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Public vs. private spending for sports facilities--the case of Germany 2006.


After a long period of stagnation, many sport stadiums have been built or renovated across Germany during the last years. This boom was induced by the successful application for the FIFA Soccer World Championship 2006 and was commonly regarded as necessary, given the obsolete facilities of German soccer clubs. While in the past stadiums in Germany were wholly financed by public subsidies, current financial difficulties of the German government and especially of the municipalities, joint with changes of the legal form of German soccer clubs, make it necessary and possible to search for alternative financing forms. This paper reviews private and public financing models for sports facilities and provides a detailed analysis of the effective financing of the venues for the FIFA World Championship 2006.


In June the 9th 2006, the futuristic Allianz-Arena in Munich will host the opening game of the 18th FIFA Soccer World Championship (hence WC). Five years have passed since Germany was designated as hosting country. The infrastructure is almost completed. About 3.2 million spectators are expected to attend the games and the German population seems to be quite confident and considers the holding of the WC in a throughout positive way (Voeth et al. 2002).

The Organizing Committee around the German soccer idol Franz Beckenbauer was assigned a difficult job when it started running for the World Championship in 1993. While in the U.S. 80% of sport facilities have been renewed since 1987 (Baade, 2003), and, more generally, stadiums are often subject to thorough renovation, Germany's sports facilities have experienced a long period of disregard during the past 30 years. A radical modernization of the whole sports infrastructure was inevitable. This soon alarmed academics both in sports economics and public finance, worried about an additional burden that was likely to be put on public shoulders.

The state of the German public finance is indeed alarming: The aggregate public debt rose from 62,927 Mill. EUR in 1970 to 1.451 Bill. EUR (66.4% of GDP) in 2004. In 2005, Germany has failed to meet the Maastricht debt criteria for the fourth year in a row. Even more worrying then the federal is the debt burden of the federal states (Lander) and the cities (Kommunen), which are often mainly involved in financing sports facilities. Therefore, the question whether the new facilities should be financed by the government or by private investors soon emerged and has been widely discussed in literature (see for the U.S. e.g. Baade, 2003; Coates & Humphreys 1999, 2003; Noll & Zimbalist, 1997; Siegfried & Zimbalist, 2000, 2002; Long, 2005; for Germany see Dietl & Pauli, 2002a, 2002b; Napp & Vornholz, 2002, among others).

Noteworthy is the fact that public reactions and the political debate have been much more relaxed. As described below, local governments engaged in a true competition in order to be elected as a venue of the WC 2006, despite all financial problems of the municipalities. Furthermore, a public debate about money wasting for the WC 2006 did not occur at all, (1) especially in the mass media. This does not reflect the usual situation in German public and political debate, where public money wasting has become one of the most disputed issues. Panke and Rebeggiani (2004) report a case in which, almost contemporaneously, a regional government cut culture funding dramatically and supported a WC venue generously, without provoking a significant resistance in public opinion. We interpret this as a clear sign of the political and social importance of soccer in Europe, which remains by far the most popular sport. Supporting soccer constitutes, therefore, a quite safe investment for politicians who aim to increase their popularity.

The common result in the literature mentioned above is that public funding of professional sports facilities can hardly be justified economically, least of all under bad public finance conditions. It is also evident, however, that public subsidies still continue to flow, both in the U.S. (see Long, 2005 for a detailed listing) and in Europe. (2) While the motivation of officials and politicians to concede such assistance has been studied elsewhere (Owen, 2003; Baade, 2003), this study will analyze, how private investors can be involved into stadium financing projects and how this has been the case for the WC 2006 venues in Germany. Obviously, one has to take into account the fundamental differences between European and American professional sport leagues. Since it is nearly impossible to run a big stadium profitably without a major league soccer team in Europe, the analysis will be concentrated on professional soccer.

In the next section, the present paper briefly describes the somewhat traditional approach to stadium financing in Europe. Afterwards, the ongoing debate about public and private financing of sports facilities is reviewed with a focus on the peculiarities of European professional sports. The last section then presents Germany as a case study, providing a detailed analysis of the financing of the twelve stadiums that will host the games of the 18th FIFA Soccer World Championship.

Stadium Financing in the Past

The Situation in Germany before 2000

Though a national soccer championship exists in Germany since 1903, only in 1963 a major professional league, the Bundesliga, was implemented. The ideal of a pure amateur character of sports persisted nevertheless even after that date, in strident conflict with reality. Thus, not until 1998 other legal forms, e.g. corporations, than the non-profit oriented Vereine (soccer clubs) were officially admitted to the Bundesliga.

This 'amateur spirit', of course, influenced the financing of sports facilities, too. The traditional German view mentioned above, which still can be retraced in the statutes of the DFB, the National Soccer Confederation, considers sports as a merit good that has to be subsidized by the government for public health, social articulation and public amusement purposes. (3) Sports facilities construction was therefore interpreted as a pure public concern. Not surprisingly, the stadiums for the 10th FIFA World Championship in Germany 1974 were fully financed publicly. The nine stadiums set ups required a total investment of approx. 140 Mill. EUR (273 Mill. Deutsche Mark). This amount appears ridiculously small from a contemporary viewpoint, when compared with current investments: The cost of some single stadiums, like the Allianz-Arena in Munchen or the Olympiastadion in Berlin, exceeds (in nominal terms (4)) the total investments in 1974 (Table 3). This might be seen as an indicator for the changed financial dimensions of professional soccer, which raises the need for innovative financing models, as discussed below. The next event hosted by Germany was the 6th UEFA European Championship 1988, which involved 8 stadiums (approx. 850.000 spectators in total), but activated little investments, mainly in security measures. (5)

In the following years, Germany experienced a period of marked slowdown regarding stadium investments. In the period of time from 1988 to 1998, none of the newly-built stadiums in Europe were located in Germany. Solely an amount of approx. 168 Mill. EUR was invested in the modernization of the stadiums, putting Germany at the end of the European rank (Figure 1).

This underinvestment caused problems to the Bundesliga clubs, which had to play in obsolete facilities with scarce comfort and no additional endowments such as business seats and lounges. Especially the clubs enrolled in continental tournaments (Champions League, UEFA Cup) complained about their competitive disadvantage in relation to Spanish and English teams. The need for a general renovation was therefore given independently of the application for the FIFA WC 2006.

The Warning Case of Italia 90

A striking example of organizational failure and money wasting is constituted by the 14th FIFA World Championships 1990, later romantically called the "Magic Nights" of Italia 90. Heavily influenced by the political climate of the time, (6) the hosting of the tournament evolved into a financial disaster. The availability of extraordinary funding connected to the public works for Italia 90 activated a vicious circle of political corruption, which contributed to elevate the costs and delay the completion of the infrastructure and the venues. (7)

All in all, the designated amount for the new or improved facilities had to be nearly doubled. Instead of the scheduled 400 million EUR, total expenses rose up to nearly 645 million EUR. The modernization of the Stadio Olimpico in Rome, for example, cost 220 million EUR instead of the assessed 80 million. The renewal of the San Siro stadium in Milan charged 95 million EUR, while at the same time in Barcelona the new Olympic Stadium for the 1992 Olympic Games was built spending just 30 million EUR.

Needless to say that the entire amount was almost completely publicly financed and contributed to blow up the enormous Italian national debt--one of the biggest among industrialized countries with 971.5 billion EUR in 1993 (118.7% of GDP) and still 1,439.8 billion EUR (106.5% of GDP) in 2004.

Italia 90 turned out to be a bad deal not only financially. As a corollary result of the distorted public demand, the new stadiums were built according to old ideas, in most cases oversized and including a running track for athletics (which was sometimes compulsory to benefit from the Italian NOC funds, although normally unnecessary). At the same time, stadium planners in Northern Europe were already moving to structures of the 'English style'. These stadiums are smaller, without a running track and conceived as multifunctional arenas, with space devoted to shops, restaurants and other leisure or business activities. One of the first venues of this new type, which influenced many future facilities in Europe, was the Amsterdam-Arena, inaugurated in 1996. Thus, the extremely expensive Italia 90-stadiums were to consider obsolete already a few years later.

Perhaps the best example is the Delle Alpi stadium in Turin, which was newly built in an area far outside the city for astronomically high total costs, (8) although Turin had already two functioning stadiums (the Stadio Comunale and the old Filadelfia). The venue was soon considered as overdimensioned for the city and is affected by bad visibility from various sectors. Sixteen years later, the main soccer team of Turin, FC Juventus, will completely renew the stadium starting from summer 2005. Thereby the running track, which was used only once (1993) for a big event, is going to disappear and total capacity will be reduced approximately by the half. Juventus had in 2003/04 the lowest averaged home attendance (28.900) and the lowest matchday revenue (17.6 million EUR, only 8% of total revenues) of all 20 top European football clubs (Deloitte 2005). The other soccer team, AC Turin, is going to abandon the Delle Alpi stadium in 2006 and move back to the old Stadio Comunale, which has been completely renovated to host the Olympic Winter Games 2006.

The consequences of this disaster last until today: The major soccer league, the Serie A, suffers of shrinking fan attendance for many years now. Compared to the 'golden age' in the early Nineties, the match attendance has dropped by approximately one third (from averaged 34,205 in the season 91/92 to 25,469 in 03/04) and has been largely outrun by the English Premier League (35,008) and the German Bundesliga (35,048). (9) Beside high ticket prices and the persisting hooligan problem, the old facilities are regarded as one main cause of this phenomenon. They seem particularly unable to compete with the newly introduced pay-TV and pay-per-view offers, which have gained great popularity in Italy.

It can be seen as a general result of this whole development that in the actual UEFA list of the 20 'five-star stadiums', which are entitled to host a Champions-League final, no Italian stadium is included. Furthermore, Italy is running for hosting the European Soccer Championship in 2012. Although the stadiums have been constructed or totally renewed only 16 years ago, a conspicuous investment of one billion EUR is estimated to be necessary for setting up a competitive application.

Stadium Investments in Germany: Public or Private?

Matchday Revenues in the Bundesliga

Which are the general conditions for stadium building and financing in Germany today? Can sports facilities generate sufficient revenues to guarantee private investors adequate returns on investments?

Since the stadium revenues are closely related to those of the home soccer club, it is crucial to analyze the performance of the Bundesliga and especially the importance of ticketing revenues. These have decreased their share in total revenues from 26.5% in the season 1999/00 to 18.99% in 2003/04. However, this decline is due to the sharply increasing gains from TV rights. In absolute terms, average ticketing revenues per club grew from 10.015 million EUR in 2001/02 to 11.5 million EUR in 2003/04. (10)

Mainly responsible for such a positive development was first of all the rising fan attendance, which grew significantly over the Nineties. In the past season (2004/05), a further increase was recorded, which brought the average number of spectators up to 37,806 per game (DFL, 2005b). Therewith, the German Bundesliga is at the top of the rank among European soccer leagues. The new stadiums for the WC 2006 have played an important role, inducing an increment in fan attendance by 34% to 104% (Ernst &Young, 2005).

Beside fan attendance, ticket revenues could be increased by raising ticket prices, too. Prices for ordinary tickets rose from averaged 7.91 EUR in 1989/90 to 15.63 EUR in 2004/05. Other economic potentials are represented by business seats and VIP-lounges, features, which are rather new for European soccer stadiums. Almost all of the newly built facilities are endowed with such structures. They have been soon in great demand and are regarded to significantly increase total gate revenues of soccer clubs. In Munchen, for instance, all of the VIP-lounges were sold out within a few weeks to local and international companies, despite high prices up to 265,000 EUR per season.

Concerning expenditures, the financing of the new facilities will be described in detail below. In most cases, soccer clubs were involved, at least as participators of newly set up operating companies. In the past, most stadiums were owned by the municipalities and leased to the soccer teams. The great advantages of this situation for the clubs were the extremely low costs charged by the cities --a hidden form of subsidization. In the season 1998/99, rental expenses of German soccer teams made only 3% of their total expenditures. In most cases, these payments did not even cover the operating costs, with the municipalities forced to stand in for the deficits (Hockenjos, 1995).

As described below, this situation has changed completely with the new facilities for the WC 2006. Whether holding an own stadium will be beneficial for soccer clubs, as claimed by the UEFA, is still controversial. For many of the innovative financing forms described below, like Asset Backed Securities or Going Public-plans, holding a real asset will be advantageous. However, from the expenditure point of view, no condition will be as favourable as the old, public subsidized one.

Private Investors and their Problems

The need of attracting private investors was often expressed in academic and political circles during the planning and building phase of the WC 2006 stadiums and in general, for financing professional soccer teams. As widely discussed in sports economic literature (see for example Dietl & Pauli, 2001a, 2002b), investments in professional sports are subject to particular risk conditions. In addition to normal capital market risks, the return on investments in professional sports depends in most cases on the sportive performance of the team or athlete financed. Concerning investments in stadiums, things are additionally aggravated by the very high initial investment required.

In Europe the particular organizational form of sport leagues with its relegation system and the qualification to international competitions for the best teams of a league, enhances these risks. Total revenues of a soccer team are shown to be highly dependent on its sportive performance (DFL, 2005a). Table 1 reports the average revenues of a Bundesliga club depending on its league ranking. The close connection between sportive performance and revenues emerges clearly and is particularly pronounced between the first and the second group, that is, between clubs playing in continental cups (Champions League and UEFA Cup) and the others. A similar pattern would be generated by most European soccer leagues. (11)

The sport-related and economic worst case is constituted by relegation to a minor league. In such a situation, the unsuccessful club gets almost automatically in financial trouble due to the sharply decreasing revenues from ticketing and broadcasting in minor leagues (DFL, 2005a). (12) An eventual investor could be forced to further investments in order to improve the team's quality in order to be promoted in the first division or to renounce at a part of his revenues. The ultimate knock-out for extern investors would be the insolvency of the club, like in the cases of Fiorentina AC (2002) or SSC Napoli (2004) in Italy.

To mitigate this uncertainty, alternative uses for stadiums like concerts of party congresses have been regarded as a potential source for additional revenues. In Germany, this hope has unfortunately proved as unfounded. The growing number of modern stadiums and smaller indoor arenas constitute a large supply on the market for major conventions, which faces a very limited demand (Moderer, 2005). On the average, only 3 or 4 additional events per year seem to be realistic for football stadiums in Germany. Without a Bundesliga soccer club, which guarantees at least 17 home games per season, plus possibly national and international cup games, a rentable (pure) private financing of a major football stadium seems therefore to be impossible at present. Typical for that is the case of the LTU-Arena in Dusseldorf, a major city without a first division soccer team, which is already insolvent (Table 4). Similarly, the financing of the Zentralstadion in Leipzig (a city hosting a 3rd division soccer team) is to a great extent precarious and depends upon a single investor (Michael Kolmel). The venue was chosen for the WC 2006 only due to political reasons--as unique representative of Eastern Germany.. As shown in table 3, all of the WC 2006 venues except for Leipzig were chosen among cities hosting a Bundesliga club.

Innovative Financing Forms

While in the past the major financing form for German soccer clubs was represented by traditional bank credits, (13) more innovative forms have been tested during the last years (Schwendowius, 2003; Klimmer, 2003). In the late Nineties, stock market quotations were commonly regarded as the most auspicious way to collect funds. Indeed, the outcomes have been disappointing throughout Europe. Except for Manchester United, all soccer stocks have lost in value since emission. The only Going Public in Germany was realized by Borussia Dortmund in October 2000 and yielded the club 150 Mill. EUR in fresh capital. Five years later, the stock had lost four fifth of its value and the club could avoid insolvency in April 2005 only due to a generous waiving of the shareholders, the resignation of the management and the implementation of a completely new financial structure (see details in table 3).

Other financing forms, like Asset Backed Securities (ABS), seemed to perform very well and were regarded as suitable alternative for a wide range of financing projects. A series of bankruptcies in the years 2001-2004, however, brought into light how even such innovative forms could not offset the peculiar risks connected with European professional sports, deterring investors from further engagements in soccer ABS.

Asset Backed Securities are, generally speaking, a way to render tradable originally illiquid or private assets. The originator, in our case the soccer club, sells or transfers a pool of assets (in most cases accounts receivables) to the Special Purpose Vehicle, a specially established company. (14) The SPV is constituted as a separate legal entity, isolated from the risks associated with the originator. The SPV will issue securities on the capital market backed by the revenue stream generated by the assets. The receipts from the sale of these securities will then be used to pay the originator for the assets purchased by the SPV. The diversification of the underlying assets reduces the overall risk.

The 13 performed European ABS emissions related to soccer are reported in table 2. Most of them were backed with matchday revenues, that is, the securitized assets were future cash flows and not existing accounts receivables. Matchday revenues were chosen because of their stability, which was supposed to result from fan loyalty.

The first experiences in the late Nineties started very promising. Growing difficulties on capital markets after the New Economy crack in 2000/01 joint with exploding costs in professional soccer, (15) however, worsened the general situation. The weakest securitization projects slid down in serious trouble. As already mentioned, Fiorentina declared bankruptcy in November 2002 and the ABS bonds defaulted. In England, Leeds United (2004), Ipswich Town (2002) and Leicester City (2002) went into administration, forcing their investors to renounce to parts of their capital and to defer repayments. (16)

Only one ABS emission was performed by a German soccer team: Schalke 04 placed in 2002 ABS issues for 85 Mill. EUR, backed by matchday revenues. In return, it pays maximum 9 million EUR per season to the investor, a group of British and American pension funds. Since the club calculates 15 million EUR matchday revenues per season, plus VIP lounges and business seats proceeds, the premises for a successful ABS transaction should be given. More than a half of the received amount (48 million EUR) was used to reduce short-term debts, in order to lower overall financing costs. Anyhow, even Schalke 04 is 'condemned' to be successful in the next year, facing the annual amortization rate and an overall debt burden of about 100 million EUR. More than one unsuccessful season could bring the club in similar financial troubles like the immediate (geographical) neighbor Borussia Dortmund.

ABS issues are a general way for a soccer clubs to raise funds and could also be used for specific stadium financing purposes. Owning a real asset would even enhance the creditworthiness of the originator. This will be a necessary step in order to restore investors' confidence in soccer ABS emissions. Since 2002, no such emission has been realized and concrete plans have been made only for Chelsea (2003) and Manchester United (2004), which remains a particular case because of its outstanding financial performance. However, the overall results are better than those of stock market quotations, given several positive examples. With a more careful financial planning and the inclusion of real assets in the securitized pool, ABS emissions could become a suitable option in future once again.

Less attention by media and sports economists has received the interesting financing form of profit-participation certificates (or participation rights), the so called Genussscheine. These certificates are granting rights to participate in profits and liquidation dividends, but not to vote or share in capital. It is a form of mezzanine capital, combining attributes of owned and borrowed capital. (17) Such bonds were emitted in Germany by the Bundesliga clubs Hertha BSC and 1. FC Koln. While Hertha BSC placed in January 2005 issues for 6 million EUR, Koln followed a few months later, selling certificates for 5 million EUR. The latter had already placed in June 2004 Genussscheine for 5 million EUR with institutional investors, as first club in German soccer (Ernst&Young 2005). The two 2005 emissions were in contrast designed explicitly as "fan bonds", having a face amount of only 100 EUR and were placed mainly among supporters.

The market-independent demand resulting from fan loyalty is a clear advantage of this form. Problematic is the raising of higher amounts, which would be needed in the case of stadium financing projects. Here appealing to institutional investors would be once again compulsory and thus, normal capital market rules would apply, aggravated by the mentioned particular sports risks. Therefore, profit-participation certificates constitute an interesting additional financing instrument, allowing in some cases to overcome the typical risk conditions of sports investments, but are unable to finance a stadium project alone.

Recapitulating, innovative financing methods have brought some improvement in the last years, but the results have been ambivalent. They allow to attract more private investors than banks and to exploit modern capital market instruments. However, the peculiar risks connected to the particular shape of European sports leagues still could not be outbalanced and this makes a fully private financing of sports stadiums difficult. The engagement of public actors seems to be still necessary in most cases.

Public Subsidies and Mixed Forms

Direct and indirect subsidies have in fact been largely conceded for the new facilities of the WC 2006. Politicians have tried to support their decisions by commissioning cost-benefit analyses (see e.g. Friedrich et al., 2001; Willms & Fischer, 2001), which always yielded high benefits for the respective regions, mostly due to local multipliers. However, sports economic literature has widely shown such studies to be controversial from an economic point of view (Johnson, Groothuis & Whitehead, 2001; Buch, Maennig & Schulke, 2002; Noll & Zimbalist, 2002; Baade, 2003). It has been pointed out that such studies are mainly too optimistic as far as their forecasts are concerned. They also do rarely take into account possible negative external effects of such mega events and do not consider properly alternative possibilities of investing the tax money.

It is not the aim of this paper to search for a satisfying 'economic' justification of public sports subsidizing. Some German authors (especially Kurscheidt, 2004) are quite confident that the investments in the WC 2006 will yield a positive return for the German government's invested funds. We are doubtful that this will be the case. However, we argue that major events in sports should be treated as merit goods, like public expenditure for culture. Events like soccer WCs or Olympic Games have proved to provide a great image gain for the organizing countries and the hosting of the WC 2006 corresponds, as discussed in the introduction, apparently to people's preferences in Germany. Thus, a certain extent of public subsidization could be justified even without a calculable positive economic return.

An elegant way of avoiding full public financing of stadiums but, at the same time, of taking the peculiarities of the sports market into account, is constituted by Public-Private-Partnerships (PPP). Thus, municipalities can stimulate private investors to join in stadium financing projects, without losing their influence on the local sports infrastructure. PPPs generally consist by a joint venture of a public and at least one private actor to build, finance and operate a major infrastructural project. Normally, they involve a contractual relationship, not just a partnership.

PPPs were introduced starting from the Eighties in the UK and have gained remarkable popularity either in Germany. (18) They can be classified according to four basal characteristics: Construction, Operation, Finance and Ownership. Depending on the organizational form, several models can be distinguished, e.g. the Build Operate Transfer (BOT) model, Private Finance Initiatives (PFI) or the Build Own Operate (BOO) model. (19)

PPPs have been widely used for financing and operating the new venues for the WC 2006. Among others, the renovation of the formerly Niedersachsenstadion, today AWD-Arena in Hannover, was arranged as PPP. It is mix of a BOT model and a traditional concession, characterized by a public owner granting a perennial license to a private company, which operates the stadium.

The AWD-Arena can be taken as a case-study: its financing involves all three levels of government (federal, regional, local), besides public and private banks as well as the private sector. The public subsidies make up one third of the whole amount, whereby the government assures furthermore various debt guarantees and extraordinary allowances in case of relegation of the home soccer club Hannover 96 (details in figure 2). The rest of the amount is financed by banks (one third the public KfW, the other third the semi-public Nord/LB and Sparkasse Hannover), whereby the credits are paid down by the concessionaire, the Niedersachsenstadion Projekt- und Betriebsgesellschaft, using matchday revenues and other proceeds linked to the stadium (including catering, naming rights, lounges, advertising etc.). The half of these revenues goes to the Hannover 96 Sales & Service, the professional division of Hannover 96, to be used e.g. for players transfers in order to ensure the sportive competitiveness of the club. 'The second half is used for debt service, unlike other receipts, like broadcasting revenues, which are retained directly by the club. The refinancing is planned to be completed in 25 years. According to financial planning documents, about 2 million EUR per year will in the 'base case' (Hannover 96 playing in the Bundesliga) be at the concessionaire's disposal for debt service, net of operating costs. Financial stability should be guaranteed, at least for the first division. The well-known risk problems of European sports leagues have been taken into account by ensuring ab initio special public grants in case of relegation.

The newly set up concessionaire is the heart of the organizational setting. During the construction phase, shares were hold by the building company Arge Wayss&Freytag (51%) and by Hannover 96 Sales&Service (49%). After the completion of the venue, the former has retired and ceded its share to the Hannover 96 Sales&Service, which has become the unique stockholder with 5 Mill. EUR equity capital. Several local companies like Gilde (brewery) or AWD (financial services) are participating in it. The City of Hannover has granted a 27-years concession to Niedersachsenstadion Projekt- und Betriebsgesellschaft, subrogating all rights to it. Afterwards, the stadium devolves back to the City and all contracts will have to be renegotiated.


Another innovative mixed form, which could have constituted an interesting alternative for stadium financing, was the U.S. Cross-Border-Leasing (Panke & Rebeggiani, 2004). This model has been chosen by many local administrations in Germany to finance public infrastructure. (20) About 180 U.S. Cross-Border-Leasing contracts have been closed in Germany from 1996 to 2003.

They are characterized by a "lease & lease back" structure, whereby the public owner of a facility leases it to an institutional investor in the U.S. and leases it back. The lessor, the American trust, generates a surplus value by realizing tax advantages, exploiting the different tax legislations in the two different countries. (21) This surplus value is normally about 5-10% of the market value of the leased object and is equally divided between the two parts in advance. The public owner, normally a municipality, can therefore take in a considerable sum at once at signing of the contract. These contracts have typically long durations: the objects are leased for 99 years to the U.S. investor and leased back for 25-30 years.

U.S. Cross-Border-Leasing was debated in Kaiserslautern to sustain the very fragile financing of the FritzWalter-Stadium renewal. Besides of ethical problems, (22) these plans were never realized because of growing legal uncertainty. After a long legal process, U.S. Cross-Border-Leasing transactions were definitively interdicted by U.S. law in summer 2004. At present, no new transaction of this kind may be implemented in Germany. However, Cross-Border-Leasings with other countries like Japan, Sweden or the U.K. are currently debated and could constitute an option for future projects. Indeed, specialized legal offices like Duefinance strongly advise against such precarious, pure financial transaction in the future (23) and we either regard other forms like PPPs as definitively more recommendable.

The Stadiums for the FIFA World Championship 2006

The application for the WC 2006 caused the often described 'rat race' between German municipalities, until the 12 venues were defined in 15th April of 2002. More stadiums were built or renovated than were finally chosen as venues for the big event. In some important soccer centers like Bremen or Monchengladbach, the exclusion caused big disappointment. The problem of overinvestment can be regarded in this case as not fundamental, given the described state of German soccer stadiums, which would have made a renovation compulsory sooner or later.

The newly built or renovated stadiums not chosen for the WC 2006 are reported in table 4. Bremen and Monchengladbach are cities expected to host a Bundesliga club continuously during the next years, which should ensure sufficient revenues. A very problematic case is the already mentioned LTU Arena in Dusseldorf, whose future is still unclear. The other stadiums reported in the table belong to a "second wave" of stadium building, which started after the construction phase for the WC 2006. The 'wave' involves smaller clubs, aiming to renovate their venues in order to augment their matchday revenues, even though at lower costs than the renewals or new buildings for the WC 2006. This is the case in Duisburg, Mainz, Magdeburg, and other cities are to follow. (24) The projects have a smaller shape (only 25,000-30,000 seats instead of 50,000 on average) and lower costs per seat (1,000 EUR instead of 4,000 EUR).

The facilities for the WC 2006 were completed in the first half of 2005, so that now a balance can be drawn. Although the involvement of private investors has not been of the desired extent, some progress has been made in comparison with the past. Table 3 shows a detailed overview of the costs of the single stadiums and their coverage.

The overall spending for the WC 2006 facilities amounts to approximately 1.5 million EUR. The government has financed directly 520 million EUR, or approximately one third of it. Other subsidies have been given in terms of debt guarantees and especially infrastructure expenditures, which were mainly left out of the count. Thus, even the three stadiums (Gelsenkirchen, Munchen, Dortmund), which have been apparently fully privately financed, have been supported with debt guarantees or infrastructural investments.

In most cases, a form of PPP was chosen to organize and finance the new or renovated venue. The variety of models ranges from almost pure public forms, like the RheinEnergieStadion in Koln, to cases, in which the government concedes only debt guarantees. In the former example, a part has been directly granted by the municipality, the other is financed by the operating company Kolner Sportstatten GmbH, using matchday revenues of the soccer club 1.FC Koln as major refinancing source. Since the Kolner Sportstatten GmbH is a direct affiliate of the City of Koln, the stadium is completely in public hands with minimal private contributions (naming rights and sponsorships). Similar situations are given in Berlin, where the unique significant private investor Walter Bau declared insolvency, and Stuttgart. Most problematic in these cases is the fact that the operating company remains in public ownership, forcing the government (and so the tax payer) to stand in for eventual losses.

In other instances, public participation was restricted to allowances and infrastructural works. The operating company in such stadiums is then private or mixed. This is the case in Munchen, Dortmund, Hannover or Frankfurt, among others. Public grants are in some cases of considerable amount, like in Frankfurt, but restrict public involvement to effected payments or defined extra future allowances (e.g. in case of relegation), avoiding 'bad surprises' from loss-making operating companies in future (Vornholz, 2005).

The provision of debt guarantees by the local, regional or federal government has been widespread. Examples are Hannover or Gelsenkirchen. In the latter case, this was the only public participation. Debt guarantees would lead to an involvement of the public authorities only in extraordinary bad situations, but could also even not apply ever. In such a case, the Veltins Arena would be fully privately financed..

Private companies have entered the financing of the venues for the WC 2006 mostly as partners in building and/or operating companies. Remarkable is the engagement of building enterprises, which is rather new in Germany. Examples are Hochtief in Nurnberg (and Magdeburg), HBM in Gelsenkirchen and Walter Bau in Berlin (and Dusseldorf). We consider this engagement as also motivated by the bad general situation in construction industry, which forces the enterprises to sometimes precarious investments in order to enlarge their market and to attract future public orders. The insolvency of Walter Bau shows, however, how problematic such participations can be. (25)

Noteworthy is furthermore the strong engagement of sports marketing agencies like Sportfive and HSB in Frankfurt and, again, Sportfive in Hamburg, which participate in operating companies, bearing part of the entrepreneurial risk.

A somewhat particular kind of private enterprises is represented by the Bundesliga soccer clubs. They have a special interest in building or renovating the stadiums, being the new facilities a fundamental investment in their own business (Vornholz, 2005). Future matchday revenues will depend crucially from an adequate facility. Soccer clubs were involved in most stadium projects and are in some cases important parts of the financial and organisational setting. Examples are the Allianz-Arena in Munchen, which has been almost fully financed by the two soccer clubs of Munchen, FC Bayern (the wealthiest and most successful German soccer club) and TSV 1860. In Hamburg and Gelsenkirchen, the operating company is owned mainly by the soccer clubs Hamburger SV and Schalke 04. A special case is Dortmund, where the original financing model, a close real estate fund, from which the stadium was leased back by the soccer club Borussia Dortmund, failed because the club could not bear the leasing rates. The stadium had to be partly repurchased by the club in order to lower the current financing costs. The stadium is therefore at present owned mainly by the club and financed with borrowed capital.

Conclusions and recommendations for future events

Chances look good for Germany not to experience a financial disaster by hosting of the 18th soccer championship. In most cases, the long-term financial stability of the venues should be ensured by the revenues of the home Bundesliga soccer club. The investments for the big event have, however, required a conspicuous subsidizing by the government. Although innovative forms of financing sport stadiums have been implemented, a governmental presence has proved to be still necessary, at least for debt guarantees. Among all financing forms, Public-Private-Partnership models represent the best way to overcome the inherent particular risks of the sports market for private investors.

Which lessons can be learned by organizers of future major events? Germany 2006 shows that for sports having a profitable professional league, private investors can be attracted and public subsidies can be limited to a necessarily required minimum. Appropriate organizational forms can ensure adequate returns on investment for private companies in the long run. This should encourage especially Italy, running to host the UEFA European soccer Championship in 2012, to set up analogous models, in order to avoid financial and organizational tragedies like in the past.

On the other hand, the WC 2006 shows also that such a professional league generating continuous stable revenues is an indispensable precondition for setting up a profitable financing for a modern sports stadium. In cases, in which this is not given, e.g. for most Olympic sports, a significant private involvement turns out to be difficult. Whether in such cases the government should finance professional sports at all or not, and to which extent, is still a matter of debate. We argued that major events of global importance like Olympic Games or Soccer World Championships should be treated as merit goods, without, however, providing a theoretical support. This should be a matter of future research.


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Luca Rebeggiani

Department of Economics

University of Hannover. Germany

(1) In certain cases, single stadium projects were controversial, like the Allianz-Arena in Munchen, but mainly due to environmental and urban development issues.

(2) In this point, we cannot fully agree with Robert Baade (2003), who reports declining public spending in European professional sports and yet a banning in some countries (p. 586). With the exception of Great Britain, public subsidies for sports facilities still constitutes the normal case in Europe and even other more direct forms like the Decreto salvacalcio in the Italian Serie A, which alleviates the tax burden for soccer clubs, have been issued in the last years.

(3) In fact, sports clubs are regarded to have been one important integration factor for the integration of foreigners in Germany during the Sixties and Seventies.

(4) Inflation-adjusted, total 1974 investments are about 317 Mill. EUR.

(5) No structural break can be identified in public sport expenditure time series (see the detailed analysis by Hockenjos 1995).

(6) In the Eighties, Italy was experiencing a period of unusual high political corruption, later called Tangentopoli--'Bribesville'. Starting from 1992, a group of magistrates (Pool Mani Pulite) brought with concentrated legal actions to the disclosure of the corrupt system. Their inquiries led to the demission of many political and economic leaders (like the former Prime Minister Bettino Craxi) and to the dissolution of almost all political parties of the postwar period (Della Porta and Vannucci 1997).

(7) Morisi (1993) provides a detailed analysis of the involved actors and the decisional process.

(8) As in many other cases, it is difficult to ascertain the real costs. Estimations range between 66 Mill. EUR and 180 Mill. EUR. See Matteoli (2001) for an overview of the debate.

(9) Data from Deloitte (2004).

(10) Data from DFL (2005a).

(11) In other European leagues like the Serie A, where broadcasting rights are independently sold by the single clubs and not as a whole by the league (as in the Bundesliga), the differences are even larger.

(12) Averaged matchday revenues per club in the 2. Bundesliga were in 2003/04 about one seventh of those in the first division (1.59 Mill. EUR instead of 11.5 Mill. EUR). Averaged broadcasting revenues were three and a half times as high in the first division compared to the second (16.2 Mill. EUR instead of 4.62 Mill. EUR), and this ratio had already declined from 5.4 in the season 2001/02, before Kirch Media, the company holding the broadcasting rights, declared insolvency (DFL 2005a).

(13) Bank credits were the only form permitted by the non-profit legal form eingetragener Verein mentioned above, which was compulsory for Bundesliga clubs until 1998.

(14) Technical details with particular reference to soccer clubs are provided by Kern (2003). For a general description of ABS see Perridon/Steiner (2003). See also Moran (2000).

(15) The period from 1995 to 2002/03 was characterized in all European soccer leagues by exploding wage costs, partly due to the famous "Bosman Verdict", which stated players' right to free movement to another club after the expiry of contract, leading to an enormous wage increase, partly because of multiplied broadcasting revenues. For details see Swieter (2002) and Deloitte (2004, 2005). Growing financial difficulties of most European soccer clubs and the insolvencies of sports marketing agencies (like the FIFA-related ISL) and broadcasting companies (like Kirch Media in Germany), led to a general slow-down.

(16) The latter two got into trouble after relegation in a minor league, confirming the particular risk conditions of European leagues described above.

(17) Profit-participation certificates are subject to very little legal prescriptions in Germany and can therefore be built up according to the preference of the emitting company. Depending on criteria like subordination, sharing of losses, performance-based compensation and the duration of capital commitment, they get closer to owned or to borrowed capital. For technical details see Perridon/Steiner (2003), p. 424.

(18) Examples are the Herrentunnel in Lubeck (investment volume: 162 Mill. EUR) or the Warnow Tunnel nearby Rostock (225 Mill. EUR). A recent negative case is the PPP-project Toll Collect, which was set up to introduce highway toll for trucks and defaulted due to technical problems. This caused a monthly loss of 163 Mill. EUR for the German government, only in part offset by a contractual penalty paid by Toll Collect.

(19) A survey of the various types of PPPs and their denominations across Europe is provided by Hall, de la Motte & Davies (2003). For a detailed technical analysis of PPP see Dedy/Stempel (2002).

(20) Examples are the waste water system in Essen (910 Mill. USD) or the municipal railway system in Dusseldorf (1.650 Bill. USD).

(21) Tax advantages are realized primarily by claiming depreciation in the U.S.. For a detailed technical description see Panke and Rebeggiani (2004). U.S. Cross-Border-Leasing contracts are extremely complex, having to take into account two different legislations. Normally, a contract consists of more than one thousand pages and transactions have to be arranged by specialized legal offices like Duefinance in Dusseldorf. A detailed analysis of these contracts would go beyond the scope of the present paper.

(22) The U.S. Cross-Border-Leasing was often blamed to be a tax fiddle, because of its character as pure financial transaction (as criticized by the IRS starting from 1999). Moreover, the additional value generated by the lessor and shared with the lessee is made at the expense of the American tax payer. This was the main reason for the legal battle conducted by the Republican Senator Charles Grassley, which led to the prohibition by the "American Jobs Creation Act" in 2004.

(23) We conducted an interview with Duefinance-representatives on December 29th, 2005.

(24) A new stadium is planned, among others, in Aachen and Dresden. Other venues, like the Stadion der Freundschaft in Cottbus, or the Playmobilstadion in Furth have already been renewed.

(25) Whether this insolvency was accelerated by the stadium financing projects or not, is still under discussion.
Table 1: Average revenues of Bundesliga soccer clubs

Average revenues of Bundesliga soccer clubs (in EUR)

                Rank 1-6    Rank 7-12    Rank 13-18    Average

Matchday        15.413m     9.234m       5.400m        10.015m
Commercial      28.683m     10.156m      5.863m        14.901m
Broadcasting    39.309m     15.891m      13.803m       23.001m
Transfers       8.507m      3.235m       1.876m        4.539m
Other           20.800m     6.191m       3.075m        10.022m
Total           112.712m    44.707m      30.017m       62.478m

Data: DFL (2004)

Table 2: ABS Emissions of European soccer clubs

Originator/                           Volume in   Duration   Backing
Club             Country   Date       EUR         in years   Assets

SS Lazio         I         Oct. 97    26.1m       10         M
Real Madrid      E         Jul. 98    44.7m       5          S
Fiorentina AC    I         Nov. 98    34.7m       12         M
Newcastle        UK        Dec. 99    86.3m       17         M
Southampton      UK        Dec. 00    41.4m       25         M
Leicester City   UK        Aug. 01    44.3m       25         F, S
Ipswich Town     UK        Aug. 01    39.6m       25         M
Leeds Utd.       UK        Sept. 01   95.9m       25         M
Everton FC       UK        Mar. 02    48.3m       25         M
AC Parma         I         Mar. 02    95.0m       5          F, S, MD
Manchester       UK        Sept. 02   48.4m       24         M
Schalke 04       D         Oct. 02    85.0m       23         M
Tottenham        UK        Nov. 02    117.9m      21         M

M = matchday revenues; F = broadcasting revenues; S = sponsoring
revenues; MD = merchandising revenues

Data: Kern (2003), own research

Table 3: Stadium Investments in Germany for the FIFA
World Cup 2006

                    Volume in
City/Stadium          Euros                Financing (in EUR)

Berlin                241.8        Originally assessed: 50m Federal
Olympiastadion                     Government; 146.8m Federal State of
                                   Berlin; 45m operating company (loan
                                   of Walter Bau AG secured by a
                                   Federal State debt guarantee).

                                   Shareholder: soccer club Hertha
                                   BSC KGaA, Walter Bau AG
                                   (concessionaire), Federal State
                                   of Berlin

                                   Current: Insolvency of Walter Bau
                                   AG; credit of 46m raised by the
                                   City of Berlin; Federal State of
                                   Berlin is now unique sharer of the
                                   operating company.

Dortmund                36         Originally assessed: 2002
Signal-Iduna-     (3rd stage of    assignment of 94% of the stadium
Park                expansion)     interests to investor Molsiris
                                   within the framework of a closed
                                   real estate fund; fund volume:
                                   90m; in 2017 resale to club (sale
                                   & lease-back model)

                                   Current: Repurchase of 42.8% of the
                                   stadium shares; thus, the soccer
                                   club BVB saves 5m stadium rents
                                   annually from 2007 on and is
                                   exempted from payment in 2005/2006.
                                   Furthermore, an investor takes a
                                   share in costs with 10m. Naming
                                   rights were purchased by insurer
                                   Signal-Iduna until 2011, paying

Frankfurt am           188         64m City of Frankfurt; 20.5m
Main                (including     Federal State of Hessen; rest
Commerzbank-      infrastructure   (105m) financed by operating
Arena             and completion   company (HSG and Sportfive) with
                      of the       operation revenues; naming rights
                    interior)      from 2005-2015 held by bank
                                   Commerzbank AG (performance-related
                                   fee, normally significantly over

Gelsenkirchen          192         115.5m loan of a consortium of
Veltins-Arena                      banks; 33.8m equity capital of
                                   the holding company (therein: FC
                                   Schalke 04, Deutsche StadteReklame
                                   GmbH, Stadtwerke Gelsenkirchen,
                                   Hellmich Baugesellschaft (building
                                   contractors company), various
                                   single investors); 12,8m loan of
                                   the firm of building contractors
                                   HBM; 9m from Ruhrkohle AG and HBM
                                   for advertising; 12m own companies;
                                   8.5m supplemental financing
                                   (borrowed capital) 92m deficiency
                                   suretyship of the Federal State
                                   Nordrhein-Westfalen; naming rights
                                   2005-2015 held by brewer Veltins
                                   (4.6m annually)

Hamburg                 97         11m City of Hamburg; 70m external
AOL-Arena                          financing; 16m equity capital of
                                   the stadium operation company (25%
                                   Sportfive/75% soccer club HSV);
                                   naming rights 2001-2006 held by AOL

Hannover              65.25        21.474m Federal State of
AWD-Arena                          Niedersach-sen/City/Region of
                                   Hannover; 22.213m bank loan
                                   provided by Nord/LB and Sparkasse
                                   Hannover; 21.563m loan from the
                                   public bank KfW; public authorities
                                   grant an additional annual subsidy
                                   of 850,000 EUR in case of
                                   relegation of the soccer team
                                   Hannover 96.

Kaiserslautern         64.5        Originally assessed: 48.3m; thereof
Fritz-Walter-        (48.3) *      18.9m by soccer club 1. FCK;
Stadion                            Federal State of Rheinland-Pfalz
                                   21,7m; City of Kaiserslautern 7,7m.

                                   Cost over-runs: 16.2m; thereof
                                   10.8m Federal State, City 5.4m.

Koln                  119.5        25.7m City of Koln, rest by Kolner
RheinEnergie         (110) *       Sportstatten GmbH (an affiliate of
Stadion                            the City of Cologne as well as the
                                   owner and the operating company);
                                   naming rights until 2010 held by
                                   energy company RheinEnergie (about
                                   2m per year)

Leipzig               116.2        Originally assessed: 90.6m; thereof
Zentralstadion       (90.6) *      Federal Government 51.1m; City of
                                   Leipzig 12.1m; private investor
                                   EMKA Immobilienbeteiligungs GmbH
                                   (estate shareholding Ltd.) 27.4m

                                   Cost over-runs: 25.6m, thereof 9m
                                   City; rest private investor M.

Munchen                340         Initial financing: Soccer clubs FC
Allianz-Arena                      Bayern and TSV 1860 Munchen (each
                                   one half of Allianz Arena Stadion
                                   GmbH); 225m loan from Eurohypo
                                   Bank; naming rights from 2005-2021
                                   held by insurer Allianz (92m),
                                   payments in advance have already
                                   been adopted for financing; 75
                                   financing by FC Bayern Munchen

                                   Refinancing 2005: 300m by private
                                   investor fund, Dresdner Bank and
                                   Eurohypo; 40m Lfa Forderbank
                                   Bayern; repayment of the 75m to
                                   Bayern Munchen with market interest
                                   rate; 60m extension of the naming
                                   rights to 25 years Public
                                   involvement: Local and federal
                                   authorities pay 210m for
                                   infrastructure (public transport,
                                   highway connection etc.)

Nurnberg                56         28m Federal State of Bayern; 12.1m
Frankenstadion                     City of Nurnberg; 15m by operating
                                   company (74,9% Hochtief Facility
                                   Management/25,1% City); 1m by
                                   previous international soccer

Stuttgart              51.5        15.3m Federal State of
Gottlieb-                          Baden-Wurttemberg; 36.2m by the
Daimler-                           City of Stuttgart; marginal share
Stadion                            held by soccer club VfB Stuttgart;
                                   sale of naming rights impossible,
                                   because assigned for a fixed amount
                                   since 1993

* originally assessed construction costs.

Data: Voss (2004), Fasse and Buchenau (2004), Sussmilch (2002),
own research

Table 4: Other Recent Stadium Investments in Germany

                    Volume in
City                  Euros                Financing (in EUR)

Bremen               17 (last      Completely by Bremer Weser-Stadion
Weserstadion         stage of      GmbH (an affiliate of Werder Bremen
                    expansion)     and the City of Bremen) using
                                   matchday revenues; no governmental
                                   allowances or suretyships

Duisburg                43         25.5m equity (City of Duisburg and
MSV-Arena                          several private investors); 25.5m
                                   loan of Hamburgischer Landesbank
                                   (public bank of Hamburg)

Dusseldorf             218         63.9m City of Dusseldorf; 10.23m
LTU-Arena                          energy company EnBW; rest by
                                   operating company (involved: City
                                   and formerly Walter Bau , now: a
                                   private investor is wanted); naming
                                   rights in 2005-2007 held by tour
                                   operator LTU (0.45m per year).

                                   Current changes: Insolvency of
                                   Walter Bau AG, arena has serious
                                   financial problems and has been
                                   acquired by the City of Dusseldorf

Magdeburg              30.9        14.8m City of Magdeburg,
Ernst-Grube-                       furthermore 5 years partial payment
Stadion                            of the operating costs of 0.36m;
                                   16.1m Hochtief AG (with a debt
                                   guarantee of the City)

Mainz                   11         6.5m Federal State/City of Mainz;
Stadion am                         4.5m soccer club Mainz 05

Monchengladbach        86.9        7.65m equity capital; 35.8m loan
Stadion im                         from the City; 43.45m bank loan
Borussia-Park                      (consortium of SEB Bank,
                                   Stadtsparkasse Monchenglad-bach
                                   and Deutsche Kreditbank Berlin),
                                   80% guaranteed by suretyship of
                                   the Federal State

Data: Voss (2004), Fasse and Buchenau (2004), Sussmilch (2002), own

Notes: GmbH = Ltd.; AG = stock corporation

Figure 1. Stadium Renovations 1988-1998 in Europe

            Average period    Number of       Invested
            since the         substantially   amount in
            substantial       renovated       substantially
            renovation *      stadiums *      renovated
            1988-1998         stadiums *      1988-1998
                                              (bill DM)

Germany       15                 6               0.33

Britain       5                  14              1.3

France        6                  11              1.2

Italy         8                  13              0.985

Data: Roland Berger (1998)

*: Minimum renovation investment
20 mill. DM

Note: Table made from bar graph.
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Date:Jun 22, 2006
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