Stadiums Qld is a financial drain

The Sunday Mail yesterday hinted the Queensland government may replace the current board of Stadiums Queensland, given that the allegedly high charges for the use of its stadiums, such as Suncorp, are causing financial issues for football clubs. I must say I have some sympathy for the current Stadiums Queensland board, which appears to be making the best of a bad situation. They have been put in charge of a loss making government-owned business with no prospect of ever making a genuine profit. The Sunday Mail reported yesterday that:

Stadiums Queensland says taxpayers should not foot the bill for costs associated with hosting sporting events when the Government had made considerable investment in construction of the facilities. Levy prices were fixed by TransLink and Queensland Police.

“Under this model, the hirer receives the majority of game-day revenue such as ticketing, signage, sponsorship and this means in Queensland, unlike many other states, our clubs have a greater potential to derive revenue from their events,’’ a spokesman said.

Stadiums Queensland made some excellent points there. Consider the massive capital costs of its operations. Its financial accounts from its Annual-Report 2016-17 reveal depreciation and amortisation account for 49% of its expenses from current operations, $59.3 million out of total expenses of $121.5 million (see figure below).

Stadiums2

Sporting clubs and event promoters which use the stadiums do not even account for half of Stadiums Queensland’s revenue. The state government provided Stadiums Queensland with $51 million in grants in 2016-17 or 56% of its revenue (see figure below).

Stadiums1

The financial statements for Stadiums Queensland reveal a 2016-17 operating loss on continuing operations of $28.7 million, but, thanks to some clever accounting, it reported net comprehensive income of $44.5 million. That clever accounting involved an increase in the asset revaluation surplus of $73 million, i.e. it was due to unrealised capital gains. The bulk of these capital gains were not on the underlying land on which the stadiums are sitting. In 2016-17, that land only appreciated by $3 million (see p. 50 of the annual report). The bulk of it was a $70 million revaluation of “improvements”, i.e. a revaluation of the stadium assets themselves, using a replacement cost methodology. The financial statements note (on p. 47):

The valuations have been determined using a cost approach (i.e. a modern/current replacement cost) due to there being no active market for such specialised facilities.

The reason there is no active market is because the stadiums are loss-making propositions. No one would buy them unless they could redevelop the land they are sitting on. Hence, although it complies with accounting standards, from an economic perspective it is misleading for Stadiums Queensland to include the revaluation of the physical assets in its comprehensive income statement. There is no way Stadiums Queensland could ever realise the capital gains it is relying on to pretend it is profitable.

The Sunday Mail claims it has evidence that Stadiums Queensland actually makes money for the state government:

Confidential financial records obtained by The Sunday Mail reveal millions of sporting dollars are pouring into Government coffers through the Stadium Queensland deals.

I’d like to see those documents, and unless they are made public there is no way of verifying whether the estimates are reasonable. The actual published financial accounts show Stadiums Queensland is a substantial cash drain on the state government. While the cash flow statement on p. 34 reveals a net increase in cash (and cash equivalents) of $25.1 million in 2016-17, it needs to be kept in mind the state government provided operating grants of $22.2 million and capital grants of $29.0 million that financial year.* So the net cash loss on Stadiums Queensland from the state government’s perspective was around $26 million. It goes without saying there is a high opportunity cost to subsidising Stadiums Queensland. Arguably, the money could be better spent on health or education priorities, for example.

*Technical note: the key to understanding how Stadiums Queensland can actually increase its cash at bank is to recognise that depreciation is a non-cash expense.

Advertisements
This entry was posted in Industry policy, Infrastructure, Uncategorized and tagged , , , , , . Bookmark the permalink.

13 Responses to Stadiums Qld is a financial drain

  1. craigrwilson says:

    Gene, this sort of article is a valuable public good, well done

    Sent from my iPhone

    >

  2. Brad says:

    Thanks for the blog Gene, very interesting as usual. One area of concern here is that the stadiums should be charging the national leagues much more money to recover costs. Each of the different leagues typically collect approximately 80% of their revenue from TV rights but those funds are not distributed to the clubs. Therefore, the leagues are getting rich while the government pays for the stadiums as the clubs have no money. The state government funding of stadiums enables the leagues to keep their money rather than them paying full cost recovery for the use of the stadiums.

  3. Jim says:

    Gene

    A very good and timely post, given the additions to the stocks of loss-making sporting assets on the back of the Commonwealth Games.

    I love the once-off accounting trick (revaluation of the assets to reflect replacement cost) to create an illusory profit. Can’t wait for some more magical accounting next year.

    But if the stadiums are making an operational loss of $28 million or more and there is no prospect of ever making a profit, how did the stadiums have a positive market-based asset value in the first place?

  4. Gene Tunny says:

    Thanks Jim. Good question.

  5. What is it with stadiums? All down the Eastern seaboard governments of both political persuasions seem to have lost their mind. Andrews is doing something similar by redeveloping the Southern Stand of the MCG, though perhaps that makes sense. It is at least a great Stadium of the World. But the Southern Stand, having been rebuilt in 1992 seems fine to me. I guess they can make more money from it for week round venue hire with a rebuild, but then the MCG could pay for it.

    • Gene Tunny says:

      Nice observations Nicholas. Yes, my feeling is the economics of investing in the MCG would be much better than for many of our stadiums in Qld. The MCG always appears well utilised while our Suncorp stadium is only ever fully utilised for State of Origin or Taylor Swift/Justin Bieber concerts.

      • Yes, the MCG has 70,000 plus crowds for probably 20 days a year for football and cricket. Still seems like a lot to pay for the marginal additional viewer. Still I can’t believe the Great Southern Stand would be being rebuilt for much more capacity. I expect it’s other amenities. Still, what would I know?

      • Matt says:

        I suspect the Suncorp would actually be Queensland’s most economic major stadium and by some distance.

        Suncorp has 3 frequent tenants, state of origins, rugby tests and concerts. Both Gold Coast stadiums and Townsville have a single tenant, while the Gabba has two.

        Stadiums Queensland’s hosted 3.9 million patrons across 9 venues (I suspect many of the people counted in these statistics are school children at sports days). Of which 1.1 million went to Suncorp. About the same 1.157 million as the Gabba, Townsville and 2 Gold Coast stadiums combined. But the tax payer footed the bill 120900 seats and associated facilities at the other 4 stadiums and only 52500 seats at Suncorp. Additionally, I wouldn’t be surprised if on average Suncorp had more 95%+ capacity events than the other 4 stadiums combined, given it hosts test matches, origin and finals.

      • Gene Tunny says:

        Thanks Matt. Interesting info. Yes Suncorp would be ahead of the other Qld stadiums I expect. But many of its events have low turn out. A league games only get around 10,000 people if I recall the figures correctly.

      • Matt says:

        Most stadium costs appear to be fixed and sunk. There is a variable component though, for low drawing roar crowds most parts of the stadium are not open and fewer staff work game day. But the low roar crowds help spread fixed costs over a higher number of spectators, making the stadium relatively more economic.

        Youre right to point out these stadiums could be built to smaller capacity to save tax payers. It appears that the only stadium that has used its full capacity in last year is suncorp (apart from possibly during the 1 off commonwealth games). For the other 4 stadiums i can’t find a sporting event over 90% in the last year (apart from possibly the comm games) At each of these grounds thousands of marginal seat have remained unused for at least a year. The most overbuilt stadium appears to be carrara.

      • Matt says:

        As an aside, stadiums qld should review its pricing. Apart from increasing all charges to at least cover variable costs, it could look at marginal pricing similar to electricity demand tarriffs. It could charge higher average prices for events at suncorp that use more capcity to pay for marginal seats-such as at concerts, origins & tests. Bledisloe rugby tests for example charge premium prices of over $100 on average-well above the price of a ticker to a standard nrl or super rugby game. Instead the government generally pays $millions to attract and subsidise such events.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s