1.6 PROJECT FEASIBILITY
Once the stadium concept has been agreed between the project stakeholders, the viability of the proposed project should then be validated before further money and resources are committed.
“A FEASIBILITY STUDY INDICATES WHETHER THE PROJECT IS LIKELY TO SUCCEED OR NOT”
The execution of a project feasibility study is an important element of the project definition phase. The objective of the study is to validate the stadium vision and idea as developed in the previous project phase from various perspectives, most notably from financial and technical points of view.
This study determines whether the project is viable and sets the conditions and restrictions for embarking upon the next steps and phases of the project. A feasibility study indicates whether the project is likely to succeed or not. The desired outcome of the feasibility study is a clear go or no-go decision in terms of whether the stadium project should be advanced to the next stage(s), and under which conditions.
In some cases, a pre-feasibility study might also be needed. Whereas a feasibility study provides a detailed analysis of whether a project should continue or not, a pre-feasibility study examines which is the best of several scenarios from both a technical and a financial perspective.
A pre-feasibility study is usually executed during the inception phase of a project in order to select the best idea or option amongst the various ideas or options under consideration. One example is the option to build a new stadium and/or to renovate the current one or to compare various potential stadium sites. Because it is impossible to analyse all options in depth, the preferred option or scenario should be subject to a detailed feasibility study in a subsequent phase.
DEFINITIONS
Project viability
Project viability and project feasibility are two terms which are often used in the same context, but which have slightly different meanings. The viability of a stadium project refers to the ability of the stadium to sustain itself over a long period of time. The feasibility of the project indicates whether the stadium project should be attempted at all. As an example, it might be a viable option to build and sustain a new stadium in a certain location, but it might not be feasible to develop the project within 12 months.
Project feasibility
A project feasibility study therefore considers more aspects than merely the economic and financial viability of the stadium. Sub-Section 1.6.3 addresses the key elements of a feasibility study.
Affordability
Affordability is a related term and is often used to indicate whether the budget required for the project can be accommodated within the owner’s overall budget constraints. Although the stadium project is viable, it might not be affordable.
“MARKET ANALYSIS INDICATES THE POTENTIAL REVENUE”
1.6.1 MARKET ANALYSIS
Market analysis is a crucial element of each feasibility study. Amongst others, market analysis indicates the potential revenue which can be expected from the stadium in line with the project vision.
Validating the proposed stadium use or identifying possible new ways in which to use the stadium and quantifying the potential income is the key purpose of market analysis. Therefore, market analysis represents a major element of the financial feasibility study for the stadium (see Sub-Section 1.6.3).
Market analysis needs to address questions such as:
• Which catchment areas do the stadium users come from? Where do the fans come from? How far or how long are fans willing to travel to get to the stadium?
• What does the competitive landscape look like? Who are the competitors and what are their unique selling points, strengths and weaknesses?
• Which market segments within the catchment area could potentially be serviced by the stadium? This includes various hospitality segments, such as premium seats and hospitality boxes, but also various segments of general admission, which may have different needs such as fanatical fans, families, children or the elderly.
• What prices can be charged for tickets, hospitality, food and beverages for the various segments and what is the price elasticity? (how does price influence demand?)
• Which supplementary services can be offered along with the stadium and at what price? (e.g. parking, stadium tours, etc.)
• What are the market trends, political, (socio-)economic and technological developments? What are the opportunities and threats? How do these affect the proposed project? This could include, for instance, the competition from other forms of leisure and entertainment available.
• Which other events can be organised at the stadium (see Section 1.7) and what is the market demand (and competition) for these events? What level of revenue can be generated by these events?
• Which other functions are viable for inclusion within the stadium project and what level of revenue can they generate?
• What is the total revenue that can be generated on an annual basis by the stadium?
Figure 1.6.1
Market context
Although a lot of information may be at hand, it is important to update and complete this information based on the needs of this bespoke market analysis. Some tools used during market analysis include benchmarking (e.g. of prices), fan surveys, sponsor interviews, focus groups and statistical analysis. Specialist consultants can be engaged in this respect.
Market analysis determines the potential revenue that can be generated by each type of stadium use and user, as well as the requirements of each type of use and user, to meet that demand – see Figure 1.6.2. This informs critical decisions, such as setting the optimum stadium seating capacity and the proportion of hospitality seats, which is the primary driver of the stadium’s capital costs.
Figure 1.6.2
Capex versus revenue sources
1.6.2 FEASIBILITY STUDY
In order to establish whether the proposed stadium project is feasible or not, the following areas should be assessed:
• Technical feasibility: what are the technical challenges of developing the stadium project on the proposed site and can these be overcome? Examples could relate to the soil conditions, possible contamination, the stadium footprint and orientation, site accessibility and the provision of utilities.
• Financial feasibility: does the cost-benefit analysis of the stadium project justify the development? This should also address funding options and stadium affordability.
• Legal aspects, such as planning constraints and procedures, and their impact on the stadium project.
• Time: can the project be completed as per the agreed deadline, taking into account the technical feasibility and legal aspects?
• The risks involved in delivering and operating the stadium project (refer to Sub-Section 1.5.5 for more details).
The outcome of the feasibility study is sometimes conditional: “the project is feasible, provided that….”, or “the project is not feasible, unless....”. These conditions usually refer to a major obstacle which needs to be removed before a clear decision to proceed can be made.
Figure 1.6.3
Financial feasibility analysis
Market analysis is the basis for the financial feasibility analysis of the stadium project. Based on the outcome of the market analysis, the stadium revenue sources can be identified and quantified in order to analyse the stadium’s operating performance.
When allocating and quantifying potential stadium revenue sources, it is important to distinguish between revenue sources which are related to the building and those related to the club or user(s) and are therefore content-related.
The user-/content-related revenue sources, such as broadcast rights and kit sponsorship, are not usually attributed to the stadium as they are not driven by the stadium project. These revenue sources are instead normally part of the ongoing user business model and should therefore be excluded from the stadium’s financial feasibility analysis.
Typical primary and secondary sources of stadium-related revenue are shown in Figure 1.6.4 and quantifying these allows annual operating income to be projected. At the same time, the operating expenditure, or opex, should be predicted. Once the operational income and expenditure have been estimated, the profit and loss and the cash flow statement from stadium operations should be prepared.
Figure 1.6.4
Primary and secondary sources of stadium-related income
Figure 1.6.5
Example of P&L and cash flow statement
The next step in the financial feasibility analysis is an assessment of the capital expenditure required for the delivery of the stadium project. A typical non-comprehensive, capital expenditure (capex) breakdown for a stadium is displayed in Figure 1.6.5.
The decisive factor of the capex are the construction costs, which can be difficult to forecast at this stage of the project as the design and detailed user requirements are not yet available.
Benchmarking of per-seat costs of similar stadiums could provide a valid indication. Nevertheless, these figures are often not reliable as they are usually based on capex, which could be misleading due to additional costs for land and infrastructure, rather than only construction costs.
Moreover, construction costs largely depend on the site location, and over time they depend on the country’s inflation. It is therefore recommended that a specialist cost consultant be involved at an early stage of the project.
Potential sources of funding for the project can be identified on the basis of the stadium’s operational performance.
A robust financial operating performance combined with a low-risk profile are the key factors to successfully raise the funding for the stadium – for more details, see Sub-Section 1.1.3.
The mix of financial instruments determines the financing costs or costs of capital for the stadium development. Once the operating income and expenditure, the capital expenditure and the cost of capital have been determined, the project’s financial feasibility can be established.
Figure 1.6.6
Capex breakdown
As a last step in the feasibility analysis, a risk and sensitivity analysis should be undertaken to test the robustness of the financial feasibility. Financial risks can be categorised on the basis of the following:
• Reduced operating income (e.g. from ticket sales) or increased operating expenditure (e.g. maintenance)
• Increased capital expenditure (increased construction costs)
• Increased costs of capital
By defining various scenarios and based on the risks above, it is possible to analyse the sensitivity of individual factors on the feasibility. For instance, the impact that a 10% reduction in ticket prices would have on stadium profits and cash flow.
Figure 1.6.7
Project feasibility overview
1.6.3 BUSINESS PLAN
The preparation of the stadium business plan is an integral part, and further refinement of, the feasibility analysis.
Whereas the feasibility study determines whether the project is viable, the business plan is developed after the initial decision has been taken to go ahead with the project.
The business plan defines the way forward for how to create a sustainable growth and business model for the stadium. It addresses the detailed commercial strategy of the stadium, its events and other uses. It defines the organisation required to meet the stadium’s business objectives and forms the basis of the final go or no-go decision, i.e. whether to proceed with the project into the detailed design phase.
Figure 1.6.8
Typical table of contents of a stadium business plan
While a feasibility study is executed once at the start of the project, the business plan represents a dynamic document which is also used and regularly updated during the operational phase of the project.
A typical table of contents of a stadium business plan is displayed in Figure 1.6.8.
The stadium’s commercial strategy is a key component of the business plan. It describes how the market and financial objectives, as identified in the feasibility study, could be realised.
Firstly, the market analysis should be regularly reviewed and updated.
Consideration should then be given to segmenting the stadium target user groups. The concept of market segmentation is well established in other industries, such as the airline industry. For example, the needs of the business traveller are different from those who travel for personal reasons. This is why travellers are offered different products. In addition, within economy class, the price-sensitive leisure traveller can be tempted by lower early-bird prices, whilst those travellers who might only be able to book at a later stage or require the option to make changes will pay a different price for a ticket on the same flight.
Similar segmentation principles could also be applied to a football stadium, for example by providing a hospitality offering or by applying segmentation to areas of seats within the stadium. The wants or needs of fanatical supporters can differ to those of family groups.
Segmentation is an important tool as a one-size-fits-all approach will not lead to an optimum yield. Different segments or user groups have different needs, and if these are not addressed properly, some users might be neglected or the opportunity to upsell might be lost.
By differentiating in terms of overall experience, status, service levels, seat location and quality, food and beverage offering, parking, etc., tickets for the same match could be sold at various price levels. The main level of differentiation is between the various types of hospitality seats and the general admission seats, but more segments can be distinguished between these two main segments, as shown in the example below:
1. Hospitality seats
• VIP/VVIP
• Hospitality boxes
• Premium seats – Gold, Silver and Bronze
• Young entrepreneurs
2. General admission tickets
• Premium GA
• Family
• Kids’ club
• General admission
• Fans’ section
In some scenarios, a relatively small proportion of hospitality seats is able to generate revenues that are equivalent to a much higher number of general admission seats.
The 7 Ps methodology (product, place, price, promotion, people, process, physical evidence) can be a useful tool for evaluating each segment — see Figure 1.6.9. This analysis will help to optimise the income (or yield) from each segment. Finally, the structure of the organisation must be capable of delivering the commercial strategy.
Figure 1.6.9
The 7Ps of stadium marketing
The initial stadium business plan and commercial strategy should provide the key input for the user requirements, and hence the design. Nevertheless, and as a result of an evolving market featuring new trends and developments, it is essential that a certain level of flexibility be maintained within the design for future-proofing.
This also implies that the business plan should be updated on a regular basis, especially after any significant changes in user circumstances (e.g. due to relegation or promotion) or external factors such as travel restrictions or economic downturns.