Cape Town Stadium: World Cup to White Elephant: Its troubled history from 2006 to present (Part 2)

Part 2: Stadium spirals city into debt and controversy

     Winstonza/ Wikimedia Commons

In 2008 a consortium of Stade de France and South Africa’s Sail Group was awarded the contract to operate the stadium from January 2009 until the World Cup, after which it would lease the stadium for between 10 and 30 years.   However, in December 2010 Sail/Stade de France cancelled the lease.  Reports in the media at the time cited non-viability and Sail/Stade de France would lose money.

The city took over management. It also lodged civil claims against construction companies found to have rigged tenders and against consulting companies for excessive professional fees.  ‘Deputy mayor Ian Neilson said although the city had been suspicious about rising costs, it had no option but to continue to meet Fifa’s deadline.’

In 2013 the city revealed the stadium’s ‘true costs’ – R436 million since construction, up from the ‘incorrect’ R300 million previously disclosed, and R92 million income. 

In the interview with Independent Online in 2013 Neilson defended the high costs because the stadium was a ‘strategic asset’, but failed to elaborate on high consultant and employee costs of R40 million and R50 million respectively, claiming they needed time to analyse it.

Under intense pressure and criticism from Cape Town’s citizens about the stadium’s high annual running costs, the city tasked consultants in 2011 to investigate a business model that would allow commercial activity in the precinct to offset its running costs.  A major hurdle for the city was strict zoning regulations that prohibited commercial activity at the stadium.  The options the consultants investigated, with public consultation, would try and find a way around these restrictions to maximise revenue for and use of the site.

The business plan option was criticised by some because it excluded alternatives other than that being investigated – demolition, scaling down or mothballing to save costs, which were suggested during public consultations.  However, the city was adamant demolition ‘was not an option’.

In 2012 the city applied to the Western Cape Government to rezone the stadium and Green Point Park site to allow commercial activity to ‘enable the stadium to become more commercially sustainable and reduce its maintenance and operational costs’. 

The application was made when the business model was still under investigation and subject to change or cancelling, or that is what the city implied.  The application was recently approved.

The Business Plan for Cape Town Stadium and Green Point Park, prepared by International Risk Mitigation Consultants, were briefed to investigated only four or five business models – and no other alternatives – to generate revenue for the stadium and Green Point Park precinct.  They recommended a mixed-management model (model 5) with the city and an external organisation managing the stadium, park and its commercial activities.   

Proposed commercial activities, which are not permitted by the former zoning regulations, include retail, restaurants and bars, four-storey building that would accommodate a hotel or offices, and a four-storey parking garage.

‘In order to become a financially viable venue, Cape Town Stadium and its immediate precinct require the ability to attract both large sporting and entertainment and non-event-day opportunities. This requires a certain amount of commercialisation.’

However, residents of Cape Town are bemused and alarmed the city is pushing through with the business plan option that will commercialise the stadium precinct, an historical recreational area, forever alienating valuable city-owned land near the Waterfront by selling and/or leasing it, and leaving a lasting concrete footprint – without exploring alternatives to reduce costs by improving efficiencies of the extant facility. 

The stadium per se will never be viable as a sport and events facility – it’s too costly.  So the city’s approach is illogical and financially reckless because, contrary to sound financial practice, they are trying to spend their way out of debt – like a gambler in a hole who believes the next throw of the dice will save him.

Shouldn't they first look at internal, that is, stadium-related cost-saving measures before investigating alternative scenarios? 

HJ ‘Hoffie’ Cruywagen of the University of Pretoria’s construction economic department, a registered quantity surveyor and expert on life-cycle costing, with knowledge of stadia, told me by telephone that events alone do not cover stadium costs – cleaning, security, etc; the running costs are significant. He mentioned facilities like Loftus Versfeld Stadium, which hosts two or three matches a month in season. The bulk of their revenue is from sponsorships.

Cruywagen said operators – ANZ Stadium (Stadium Australia), Sydney’s Olympic arena, is an example – must look at life-cycle costs (LCC) and consider alternative uses for the facility.  LCC is an analysis and comparison of cost alternatives over the life of the asset, from acquiring, operating, maintaining to disposal.  LCC is not concerned with non-asset alternatives.

The city must look at in-stadium alternatives that exclude the business plan scenario. Bear in mind the stadium is practically dormant – in 2015 there were only 18 event-days out of 365 – with little hope of attracting events, which no amount of sympathetic and symbiotic development in the precinct will change.  Under the city’s current hope-for-the-best management model, the stadium will, therefore, always be a financial burden – I estimate in excess of R200 million a year (see part 3 of the article for a review of costs).

To not have considered alternatives, produced by life-cycle costing or similar methods, while proceeding with a risky, speculative and significantly costly option that will see the alienation of valuable city-owned land in the Waterfront area, may be considered the fruitless and wasteful spending of the Public Finance Management Act.

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The first option, to find an anchor tenant (according to a source, negotiations with Western Province Rugby Union to lease Cape Town Stadium were unsuccessful because the city wanted to place stringent conditions on WPRU) and increasing its on-structure usage, has already failed.  Rugby prefers the traditional Newlands, the second-oldest rugby stadium in the world.  Ajax Cape Town, which used the stadium for a year, attracting a few thousand spectators, left because it was too expensive and the pitch in poor condition.

The second alternative is to reduce maintenance and operations costs through efficiencies and by closing sections, like many public and private organisations do for underperforming or dormant assets, for example, hospitals, military bases, etc. 

 The third, which the city already rejected, is to strip the structure except to accommodate basic usage (see alternative two) – in effect, mothballing it – or strip it to its concrete and steel shell.  The venue could still be used as a set and backdrop for movies (The Giver, Safe House), and the field and concrete tiers for events like the old Green Point Stadium was.

 The second and third alternatives are in accordance with best practice and Cruywagen’s advice – LCC and finding other uses for the stadium.  However, there is no evidence the city considered or investigated them, as responsible managers should.  In fact, for reasons that are unclear, it appears they rejected them a priori.

The city council’s decision to opt only for a commercial, development-led model is fully in tune with its business development  agenda.  The city has brought planning and development decision-making under executive control, taking final approval away from sub-councils where it resided before. 

 

Last year the municipal planning tribunal (MPT) was formed under the chair of the city’s former executive director of planning, David Daniels (self-described ‘pro-brown’ issues), to adjudicate building applications and objections. (The majority of members on the MPT are city officials.) 

The DA-run city and province has repeatedly stated it has a ‘red-carpet approach’ to business.  Under this guise, over the years, it has approved, with little to no public consultations, questionable development plans in sensitive areas like Princess Vlei, Philippi Horticultural Area, Maiden’s Cove, Sea Point Pavillion and Westcape, on the west coast near Atlantis.  These met with vigorous opposition from the public and planning and environmental professionals.  

Mayor Patricia de Lille, and sometimes councillors, was strident and combative to the objectors, stating they were uninformed and the city knew better. 

In June 2016 the tribunal approved a ‘monster’ 60m-high-rise adjacent to the culturally sensitive, pretty and unique Bo-Kaap, over fierce objections.  In this light, regarding Cape Town Stadium, a writer to the Saturday Argus recently wondered what a proposed hotel, as contained in the business model, had to do with funding the stadium. 

So, in the absence of any other explanation, council is using the stadium as an excuse to develop yet another environmentally and culturally sensitive area to further their developer-friendly agenda irrespective of the urban and economic cost. 

In the few weeks prior writing this article I repeatedly asked the city’s executive management, to wit, councillor Garreth Bloor, city manager Achmat Ebrahim and chief financial officer Kevin Jacoby, if they investigated in-stadium cost-saving/efficiency alternatives that excluded the speculative and costly business plan option, and if not, why not.  They did not respond to that and other questions. 

End of part 2.

Updated: inserted picture