Stadiums after the Euros

Last year's Madonna concert at the National Stadium generated a loss of PLN 5 mln, the Sting gig in the stadium in Poznań lost PLN 3 mln, while the Polish Masters football tournament in Wrocław ended with a deficit of PLN 7 mln. This year the National Stadium will lose PLN 22 mln unless the operator miraculously turns this around. Last year the PGE Arena in Gdańsk hosted only one concert, and neither Wrocław nor Poznań will be in the black this year. Most operators have no doubts that the business models of multifunctional arenas, which are successful in mature markets such as Germany and the UK, have turned out to be difficult to implement on Polish turf. The events that were expected to contribute to the cash balance of the stadiums have actually inflicted losses. "It is hard to make money on entertainment due to the poor purchasing power of Polish households and a poorly developed sponsorship market - a factor that helps to lower the price of tickets on developed markets. As a result, concerts are not attended by enough people to cover the costs," claims Robert Pietryszyn, the president of the board of Wrocław 2012, the operator of the Wrocław arena. The other operators have also struggled with this, as well as other management-related problems. The Warsaw stadium has already had four bosses: Rafał Kapler, Robert Wojtas, Michał Prymas and Marcin Herra (the current incumbent), as well as two operators: the National Sports Centre, which reports to the Ministry of Sports and Tourism, and (since January 2013) the state-owned company PL.2012. In Wrocław the stadium's American operator SMG was dismissed, while the deputy mayor of the city Michał Janicki also lost his job due to the lack of proper supervision over the concerts. The company that was initially in charge in Gdańsk was Lechia Operator, which was owned by the football club but later acquired by the municipality and transformed into Arena Gdańsk Operator. The Poznań arena was originally managed by municipal company Poznańskie Ośrodki Sportu i Rekreacji together with Marcelin Management, a company owned by the KKS Lech Poznań football club. Now the club itself has taken over the whole operation and runs the stadium jointly with its subsidiary Marcelin Management. Together with the new operators came fresh assurances that the stadiums were firmly on the road to achieving self-sustainability. According to these announcements, Gdańsk will stop generating losses by the end of 2015 and Wrocław in 2016. The Warsaw operator is the most optimistic of the lot, planning to break even for the first time in 2014 with a profit planned for 2015. However, only the PGE Arena in Gdańsk has managed to find a naming rights sponsor - a key step to ensuring the profitability of a stadium. It is estimated that the sale of the naming rights could cover 30-40 pct of its costs. The PGE Arena contract with Polska Grupa Energetyczna is worth PLN 7 mln per year, but in this particular case the contract between the operator and the city stipulates that the profit goes directly to city's coffers and not to the operator. "Last year our operating revenue amounted to PLN 12.7 mln and the costs came to PLN 17.5 mln. If you added the naming rights sponsorship to it, we would already be in profit," says Michał Brandt, a spokesman for Arena Gdańsk Operator, which manages the PGE Arena. Due to its prestige the National Stadium could, according to experts, expect much more - PLN 10 mln or even PLN 15 mln. However, these days operators often cite the necessity of strengthening the brand and improving the venue's image, so that it evokes positive associations - otherwise money will not come to the stadium. Substantial grassroots work is needed in order to attract people, because people are followed by sponsors.

How to increase footfall
One of the first decisions of the new operator of the National Stadium, PL.2012, was to open the gates every day so that Warsaw residents could regularly take a stroll or jog around the grounds. "We have also opened additional sightseeing routes and increased the number of tours. After four months the tours generated PLN 300,000 in revenue for April alone. Around 2,000-3,000 people visit the stadium every day, including the participants of various events and conferences that are held here. There are also mass events for over 10,000 people every two to three weeks. And this is only the beginning of our work. The footfall will be higher and higher," promises Mikołaj Piotrowski, the communications director of PL.2012. A few thousand visitors could be considered a success, but it is still several times less than the footfall in large shopping centres. "Stadiums mainly come to life during matches, that is, every couple of weeks," explains the president of Wrocław 2012. A total of 35,000 spectators came to the stadium for the final of the Polish FA Cup in May. The operator registered a profit of PLN 200,000 from the ticket sales alone. If such numbers of spectators came to every league match (i.e. 20 times per year) ticket sales would earn the operator a profit of PLN 4 mln. Unfortunately, this is still the stuff of dreams. A typical match in Wrocław is attended by app. 15,000 people (34 pct of the stadium's capacity), too few for the operator to make any money on the tickets; however, "there are also other revenue streams: boxes, advertising space, and income from catering and office space," says Robert Pietryszyn. The stadiums that were built for the Euros are nevertheless enjoying relatively high footfall. The average attendance for the entire Ekstraklasa premier league amounts to 8,800 per match. By contrast, in the German Bundesliga each match attracts an average of over 45,000 spectators. The clubs there are so rich that they can afford to maintain their stadiums. About 70 pct of the revenue of the Allianz Arena, where Bayern Munich plays, comes from the club and the sales of the naming rights. Other revenue, such as from the organisation of events and conferences, generates only 30 pct," explains Robert Pietryszyn. The low footfall of Polish stadiums is also bound up with the issue of image. "A match that is played with a lot of empty seats does not look good and does not make the right impression on sponsors," says Grzegorz Sencio, a senior manager at Deloitte, which prepares the annual reports on the financial results of football clubs. In Gdańsk, on average only 15,000 seats (35 pct) are taken, while the best performing stadium is Poznań with attendances of 24,500 per match (55 pct). Out of the four Euro 2012 stadiums, the only one that is not the home ground of a football team is the National Stadium, which can only count on hosting a few matches per year: those of the national team and the final matches of the Polish FA cup. Next year it will also be the venue for the final of the UEFA Europa League. Because of their popularity, each of these events stands a chance of filling at least 50 pct of the seats. But these are only a few days per year and the arena has to make money every day. The operator believes that the importance of football revenues should not be overestimated. "This is a multifunctional arena that provides us with the opportunity to organise a variety of events. The lack of a resident football club gives us more freedom. The national stadium has already won contracts for 17 large events of over 10,000 people for this year, and if it were not for the UN climate conference in November, which requires a lot of preparation, we would be aiming at 24," says Mikołaj Piotrowski. The Warsaw operator also claims that no event that has been held at the National Stadium since January 2013 has generated any losses and that despite an increase in the rents for leasing the venue nobody has pulled out. The key to success, according to the company, involves the adoption of a less risky business model. "We will simply lease the area and the service according to a new price list that is more beneficial for the stadium and allows the organiser of an event, i.e. the lessee, to profit from the ticket sales, so that they are the ones that bear the entire financial risk. Our success will mainly depend on our negotiation skills when concluding a contract with an event organiser," explains the communications director of PL.2012.

Making money from commercial areas
In Wrocław it is the leasing of the 800 sqm of conference halls and the 3,200 sqm club room that provides app. 15 pct of the entire revenue. Gdańsk, however, which has a conference hall with an area of 290 sqm and a club room of 1,400 sqm, earns leasing revenue that the operators describe as "perceptible". The National Stadium, with 2,500 sqm of conference halls and a 3,200 sqm club room, seems the best disposed to compete for the meetings market. "Conferences, corporate and other events that are not even heard about in the outside world are the foundation of our everyday operations and one of the most important revenue sources. This year we are planning 100 corporate events. Our goal for next year is 300," says Mr Piotrowski. So far Wrocław has gained the most out of the commercialisation of its office space, with letters of intent signed for 7,000 sqm (out of a gross leasable area of 10,000 sqm). Tenants have been found for both the small (80 sqm) and the large (1,500 sqm) areas. These are mostly international corporations, including Coca Cola. The monthly rent per sqm amounts to EUR 10 plus EUR 2 in service fees. "What attracts tenants most is the location near the city's main transport routes - the railway station and the fast tram line - but also the huge car park, which always has vacant spaces. This is often the clinching argument for renting an office at the stadium. We are planning to lease everything by the end of the year," says the representative of Wrocław 2012. The Warsaw stadium also has an attractive location, almost in the city centre, as well as an underground car park with 1,700 parking spaces and an above-ground car park for 2,000 vehicles. But most importantly it offers 18,000 sqm of office space. Not a single metre has been leased so far, as the operator plans to start the commercialisation process only after the November climate summit.

Who pays, who makes money?
"We are still learning to estimate the costs and are looking for savings," claim the operators. In Gdańsk a tank has been installed for collecting rain water from the 2 ha roof to cut water usage. Grey water is now used for flushing the toilets and a number of other purposes. In Wrocław, after a recent tender procedure, electricity bills have been reduced by 20 pct. "We have decided that soon we will outsource some of our departments, such as bookkeeping and IT services," says Robert Pietryszyn. All the stadiums now have a chance to sign more favorable insurance contracts compared to those before Euro 2012, because then the insurers put the rates up due to the higher risk. Now the tender processes for these services are an opportunity for cutting costs. Costs for an operator can also mean considerable profits for their suppliers. For the National Stadium, which has annual costs of app. PLN 35 mln, the biggest supplier is RWE Stoen, which charges a minimum of PLN 700,000 for the electricity supply per month, while Impel Security earns PLN 5 mln per year, a consortium of PZU, TUiR Warta, STU Ergo Hestia, TUiR Allianz, HDI Asekuracja (insurance) is paid PLN 4.5 mln per year, ISS Facility (a cleaning service) earns PLN 3 mln annually, and FB Serwis (technical services) receives PLN 1.4 mln per year. On top of this there is the remuneration of the stadium's employees, the cost of telecommunication services, the clearing of snow from the roof and a number of different finishing jobs. In addition, the hotels, restaurants, taxis and companies specialising in stage technologies contracted by concert organisers also benefit from the footfall at the stadiums. All these business entities and private individuals pay taxes, so a portion of the money is returned to state funds. This is why there are many who argue that the state can afford to contribute money to this business even if a stadium never manages to balance its current operations. "The assumption that cities would make money directly from the stadiums was wrong from the very outset. This is not a type of project that could be a source of revenue for local councils," a representative of one of the operators told us unofficially. So what lies in store for these stadiums? Will they manage to stand on their own two feet in a year or two? Even industry experts are unwilling to go so far as to make this claim. "It can't be ruled out that when that time comes we will not be hearing once again that they will be profitable in another two to three years," says Grzegorz Sencio. However, regardless of what shape the future takes, the state or municipal owners have no choice - they have to pay. Because demolishing and digging up the sites is a prospect that no-one is seriously entertaining.