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Wednesday, 23 October 2013

“With sufficient security, everybody wants to be an entrepreneur” Ernst’s Economy in an exclusive interview with Folkert Buiter of Icedôme Almere (pt 2)

This is the second part of the exclusive interview, held by Ernst Labruyère of Ernst’s Economy with Folkert Buiter, initiator of the Icedôme Almere.

Ernst: Do you make a profit on the stadium with 1.2 / 1.4 million visitors per year?!

Folkert: You earn back the stadium rent and the operational expenses. All costs are covered and the operator has a viable business case with an estimated profit of 6% to 7%. However, these are the data of April 2013. In the mean time, the estimated yields of all profit centres have been calculated, based on realistical numbers of visitors: a yearly amount of 1.8 – 2.5 milion visitors should be possible.

Our supportive statements, letters of intention and requirements inquiries support these numbers. The maximum applicable capacity is 3.5 to 4 million visitors per year. However, this requires at least 50 to 60 events on a yearly basis in both stadiums. That is a real challenge for the next ten years.

Also people from the music and television industry would like to talk about the optimal set-up for the Icedôme Almere, so they can organize their events there too.

When it comes to entertainment, we will make it happen… The best of the best: that is the approach that has results – look for instance at the Amsterdam Arena and Ziggodome in Amsterdam Zuidoost. Our builders/designers (the renowned icetrack designer Bertus Butter et al.) are capable of building an acoustically and climatologically perfect speedskating track, which is also applicable for concerts and other large events.

Icedôme Almere will of course never become a Ziggodome, as the latter is almost a studio when it comes to acoustics. However, we get definitely in the right direction for other events. We will not and cannot compete with Ziggodome, as this stadium has its specific qualities.

The air humidity will also become optimally arranged for skating and the stadium will be almost completely illuminated by LED lighting, which diminishes the energy costs substantially. The heat that is created by the public, will be reused. The whole approach to this complex is aimed at an absolutely minimal energy consumption. This diminishes the operational expenses with at least €750,000 per year, due to energy savings.

We first looked at all desired functions and facilities and we asked all involved parties, what they are willing to pay for using the Icedôme Almere. People are indeed willing to pay fees and tariffs that enable a viable operation of this complex. We inquired roughly 1000 people about this topic and virtually nobody just wanted to pay fees that would be way too low for a successful operation.

We chose for the following model: companies should be able to earn money in a multi-functional accommodation at the best possible location. If we were not able to develop this very combination or if I had to build it on a less accessible location, such a concept would never be viable. 

Almere forms, as a “second city centre of Amsterdam”, with this city and with Schiphol Airport the Metropole Amsterdam. This is extremely important for both the investors and the international accessibility of the Icedôme.

I made an inventory of all activities and I looked at all time slots. I had these timeslots endorsed by the parties with whom we are talking and we have been collecting signed intentional statements. These parties give us clear ideas about the numbers of visitors, which can be expected from the involved activities.

For instance, we talked with an American figure skater, who is training with us: he gave us the expected numbers of visitors, based on the required training facilities and the duration of the training. He said: if you take 50% of this, you are at the safe side. He wrote a statement about this. He had been trying to establish a venue for international figure skating in The Netherlands, but there are no suitable and available accommodations and utilities overhere.

The figure skater stated: “if you do this the right way, you can soon establish another figure skating ring next to this one. There is no exclusive figure skating ring in Europe yet, with accommodation, education and all other utilities included.”

We create an acoustically and climatologically perfect figure skating ring, as there are yields hidden in this. There are possible yields in leasing it, and in organizing tournaments and figure skating events. There is a possible 20% in profits in it.

There will also be a sports-medical facility: this will become much bigger than we expected in advance, as it is meant for professional sporters, as well as amateur sporters. We cooperate with education centres in Amsterdam and Almere. There will also be a child care centre and a fitness facility for commercial and non-commercial use (read: for the professional sporters).

On top of that, there will be a professional sports restaurant, where professional sporters can have specially balanced meals at a fair price. If you count all square meters available for lease, then you are talking about €1.5 - €2 million per year: approximately €300,000 - € 400, 000 in gross margin per year. Everybody, who visits us, will spend his money also on other things.

A universitary research project disclosed that the World Distance Championship Speedskating 2012 in Thialf stadium, Heerenveen, had yielded 3 times as much, as the amount that we are calculating with in our estimates, when it comes to economic impact. We are definitely very careful in our estimates.

We have entered into a contract with nobody yet – also not with Anschutz Entertainment Group (AEG). However, everything has been arranged to a substantial degree, but everybody has been waiting for the irrevocable approval of our bid for the Icedôme.

Now that our bid is irrevocably approved, we are in the contract phase. Our estimates have been arranged in such a way that the professional operators have enough leeway for achieving more revenues than required by us. We don’t prescribe in advance what they might achieve at best, but we define the minimal achievable targets: 1.3 and (in the meantime) 1.8 million visitors.

When everything goes as planned, more than 2 million visitors per year should be possible in the mid-long term and eventually even 3 to 3.5 million visitors, when everything goes really well: this amount would be approaching the maximal capacity of the complex.

Ernst: Will there be escape clauses in the contracts?! So that operators can abolish their contracts after one or two years, when numbers of visitors would be very disappointing?!

Folkert: Not that I’m aware of, as this is not really my business. Somebody will f.i. be owner of the edifice and pays the required price for it: building costs, development value and a certain margin. That will happen. 

The Icedôme Almere and the hotel will cost about €200 million, including the building terrain. As discussed before, certain alternatives are possible, but that will be in the hands of our experts and trusted third parties. This will be elaborated thoroughly in the next three months.

Ernst: Is Almere sharing in the burden, as a community?!

Folkert: That is not allowed and we don’t want that too. The community should elaborate the development plan and perform the necessary investigations. Almere should deploy the building ground on a ready-to-build basis and develop it further: a large share of the terrain remains publicly accessible property. Whoever will do the maintenance, must still be negotiated with the city.  

Almere can support users of the Icedôme and sports clubs with subsidies for achievements and start-ups, but within the boundaries of the law. Subsidizing societal interest projects can take place without violating EU regulation and the Goverment and Market Act (i.e. Wet Markt en Overheid). 

Besides that, I presume that Almere has an interest in facilitating a University, as well as supporting the centre for Professional Sports and Education (CTO) and all kinds of facilities for professional and amateur sports. However, these are societal subsidies: subsidies on achievements. This will help some organizations over the threshold. When something as ‘school skating’ should be paid by the parents themselves, it is virtually impossible without support by the municipality.

As a possible partner, we found a bus transport company, which can ship people at strongly reduced prices: to Schiphol Airport, to the train stations and schools. Thus emerges a win-win situation for sponsors as well as for us: advertising possibilities versus strongly reduced costs.

However, our goal is that Icedôme Almere should become the best-of-the-best. We should look very carefully at the process and the time: in 2016, the Icedôme Almere should be opened officially. That is also our own goal.

Artist impression of the Icedôme Almere
Picture courtesy of : Folkert Buiter, Icedôme Almere
Click to enlarge
Folkert: Everybody – we in the first place – wants an ironclad guarantee that the complex will be deployed and operated on schedule and within budget. However, when you state that the financing and operational plan must be settled before agreements have been made, this is absolutely not possible!

Which business man or company puts a money bag on the table, without knowing what all involved parties are planning to do?! That is why there are no signed contracts yet.

At this very moment, there is clarity: now the most important 8 – 10 candidates will be sitting around the table and contracts will be signed. We have agreed to make no statements about this process and the requirements, until all relevant, large parties all agreed and signed the contracts. Everybody wants to come to a thoroughly established project and a clear role for themselves in it. At this moment, we are right on schedule.

Ernst: The building ground prices, required by Almere for the terrain [approx. €15 million - EL]: are these prices marked-to-market?

Folkert: These are prices required by the city. They have a certain bandwidth in their groundprice policy; this bandwidth is set by the city council.

Ernst: And there is no hidden subsidy involved?

Folkert: Everything can be verified, as matters are publicly disclosed after the official decision has been made. We pay the ground price, but we expect consequently that Almere deploys the ground ready-to-build and with an excellent infrastructure. This is also in the interest of Almere.

At this very moment, interested parties have called in, because of the Icedôme and the retail park that is planned next to it: companies, organisations for sports etc. Herewith the Icedôme, as a project, has a huge spin off for the city.

However, municipalities are only allowed to subsidize societal interests; something that we are definitely not. The city can, however, subsidize the sports and sports clubs that make use of our venue. Besides that, the city can invest in a business pavillion and they probably will. In the business case and the operations, the city doesn’t have any involvement.

Ernst: Does the city run any risk during the building and operational phase?

Folkert: When the contracts are signed by the relevant parties, not at all anymore.

Ernst: Not even in the form of deployed bank guarantees, securities and pledges, for which the city operates as a warrant?

Folkert: No, that would also be illegitimate state support. That is not allowed. We don’t want to deal with discussions about state support. Every amount that we might receive, because it is allowed: fine! Societal subsidies for sports clubs, which will become our customers: be my guest. The money goes to them and comes indirectly to us. That is legitimate state support, however: that is legal.

Ernst: So there isn’t any form of warranting by the City of Almere?!

Folkert: It ought not to be. It is a very difficult market in The Netherlands at this moment. Financiers are even too afraid to visit the bathroom. At least banks are honest, when they state that with 60% in equity, they are willing to finance 40% in debt.

And when the deal is done, they want to finance an additional 20% in debt, in order to gain some decent leverage, is my experience. With sufficient security, everybody wants to be an entrepreneur...

This was the second part of this article. The last part will be published tomorrow.

Will be continued…

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