significant portion of the said budget is to be financed out of private sources, so domestic taxpayers are not responsible for that.
Another important thing Vladimir Putin mentioned in Zurich after the announcement of Russia as the winner to host the World Cup concerns the governmental plans to actively work with businesses using the Public-Private Partnership (PPP) schemes. "We intend to attract businesses wherever is possible to minimize government investments. I am sure that Mr. Abramovich, for example, could take part in such projects. Ha has a lot of money, so this would do him no harm," Mr. Putin told reporters in his characteristic manner. The truth is that in addition to the English football, Roman Abramovich, is also actively developing domestic football via its National Football Academy.
The words of Mr. Putin meant that Roman Abramovich, owner of Chelsea football club, would have to build a CSKA stadium in Moscow using any of public-private partnerships schemes. PPP mechanisms allow investing in sports and infrastructure projects by switching some of investment risks to private businesses. According to Valentin Rybakov, Senior Associate at the Capital Legal Services law firm, any PPP scheme initially determines responsibilities of participating parties. "Banks typically ensure project financing to PPP participants. This means that each business partner should focus on future cash flows that this or that PPP scheme will be able to generate with time."
Vladimir Dmitriev, Head of VEB bank, says he will be ready to finance some FIFA-2018 construction projects. "If the government sets a corresponding task, then our bank will be ready to achieve it. We are considered as sponsors of the Sochi Olympics, so why not building a stadium for the 2018 World Cup?" Mr. Dmitriev said. Actually, the VEB bank started co-financing the construction of the St. Petersburg-based stadium long before Russia won the right to host the World Cup.
Initially, the idea to build Zenit stadium belonged to the governor of St. Petersburg. According to Elena Guryanova, expert from Transstroy, her company developed that idea back in 2006. After that, the concept of the stadium was many times changed and adjusted. As of today, Transstroy as the main project customer has been building the stadium where the World Cup quarterfinals and semifinals will be held. "The stadium will add to the beautiful architecture of St. Petersburg. The project architect is Kisho Kurakawa, the Japanese best architect. From the engineering standpoint, Zenit differs from many typical stadiums, mainly because it will have a sliding roof and a rotating field. Today, we take into account all existing international requirements of FIFA and UEFA concerning the stadiums of this category," Elena Guryanova told CRE."Certainly, the World Cup is a driver to develop both domestic football and infrastructure. In particular, it increases the demand for real estate," comments Evelina Pavlovskaya, Vice President for Consulting at GVA Sawyer. "However, football clubs and federations will have to invest in these projects having certain tax breaks. Generally, a sports facility is a low-yield business, which operates more efficiently as part of a mixed-use center that combines sports and recreational facilities," Evelina Pavlovskaya believes.
The largest stadiums to host the World Cup games in Russia are Spartak (estimated cost $290 million) that LUKoil has been building, VTB-Arena ($500 million) that the VTB bank builds, and Zenit ($760 million) that the administration of St. Petersburg builds (Transstroy is General Contractor). Given that Prime Minister Putin announced the above plans personally, everyone in Russia is sure to see them realized in full and according to schedule.
VTB-Arena will be built in Moscow to replace the existing for 80 years Dynamo stadium. This project is rather a new construction than a reconstruction. By 2016, the bank plans to finish building there a mixed-use facility that combines sports and retail real estate. The project architects are the Russian Mikhail Posokhin and the Dutch Erick van Egeraat. Based on their project, a large sports arena will be build in accordance with FIFA technical requirements to seat 45,000 visitors. In addition, the stadium will have 10,000 extra seats. If necessary, the facility will be transformed into a hockey arena or a concert hall. Next to the stadium, which is part of the old Moscow Petrovsky park, the project designers intend to build other mixed-use premises consisting of residential and office buildings, hotels and retail space. Some of them will go underground, or under the football field.
Andrei Peregudov, Senior Vice-President of VTB and Chairman of Dynamo Property Management Company, emphasizes the fact that the built stadium as part of Petrovsky park is a monument of national importance. "We initially tried to preserve all historic features of both Dynamo stadium and Petrovsky park. The news about Russia winning the right to host the World Cup in 2018 came just in time. We are pleased to be in the heart of the process together with FIFA consultants. I would also mention the unique architectural decision of our arena," comments Andrei Peregudov.
Specifics of National Budgeting
Every time Russia announces its budget of major world competitions, the figures greatly exceed similar costs in other countries. For instance, the total cost of reconstruction and new facilities construction in South Africa during the World Cup 2010 equaled to $2.2 billion, which is five times less than Russia is planning to spend to organize the 2018 World Cup. On the other hand, the total number of built and renovated stadiums in South Africa was 10, of which only three were built especially for this event.
Mikhail Zagainov, CEO of one of the best sports facilities in Russia – the Megasport Ice Arena – explained to CRE that the published South African football budget included only costs that directly related to the sports facilities, while the main costs in Russia traditionally relate to infrastructure. "However, any construction of football fields is not comparable to more technologically complex winter sports facilities. ccording to statistics, a calorie of cold is seven times more expensive that the one of heat. This means that any winter sports facility typically costs seven times more than a summer sports facility to build. As a professional, I can understand a $10-billion budget for the winter Sochi, but the same $10 billion to build summer football stadiums sounds a bit strange for me."
Given the World Cup budget only (excluding any urban infrastructure), it greatly exceeds the one of the Sochi Olympics. However, experts say that the main thing in Russia is to understand the logic of budgeting to be able to tell a ruble invested in infrastructure from a ruble invested in sports facilities directly. Victor Myakonkov, CEO of the Russian Association of Sports Facilities (RASF), proposes to analyze the announced budgets from two separate standpoints. "The main costs in the published budget relate to infrastructure, this is typical of Russia. As for investments in sports facilities, this is a small portion only," he explains. "For example, or ultimate goal is not to build the Olympic Sochi, but rather to create a resort of international standard, where tourists from all over the world would be able to spend their holidays after the Olympics are over. Currently, we are investing in new power-generating facilities, water supply, sewerage systems, communications, logistics, and roads. The same thing will happen to the football World Cup projects in those cities where games will be played," Victor Myakonkov says.
Moscow Faces Less Problems
The new mayor of Moscow, Sergey Sobyanin, was next after Vladimir Putin to announce its full support of the world championship projects. "Moscow will receive three new stadiums after upgrade and renovation. I have already told my colleagues to conduct a survey of these stadiums, and to work out necessary construction and reconstruction programs jointly with the Ministry of Sports," Mr. Sobyanin told reporters during his recent meeting at City Hall. He also noted that the Russian capital has enough time to achieve all the set goals to host the World Cup.
As for the other Russian European cities where the championship games will be played, they definitely face more problems compared to Moscow. First, these cities need to fix roads, airports, and build more hotels. The FIFA decision in favor of Russia helps the largest domestic and international construction companies receive PPP orders to start large-scale projects that directly relate to the World Cup. According to experts, developers and builders of hotels are better positioned to benefit from the FIFA World Cup.
"Not only hotel developers and operators, but the whole Russian nation will benefit from these ambitious projects having more developed infrastructure in their cities," says Marina Usenko, Executive Vice President of Jones Lang LaSalle Hotels.
However, long-term projects are typically based on their long-term economic efficiency. Both hotel developers and operators need to maintain an appropriate occupancy level after the World Cup is over. Especially this concerns Russia`s regional cities, where many football fans coming to see the World Cup 2018 games will have to stay wherever is possible, because developers are unlikely to build hotels to be occupied a couple of weeks only.
"World championships and Olympic Games are short-term events. Unlike politicians with their ambitious plans, business people are well aware that any potential of their facilities on the market would definitely come back to usual levels. In reality, majority of football fans coming to see games usually prefer to stay overnight in the cheapest local hotels and seek other accommodation options, because they generally do not like to spend much money in foreign countries. Therefore, the best chance for hotel developers is to build average-priced hotels that would be in demand later on," Marina Usenko told CRE.
Evelyna Pavlovskaya has the same opinion. "GVA Sawyer has already started receiving requests to participate in individual hotel projects. This trend relates to the World Cup 2018. We recommend our customers to calculate separately an average annual load of hotels regardless of the World Cup. If these calculations are acceptable, then it makes sense to invest more in the sports infrastructure to reduce the risk of a low demand for these hotels after the World Cup, which is always a one-time event. Any hotel project is typically based on a 7 to 10-year planning horizon."
CRE Russia #3 (155), February, 01–15 2011
