ABSTRACT

Developing new sport facilities is a risky process that invariably requires complex financial arrangements. These two points are interrelated. First, it is unlikely that any organization from any sector will have the spare cash available to develop and build a sport facility from the outset of a project. It is therefore current practice that the financing of sport facilities tends to be made with financial contributions from a variety of sources. For example, Wembley Stadium in England opened in 2007 with an estimated cost of £757m ($1.157 billion). The stadium was funded by the Football Association (FA), distributions from the National Lottery, the London Development Agency, and a series of commercial banks. As you will discover in Chapter 8 when we look at finance more closely, it is essential for businesses to make a profit and to be able to service their debts. In 2012, Wembley National Stadium Ltd had long-term debts of £385m ($625.4m) and paid £42.6m ($69.2m) in interest to service those debts. Second, because of the risks involved and the scale of developing sports facilities, developers seek to share the risk involved in a project with partners. These are drawn from those who wish to risk their money on taking a stake in a business by buying the right to share in future profits (equity financing); and those who are prepared to loan money for the development in return for a fixed rate of interest and the knowledge that in the event of business failure they will get their money back (debt financing). The bigger the project, the more complex the web of relationships underpinning it is. When public sector money is involved there is also the scope for controversy as perhaps best demonstrated by adverse publicity surrounding the $450m US public sector subsidies provided by the New York authorities for Yankee Stadium and the £120m ($194.9m) provided by the National Lottery for Wembley Stadium. When borrowed money (or debt) is used to finance a development the stance of those borrowing the money is the belief that they can make sufficient profit to be able to service interest costs and still make a profit. For the providers of loans, the stance taken is that the interest being paid on the loans justifies the risk of lending to the developer. In practice the two parties’ fates are inextricably linked – for everyone to get a fair return on their investment the development has to succeed.