POLITICS

A World Cup White Elephant

Thomas Johnson writes on the city's flailing efforts to make the Cape Town Stadium pay

Cape Town Stadium: World Cup to White Elephant: 2006 to present

Part 1: After the World Cup party, trouble on the horizon

A 2014 article in Globe and Mail sums up Cape Town Stadium:

“One of Africa’s most beautiful stadiums now sits empty and forgotten in the Atlantic Ocean breezes. Less than five years after being built for the World Cup, the $600-million Cape Town Stadium is largely abandoned.  Like most of South Africa’s former World Cup stadiums, this one is haemorrhaging money badly. The occasional concert – along with the $4 tours for a few hundred visitors per week – is not nearly enough to cover its operating costs. The 55,000-seat stadium is losing an estimated $6-million to $10-million annually.

“City officials say they are constantly bidding for events to hold at the stadium, but rarely succeed. Rugby teams still prefer their traditional Newlands home.  Ajax Cape Town held its matches at the stadium, but it attracted only a few thousand fans – filling less than 10 per cent of the 55,000 seats. In March, the team announced it was moving out of the stadium because it was too costly and the pitch was in poor condition.”

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The story of how we arrived here with the Cape Town Stadium is well known. 

The city originally proposed building a World Cup stadium in Athlone or upgrading Newlands Rugby Stadium, far cheaper options than an entirely new stadium.  But as Globe and Mail states, “Fifa insisted on a new stadium on Cape Town’s spectacular waterfront – to make the matches more attractive to its global television audience. ‘A billion television viewers don’t want to see shacks and poverty,’ a Fifa delegate told local officials”.

The government and Fifa spun the stadia as legacy projects from which economic and social benefits would arise.  However, the Danish Institute for Sports Studies, quoted by Globe and Mail, stated “(South Africans) have not seen any economic benefits from the venues, and therefore the sporting legacy of the event is highly questionable”.

Even back in 2006 the City of Cape Town was aware of concerns about the financial sustainability of the Green Point Stadium, as it was then known.  They commissioned an economic impact assessment from The Environmental Partnership, prepared by Independent Economic Researchers, “Economic Specialist Study: Green Point Stadium and Associated Developments”.

The September 2006 study investigated three alternatives. A “do nothing option” – no new stadium would be built. Cape Town would either not host World Cup games or Newlands would be used after a R500 million upgrade. 

The second was a new stadium on the site of Metropolitan Golf Course.

The “Green Point Stadium alternative” included an upgraded precinct and park, including selective commercialisation and other sources of financing that would reduce the need for subsidisation.

The findings are summarised: “A new 68 000 seat stadium is not a necessity for the country to host the World Cup and would raise the already high opportunity costs of 2010.  A semi-final (one of the games Fifa earmarked for Cape Town) could be played at stadia extant elsewhere in South Africa.”

“The Green Point Stadium alternative will require substantial and guaranteed subsidisation from national government if it is not to become a burden to the city and its ratepayers and to result in a positive economic impact for the city and province.  The ‘do nothing’ alternative would entail lower financial risks and require substantially lower subsidies due to lower costs.”

Regarding Fifa dictating terms to host countries, the report states, “one can’t assume South African government bodies would be powerless in the face of higher costs”.

The assessment – like Fifa, government and Grant Thornton’s 2010 study – assumed substantial economic benefits would flow from the World Cup – construction, jobs, tourism, trade and property values.   

The World Cup benefited South Africa in accelerated infrastructure and transport development and city improvements.  The HSRC’s 2011 survey study, “Impact of the 2010 World Cup on Social Building, Nation Building and Reconciliation”, show that for the period immediately before and after the cup there were improved social cohesion, nation building and ‘connection with the African continent’, and a strong sense of patriotism – South Africa proving to the world that an African country could host a major international event.

However, economic benefits either did not materialise or people only partially benefitted due to Fifa’s restrictions regarding trade near venues, the short period of the games and the overstatement of potential benefits.  HSRC quoting the Cape Chamber of Commerce (2010):

“Government and Fifa misrepresented expectations of potential benefits. It (World Cup) assisted some macro-economic indicators but not the entire country.  Sustainability was not on the priority list.  Even the (new) infrastructure is problematic.  Stadiums are not sustainable to manage, and it is not productive infrastructure and did not unlock capacities.”

Soon after becoming mayor, Helen Zille placed a moratorium on the appointments of consultants for the Green Point Stadium stating the city needed information on the project’s costs.  She lifted the moratorium a week later saying she was “satisfied the financial model” would not be a “burden to the city’s ratepayers”.  Although she was criticised by the then Western Cape premier, Ebrahim Rasool, for placing the moratorium, it was the responsible thing to do. 

What was clear is the city bowed to pressure – Zille later admitted as much – by the provincial and national government and blackmail from Fifa, which was that unless the stadium was built at Green Point, the city would not be a host city. 

Independent Economic Researcher’s statement that South African government bodies were not powerless to Fifa’s demands was naive, knowing Fifa’s firm control over all matters relating to the World Cup.

In August 2006 I attended a seminar at which Anthony Leiman – co-author of the Green Point impact assessment and an UCT economic professor – spoke.  He was unequivocal the Green Point option would burden the city and ratepayers with significant costs into the future.  Newlands, costing only R500 million to upgrade, was a viable and sensible alternative to a new stadium, then estimated from R2.4 billion to R2.6 billion.  The final cost was R4.43 billion.  (Like other World Cup stadia around the country, contractors colluded on tenders and cities paid excessive prices.)

But when presenting the new stadium option, Leiman never mentioned if and when – if ever – the city would receive the “significant subsidisation” his report mentioned.  And because neither the city nor government ever spoke about such subsidisation in any form, we must assume the city knew it was not a possibility, and it and ratepayers would fund the running costs themselves.  Any notion that the finance model was sound, as Zille claimed, was untrue.  It’s this deception Cape Town’s ratepayers continue to pay for.

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Part 2: Stadium spirals city into debt and controversy

In 2008 a consortium of Stade de France and South Africa’s Sail Group was awarded the contract to operate the stadium from January 2009 until the World Cup, after which it would lease the stadium for between 10 and 30 years.   However, in December 2010 Sail/Stade de France cancelled the lease.  Reports in the media at the time cited non-viability and Sail/Stade de France would lose money.

The city took over management. It also lodged civil claims against construction companies found to have rigged tenders and against consulting companies for excessive professional fees.  “Deputy Mayor Ian Neilson said although the city had been suspicious about rising costs, it had no option but to continue to meet Fifa’s deadline.”

In 2013 the city revealed the stadium’s “true costs” – R436 million since construction, up from the “incorrect” R300 million previously disclosed, and R92 million income. 

In the interview with Independent Online in 2013 Neilson defended the high costs because the stadium was a “strategic asset”, but failed to elaborate on high consultant and employee costs of R40 million and R50 million respectively, claiming they needed time to analyse it.

Under intense pressure and criticism from Cape Town’s citizens about the stadium’s high annual running costs, the city tasked consultants in 2011 to investigate a business model that would allow commercial activity in the precinct to offset its running costs.  A major hurdle for the city was strict zoning regulations that prohibited commercial activity at the stadium.  The options the consultants investigated, with public consultation, would try and find a way around these restrictions to maximise revenue for and use of the site.

The business plan option was criticised by some because it excluded alternatives other than that being investigated – demolition, scaling down or mothballing to save costs, which were suggested during public consultations.  However, the city was adamant demolition “was not an option”.

In 2012 the city applied to the Western Cape Government to rezone the stadium and Green Point Park site to allow commercial activity to “enable the stadium to become more commercially sustainable and reduce its maintenance and operational costs”. 

The application was made when the business model was still under investigation and subject to change or cancelling, or that is what the city implied.  The application was recently approved.

The Business Plan for Cape Town Stadium and Green Point Park, prepared by International Risk Mitigation Consultants, investigated only four or five business models the city presented – and no other alternatives – to generate revenue for the stadium and Green Point Park precinct.  They recommended a mixed-management model (model 5) with the city and an external organisation managing the stadium, park and its commercial activities.   

Proposed commercial activities, which are not currently permitted by zoning regulations, include retail, restaurants and bars; a four-storey building that would accommodate a hotel, offices or sports institute and a four-storey parking garage.

“In order to become a financially viable venue, Cape Town Stadium and its immediate precinct require the ability to attract both large sporting and entertainment and non-event-day opportunities. This requires a certain amount of commercialisation.”

However, residents of Cape Town are bemused and alarmed the city is pushing through with the business plan option that will commercialise the stadium precinct – commercialising an historical recreational area, forever alienating valuable city-owned land near the Waterfront by selling and/or leasing it, and leaving a lasting concrete footprint – without exploring alternatives to reduce costs by improving efficiencies of the extant facility. 

As stated at the beginning of this article, the stadium per se will never be viable as a sport and events facility – it’s too costly.  So the city’s approach is illogical and financially reckless because, contrary to sound financial practice, they are trying to spend their way out of debt – like a gambler in a hole who believes the next throw of the dice will save him.

Shouldn't they first look at internal, that is, stadium-related cost-saving measures before investigating alternative scenarios? 

HJ “Hoffie” Cruywagen of the University of Pretoria’s construction economic department, a registered quantity surveyor and expert on life-cycle costing with knowledge of stadia, told me by telephone events alone do not cover stadium costs – cleaning, security, etc; the running costs are significant. He mentioned facilities like Loftus Versfeld Stadium, which hosts two or three matches a month in season – the bulk of their revenue is from corporate sponsorships.

Cruywagen said operators – Stadium Australia, Sydney’s Olympic arena, is an example – must look at life-cycle costs (LCC) and consider alternative uses for the facility. 

LCC is an analysis and comparison of cost alternatives over the life of the asset, from acquiring, operating, maintaining to disposal.  LCC is not concerned with non-asset alternatives.

The city must look at in-stadium alternatives that exclude the business plan scenario. Bear in mind the stadium is practically dormant – in 2015 there were only 18 event-days out of 365 – with little hope of attracting events, which no amount of sympathetic and symbiotic development in the precinct will change. Under the city’s current hope-for-the-best management model, the stadium will, therefore, always be a burden – I estimate real costs could be in excess of R200 million a year.

To not have considered alternatives – using  life-cycle costing methods or similar – while proceeding with risky, speculative and significantly costly options that will see the alienation of valuable city-owned land in the Waterfront area may be considered fruitless and wasteful spending of the Public Finance Management Act.

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The first option, to find an anchor tenant (negotiations with Western Province Rugby Union to lease Cape Town Stadium were unsuccessful because, according to a source, the city wanted to place stringent conditions on WPRU) and increasing its on-structure usage, has already failed.  Rugby prefers the historical Newlands, the second-oldest rugby stadium in the world.  Ajax Cape Town, which used the stadium for a year, left because it was too expensive and the pitch in poor condition.

The second alternative is to reduce maintenance and operations costs through efficiencies and by closing sections, like many public and private organisations do for underperforming or dormant assets, for example, hospitals, military bases, etc. 

 The third, which the city already rejected, is to strip the structure except to accommodate basic usage (see alternative two) – in effect, mothballing it – or strip it to its concrete and steel shell.  The venue could still be used as a set and backdrop for movies (The Giver, Safe House), and the field and concrete tiers for events like the old Green Point Stadium was.

 The second and third alternatives are in accordance with best practice and Cruywagen’s advice – LCC and finding other uses for the stadium.  However, there is no evidence the city considered or investigated them, as responsible managers should.  In fact, for unknown reasons, it appears they rejected them a priori.

The city council’s decision to opt only for a commercial, development-led model is fully in tune with its business development agenda.  The city has brought planning development decision-making under executive control, taking final approval away from sub-councils where it resided before. 

Last year the municipal planning tribunal (MPT) was formed under the chair of the city’s former executive director of planning, David Daniels (at a public meeting c1996 he described himself as “pro-brown” development agendas), to adjudicate building applications and objections. (The majority of members on the MPT are city officials.)

The DA-run city and province has repeatedly stated it has a “red-carpet approach” to business.  Under this guise, over the years, it has approved, with little to no public consultations, questionable development plans in sensitive areas like Princess Vlei, Philippi Horticultural Area, Maiden’s Cove, Sea Point Pavillion and Wescape, on the west coast.  These met with vigorous opposition from the public and planning and environmental professionals. 

Mayor Patricia de Lille, and sometimes councillors, was strident and combative to objectors, stating they were uninformed and the city knew better. 

In June 2016 the tribunal approved a monster 60m-high-rise adjacent to the culturally sensitive, pretty and unique Bo-Kaap, over fierce objections. 

In this light, regarding Cape Town Stadium, a writer to the Saturday Argus recently wondered what a proposed hotel, as contained in the business plan, had to do with funding the stadium. 

So, in the absence of any other explanation, council is using the stadium as an excuse to develop yet another environmentally and culturally sensitive area to further their developer-friendly agenda irrespective of the urban and economic cost.

Over the few weeks prior to writing this article, I repeatedly asked the city’s executive management, to wit, councillor Garreth Bloor, city manager Achmat Ebrahim and chief  financial officer Kevin Jacoby, if they investigated in-stadium cost-saving/efficiency alternatives that excluded the speculative and costly business plan option, and if they did not, why not.

They did not respond to that and other questions.