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Public-Private Partnerships: A case study on Singapore’s National Stadium

31 Jul 2018

Competing public and private sector priorities, and stakeholder alignment issues plague the island state’s sporting crown jewel

When the old Singapore National Stadium was closed in 2007 following 34 years in service, construction for its replacement was scheduled to start the following year. While groundbreaking was delayed by the 2008 financial crisis, the new National Stadium was eventually completed in 2014 at a cost of SGD1.33 billion (USD0.99 billion).

The 35-hectare Sports Hub, which consists of the 80-metre high stadium and the adjoining Kallang Wave mall, was built under a path-breaking public-private partnership (PPP) between Sport Singapore, the government’s sports statutory board, and Sports Hub Pte Ltd (SHPL), a consortium consisting of InfraRed Capital Partners, the majority equity partner, Global Spectrum Pico, Dragages Singapore, and DTZ Facilities and Engineering.

Despite the hype and anticipation, Sports Hub suffered major teething problems during its initial high-profile events. A 2014 friendly football match between Brazil and Japan was overshadowed by the state of the sandy pitch. Later that year at the same venue, Taiwanese pop star Jay Chou’s concert experience was diminished by a roof that was less than watertight. This led to cracks in the constituent partnership, as Sport Singapore criticised SHPL for its less than stellar work.

After fixing the initial technical problems, the consortium was hit by accusations of being too expensive for local organisers of regional competitions and community events. Global sports promoters also suggested that the leasing charges were too high compared to other top venues. SHPL even clashed with the government over renting the stadium for extra rehearsals for the National Day Parade (NDP).

Everybody appeared to blame everyone else. How can stakeholder relationships be repaired and, hopefully, improved?

Show me the money

The collaboration between the government and the private sector had many benefits. The government did not require a high capital outlay as the initial construction costs were borne by the consortium. Instead, it would make monthly availability payments over the 25-year term of the agreement. According to its contract with Sport Singapore, SHPL was entitled to SGD193.7 million annually.

The regular payments reduced cash-flow volatility by distributing total costs over the contract period. It also provided downside protection should the project not be commercially viable as it lacked an anchoring sport franchise such as a Singapore Football Club that would host home games fortnightly. The group would receive payment as long as the Sports Hub was available for use and satisfied the service performance criteria as defined in the contract.

Any commercial profits made would be split between the government and the consortium. Therefore, it was believed that together, they would work towards developing and operating a world-class venue that could be reconfigured for various sports, and host other events such as concerts.

However, the stadium’s rough start became a harbinger of things to come when Sports Singapore’s Chief Executive Office, Lim Teck Yin, threatened to withhold payment following the pitch fiasco for the Brazil-Japan match:

“The pitch remains one of the key deliverables that the SHPL has yet to fulfil in spite of promises and assurances given in the past to the government and the public... Sport Singapore will hold SHPL accountable for the outcomes of their next actions... We cannot be paying for what has not been delivered.”

To fix the pitch, SHPL spent SGD1.5 million on lamps to replicate the effects of sunlight to help the grass grow. In the meantime, events had to be cancelled, leading to ticket refunds and further public frustration.

And even when the venue was available, event organisers were often put off by the high rental fees quoted. International sports agency MP & Silva had to make alternative arrangements after being priced out from convening the Merlion Cup, a youth-level football tournament, at the national stadium. Similarly, enquiries by Singapore Athletics to host the Asia Masters Athletics Championships were cut short by price issues. The reported asking fee of SGD620,000 over four days was double the event's entire budget.

The main (non-existent) event

The national stadium was built with adaptability capabilities to enable it to host other sports besides football, and also concerts albeit at a cost. A projected fee of SGD300,000 to reconfigure the venue into a cricket oval setting precluded serious discussions to showcase top international cricket sides and Indian Premier League clubs to local fans. Julian Kam, chief executive of ProEvents, a leading football promoter, provided a comparison for the fees quoted, “The Sports Hub is quite simply overpriced right now - even 20 to 30 per cent more than some of Europe's top stadiums.”

The pricing policy led to a dearth of events staged at the national stadium. Executive suite owners, who paid up to SGD180,000 annually, were unhappy with the programming schedule. Suite memberships included the benefit of free entry to all sporting events as well as two non-sporting events a year. SHPL marketed the suites by providing assurances that at least 15 ticketed events a year would be staged at the national stadium but so far had not lived up to its promise. Without a vibrant event lineup, annoyed owners sought mediation or refused to pay membership fees.

Internally, there were cracks appearing in the consortium as SHPL was hit by waves of senior staff resignations. The vision and direction of the Sports Hub was unclear to employees as communication from the leadership had not been forthcoming. Morale at the Sports Hub was low as people were affected by fault-finding sessions and job security worries. There were even rumours that the consortium was considering replacing one of its partners.

Mending fences

An audit conducted by KPMG revealed that the interests of the stakeholders were misaligned. There was a feeling that commercial interests were prioritised over the public welfare. Sport Singapore preferred to host more community events while the private sector naturally favoured events that maximised profits. However, holding more non-sporting events would affect sporting events by damaging the pitch.

While many disputes seemed to have been settled, there were still over twenty years left on the concession contract between SHPL and the government. The Sports Hub’s PPP structure made the project more complicated due to the stakeholder relationships. How can stakeholder relationships be improved?

 

This is an adapted version of the SMU Case Writing Initiative case, “Stakeholder Issues at the Singapore Sports Hub”. To see the full case, please click on the following link: https://cmp.smu.edu.sg/case/3581

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Last updated on 30 Jul 2018 .

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