Should the government play a bigger role in sports?

By Leonard Lim, The Straits Times, Dec 29 2011

IF ALL had gone according to plan, sports enthusiasts would have been able to enjoy two top-notch, brand new facilities by the turn of the year. When the Government announced the respective private sector consortia that would build the Sports Hub in Kallang and the Changi Motorsports Hub, both were scheduled to be ready by end-2011.

But these targets will not be met – their construction was pushed back repeatedly as financing could not be secured.

Worse, the future of the Changi project, which was to include a karting track and racing academy, is up in the air.

The Singapore Sports Council (SSC) earlier this month said it was working on a mutual termination of its contract with SG Changi, which has been plagued by financial woes and corruption allegations since trumping bids from two other consortia in March last year.

The SSC intends to hold a market consultation for a motorsports hub – the second such exercise after one in 2008 – before it decides whether to call a second tender.

The troubles surrounding the Changi Motorsports Hub and earlier, the Sports Hub, have prompted some to ask: Shouldn’t the Government take the lead and fund, whether in full or in part, such large sports infrastructure projects?

SG Changi was to finance, design, build and manage the $380 million motorsports facility for 30 years, under the terms of its contract. But making the private sector stump up the full cost raised eyebrows when the tender was announced.

In other countries, governments tend to foot the bulk of the construction bill because of the prohibitively high start-up costs for such facilities and the long time it takes to recoup the investment.

The building of Malaysia’s US$120 million (S$156 million) Sepang track, for instance, was funded largely by the public sector.

The $1.33 billion Sports Hub’s tender model – termed a public-private partnership or PPP – is slightly different from that of the Changi project.

The Singapore Sports Hub Consortium (SSHC) – a grouping of firms led by Dragages Singapore – was selected as the preferred bidder ahead of two others in January 2008.

The SSHC had to first secure financing from banks and other institutions. Then, the Government will pay SSHC – which will design, build and operate the facility – a monthly unitary payment throughout the project’s 25-year term.

But SSHC was then affected by rising construction costs and the global financial crisis.

Work finally started in September last year. The iconic 37-year-old National Stadium has been demolished, and a new 55,000-seat arena with a retractable roof will rise in its place.

Still, the delays – the Sports Hub’s completion date was pushed back from this year to 2012, 2013 and now 2014 – have affected Singapore’s reputation.

The Republic was awarded hosting rights for the 2013 South-east Asia Games in 2006, but had to withdraw sheepishly in 2009 as the Sports Hub would not be ready in time.

To be sure, there are benefits to getting the private sector involved in mega-sports projects.

First, construction and operation risks are transferred to the consortium and banks that have provided the loans.

Taxpayers will hence be insulated if construction cost rises.

For instance, when London submitted its Olympics bid in 2005, it estimated the 80,000-capacity Olympic Stadium would cost £280 million (S$564 million). A year later, that ballooned to £496 million. The facility has been finished ahead of the Games in July, at a final cost of £486 million to London taxpayers.

Second, leaving it to the private sector and giving it incentives to come up with a vibrant sports calendar reduces the chance of venues becoming white elephants. For the Sports Hub, revenue from ticket sales will be shared between SSHC and the Government.

The PPP model has worked overseas. Famous stadiums built this way include Paris’ Stade de France, the venue for the 1998 World Cup football final. It is still doing well and hosting regular non-sports events, like a Black Eyed Peas concert in June.

Singapore has also had successful non-sports PPP projects, including ITE College West and an Ulu Pandan Newater plant.

But when it comes to the local sports industry, is it still too small and undeveloped for the private sector to take the lead and source for its own financing?

Countries like Australia and the United Kingdom, where there have been several successful sports PPPs, have a strong sporting culture, lending confidence to financial institutions which can be certain of a return on their investment.

But the Singapore context is different.

A Civil Service College study last year termed the Sports Hub PPP a ‘tricky and complicated exercise’, noting that Singapore does not yet have a ‘clear and recognisable’ revenue stream coming from sports events.

For instance, the three-day Singapore Women’s Tennis Exhibition earlier this month boasted US Open champion Samantha Stosur in the field, but only a total of 4,000 spectators showed up at the Singapore Indoor Stadium. This was well below the 16,000 organisers had expected.

If there is a second tender for the Changi hub, or for that matter a decision is made to construct another major sports facility, there needs to be a re-look into how the private sector is involved.

There is talk that a cycling velodrome and an integrated shooting range are the next sports projects being studied.

One alternative could be for the public sector to first finance the building of such facilities, to prevent delays. This was the common problem faced by the Sports Hub and Changi track.

The venues can then be sold to a consortium to manage for a certain number of years.

The Government could also provide some form of debt guarantee, which would give financial institutions more certainty and confidence when they decide whether to provide equity.

If the Government is committed to giving Singaporeans sporting playgrounds on time and free of hiccups, it needs to play a bigger role in any future partnership with the private sector.

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