4.1 OPERATING MODEL
Equally important to the development of the stadium building is the development of the stadium operating organisation. The stadium operator will manage the asset and organise the matches and events in the stadium.
As explained in Section 1.5, it is important that the user requirements are incorporated into the design process. Therefore, the stadium operator should be involved as early as possible.
4.1.1 OWNER-OPERATOR-USER
To understand the principles of any stadium operating model, it is important to understand that three principal entities should be distinguished:
1. The owner is the entity owning the stadium asset. This could be a public owner, such as a municipality, or a private owner, such as a club;
2. The operator is the entity or organisation responsible for running the stadium on a daily basis, organising football matches and other events; and
3. The user of the stadium is often the football club and/or member association but could also refer to other users who rent the stadium or parts of the stadium on a permanent or temporary (event) basis.
Figure 4.1.1
Relationship between the owner, operator and user of the stadium
By distinguishing these three entities, it becomes possible to differentiate:
• how the contractual relationship will work between these entities and also with third parties such as suppliers.
• where the various responsibilities with regard to the stadium and the organisation of events lie;
• how the various operating income and expenditure items should be attributed to each entity; and
Elements that are typically included within the responsibilities, operating income and operating expenditure for each party are indicated in Figure 4.1.2.
Figure 4.1.2
Responsibility split between owner, operator and user
4.1.2 DIFFERENT OPERATOR MODELS
In many cases, the owner, operator and/or user are not three separate entities. There are various hybrid models possible.
1
.
The owner, operator and user of the stadium are all and the same entity.
This is the case with many major football teams in Europe and the USA, although sometimes the stadium company is a legally separate entity but under the full control of the club. For example, Manchester United is the owner, operator and user of Old Trafford stadium.
2
.
The stadium has a separate owner, and the club is both the operator and user of the stadium.
This is often the case with stadiums owned by the municipality or national government. As an example, Eintracht Frankfurt has signed a deal with the owner, the City of Frankfurt, to operate and use the stadium.
3
.
There are also examples in which the owner and operator of the stadium are one and the same entity.
This could be the case in situations in which a dedicated company has been established for the development and operation of the stadium. One example is the Johan Cruyff Arena in Amsterdam.
4
.
The situation in which the owner, operator and user are three different entities creates the most complexity in terms of contractual structure and the division of responsibilities.
This often occurs in publicly owned stadiums, where operations are outsourced and there are multiple users (multi-use). One example is the Friends Arena in Stockholm.
Figure 4.1.3
Advantages and disadvantages of the different operator models
4.1.3 TYPES OF OPERATOR/MANAGEMENT AGREEMENTS
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.
4.1.4 TYPES OF RENTAL AGREEMENTS
As with the operator agreements, there are also various ways in which the club and operator can share the risk of organising football matches.
In a fixed rent model, the entire commercial risk and reward lies with the club. Regardless of the success of the club and attendances, the club pays a fixed rent. In some cases, there are escape clauses, for example in case of relegation.
In other rental contracts, the rent is based on a percentage of the ticketing income. In this case, the operator shares some of the risk in relation to on-field success and ticket sales.
There are also hybrid rental models in which there are elements of fixed and variable rent. This can be achieved by a variable rent with a minimum guarantee.
Figure 4.1.4
Overview of operator/management agreements
4.1.5 OUTSOURCING VERSUS INSOURCING
Outsourcing or insourcing of services is an important decision to take with all operating models. This applies to services such as hospitality and catering, security, stewarding, maintenance and cleaning.
The best choice for each stadium will depend upon its individual circumstances. A mix between outsourcing and insourcing different types of services is also possible.
Some key advantages of outsourcing:
• Service providers might be willing to become sponsors, either by paying cash or by providing value-in-kind (VIK) services
• Using third parties to provide non-core functions can allow the operator to focus on core business functions
• Service providers might contribute to capital costs (e.g. catering equipment)
• The stadium operator might not have the resources or expertise to deliver some services
• The responsibility for providing large and variable staff numbers sits with the service provider
• It can reduce fixed costs by passing on overheads and management focus to the service provider
• The service provider can provide specialist know-how that can be a statutory or contractual requirement (e.g. testing of safety equipment)
• Outsourcing can be more cost-effective, especially if the service provider can share economies of scale by spreading some costs over multiple sites
Some key disadvantages of outsourcing:
• It can be more expensive, especially if the service provider has a significant profit margin
• The stadium operator has less control over key business functions and customer satisfaction
• The local market might not offer the services required at an acceptable quality and service level
• Third-party staff may be less committed or familiar with the stadium and staff turnover can be higher
Outsourcing means to obtain goods or services by contract from an external supplier. This is also referred to as contracting out. Insourcing is using the stadium operator’s own staff and resources to accomplish a task or deliver a service.
It is important to monitor the quality of any outsourced service delivery. This is usually done by adding a service level agreement (SLA) to the contract with the service provider. An SLA defines key performance indicators (KPIs) for the delivery of the service, such as response times, staff numbers, quality standards and customer satisfaction. These KPIs can be monitored, measured and evaluated, and can trigger bonus payments or contract penalties.