Brazil Seeks `Impossible' Return on $2.8 Billion World Cup Site Spending

Brazil is hiring foreign companies to attempt what some say is impossible: make a profit on the country’s $2.8 billion in spending on World Cup stadiums.

Brazilian states are awarding contracts that may be worth as much as $18 million a year to groups that run Amsterdam Arena and Lisbon’s Estadio da Luz to oversee facilities planned for the 2014 tournament. New York-based IMG Worldwide Inc. is looking at sites, chief executive officer Ted Forstmann said in an interview.

Arenas are being constructed in the financial hub of Sao Paulo through to poorer areas such as the Amazon state capital, Manaus. A financial return on the new buildings is “impossible” because most soccer stadiums are used too infrequently, according to Paul Fletcher, a former commercial director of London’s Wembley Stadium.

“There are white elephant stadiums scattered around the world,” Fletcher said. “People always say ‘It won’t happen with us’ but it does and it will with Brazil.”

Amsterdam ArenA Advisory BV won a 35-year deal to run a stadium in the city of Salvador and wants to manage three more, said Joao Gilberto Vaz, vice president of its Brazilian unit, adding its revenue may triple to $18 million a year by 2015. Lusoarenas, Desenvolvimento de Empreendimentos e Concessoes SA is advising or managing stadiums in Sao Paulo, Belo Horizonte, Recife and Natal, Vice President Marco Antonio Herling said, without giving financial details.

The companies bring expertise Brazilians don’t have, according to Nilton Vasconcelos, the Bahia state government official responsible for sports in the Salvador region. In an e- mail, Vasconcelos said public authorities and Brazilian building companies like Odebrecht SA investing in the stadiums are committed to make them “lucrative.”

IMG’s Plans

IMG, which represents golfer Tiger Woods, and billionaire Eike Batista’s EBX Group Ltd. said Nov. 9 they are forming a joint venture to invest in sports and entertainment in Brazil.

“There may be an opportunity before the World Cup to help” with the stadiums, IMG’s Forstmann said.

Private companies and Zurich, Switzerland-based soccer ruling body FIFA alone will profit from stadium investment, while taxpayers pick up the bill, according to Socrates de Oliveira, captain of Brazil’s 1982 World Cup team.

“The nation won’t get anything from the World Cup,” Socrates said in an interview.

FIFA generated $1 billion last year, mostly from selling television and marketing rights to the World Cup.

$19 Million Interest

The federal government is overseeing infrastructure investment for the World Cup, while state authorities are responsible for stadiums. Brazil’s state development bank says it will provide regions with loans of as much as 400 million reais ($238 million) for each arena. It will charge its long- term interest rate, currently at 6 percent, plus an extra 1.9 percent per year. That works out as much as $18.8 million a year in interest payments.

Salvador and other states are unlikely to see a “full” financial return on the arena investment and are prepared to cover some of the costs, Amsterdam Arena Advisory general manager Sander Van Stiphout said in an interview. He declined to give projected income for the Salvador stadium, citing a confidentiality agreement.

Outside the U.S., where the market for naming rights and corporate hospitality is much bigger, most sports stadiums lose money, Van Stiphout added.

40 Percent Full

Arenas in Brazil were only 40 percent full last year because they are “dirty and uncomfortable” amid concern about fan violence, said Amir Somoggi, a director in Sao Paulo of consultancy Crowe Horwath RCS, which published a report on soccer in May. Brazil’s growing middle class will help stadium operators increase income, Lusoarenas’s Herling said, adding the average ticket price will double to $23.

“People won’t care about paying more if the stadiums are safe, comfortable and modern,” Herling said.

Amsterdam Arena Advisory plans to help the 50,000-seat Salvador stadium generate income by hosting two teams, Van Stiphout said. The arena will also have a restaurant and host pop concerts, Van Stiphout said.

“What we are doing is using our expertise to get as much traffic,” Van Stiphout said. “I don’t think it’s fair to say it’s a white elephant.”

‘On Tourism Map’

Brazilian authorities say they’re getting more than just arenas as a legacy. The World Cup will give Brazil a place “on the global tourism map,” Salvador official Vasconcelos said. Brazil’s tourism board expects 500,000 tourists for the tournament that’s also a “chance to anticipate investments” like urban transportation, Vasconcelos said.

Brazil is using the event and stadium designs as a marketing tool. Officials are traveling to other regions to show off the stadiums and were in New York last week to “introduce the audience to the rich culture and modern architecture/urban design of Brazil.”

Other World Cup hosts have had questions raised about spending on new stadiums.

Last month, a French consortium canceled plans to lease Cape Town’s 2010 World Cup stadium for 30 years, citing the prospect of “substantial losses,” according to the city’s website. A stadium needs to hold as many as 340 events per year to turn a profit, according to Marcin Herra, president of the board overseeing Poland’s preparation for the 2012 European Championship.

Fletcher, who has overseen 12 U.K. soccer stadiums, says none made a return on their investment.

“Typically, the architect will design a very beautiful stadium that looks like a goldfish bowl and the local authority says that’s just what we want,” Fletcher said. “After the event, everyone says: what shall we do with it now?”

To contact the reporters on this story: Alex Duff in Madrid at aduff4@bloomberg.net Joao Oliveira in Sao Paulo at joliveira4@bloomberg.net

To contact the editor responsible for this story: Christopher Elser at at celser@bloomberg.net

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