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Monday, 26 August 2013

The Almere Icedôme revisited: when the smoke blows over, a financial ‘black hole’ might reside for Almere’s tax-payers.

Exactly one month ago, Ernst’s Economy for You had the official, national scoop with the news that the Almere Icedôme would indeed become the national speedskating temple of The Netherlands. My good sportsfriend and local deep throat ‘John’, who was very well informed in this matter, shared this news with me before it was reported to the large, Dutch newspapers. Thialf 3.0 in Heerenveen and TranSportium in Zoetermeer were definitely passed for winning this contest, except for a right to appeal against the decision.

As a genuine and proud inhabitant of Almere, I was of course pleased that my beloved city won this contest with seemingly the best bid, although I had and still do have some reserves. On the other hand, I was very annoyed that especially some (former) speedskaters and hardcore fans of Frisian candidate Thialf 3.0, never contested the contents and quality of Almere’s bid, which could have been a fair approach, but only threw ‘low blows’ to the city and province where I live.

Rock-bottom in bad taste was hit when a formerly popular Frisian singer, Syb van der Ploeg, threw his many talents in the battle and composed a song about Almere, which can be roughly translated as: ‘Almere, S.O.B. city’ (warning: the quality of this song is not suited for fine-tuned, sensitive ears - EL).

There is an international proverb, that is used in f.i. Russia: ‘the dogs bark, but the caravan moves on’. And so the Icedôme caravan indeed moved on, in spite of bad singers and successful Frisian speedskaters.

You might wonder now: ‘Am I reading Speedskating Weekly Magazine’? No, you don’t. You are reading an economic blog.

Already at the same evening that I presented the news that Almere had won the contest, I showed some reserves about the viability of this plan:

I will later come back to this news, as I want to look at the risks and threats of this bold plan for the Icedôme in Almere. Like often with publicly/privately financed projects, there is a considerable risk for the municipalities involved (in this case Almere) that the private parties will not stick to their end of the deal. This could form a large financial risk for the Almere taxpayers after all.

During the last month, these reserves did not diminish. Rather to the contrary:

There are always considerable risks involved in publicly/privately financed projects, even when it seems that there is no direct taxpayer’s money involved, except for a few public guarantees to warrant the complete implementation of such a project.

When such a large-scale, high profile project gets some serious headwinds during the building phase and might not be finished in time or within budget, the public parties feel often obliged to fill in the financial gap. This phenomena occurs especially, when such a project runs the risk of not being finished at all.
Municipalities can’t explain it to their citizens, that they are responsible for a ‘fresh, new scar in the landscape’ where a high-profile building project should have emerged initially. Therefore municipalities often silently foot the bill. This happens even more often when sports stadiums and facilities are involved, as sport is all about emotions and fans.

The second large risk occurs when such a sports facility, like the Almere Icedôme, has been operational for a few years, but the financial results of the exploitation have been disappointing. Also in this situation the city might feel obliged to throw in millions in subsidies to keep such a sports stadium open, in spite of the loss-bearing exploitation.

On 5 June 2013, the national public broadcasting organization NOS presented an interesting article concerning the financing paragraph of the Almere Icedôme. I will print here the pertinent snips of this story, but I advise you to read the whole article, when you read Dutch or use Google Translate:

According to sports economist Ruud Koning, no sports facility can be exploited without subsidy. He is very sceptical about the plans. These are always made more attractive than they are in reality. ‘Suddenly the need for the facility diminishes or the building costs run higher than expected’.

The sports economist has his doubts concerning the viability of Almere’s plans. “Who is going to pay for the free skating hours that have been promised to the professional speed-skaters? And who will foot the bill for the exploitation, when things go awry after two or three years?”

Also a scientist of sports investigation bureau ‘Mulier Instituut’ in Utrecht has large doubts about the viability of Icedôme Almere. He states (anonymously): the building corporations BAM and Van Wijnen are going to build it for €183 million. When I had shares in BAM, I would not be pleased.

The Icedôme should become much more than a speedskating facility alone. Besides two covered 400 meter icetracks and two icehockey tracks, usable for short track and figure skating, there will be a skeeler track, a track and field athletics track, a gymnastics hall, a ball room and fitness facilities. When the icetracks are closed, the Icedôme reckons to make money with large events: the EO Christian Youth day, André Rieu, musicals and large music festivals.

According to the investigator of the Mulier Instituut, all these initiatives are not enough for the Almere Icedôme to cover the investments costs, not even mentioning the exploitation costs. In the Icedôme plan, these are estimated at €15.2 million euro per year. The revenues from food and beverage are estimated to €3 mln and the annual visitors to 1.2 million. That are 3000 to 4000 visitors per day.

Unfortunately, I totally agree with the anonymous investigator of the Mulier institute, for a number of reasons. I have worries about the 1.2 million visitors per year, as an average 3000 or 4000 visitors per day is an extremely high number.

In the larger Amsterdam area, there are already a number of large event centers:
  • Heineken Music Hall, with a capacity 5,500 persons
  • Ziggo Dome (music stadium), with a capacity of 17,000 persons
  • Amsterdam Arena (football stadium), with a capacity of about 45,000 persons during pop concerts and mass events.

I wonder which void the Almere Icedôme will fill, with its offer to become a fourth event center for the larger Amsterdam area?! 

All these three mentioned stadiums and music halls are in Amsterdam Zuidoost, within a 10 km range from the centre of Amsterdam. They enjoy almost perfect public transport connections to Schiphol and Amsterdam city, to which they are much closer than Almere. The Icedôme just can’t deliver the same comfort.

Another thing is that icedomes and other large, metal constructions offer in general terrible acoustics (‘echoes running wild’), which makes them not really suitable for large pop concerts. To improve the acoustics, large additional investments should be made. And the sports and leisure possibilities on offer in the Icedôme alone are surely not enough to lure 1.2 million visitors per year. 

Besides that, the whole concept of the Icedôme makes the impression of a top-heavy christmas tree with just too many garnishings in it.

And unfortunately, the track record of Almere is not too good, when it comes to bold and risky investments, which either have not been finished at all or, when finished, bore heavy losses during exploitation.

And there is much, much more…

Anschutz Entertainment Group

The Anschutz Entertainment Group (AEG) is the group that is going to do the daily exploitation of the Almere Icedôme, according to the plans of founder Folkert Buiter.

AEG  is a very, very experienced company when it comes to exploitation of sports arena’s, music festivals and large event centers everywhere in the world. The group  became world-news when it wanted to organize the massive come-back tour of Michael Jackson in 2009; a plan that of course failed, due to the death of Jackson, months before the concert range in London would start. You could say that especially this group should be able to make good judgment upon the viability of the Almere Icedôme. When AEG says ‘yea’ to such a plan, it should be viable, shouldn’t it?!

However, at this moment the AEG group is involved in a lawsuit with the Jackson heirs about AEG’s involvement in Jackson’s untimely death. Even when its chances of losing this lawsuit seem quite small, it could lead to an enormous influx of negative publicity and to cold feet at the AEG management. This could eventually compromise the Icedôme deal. Besides that, AEG is not very experienced in working in The Netherlands, as far as I know. The small and very crowded country, with its relatively small population and its enormous supply of stadiums, sports facilities and event centers within only a few hours of driving is definitely not the best location for the successful commercial exploitation of large sports facilities and event centers. It just isn’t! I wonder if AEG realizes that sufficiently.

BAM

The Koninklijke BAM Groep (BAMNB) building group, one of the two parties which are going to build the Almere Icedôme, had a terrible week last week. The building group, with a quoation at the Amsterdam midcap index (AMX), showed disappointing half-year results and got slaughtered with a 27% loss of share value in only two days.

The following snips come from a speech by Nico de Vries, Chairman of the Executive Board of Royal BAM Group:

We will cut capacity in the Netherlands by approximately 500 fte, in line with lower expected activity levels, with a cost in 2013 of approximately €25 million.

We are de-risking current projects where possible, including strengthening project management. And we are intensifying our initiatives to further strengthen all aspects of our bidding and project management across the Group in line with our longer term strategic priority for operational improvement.

BAM is the largest party involved in the building process of the Almere Icedôme. It promised – together with Van Wijnen - to finance in advance the building costs of €183 mln for the Icedôme, but that happened well before the aforementioned half year financial data were presented to the world.

If I was Nico de Vries, CEO of BAM Groep and I wanted to de-risk the current project portfolio of BAM, I would unfortunately immediately know where to start: the Almere Icedôme.

KNSB

And the final nail in the coffin of the Almere Icedôme has been batted in by the Dutch national skating union ‘KNSB’ and especially its – what you could call – “notoriously unreliable” chairman Doekle Terpstra.

First, there has been the pathetic bid procedure: the Icedôme initially seemed to have won the bid in June 2013, but the KNSB of Doekle Terpstra got cold feet after the final report leaked to the press. When a lot of protests emerged against Almere as the location for the national skating temple, the KNSB ordered an additional investigation. This investigation seemed nothing else than a pathetic attempt to get some extra time and therefore the judges of the Court of Justice made minced meat of it, after Almere started a summary proceedings against the KNSB.

Second, after the Almere Icedôme had eventually won the bid for the national skating temple, the KNSB, represented by Doekle Terpstra, stated in a press conference that winning this bid only warranted the organization of  ‘one of the international skating events’ per year. The locations for the other (inter)national skating events would still be at the discretion of the KNSB.
This means in practice that being the national skating temple could still be a dead hulk, in the worst case scenario. Especially, when the Frisian skating lobby uses its influence within the KNSB to push other international events towards the Thialf stadium again. This would have a devastating effect on the exploitation of the Almere Icedôme.

And today, the Algemeen Dagblad (AD) reported a reconstruction of the decision process within the KNSB, which sheds again a very unfavourable light at chairman Doekle Terpstra:


KNSB chairman Doekle Terpstra announced to the outside world that the report, which chose Almere as the best location for the national skating temple, was unsound.
However, from internal emails from the KNSB it became clear that he did agree with the choice for Almere. The AD made its own reconstruction of the bid process.

On May 18, Terpstra agreed with the choice for Almere, but when the assessment report leaked to the press, he immediately changed direction. The born ‘Frisian’ Terpstra was attacked by all speedskate-lovers in Friesland, as he seemed to have single-handedly finished ‘their’ Thialf.

It is often told that most long-term mobsters do have something like a ‘code of honour’, when it comes to doing business with their peers. This is a code that ex-politicians seem to miss at all, when you read articles like the aforementioned one by the AD.

These are the circumstances that turn the Almere Icedôme into an enormous gamble: risk is almost 100% and the chances for success seem very dim.

On top of that, these kinds of important and far-stretching political/financial decisions are always surrounded with the dangerous optimism, enthusiasm, wishful thinking and deafness for opposing sounds of politicians, officials and civil servants, who are used to gambling with ‘other people’s money’. Financial facts and reliable data are only a distraction for this kind of people. That is the main reason that most large (semi-) government projects fail blatantly.


Although I love my city and I really hope for a success, I’m unfortunately quite certain that a big financial black hole is looming with the Almere Icedôme. And Almere’s tax-payers seem to the natural party for footing the bill of this black hole.

3 comments:

  1. Dude, you are prescient.

    ReplyDelete
  2. De link naar je vorige artikel verwijst naar je C-schijf.

    ReplyDelete
  3. The link has been repaired: thanks for the warning

    ReplyDelete

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