An approach for evaluating the risk management role of governments in public–private partnerships for mega-event stadiums

Abstract

Although public investment is often seen as a necessary source of funding for major sporting event facilities, the degree of government involvement remains a controversial issue. This paper proposes an approach that minimizes government investments, without deterring the interest of private investors, in building/ refurbishing stadiums for mega-events. Using the FIFA World Cup as an example, we concentrate our attention on demand risks, i.e., the risks related to attendance at matches. In order to deal with the risk-return trade-off, we build a model based on real options theory, which allows us to evaluate the size of the incentive the private entrepreneurs need to invest in a PublicÁPrivate Partnership (PPP) setting. Our main findings indicate that ancillary investments near the stadiums are essential to mitigate risks and that the coordination of a central government may reduce the capital required for risk management when several stadiums need to be built in a short time frame. Our results suggest that government should evaluate some infrastructure PPP projects as a portfolio of investments, instead of looking at opportunities only in a single-project basis.

The Private Scope in Public–Private Collaborations: An Institutional and Capability-Based Perspective

“…The supportive role provided by PPP units appears particularly pertinent to attenuate the perceived level of contractual hazards and project risks for private actors (European Investment Bank 2011). For instance, in British Columbia, a PPP unit arranged to set up processes to assist in managing risks for the Canadian infrastructure development through PPPs, while in Brazil, the local PPP unit crafted important guarantees for the Arena Fonte Nova football stadium on actions that might affect the expected returns on investments (Cabral and Silva 2013, European Investment Bank 2011, Xenidis 2013 Private capabilities in public-private collaboration. We also measured private capabilities in two complementary ways.…”

Managing Critical Services through Hybrid Arrangements

“…When it comes to financial constraints, hybrids might facilitate access to innovative financial mechanisms, such as new equity funds jointly crafted by public and private partners (Erol & Ozuturk, 2011) or revenue guarantees based on put options (Cabral & Silva, 2013). Hybrids can also help handling the lack of financial resource for government, while private partners benefit from public authorities remaining ultimately liable, as well illustrated by numerous PPPs agreements (Hodge & Greve, 2007).…”

Priming Host City Physical Legacy Plans: The Bidding Chronicles of Brazil's Derailed Sporting Event Infrastructure Projects

“…Moreover, the second category accounted for infrastructure essential for hosting the event, such as transportation systems (Li, 2013;Searle, 2012). Cabral and Silva (2013) extended this to include the use of ancillary facilities, which they emphasized to incorporate museums and convention centers located nearby stadiums. Preuss (2009) argued it is often these ancillary facilities that form a positive legacy, although the future operational costs are largely underestimated (Mills & Rosentraub, 2013).…”

“…Substantial budgets and resources are needed to develop the appropriate sporting, transport, and ancillary infrastructure, which commonly leads to a reliance on public expenditure and subsidies from taxpayers (Gratton & Preuss, 2008;Mills & Rosentraub, 2013;Preuss & Schnitzer, 2015). These funds can be diverted from social and environmental programs to the development of sporting infrastructure (Cabral & Silva, 2013;Jones, 2001;Li, 2013;Preuss, 2009). In turn, most large-scale facility and venue constructions are justified on the basis of exploiting tourism demand, and expanding urban upgrade projects throughout the host city or nation (Gratton & Preuss, 2008;Jones, 2001;Müller, 2012;Thornley, 2002).…”