French Stadiums Target Qatar to Offset Home Losses

Hi guys,Stade des Lumieres - Lyon
Eiffage SA lost money on building the state-of-the-art soccer stadium in Lille for the 2016 European championships. It’s banking on a return coming from outside of France.

Eiffage and its French rivals in the construction industry, Vinci SA and Bouygues SA, are building and renovating six stadiums across the country for the event, anticipating that features like retractable roofs will lure orders from the more deep-pocketed governments of Qatar and Russia.

Those two countries will host the soccer World Cup in 2018 and 2022 and have earmarked $85 billion for arenas and infrastructure such as railways and hotels. Picking up a slice of that spending is more important than ever as France’s economy fell into recession in the first quarter after stagnating last year, leaving little room for the government to boost investment as it seeks to lower the budget deficit.

“This is a showcase stadium for us,” said Bertrand d’Herouville, Eiffage’s project head for the 324 million-euro ($427 million) Lille stadium, the only one in France with a retractable roof and a built-in arena under a sliding pitch. “It’s a reference for us. If we can replicate it, we’ll do it.”

Hosting the World Cup, the world’s most-watched sporting event, will be a first for both Qatar and Russia and they plan to construct and renovate 24 stadiums to highlight their economic ascent. Sales to emerging markets driven by football’s rising global popularity should help the French companies overshadow losses at home.

Nice, Bordeaux

“We will be able to capitalize and show our Qatari friends what we’re doing in Nice and in Bordeaux,” said Vinci Chief Executive Officer Xavier Huillard said on April 15 after he poured concrete on the first stone of Bordeaux’s new soccer stadium. “This is very decisive to make our case.”

Qatar Rail awarded a 1.5 billion-euro contract for a local Doha underground line to a consortium including Vinci and other partners. The contract covers design and construction of a dual-tube line with a length of 13.8 kilometers between the Doha airport and the Msheireb neighbourhood. The order will take five years to complete and involve as many as 3,000 people

In France, Vinci’s stadium in Le Mans was completed in 2011 for a total cost of 104 million euros and the near-bankrupt home football club initially agreed to pay an annual rent of about 2 million euros. Vinci then agreed to cut the fee for the club to 600,000 euros, said Damien Rajot, head of Vinci’s stadium management unit.

Stopped Subsidies

In Saint-Denis near Paris, a venture between Vinci and Bouygues running the 16-year-old Stade de France flagship stadium was told by the French government in October that it will stop subsidizing the consortium this year, depriving it of 12 million euros in annual revenue.

In Lille, Eiffage lost an undisclosed amount when changes in anti-earthquake rules combined with pressure to quicken the completion of the stadium in 2012. At the same time, the arena has been visited several times by members of the Qatar World Cup organizing committee and received “marks of interest” from Russian and African investors, according tod’Herouville.

The Eiffage executive said he’s also confident to get the 15 non-football events a year needed to balance the operation in two years. He’s signed contracts to host four events this year, including concerts of artists Depeche Mode and Rihanna, which sold out in two hours.

$65 Billion Investment

Qatar, holder of the world’s third-largest natural-gas reserves, agreed to spend as much as $65 billion to host the World Cup. The plan includes stadiums equipped with solar-powered air conditioning and constructing a $25 billion rail and metro network. Qatar, which plans to construct nine new stadiums and renovate three, will probably start the tendering process for the main construction contracts next year.

Russia in September doubled its forecast for spending on the World Cup to almost $20 billion. The country is already spending almost $50 billion on the Winter Olympics in the Black Sea resort of Sochi next year.

In Europe, the builders often face additional costs as they have to agree to run a stadium’s business operations after construction is completed and they often struggle to fill the arenas with additional events. In emerging markets, fewer arenas compete for these events and the facilities also benefit from rising local spending.

‘Not Simple’

The business of stadium management “is a model which is seeking its balance; it’s not necessarily simple,” Vinci’s Huillard said at the ground-breaking ceremony for Bordeaux’s stadium which will also feature in the 2016 tournament.

In Lyon, Vinci didn’t take a stake in the company that will operate the local stadium amid diverging views on forecast revenue, Huillard said.

In a December 2011 report, PwC predicted that global gate revenues of sports events would rise by 2.5 percent per year through 2015 to $44.7 billion euros, slower than merchandising, sponsorship and media rights that are largely out of reach of stadium managers.

Vinci gained 10 percent and Eiffage rose 7 percent in Paris trading since the start of this year. Bouygues shares dropped 12 percent, hurt by falling revenue at its phone division. The Stoxx 600 Construction & Materials index gained 5.1 percent in that period.

Marseille Revamp

A Bouygues-led group is currently investing 267 million euros to revamp the Marseille arena while Vinci is due to build a new 400 million-euro stadium in Lyon and a facility in Dunkirk in addition to the projects in Nice and Bordeaux. The stadiums in Toulouse, Lens and Saint-Etienne are also being renovated for the 2016 European soccer tournament.

The push to expand the stadium business abroad has already paid off for Bouygues, which won a 770 million-euro contract in 2010 to build and operate the Singapore Sports Hub, and a 111 million-euro contract in 2012 for sports facilities in Canada. In Russia, Vinci has submitted a bid for an arena in Moscow.

French rivalry with its neighbor Germany extends beyond the football field too. The French construction companies face competition from European rivals such as Germany’s Hochtief AG (HOT), which refurbished and managed three stadiums for the 2006 soccer World Cup.

“As each stadium is unique, the key to success is to have time and to spend a lot of money on studies,” the Vinci CEO said. “When you’re caught in a tighter process, works are tougher financially and quality-wise.” [Source: & Simon Thiel]

Karl Lusbec

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