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The Business Case for a Smaller Capacity ??

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Originally posted on his own blog by The Esk, following the Breakfast Business meeting held last Friday and he's happy for it to be reproduced here...


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.jpg


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.

Theres another aspect to this 'business case'
As Liverpool is growing in tourism, business visitors and student numbers - as long as those trends continue - there is a large market for 'EPL tourists' - people who just want to watch any Premier League match, whoever is playing. Like going to a concert, theatre show or cinema, it's just some entertainment for some visitors. Of course, we don't yet have the mass appeal of the reds, but if our business and commercial strategy is right, we can sell ourselve as an 'authentic, traditional' club, but with this fancy modern stadium. Surely it can sell a lot of seats. If our capacity is capped at an unambitious figure, I seriously doubt that the club has got its other commercial and marketing plans in place. It might show that at every level of the club, we are still feeling like 'plucky little Everton in LFC's shadow'. We have to fight and grow at every level and in every aspect, and business ambition, when ALL PL games and clubs are gaining in popularlty, not just the obvious world renowned ones, is central
 
I question how can the costs for a 60k and 52k stadiums both equate to 6k per seat. Unless the fit and finish is different between them of course. The more seats the cheaper per seat the stadium becomes, a few extra risers and some plastic for seats and maybe a couple more meters of bog trough per toilet does not cost as much as the seats that have shared a cost for the roof/the pitch/changing rooms/plumbing/electrics/resturants etc. etc. Which is exactly the case when you start with a 52k and then say you will add 8k to it. The difference between them would be like 8 more rows around the top of all the stands.

I say it out straight I’ve got no idea on costs per seat , maybe looking at other clubs stadium costs could give us an idea.
I do agree that the bigger the stadium then the cost per seat should lessen
I would also think that the cost per seat to add on 10k in a few years time would be more than adding them at the original build even allowing for inflation.
60,000 x 6k is 360m and the figures being quoted on here and elsewhere of 500 m to 700m don’t seem to fit into his costings
Also naming rights of 10/20 m ( whatever USM can get away with under FPP ) have not been added into the equation.
I’m fairly good at economics and maths but to me the figures and costing he goes with don’t add up.
I’ve seen Croke Park on 80,000 capacity matchdays and the F&B takings are massive , which he hasn’t ( by his own admission added on
When I go to Goodison I drink and eat before the game , I ultimate at half time , leave at full time and eat and drink elsewhere
At BMD I’d be inclined to do all that inside the ground
 

I thought the board liked money

If they had any brain cells they would realise a bigger capacity means more money.


Our club has a small-time mentality, from the players right up to the board.

I can just hear the board now: "We can't have as big a stadium as Tottenham because we're not as big a club as them. We'd never fill it. Let's go for 52,000 like Newcastle. That's more our level."
 
Seemingly it’s not feasible and the club don’t want to throw their neighbours out of their homes like that lot across the park did
We should have bought houses in the surrounding area and left them empty over the last 20 years to drive the average prices down. Savvy that.
 
Does anyone know what @The Esk was banned for?

You little tinker !
You only needed to check his profile ffs !

upload_2018-3-22_20-6-1.webp



Seems a tad daft to login and then ask someone else to post something for you, but it ain't breaking any rules, and I can kind of understand why Esk choose to do so, but I do think it'd be better if he just posted his own stuff.

His model's fairly flawed by the way, but, putting that to one side, I'd say the minimum capacity for the new ground is roughly 55k.
I worked this out on the back of a fag packet with some help from holding a wet finger up in the air, but I believe my underlying methodology is sound.
 
Our club has a small-time mentality, from the players right up to the board.

I can just hear the board now: "We can't have as big a stadium as Tottenham because we're not as big a club as them. We'd never fill it. Let's go for 52,000 like Newcastle. That's more our level."

That would be the Newcastle who spent pennies the last few windows, the one that has been relegated twice in about 5 years, and the one that last won anything it was in black and white? (on TV)

You may have a point! Sake.
 
You little tinker !
You only needed to check his profile ffs !

View attachment 45003


Seems a tad daft to login and then ask someone else to post something for you, but it ain't breaking any rules, and I can kind of understand why Esk choose to do so, but I do think it'd be better if he just posted his own stuff.

His model's fairly flawed by the way, but, putting that to one side, I'd say the minimum capacity for the new ground is roughly 55k.
I worked this out on the back of a fag packet with some help from holding a wet finger up in the air, but I believe my underlying methodology is sound.

Esk didn't ask someone else to post something for him.

I read his blog when he first published it last week and in the light of yesterday's announcement from the cub, I contacted him and asked if he'd mind if I posted it on here, and he was agreeable.

As for his model being flawed, if you're referring to the 52,000 option, basically he's calling that out and re-stating the argument for as big as possible as the footprint of the site can accommodate/will allow.
 

Not football related as such, but if we are going to maximise the earning potential of the stadium still further, then why not put a roof on it. You only have to look at the events that go to Cardiff, due to them having a roof. Big boxing bouts, concerts and the like would be falling over themselves to ‘hire’ BMD with its iconic location and more importantly central location with better transport links then Cardiff suddenly has to offer.
 
Esk didn't ask someone else to post something for him.

I read his blog when he first published it last week and in the light of yesterday's announcement from the cub, I contacted him and asked if he'd mind if I posted it on here, and he was agreeable.

Fair enough on the asking, but I still think it'd be more useful if he posted it here himself. As it stands, you've cut and paste it, and, to a certain extent are defending it, but you're just acting as a middle man.

for the avoidance of doubt, I don't mean you're ringing Esk up and asking him what to type in reply, but things are generally better from the horse's mouth. Esk logs in here most days, he's a big boy and can surely look after, and talk, for himself

I like the bloke btw and have no axe to grind with him, I've bought him beers before, and would happily do so again


Esk didn't ask someone else to post something for him.

I read his blog when he first published it last week and in the light of yesterday's announcement from the cub, I contacted him and asked if he'd

As for his model being flawed, if you're referring to the 52,000 option, basically he's calling that out and re-stating the argument for as big as possible as the footprint of the site can accommodate/will allow.

There are two fundamental flaws in his model because :-

  1. Average cost per seat isn't static, it will increase with capacity and
  2. Average revenue per seat isn't static, it will decrease with capacity

There are other flaws, but they're the basic ones. You worked in construction so you should know what I type is true. Esk probably knows it as well, so is either dumbing down the numbers or beign a bit mischievous in order to prove a point, it's probably a bit of both.

I've got a report from KPMG on stadium builds on another PC. Off-hand, I'm not sure if it's Commercial In Confidence or not, but if it's OK to stick it up online ( and it's not already so ), then I'll publish it somewhere and folk can take a look at the reality of the situation rather then just a grossly oversimplified model.
 
I don’t get why we don’t just redevelop Goodison no brainier IMHO just look at West Ham it’s are home and we will lose that.
Because there is not much 'sell on' value in a Walton Stadium... but a big shiney new Stadium anchoring the liverpool water development has sell on values up the wazoo...anyway, the old board said it wasnt possible, so it must be true.
 

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