I recently attended the Global Sport Agora, organised by the World Academy of Sport in collaboration with the City of London where stakeholders from all parts of the sports ecosystem, be it investors, developers or consultants like me, meet to discuss the intersection of sport and finance.
With its vision to “align sport, the private sector and governments for the good of society”, there were two clear themes, one guided by my colleague, Gretta Starks, RLB’s Head of Project & Programme Management for UK & Europe, ‘How Sports impact other Asset Classes’, and ‘Unlocking Sport as an Asset Class’.
Returning to the office following the discussions, it got me thinking about how sport is a broad church, ranging from council owned leisure centres to elite sports facilities and everything in between. The business case for designing and building a sporting facility is often the balance of the development costs versus its return on investment. For some facilities, such as elite sports facilities, these costs run high, and ROI can take years to be realised. For others, even if costs of development run lower, ROI can still be out of reach.
Making Smart Returns
For investors to classify sport as an asset class, it is short to mid-term return that is key. The recent rise in popularity of the racket sport, padel is a case in point. A padel court can be built in existing spaces, adapted easily from an empty commercial, or an unutilised outdoor space, quickly, cheaply and efficiently. The market demand is ripe, according to audience research, participation skewed to adult males 26-50, who want to exercise but perhaps don’t want the high intensity of other sports, or have the time to undertake them. The demand heightened by the hype, complemented by the cost and speed of development, means that padel has been a prime for investors looking at sports facilities as a way to generate returns on their funds.
However, what happens when padel stops becoming the latest trend, will investment wane as well as the interest in the sport? With the lower costs of development, return is likely to be quick and therefore investors will have less to lose, but how or should we take this model as a framework for making sport an asset class?
The issue is that different sports require different levels of infrastructure development, and therefore have different levels of investment and financial ROI. Ultimately that is where a sport has to rely on broader measures of return beyond finance if the financial ROI doesn’t stack up.
Serving Up Social Value
What often isn’t accounted for in the initial business case is the commercial value add that many of these facilities bring to their communities. There is the infrastructure built around a new stadium, residential, commercial and retail developments that surround such facilities, the job creation that comes with the design and build and running of a facility, the creation of roads and transportation links that will be used for years to come, that can drive social mobility, and of course, the economic boost to the local area. And that’s all without talking about the social value these facilities can bring, having a community space to meet others, to be part of a joint activity and the public health and wellbeing impact that a new facility might have on a local demographic.
Luckily most participant sports can point toward social return on investment as a measure of clear success and one which supports investment of finance in return for supporting the health and activity of a population as a counter. This is where the line between public and private investment in sports infrastructure often lies.
Obviously, this model would not be viable for sports like swimming where facilities are traditionally costly to build, maintain and operate, equating to a high-risk profile for investors. However, what about table tennis or squash? Both have the ability, like padel for their facilities to be accommodated in unused units in town centres at low cost and to community benefit. So why aren’t they being presented as potential assets for investment?
Of course, as Head of Sport for RLB, I believe that sport is an asset class, but with the caveat that the business case needs to be strong and that it needs to be driven by a realistic mix of commerciality and social return rather than passion projects. We need to look at the spaces and the areas that need regeneration and use sports facilities as value builders in these areas. So, let’s take the retail space sitting unused in that city centre and redevelop it, but in line with the local demographic. Or let’s take a new development and look to add in a multi-use all weather pitch that can be used for local football, basketball or even tai chi if that’s what the local community demands. Sport facilities can act as a commercial magnet whether that’s combined with leisure such as a café or restaurant or retail spaces. However, the balance is to look at each facility’s investment case through a lens of not just commercial gain but also long-term social gain, with both elements playing its part in how we truly classify sport as an asset.
FURTHER INFORMATION:
