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Sport facilities can serve many purposes, whether it is hosting a professional sports team, serving as a venue for other events, or being open to the public to enable them to practice their favourite activities. Governments are often asked to finance the construction of these facilities and there are many ways in which they can support such a project financially. When looking at infrastructure projects, cities often struggle to define the purpose of the project, underline its economic rationale, align it with political cycles and build local support. Along with these challenges, financing and funding sports infrastructures are also critical issues to overcome in order to successfully lead such projects.

The question is, what are the various funding opportunities offered to cities when they decide to finance the construction of a sport facility? Smart Cities and Sport will give an overview of diverse methods, highlighting the advantages and drawbacks of each.

A broad range of financial options are available to cities. As seen in the graph below, the funding of a sport infrastructure can be fully supported by the public sector, the private sector or a mixture of both.

The chosen approach will be closely related to the objectives cities want to reach, along with the level of risk they are willing to undertake.

1. Projects fully financed by the public sector:

The public sector is generally more likely to award large grants and contracts as well as pay all the costs related to the project, including the coverage of indirect costs. These funds are available to a wide array of for-profit and non-profit organisations, provided that the focus of the project usually impacts local society in a positive way, and the level of local support is therefore very important.

Nonetheless, several factors can have a negative impact on project delivery. Indeed, publicly-funded projects take a lot of time and political cycles are often not aligned with the project and impacts the security of the latter. Having the public sector financing the entirety of the project also means that the city maintains full responsibility for services, asset management and conditions. This requires a lot of expertise and knowledge sharing that the public sector might not have access to.

2. Projects fully financed by the private sector:

The private sector is in a better position to focus on emerging issues and a population’s new needs, and it is also closer to the pool of start-ups and experimental funds, the drivers of innovation. Moreover, the private sector gives room to much more flexibility than the public sector in responding to various circumstances, as there is often less bureaucracy and complex processes to follow.

However, as the project is not publicly listed, there is much less access to information and the research on policies and procedures related to the project can be time consuming. Priorities can change very fast, which makes the future of the project difficult to predict. In terms of costs, the private sector is unlikely to cover neither the full project costs nor the indirect costs occurred.

3. Projects both financed by the public and private sectors:

By collaborating with the private sector, cities can create the right incentives through contracts to obtain more certain outcomes, such as finishing on-time or reducing the level of the project’s complexity. In addition, such collaboration can enable better risk management, since the risk is allocated to the party that is best able to manage it and at the least cost. Furthermore, the public sector can rely on the private expertise and efficiency to better manage assets when building them.

The new Las Vegas Stadium, currently being constructed for the Las Vegas Raiders, is an interesting example of the benefits of combining the public and private sectors in funding a sports facility project. In order to build this stadium, hotel taxes have been increased to generate revenues and therefore contribute to the funding of the infrastructure. Although Public-Private Partnerships can be successful, cities must recognise a few aspects that can lead to undesired outcomes. There can be, for example, a substantial culture gap between the public and private sectors, leading to a loss of confidence and high transaction costs throughout the process. The range of financial options for cities to consider is broad and there is no ‘one-size-fits-all’ model. Cities must find the approach that best suits the project, keeping in mind that the issue of funding is, in itself, not enough to guarantee the project’s success. Fundamentally, for any value creation in the long term, it is crucial that cities create a well-defined financial plan that puts a clear emphasis on the project purpose and the economic rationale. In turn, this can strengthen the stature of the project leadership and enhance their relationship with local communities.