Clubs need financial concepts to realise player´s transfers as well as the improvement of facilities like the club´s stadium. The second will be explored with this term paper. Foremost project financing is used in terms of stadium financing and other major infrastructural projects. But what do the participants have to consider in financing major projects? In doing so, what is important to accomplish the fulfilment of the project and what issues can arise?
To answer these questions this work should give an insight into financing major projects exemplified by the stadium financing of FC Schalke 04 and Borussia Dortmund. In the course of this the main characteristics of project financing will be presented in detail. Also risks are displayed. The findings should lead to a recommendation of project financing for stadium financing.
Within the professionalization of the football business in Germany clubs face more severe licensing standards defined by the Deutsche Fußball Liga (DFL). This includes infrastructural adjustments of stadiums as well as training grounds. Especially hosting the World Cup in 2006 introduced a modernisation of stadiums in Germany through the DFL and challenged clubs in terms of stadium financing. In Brazil the World Cup in 2014 and the recently finished Olympics in 2016 caused infrastructural adjustments in the hosting cities as well.
Table of Contents
1 Introduction
1.1 Problem definition and objective
1.2 Course of investigation
2 Theoretical background
2.1 Distinction between general corporate financing and project financing
2.2 Definition and application of project financing
2.3 Participants
2.4 Forms of financing
2.5 Risk management
3 Case studies of project financing
3.1 Arena Auf Schalke
3.2 Westfalenstadion
4 Critical discussion and recommendation
5 Conclusion and outlook
Objectives and Themes
This paper examines the application of project financing within the professional football sector in Germany, specifically focusing on the stadium construction and modernization projects of FC Schalke 04 and Borussia Dortmund, to identify successful financial strategies and risks.
- Theoretical differentiation between general corporate financing and project financing.
- Core definition and phases of project financing in large-scale infrastructure projects.
- Analysis of stadium financing models for FC Schalke 04 and Borussia Dortmund.
- Assessment of project risks and the importance of professional planning phases.
- Recommendations for future stadium financing based on analyzed case studies.
Excerpt from the Book
2.2 Definition and application of project financing
Initially project financing occurred as production-payment-financing in the development of new oil deposits in the USA. That is why the prevailing definition of project financing is inspired by the American accounting principles of the SFAS no. 47. So the following definition is established in the relevant literature.
Project financing is defined as the financing of an undertaking or a project and not corporate financing. It funds a self-sustainable and not required to be consolidated economic entity also referred to as special purpose vehicle (SPV). There is no or limited recourse to the participants involved in the project. High capital needs and a high degree of complexity meet cash flow related lending. Viz. capital providers decide the extension of credit on the basis of the assets to be funded and the future cash flow generated for debt servicing. Furthermore project financing is an off-balance sheet financing with shared risk.
There are five main phases in project financing. First the planning phase serves to the preparation of the project execution. Economic realisation, the establishment of a project enterprise and cost evaluation are prepared before contacting financial institutions. Afterwards the project is deployed or rather constructed over a long period of time. Third the short term start-up phase launches the project and provides information about the performance. If the start-up phase is successful the operating and disinvestment phases start. Debt servicing is guaranteed by operating the project.
Project financing is primarily applied at infrastructure projects or industrial projects like raw material extraction or energy and renewable energy projects. All areas of application have high investment intensity at high risk. These characteristics lead to the issue that individual enterprises are limited to carry out projects like these.
Summary of Chapters
1 Introduction: This chapter highlights the increasing financial requirements for modern football clubs and defines the objective of analyzing stadium financing as a form of project financing.
2 Theoretical background: This section provides the foundational knowledge by distinguishing between corporate and project financing, defining the key participants, and outlining risk management principles.
3 Case studies of project financing: This chapter examines the specific financial approaches used by FC Schalke 04 and Borussia Dortmund for their respective stadium construction and expansion projects.
4 Critical discussion and recommendation: This section evaluates the strategies of the two clubs, comparing their successes and limitations in managing complex financing structures.
5 Conclusion and outlook: The final chapter summarizes the findings and provides a recommendation for the application of project financing in the context of stadium development.
Keywords
Project financing, Stadium financing, Corporate finance, SPV, Risk management, Infrastructure, Bundesliga, FC Schalke 04, Borussia Dortmund, Equity, Debt capital, Investment, Financial strategy, Off-balance-sheet-financing, Capital structure
Frequently Asked Questions
What is the primary focus of this research paper?
The paper focuses on the usage of project financing mechanisms to fund major infrastructure developments, specifically analyzing stadium construction and modernization in German professional football.
Which specific clubs are used as case studies?
The research analyzes the stadium projects of FC Schalke 04 and Borussia Dortmund as primary examples of practical project financing.
What is the core objective of the work?
The objective is to explain the characteristics of project financing, examine how it is applied in stadium construction, and provide a critical discussion on its effectiveness.
Which methodology does the author employ?
The author uses a qualitative approach, combining a theoretical literature review with a descriptive analysis and comparative discussion of two specific industry case studies.
What does the main body of the text cover?
It covers the definition and phases of project financing, the distinction between corporate and project-based financial models, and detailed evaluations of the stadium financing at Schalke and Dortmund.
How are the central themes characterized?
The work is defined by themes such as financial flexibility, risk sharing, capital acquisition via Special Purpose Vehicles (SPVs), and the professionalization of the football business.
Why did Schalke's financing model differ from Dortmund's?
Schalke established a complex structure involving private and public investors within an SPV, while Dortmund opted for a more traditional capital market approach by rebranding as a stock company and launching an IPO.
What is the main finding regarding project financing in this context?
The findings suggest that while project financing offers unique flexibility and off-balance-sheet advantages, success is heavily dependent on professional planning and managing the inherent high risks of stadium projects.
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- Johann Kristoph Kaup (Autor:in), 2016, Project financing examplified by stadium financing, München, GRIN Verlag, https://www.grin.com/document/429833
