The Business case for a smaller capacity?

On 16th March, Robert Elstone attended the Downtown in Liverpool business breakfast, “The Everton Stadium and associated regeneration”.

During the course of his comments he discussed the business case for capacity, executive/premium seating and the overall costs of the project.

Elstone Dib

His view was that the business model was “tight”. The context being how much incremental increase in income would the football club see from moving to Bramley-Moore and what was the optimal point in terms of capacity and therefore income versus the capital costs, and one assumes the interest payments required on the resulting debt.

Paraphrasing, it appears his view is that the business case is supported by a smaller increase in capacity over Goodison Park than perhaps fans might have thought and a smaller number of premium seats than perhaps might be expected.

Now obviously, the club and Robert Elstone have access to much better data than I do. I can only make assumptions based on publicly available data and case histories.

However, try as I might, I can’t make the business case stack up in the manner he describes. I’ll try and explain:

I’ll list the assumptions first and then get into the meat of it:

Option 1 Option 2
Capacity 60,000 52,000
Season tickets 42,000 35,000
Average revenue per game £20.00 £20.00
Executive/premium seats 5,600 4,000
Average revenue per game £166.66 £166.66
Away supporters 3,000 3,000
Average revenue per game £25.00 £25.00
General admission tickets 9,400 10,000
Average revenue per game £33.33 £33.33
Construction cost per seat £6,000 £6,000
Overall Cost of stadium £500,000,000 £452,000,000
Amount of LCC borrowing £280,000,000 £248,000,000
Other financing (assume equity) £220,000,000 £204,000,000
Cost of borrowing % 5.50 5.50

Option 1, 60,000 capacity

With a 60,000 seat capacity of which 5,600 is Executive/premium seating, over a 19 game Premier league season, using the above assumptions matchday ticket receipts would generate £41.07 million per season.

Option 2, 52,000 seat capacity

With a 52,000 seat capacity of which 4,000 is Executive/premium seating, over a 19 game Premier league season, using the above assumptions matchday ticket receipts would generate £33.7 million per season.

The difference in matchday ticketing income between the two options = £7.37 million per annum

Now let’s look at the cost of building and financing both options. The assumption is a borrowing cost of 5.5% with capital and interest repaid over 25 years (in reality, it does not appear we will have a fixed rate but that’s a topic for another time).

At £6,000 a seat, an 8,000 reduction in capacity reduces the overall build cost by £48 million. I’ve assumed that reduces the LCC funding by 2/3rd of that, £32 million.

Repayment costs for Option 1: £20.63 million per annum

Repayment costs for Option 2: £18.28 million per annum

Net Income

Net Income from matchday ticket sales minus annual repayment costs:

Option 1 = £20.44 million

Option 2 = £15.42 million

*not taking into account F&B revenues nor retailing activities around the stadium on matchdays

Now, as I started the article, the club have real information rather than what is a pretty basic calculation with assumptions, but nevertheless, regardless of the actual numbers the principle remains the same.

From a financial perspective, what is described by the CEO as a “tight” model becomes even “tighter” when a less ambitious template is applied to the Bramley-Moore stadium. For a board renowned for their cautious approach, it seems that what may appear a more achievable option in having a sold out but smaller Bramley-Moore is actually a less beneficial option financially with only marginal gains.

Is there another reason?

Perhaps the real reason is that the board, or the CEO, does not have the confidence to sell out a 60,000 seat stadium with 5,600 Executive/premium seats?

If that is the case, they really must in my opinion, re-examine their assumptions and the methods they intend to apply to attract fans to Bramley-Moore.

I have stated on several occasions we can fill a 60,000 seat stadium by segmenting the marketing approach to different categories of supporter, Executive/premium, season ticket holders, walk up or non regular attenders.

Broken down into those categories then we can compare what’s required with what other clubs sell in order to assess how likely filling a 60,000 seat stadium is.

The results (in more detail here) are that we can fill a 60,000 seat stadium by selling 8,000 fewer season tickets than West Ham in 2017/18, sell 3,000 fewer Executive/premium seats than Spurs, and have 8,000 less “walk up” or non-regular supporters than Liverpool.

We capped season tickets at 33,000 in an antiquated, but much loved Goodison Park; there’s hard evidence from several clubs as to the impact a stadium move has on season ticket sales. We have a waiting list, can we seriously not go from 33,000 to 42,000?

Liverpool sell more than 8,000 executive/premium seats at prices considerably higher than my model suggests. Can we not sell 70% of that figure, in an iconic stadium with state of the art (not necessarily the bloated Spurs version of course), at prices below that of our neighbours?

Before the club marketed season tickets as aggressively as they do now, even at the end of the Moyes era Goodison would attract around 5,000 non-season ticket fans. Most of them had the worst views in the ground. Are we really saying in a brand new stadium with perfect sight lines, and great food & beverage facilities we couldn’t double that number?

If this seems like a rant against the club I love then I apologise, it’s really not meant to be. It’s an expression of confusion regarding either the financial modelling/strategies or the lack of ambition and willingness to have an assertive, aggressive but achievable business plan which if properly executed does two things. It de-risks the project for the financiers, and perhaps more importantly for the fans, provides additional income to as in Robert’s words “invest on the pitch, and to win trophies”.

I’m very happy to have the above challenged.

 

4 Comments

  1. Esk, your comments are far, far from anything like a rant – they are a statement of serious and fully justified concern on behalf of all Evertonians who love our club and want Nothing But The Best for it.

    There is no business case whatsoever for a capacity of 52,000 for BMD, no case whatsoever, and anyone attempting to put forward such a case needs their bumps feeling and a kick in the seat of their pants !!!

    Look at the clubs who we need to be playing at least on a ‘level playing’ field with before we can truly consider ourselves right back at the ‘top table’ – both Manchester clubs, Arsenal, Chelsea, Spurs and them across the park. Let’s leave Chelsea out of it for the moment as they haven’t yet redeveloped Stamford Bridge, but the clear assumption is that when it happens, they will take it to somewhere in the region of 60,000.

    Anfield therefore is currently the lowest capacity at a shade over 54,000, the Etihad at 56,000, the Emirates at 60,000, the new WHL will be circa 62,000 and Old Trafford is way out in front with 76,000 and could potentially reach 83,000 if/when the Glaziers okay the redevelopment of the Main Stand.

    So where on fullers earth is there any kind of case for BMD and the state-of-the-art, career-defining project for architect Dan Meis to be restricted to 52,000 ??

    Only someone who doesn’t really care, has no ambition or drive, thinks safety first and hasn’t got a progressive bone in his body would propose such a capacity and expect to be taken seriously.

    If, and I pray it genuinely is not up for consideration, but if 52,000 were the proposal, I hope Major Joe Anderson kicks it out on the grounds that he and LCC won’t facilitate the funding for a piecemeal proposal.

    The hearts of thousands of Evertonians say the minimum capacity for BMD should be 60,000 with an ideal, nostalgic capacity being 61,878.

    Dan Meis might put forward an engineering case for a different number and his opinion would need to be taken serious note of, but from the clues he’s given and hints he’s dropped, I get the impression he’s more on board with the fan base than our current and hopefully soon departing CEO.

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  2. This sort of attitude and opinion from our CEO has become something of trade mark when it comes to all his dealings on behalf of EFC. I think there are very few EFC fans have any confidence in our CEO and the sooner he leaves for his new post the better it will be for us all just hope that happens before he can inflict these small minded ideas upon us.

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  3. Going forward, assuming effective ‘visitor flow management’ around the ground and an efficient transport infrastructure, then your business case assumptions supporting the 60k capacity model are sound.

    The new ground, allied to improved results and performances WILL increase numbers. What the Board needs to recognise is that a Season Ticket waiting list represents real lost revenues and sell-outs close the door to the occasional suporter.

    I can only think that there has to be an issue with funding- if this is the case, then they need to delay until the extra is found, else our new home will never have enough rooms!

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  4. No rant. Totally agree with the last two comments. I’m just aghast by I guess what is the “noises” coming from the club about the new stadium. Like FlashAndy I feel the first thing is getting the club on a level playing field IE 60,000. For me then as well as the aesthetics of the stadium and location, having it even bigger at about 65,000 (second only to United) “makes a statement” about who we want to be.

    This guy in the main role at Everton doesn’t dream like we do. Doesn’t aspire like we do. Imagine Neville Southall as CEO. He’d say build it as big as you can possibly can!

    This guy is small time in everything, underselling our club, and his understanding of the club is limited. He’s only made a case for a bigger capacity because we sold out every game last season. I’m dreading the thought that it’s too late the damage has been done (re BMD) by his involvement.

    The only “statement” the club will make is that we are no longer in that elite bracket and have no desire to join them we just want to be a mid-range club with the likes of Newcastle, West Ham, Leicester etc.

    The quandary is that some fans will be happy with a small stadium in that sense if it means we still move to BMD. New facilities etc. State of the art? Question mark. Settling for less.

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