PtG Article 30.10.2013

Understanding why taxpayers end up with the bill for white elephants

In Portugal, the local municipality of Leiria is paying 5,000 Euro per day in maintenance costs for a stadium that is now closed. And a further eight percent of the annual local municipality budget is spent repaying the mortgage of the stadium that was built for the European championships in football in 2004.

These figures were presented at the Play the Game conference by Francisco Pinheiro from the University of Coimbra in Portugal.

And they are the perfect illustration of a key point in the discussion about white elephants in sport: Local taxpayers are often left to pay the exorbitant bills of sports stadiums even if they cannot be utilised locally after the sport event.

Portugal built 10 stadiums specifically for the European football championships in 2004, and inhabitants of Leiria are not the only ones left with huge debts.

"The stadium in Algarve was constructed in a no man's land, and there is no local football team to use the stadium. It is now owned by the local municipalities who spend 2.1 million Euros per year on mortgages and maintenance. In Averio, the municipalities pay four million Euros each year in mortgages and maintenance," Pinheiro explained.

So in several Portugese municipalities it has been proposed to demolish what is in effect almost brand new stadiums.

"In Averio it would be cheaper to demolish the stadium than pay the maintenance cost of 0.650 million Euros per year. It is simply cheaper in the long run," said Pinheiro.

Assessing utilisation

Mega-events all over the world continue to breed this type of white elephants, and conference delegates were introduced to different academic attempts to come to grips with the underlying dynamics of that breeding process.

Harry Arne Solberg, an economics professor from Trondheim University in Oslo, has worked for many years on understanding the economic impact of mega-events on host societies.

He took his starting point in the socalled Stadium Utilisation Index (SUI) developed by researchers at the Danish Institute for Sports Studies.

Put simply, the SUI shows how many seats were sold annually compared to the capacity of the stadium. Some of the best stadiums in the world have an SUI of 40-50 whereas stadiums at the bottom of the list have an SUI of less than 2.

The more corruption, the lower the utilisation

Solberg used these figures in a regression analysis and came up with a number of ideas for what constitutes good breeding grounds for white elephants.

"The analysis shows that the more corruption you have in a country - as defined by Transparency International - the lower the utilisation is after the sport event. Privately owned venues have higher utilisation, and also the higher the capacity of the venue is, the higher is the utilisation. Finally, if you look at gross national income, the utilisation is lower, the lower the gross national income is," Solberg explained.

Reflecting on these findings, Solberg believes that the core of the problem lies in the fact that a number of stakeholders in the mega-event process are operating as free-riders with federal governments paying the bill. So they demand a lot of things without every having to pay for them - including the sport governing bodies.

Host cities operated in splendid isolation

Meanwhile, Trish Audit and Eamon Molloy from the University of Oxford have been exploring the organisational processes behind the 2010 FIFA World Cup South Africa Stadium Programme.

South Africa built nine new stadiums for the World Cup. Today eight of these stadiums have almost zero utilisation, and Audit and Molloy have been tracking the patterns in the process from winning the bid to now in the hope it can prevent similar things from happening in other countries in the future.

The overaching conclusion of their study is that there was no central organisation and leadership for the process.

"The host cities operated in splendid isolation," said Molloy and qouted one of their interviewees:

"The investment was done by the cities themselves. So in effect there were nine programme managers, the nine cities' managers across the country, and for the bulk of the expenditure those were your programme managers."

Audit went into details with some of the other factors the study identified as contributing factors to explaining the empty stadiums across South Africa.

Football stadiums next to rugby stadiums

"One problem was over-optimistic estimations: Costs for stadiums were 1.58 billion Rands in the bid book but taxpayers ended up paying 16.77 billion Rands. That is a rise of 965 percent. The bigger surprise here is not that estimates were too low but that FIFA knew that. Apparently, you could give FIFA any figure, and they would still give you the world cup," Audit said.

There was also a lack of national direction on funding requirements. The bid company got no input from the national government or host cities and therefore prepared their own figures.

When South Africa won the bid, nothing happened for almost two years and responsibilities were unclear, so host cities went ahead projecting iconic stadiums because they expected lots of free money from the state.

A third explanation for the rush to build football stadiums can be found in South Africa's history. There was a widespread feeling that in the past too much money had been spent on rugby, which is considered a white sport.

"So now they wanted to build football stadiums even though rugby had many full capacity stadiums already," Audit explained.

But there were no consultations with stakeholders like rugby to discuss whether they could utilise the stadiums after the world cup or rugby stadiums could be used for football.

In fact, Audit concluded the presentation by showing a picture of the football stadium in Durban that is built right next to a massive rugby stadium.