Within the different operating models, there are various ways to consider and address commercial risk. The key question is “who will bear the commercial risk and reward for the stadium operations?” Ideally, this would be the entity that can influence and best manage this risk.
Where the majority of the operating income is related to football matches, it would often make sense for the club to take the operating risk. In case of a multi-use stadium, it would often make sense that the operator takes the majority of the operating risk. Stadium owners are typically risk-averse, however, in certain cases the operator might not be willing to take any risk.
Based on the level of risk that the operator is willing, and able, to take, there are different contractual arrangements that can exist between the owner and operator:
1. Management contract, in which the owner pays a fixed management fee to the operator, which covers the staffing costs and a profit margin for the operator. All other operating expenditure as well as the operating income is accounted for by the owner. In this case, all of the commercial risk and reward sits with the owner. There is no incentive for the operator to generate additional business and therefore this model is not very common.
2. Lease agreement, in which the operator pays a fixed rent or lease to the stadium owner. This lease should cover the owner’s expenditure (such as maintenance, insurance, taxes and financing costs) plus any profit margin that the owner requires. In this situation, the full commercial risk and reward lies with the operator. The operator is then incentivised to accommodate as many revenue-generating events as possible, which could be detrimental to the quality of the pitch and any non-commercial events at the stadium (e.g. community use).
3. Hybrid contract models, e.g. in which the owner pays a basic fee to the operator to cover fixed expenses, and then a variable success fee is paid for any additional business or income generated. In this way, risk and reward are shared between the owner and operator.