MIT MIGHT be the biggest sporting business in Australia, but the Australian Football League seemingly produces remarkably varied financial fortunes for the grounds that host its matches.
Who would have thought you could lose money on the grand final? The Melbourne Cricket Club, which manages the Melbourne Cricket Ground, lost $1.4 million on last year's replay of the clash between Collingwood and St Kilda.
Its roofed-over rival, Etihad Stadium, might have hosted 48 AFL matches this year compared with the MCG's 47, but its operating company, Stadium Operations, is a perennial loser. In the past four financial years it has racked up more than $60 million of losses and paid no dividends.
Perhaps the Sydney Cricket Ground and ANZ Stadium, venues that respectively hosted only eight and three AFL matches this season, ought to be grateful they do not have more exposure to the AFL.
Next year the new Greater Western Sydney Giants will be playing out of the $60 million Skoda Stadium at the Sydney Showgrounds rather than ANZ Stadium (although that is rumoured to be the venue for their inaugural match against the Sydney Swans). It will be intriguing to see what the New South Wales government makes on the deal.
Presumably Etihad's owners, a handful of funds managed by a Mirvac/Leighton Holdings joint venture that includes National Australia Bank Group's staff super fund and industry funds such as Retail Employees Superannuation Trust, Western Australia's Westscheme and South Australia's Statewide, are extracting a return somewhere along the line for the $330 million they paid Kerry Stokes's Seven Group to buy the stadium in 2006.
Stadium Operations' accounts for calendar 2010, filed with the Australian Securities and Investments Commission, have it losing $16.2 million. No doubt the owners are getting their return out of the $22.25 million in interest payments Stadium Operations made on its $180 million debt owed to the Stadium Property Trust.
Still, when AFL boss Andrew Demetriou on Monday laid out the league's five-year blueprint for "re-balancing" distribution of its nearly $400 million a year in revenue, Insider's eye was caught by the league's reckoning that clubs based at Etihad are the most disadvantaged in the competition the stadium is making money, but the clubs, not so much.
Aside from the murderous language, where the AFL said it would make "disequal" payments to the most affected clubs, the slide presentation by the league showed that Etihad and the MCG were the least lucrative grounds. "Home" clubs at the MCG, Richmond and Melbourne, get only 41 per cent of match revenue. At Etihad it falls to 36 per cent for the likes of St Kilda, North Melbourne Kangaroos and the Western Bulldogs.
Geelong, by contrast, trousers 90 per cent of the gate at its home ground and, at what used to be Subiaco Oval but is now Patersons Stadium, West Coast Eagles and Fremantle Dockers pocket 77 per cent of the takings. At Adelaide's AAMI Stadium, local clubs get 51 per cent of the takings.
Much of the difference is that the two main Melbourne grounds do not have the same partisan memberships, so the base cost for renting the MCG or Etihad is a higher hurdle for lower-ranked clubs because they do not draw sufficient crowds.
You might think that the MCG offers better returns than Etihad because it can seat more people its capacity of just over 100,000 is about double that of the other but the average crowds at Etihad of 32,000 are a higher percentage of capacity than the MCG's 53,000 average.
On the AFL's figures this week, a team entitled to the gate takings at the MCG could expect to get, roughly, $100,000 more than when it played at Etihad assuming a constant crowd size, even though both venues struck an agreement with the league two years ago to add an extra $100,000 a match to club payments in exchange for the venues getting extended and enlarged match contracts.
Worse than that, the AFL numbers seem to suggest that without that additional $100,000, a home club at Etihad would be losing money until it drew a crowd of almost 40,000.
MCC chief executive Stephen Gough said he could not understand why that gap seemed so large either. Etihad spokesman Bill Lane said that unlike the MCG, the stadium receives no government funding and has to charge higher rent to get an adequate return for investors. He also noted that where scoreboard advertising revenue at the MCG goes to the MCC, at Etihad it goes to the AFL.
Gough has a few extras too, like per capita payments when AFL crowds top 2.1 million in a full year. They are running at close to $2 million a year with crowds above 3 million the past two seasons.
The MCC does have one major advantage over the SCG it has more than 100,000 members (and twice that on the waiting list) who each year tip $40 million into its coffers for the privilege. The SCG has only 18,000 members, whose roughly $16 million in fees do not cover operating costs. That members' money pretty much covers operating costs for the MCG, excluding the interest burden on its redevelopments, so money from football, cricket and other events becomes cream. The club made an $11.5 million profit in the latest year. All those who belong might want to note that the club has foreshadowed "large capital expenditure commitments in coming years" that will eat into its $47.5 million in cash reserves and no doubt translate into higher fees.
Wins all round
CONNECTEAST chairman Tony Shepherd's win this week in getting approval for a $2.2 billion takeover of the toll road should give him more time to focus on his other important board role as chairman of Greater Western Sydney Giants.
Shepherd's support for the acquisition by Horizon Roads has also resulted in a bonus for gold miner Beadell Resources and its investors. Standard & Poor's, which runs the benchmark S&P/ASX 200 Index, has decreed that from the end of next week, Beadell will replace ConnectEast an elevation that normally leads to more institutional investors wanting to buy the stock.
insider@fairfaxmedia.com.au
Who would have thought you could lose money on the grand final?
Frequently Asked Questions about this Article…
Why do some AFL stadiums make money while the clubs that play there struggle financially?
Stadium owners and operating companies can earn revenue from rents, sponsorship and events even when home clubs get a small share of match takings. The article notes Etihad’s stadium business is making money while clubs based there are the most disadvantaged under the AFL’s revenue split. Differences in rent, who keeps scoreboard advertising and membership income mean a profitable venue does not automatically translate into profitable home clubs.
How did the Melbourne Cricket Club (MCC) lose money on a grand final replay?
According to the article, the MCC — which manages the MCG — reported a $1.4 million loss on last year’s grand final replay. Despite that specific loss, the MCC overall made an $11.5 million profit in the latest year, helped by large membership fees and revenue from other events.
Why has Stadium Operations (Etihad’s operator) been losing money despite hosting many AFL matches?
Stadium Operations has been a perennial loser, recording more than $60 million of losses in the past four years and a $16.2 million loss for calendar 2010. The company also paid $22.25 million in interest on $180 million of debt to the Stadium Property Trust. The article notes Etihad receives no government funding and must charge higher rent to deliver returns to its investors.
How does gate revenue sharing differ between grounds and why does that matter to clubs and investors?
Gate revenue splits vary widely: home clubs at the MCG get about 41% of match revenue, at Etihad about 36%, Geelong gets around 90% at its home ground, West Coast and Fremantle about 77% at Patersons Stadium, and local clubs at AAMI get 51%. Those differences affect club profitability—clubs receiving a smaller percentage must reach higher crowds to cover rent and costs—while investors in stadiums or clubs should be aware how revenue-sharing impacts cash flow.
Do stadium memberships meaningfully affect a venue’s profitability?
Yes. The MCC has more than 100,000 members (and a large waiting list) who contribute roughly $40 million a year, covering much of the MCG’s operating costs and helping produce profits. By contrast, the SCG’s roughly 18,000 members contribute about $16 million, which the article says does not cover operating costs, leaving the SCG more exposed financially.
How do crowd size and stadium capacity influence club takings at the MCG versus Etihad?
Although the MCG seats just over 100,000 and averages about 53,000 attendees, Etihad averages around 32,000—which is a higher percentage of its capacity. The AFL figures cited suggest a team entitled to gate takings at the MCG could expect about $100,000 more per match than at Etihad assuming the same crowd size. The article also says that without an extra $100,000 per match added under a recent agreement, a home club at Etihad would lose money until it drew nearly 40,000 spectators.
What changes are coming for Greater Western Sydney (GWS) and stadium usage?
The article says the new Greater Western Sydney Giants will play out of the $60 million Skoda Stadium at the Sydney Showgrounds rather than ANZ Stadium, although ANZ is rumoured to host their inaugural match against the Sydney Swans. It also notes interest in what the New South Wales government will make of that deal.
How can stadium ownership changes and corporate deals affect everyday investors?
Ownership transactions and corporate moves can shift who receives returns and which securities attract institutional demand. The article describes Etihad’s ownership by a Mirvac/Leighton joint venture and funds that paid about $330 million in 2006, and notes a separate corporate event where ConnectEast’s chairman won approval for a $2.2 billion takeover. That takeover leads to ConnectEast being replaced in the S&P/ASX200 by Beadell Resources, a change that often increases institutional interest in the replacement stock.
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