The true cost of stadia upgrades and payback periods

[Ed@PSG]

The True Cost of Stadia Upgrades and Payback Periods

It is some time since the stadium upgrade costs were released and since that point we have had a revision to ticket prices. So what is the exact cost of getting to full capacity, how long will it take, and how long is the payback period. The calculation of the true cost may not be as simple as it seems, since upgrades in one year result in additional income that is used to fund future years. The table below suggests a total cost of £141m, but it may not be that simple.

At some point in the past all stadia were halved in size, giving a little boost to the smaller grounds by closing the gap to the larger ones. In February 2024 the upgrade costs were released as follows:-

Increase Cost
30k to 35K £5m
35k to 40k £5m
40k to 45k £6m
45k to 50k £7m
50k to 55k £8m
55k to 60k £10m
60k to 65k £12m
65k to 70k £14m
70k to 75k £15m
75k to 80k £16m
80k to 85k £17m
85k to 90k £18m
90k to 95k £19m
95k to 100k £20m

Additionally, the maximum increase in size to a stadium each season is set at 10k, and the maximum size is 100k.

Prior to the halving of stadia size, most top team clubs had maxed out at 110k, so I will use that as a starting point for this article, so £55k

Consequently, breaking down the data in the above list, there are 9 hops to get from 55k to the maximum 100k, and the quickest time period in which it can be executed is 5 seasons (allowing for one season where only a 5k upgrade is required).

Without trying to get all ‘mathsy’ I need to differentiate between the actual season number, and the season in the upgrade process, so I will simply call the upgrade season the ‘Useason’. To clarify the first upgrade was carried out at the start of actual season4, which will be Useason1.

At that point, all we knew was that the season ticket price in top tier was £25, and we had no idea what future ticket prices would be, so the calculation of any payback period was a complete stab in the dark. Although it was clear that if ticket prices were only increasing by £1 or £2 per season, it would be a lengthy process, and the managers that chose to adopt a strategy of upgrades were taking a leap of faith. It is not completely certain why, but at some point, the FFO powers that be, decided to significantly increase the ticket prices for Season5 (Useason2) from £25 to £30, representing a 20% increase, which was reassuring news for the early adopters, who were probably feeling the pinch in their FFO pockets. Part way through season5 we then had the publication of the ‘Roadmap’, which appeared to set in stone the top tier ticket prices for the next 4 seasons as follows:-

Season 6 £32 per ticket
Season 7 £34 per ticket
Season 8 £36 per ticket
Season 9 £38 per ticket

Finally we are to do some calculations with some certainty, on the presumption that the ticket prices will not be amended during the next 4 season.
Earlier, we touched upon the fact that increased ticket sales following an upgrade would generate additional income to fund future upgrades, but it is important that we appreciate the timing of the upgrade and subsequent receipts. To clarify, an upgrade cost always occurs at the start of a season before it yields any additional income. So, in terms of net cashflow, the most painful point will always be following such an upgrade.

So lets break these numbers down. We will assume that a team starts with a stadium of 55k (since most top tier teams did following the halving) at the start of season4 (Useason1)

Useason1
Cost of upgrading by 10k seats to 65k £10m plus 12m = £22m
Net cumulative outlay after upgrade £22m negative
Additional income in season from 10k seats @ £25 x 19 games £4.75m
Net cumulative outlay at end Season4 (Useason 1) £22m less £4.75m = £17.25m negative

Useason2
Cost of upgrading by 10k seats to 75k £14m plus £15m = £29m
Net cumulative outlay after upgrade £17.25m plus £29m = £46.25m negative
Additional income in season from 20k seats @ £30 x 19 games £11.4 million
Net cumulative outlay at end Season5 (Useason2) £46.25m less £11.4m = £34.85m negative

Useason3
Cost of upgrading by 10k seats to 85k £16m plus £17m = £33m
Net cumulative outlay after upgrade £34.85m plus £33m = £67.85m negative
Additional income in season from 30k seats @ £32 x 19 games £18.244 million
Net cumulative outlay at end Season6 (Useason3) £67.85m less £18.244m = £49.606m negative

Useason4
Cost of upgrading by 10k seats to 95k £18m plus £19m = £37m
Net cumulative outlay after upgrade £49.606m plus £37m = £86.606m negative
Additional income in season from 40k seats @ £34 x 19 games £25.84 million
Net cumulative outlay at end Season7 (Useason4) £86.606m less £25.84m = £60.766m negative

Useason5
Cost of upgrading by 5k seats to 100k £20m
Net cumulative outlay after upgrade £60.766m plus £20 = £80.766m negative
Additional income in season from 45k seats @ £36 x 19 games £30.78m million
Net cumulative outlay at end Season8 (Useason5) £80.766m less £30.788m = £49.978m negative

Useason6
Additional income in season from 45k seats @ £38 x 19 games £32.49m million
Net cumulative outlay at end Season9 (Useason6) £49.978 less £32.49m = £17.488m negative

Useason7
Additional income in season from 45k seats @ £40* x 19 games £34.2m million
Net cumulative outlay at end Season9 (Useason7) £17.488 less £34.2m = £16.712m surplus
*assumed ticket price for season10 (Useason7) increases by £2 as it did in Seasons 6 to 9 to aid comparison in subsequent post)

Conclusion
The point of maximum cost is after the upgrade at start of Season 7 (Useason4) when the net outflow hits just under £87m, which is significantly less than the expected £141m. This is because at that point, despite the spend to date hitting £121m, previous upgrades will have netted an additional £34m in gate receipts. In reality, it is unlikely that this money will still be in the club coffers, but the team will have benefited for the additional £34m elsewhere in its budget. Additionally, it can be seen that the upgrades will have paid for themselves partway through Season 10 (7 seasons after the first upgrade). Clearly the figures will differ, if a club adopts a different upgrade strategy, and those that delay will benefit from higher ticket prices, which will ease the pain. Given that the cost of academy players remains static, if it comes to a straight choice between youth or upgrade, the sensible choice would appear to be youth, and leave the upgrades until the payback period is shorter due to higher ticket prices. A proverbial kick in the teeth for the teams that chose stadium upgrades over youths.

*subsequently edited from £38 to £40 to aid comparison with following post

Words 1,186

[Ed@PSG]

Following on, someone asked me if I had revised figures for a team ‘late to the party’ who hadn’t done any upgrades yet, and still had a stadium capacity of £55k. Since we only currently know the ticket prices until the end of Season 9, we need to make assumptions for Season 10 to 12, so will assume further increases of £2 per ticket as seen during Seasons 6 to 9.

Season 6 now becomes Useason1
Cost of upgrading by 10k seats to 65k £10m plus 12m = £22m
Net cumulative outlay after upgrade £22m negative
Additional income in season from 10k seats @ £32 x 19 games £6.08m
Net cumulative outlay at end Season6 (Useason 1) £22m less £6.08m = £15.92m negative

Useason2
Cost of upgrading by 10k seats to 75k £14m plus £15m = £29m
Net cumulative outlay after upgrade £15.92m plus £29m = £44.92m negative
Additional income in season from 20k seats @ £34 x 19 games £12.92 million
Net cumulative outlay at end Season7 (Useason2) £44.92m less £12.92m = £32m negative

Useason3
Cost of upgrading by 10k seats to 85k £16m plus £17m = £33m
Net cumulative outlay after upgrade £32m plus £33m = £65m negative
Additional income in season from 30k seats @ £36 x 19 games £20.52 million
Net cumulative outlay at end Season8 (Useason3) £65m less £20.52m = £44.48m negative

Useason4
Cost of upgrading by 10k seats to 95k £18m plus £19m = £37m
Net cumulative outlay after upgrade £44.48m plus £37m = £81.48m negative
Additional income in season from 40k seats @ £38 x 19 games £28.88 million
Net cumulative outlay at end Season9 (Useason4) £81.48m less £28.88m = £52.6m negative

Useason5
Cost of upgrading by 5k seats to 100k £20m
Net cumulative outlay after upgrade £52.6m plus £20m = £72.6m negative
Additional income in season from 45k seats @ £40* x 19 games £34.2m million
Net cumulative outlay at end Season10 (Useason5) £72.6m less £34.2m = £38.4m negative

Useason6
Additional income in season from 45k seats @ £42* x 19 games £35.91m million
Net cumulative outlay at end Season11 (Useason6) £38.4m less £35.91m = £2.49m negative

Useason7
Additional income in season from 45k seats @ £44* x 19 games £37.62m million
Net cumulative outlay at end Season12 (Useason7) £2.49m less £37.62m = £35.13m surplus
*it is assumed that ticket prices continue to rise by £2 per season

Conclusion
It appears that deferring the upgrade process still hits the maximum net spend after the 4^th upgrade in season 4, but that the net spend is reduced from £86.606m down to £81.48m, a saving of over £5m. The payback period still remains at 7 seasons, but break even is achieved much earlier in Season 7, and results in an extra £20m in gate income over the 7 seasons.
The downside to deferring the upgrade process is that max gates receipts don’t come until 2 seasons later than the early adopters. However, if the ‘deferrers’ utilised their surplus cash wisely in those first 2 seasons, then they will ultimately have the upper hand.