R4.5bn stadium to let for R1/yr
2009-10-04 16:33
Cape Town - Cape Town is set to sign away the R4.5bn Green Point super-stadium - for just R1 a year.
Despite fears the stadium will become a costly "white elephant" after the 2010 FIFA World Cup, the city is pushing ahead with a controversial deal with a French-South African consortium. The city hopes to receive a 30% share of the after-tax profits from the SAIL Stadefrance Operating Company.
But if the operator does not make a profit, however, the city will recover just R1 a year in rent while spending millions more on maintaining the stadium.
To be viable the stadium will have to host between 20 and 40 events a year.
The city's 2010 officials are hopeful that the lease will be endorsed by the city council when it meets on October 28.
The deal is heavily skewed in favour of SAIL Stadefrance, represented by Springbok rugby great Morné Du Plessis - so much so that one independent legal expert said this week: "The only reason a landlord would concede so much is because they know they have a white elephant on their hands and they don't know what to do with it."
Dave Hugo, Cape Town's 2010 technical director, disagrees. "I honestly believe it is going to be an asset...We certainly don't see it being a white elephant. To achieve that we have to sweat the asset.
World best
He believes that SAIL Stadefrance is a "world best". "The city is not in the business of running international stadiums....If they can't make it work, no-one can."
"It won't be a walk in the park", Du Plessis concedes. "On any basis, it is going to be tough."
He believes a "fair deal was hammered out" in the lease despite suggestions the city was "out-manoeuvred and out-negotiated" by the consortium's lawyers.
"Fifty percent of the critics say the stadium can't sustain itself; another 50% say our deal is too good."
But Ralph Malan, a retired engineer and vehement opponent of the stadium, says the project has been "bedevilled from start to finish with official deception of the public".
"The stadium is going to haemorrhage money."
Estimates of what it will cost to maintain vary considerably. Early figures suggested it would cost as little as R1.3m a year but others range as high as R30m and even R150m a year.
Du Plessis said initial costs would be low as "everything is new and under guarantee".
"As they age, stadia do start costing money and we understand that, but there is a limit to the commercial return we can generate."
David Polovin, a lawyer and businessman who led a ratepayers' investigation into the merits of the stadium says that while it "brought with it a lot of infrastructural benefits for Cape Town", he is concerned that the city agreed to share a percentage of the "profits".
Little choice
"It is a fundamental weakness that the lease comes down to a share of the profits. What motive is there for the stadium operators to show a profit? Profit means tax and it means they have to share with the city. So all they have to do is eliminate profit with expenses.
"Any shrewd businessman knows how to hide income in expenses."
But Polovin believes Cape Town was in an impossible position and had little choice but to accept the terms of the lease.
"There were very few contenders for post-2010 operators. The operator dictated the lease to them."
Hugo says there are no guarantees, but the operator's business plans project the stadium will run at a profit "except for the first couple of months".
"We believe the operating costs of the stadium will, at least, break even and not burden the ratepayer. There are no guarantees of course and time will tell."
Du Plessis says an anchor tenant which will draw 10 to 12 large matches a year is key to the stadium's success. "We can then build an event strategy around that."
SAIL Stadefrance are currently in tentative talks with Cape Town's two big soccer clubs, Ajax Cape Town and Santos.
But real negotiations can only take place once the lease is signed and sealed.
"All we have at the moment is the potential for an events strategy," Du Plessis says.
"We have got our work cut out for us."