Investing into football passion: The effect of the World Cup in Russia

Investing into football passion: The effect of the World Cup in Russia

Facts and figures 11 Russian cities 32 teams 64 matches RUB683bn total spending for the World Cup RUB265bn spent for the sport venues RUB228bn spent for the transport infrastructure 570,000 foreign fans will come to Russia 130,000 foreigners will come to Krasnodar Territory, which is comparable to annual international tourist inflow for the region 695,000 Russian fans will attend World Cup matches, 42% of them will travel from other regions 220,000 new jobs were created in Russia during preparations for the Cup RUB414bn additional labour income during preparations and hosting of the Cup RUB736bn additional income earned by small and medium enterprises during preparations and hosting of the Cup Source: LOC Report 2 2

Introduction Russia has welcomed football fans from all over the world. The World Cup is one of the largest and most prestigious professional sports events. The bidding procedure to host the 2018 FIFA World Cup began in 2010. Six countries competed for the right to organize the championship, with four bids placed: by Russia, England and joint bids by Belgium and the Netherlands, as well as Spain and Portugal. In the second voting round, Russia won the right to be the 2018 host. The World Cup matches will be held in 11 cities, which have been divided into five clusters: Northern (Kaliningrad, St. Petersburg), Central (Moscow), Volga (Volgograd, Kazan, Nizhny Novgorod, Samara, Saransk) Southern (Rostov-on-Don, Sochi) and Yekaterinburg. The broad geography reflects the concept, which is intended to present Russia s diversity. The opening and the final games will take place at the Moscow Luzhniki Stadium on June 14 and July 15 respectively. In total, 12 stadiums will be involved in the 2018 World Cup: Kaliningrad Stadium, Saint Petersburg Stadium, Luzhniki and Spartak (Otkrytie Arena) in Moscow, Yekaterinburg Arena, Volgograd Arena, Kazan Arena, Nizhny Novgorod Stadium, Samara Arena, Mordovia Arena in Saransk, Rostov Arena in Rostovon-Don and the Fisht Stadium in Sochi. 14 June opening game 12 stadiums 15 July final 3 3

Why these cities The initiative to host the 2018 Football World Cup in Russia was formally launched by the government and the Football Union of Russia. Russia s bid to host 2018/2022 World Cup began to take shape in 2009. In 2010 Russia submitted its bid to FIFA. Two rounds of competition were held in 2010, and Russia got the highest score in the voting process. The FIFA Committee based its decision on the investment volume that Russia was ready to spend on construction and development of sport venues and infrastructure. Initially, Russia submitted 13 host cities: Moscow, St. Petersburg, Kaliningrad, Yaroslavl, Volgograd, Kazan, Samara, Saransk, Nizhny Novgorod, Rostov-on-Don, Sochi, Krasnodar and Yekaterinburg. Two of them Yaroslavl and Krasnodar were removed, after the FIFA inspection in 2014. The Organizing Committee considered five criteria when compiling the final list of cities : available infrastructure, socio-economic development, investment program, event concept, effective post-event usage of facilities. Such criteria also include the city s ability to meet a massive inflow of tourists and fans, the availability of stadiums meeting FIFA standards and the rationale for construction of new sport venues in the region. The FIFA set explicit requirements regarding stadium capacity: semi-finals more than 60,000 persons; opening and final game 80,000 persons; other games 45,000 persons.* The ball used in the opening game of the 2018 World Cup has traveled to space. 4 * The FIFA softened this requirement to 35,000 persons for two stadiums in Russia. 4

2018 World Cup costs The expenses of hosting the World Cup is a special section in the organising country budget. Initially planned in 2013, costs for the Russia World Cup 2018 exceeded the spending of previous organizers. In 2013, the Russian government approved the decree allocating the required funding for hosting of the event in the amount of RUB664bn (USD20.9bn). Of that, 34% was expected to be covered by private investors. Eventually, a few iterations of the program for the preparation of the 2018 World Cup were created. According to the last accessible estimate by the local organising committee, the overall spending amounted to RUB683bn in April 2018. Above-budget spending is RUB19bn. The distribution of financing sources also changed somewhat. The bulk (71%) has come from the state budgets (federal and regional). Most of the money has been invested into infrastructure and sport venues that will be used by Russian football clubs in the future. World Cup 2018 costs $ bn RUB bn Initially planned in 2013* 20.9 664.1 Budget financing 13.8 437.8 Federal budget 10.6 336.2 Regional budgets 3.2 101.6 Private investors 7.1 226.3 44% spent on infrastructure Final spending, official estimate as of April 2018** 11.6 683.0 Budget financing*** 71.1% Federal budget 57.6% Regional budgets 13.5% Private investors 28.9% Final spending, by purpose Sport venues 4.5 265.0 Transport infrastructure 3.9 228.0 Other infrastructure 1.2 74.0 Operational expenses 2.0 116.0 39% spent on sport venues * Initially planned spending is converted at the average rate of 2013, RUB31.82 per USD ** Final spending is converted at the average rate January-May 2018, RUB58.76 per USD *** Calculated proportionately to the costs allocations the Program for the preparation to the 2018 World Cup. Source: Program for the preparation to the World Cup 2018, Local Organizing Committee Russia- 2018 Report on economic, social, and environmental impact of the 2018 FIFA World Cup Russia (hereinafter, The LOC Report). 5 5

Stadiums 12 stadiums and 95 training grounds in 11 cities were built or reconstructed for the 2018 World Cup. The total expenses on the sport venues were RUB265bn, or RUB20.3bn per stadium. The average stadium capacity is 48,166 persons. Luzhniki Stadium Capacity: 81,000 Reconstruction Cost: RUB26.6bn. Spartak Stadium / Otkrytie Arena Capacity: 45,000 New Construction Cost: RUB14.5bn. Saint Petersburg Stadium Capacity: 68,000 New Construction Cost: RUB43.0bn. Kaliningrad Stadium Capacity: 35,000 New Construction Cost: RUB17.4bn. Rostov Arena Capacity: 45,000 New Construction Cost: RUB19.8bn. Fisht Stadium Capacity: 45,000 Reconstruction Cost: RUB27.0bn Source: open sources, The LOC Report Northern Cluster Southern Cluster Central Cluster Yekaterinburg Volga Cluster Yekaterinburg Arena Capacity: 35,000 Reconstruction Cost: RUB12.2bn Nizhny Novgorod Stadium Capacity: 45,000 New construction Cost: RUB17.4bn Kazan Arena Capacity: 45,000 New construction Cost: RUB14.4bn Mordovia Arena Capacity: 44,000 New construction Cost: RUB15.8bn Samara Arena Capacity: 45,000 New construction Cost: RUB18.9bn Volgograd Arena Capacity: 45,000 New construction Cost: RUB16.3bn 6

Infrastructure A third of the 2018 World Cup budget was spent on construction and reconstruction of transport infrastructure. This included three different categories, airport infrastructure, including 13 airports, road network, metro and tram networks. The first type absorbed the bulk of resources. The Platov airport in Rostov-on-Don was built from scratch. 12 airports in other cities were rebuilt in order to increase their capacity. As a result of new investments, Rostov became the region with the the highest expenditure on transport infrastructure among Russia regions (RUB59bn). 20 railway train stations were reconstructed and modernized. New metro stations were constructed in three cities, Moscow, St. Petersburg and Nizhny Novgorod. Five new stations of the Large Circle Line and three stations of Lyublinsko- Dmitrovskaya line were launched in Moscow. Two new stations, Novokrestovskaya and Begovaya, appeared in St. Petersburg, and one station, Strelka was launched in Nizhny Novgorod. The total length of constructed and renovated roads was 178 km. The main projects of road resurfacing were M-7 Volga in Moscow and Vladimir regions, M-5 Ural in Samara Region, P-239 in the Tatarstan Republic and P-22 Kaspiy in Volgograd Region. 2018 World Cup expense allocation Transport infrastructure expenses RUB bn 39% 33% 140 120 100 80 118 60 17% 11% 40 20 20 32 Sport venues Transport infrastructure Other infrastructure Operational costs 0 Airports Urban passenger transport Road network Source: Government decree About the program for the preparation of the 2018 World Cup, the version dated 21.02.2018 7

Infrastructure Moscow Three airports, Domodedovo, Sheremetyevo, Vnukovo, were reconstructed; five new underground stations of the Large Circle Line and three new stations of Lyublinsko-Dmitrovskaya line were opened; M-7 road Volga section in Moscow Region was renovated. St. Petersburg Pulkovo airport was reconstructed; two new metro stations, Novokrestovskaya and Begovaya, were launched. Kaliningrad Khrabrovo airport was reconstructed; Eastern Overpass to connect Moscow Avenue and Oktyabrsky Island was constructed. Rostov-on-Don New Platov airport was built; the motorway to Rostov Arena was constructed; The Voroshilovsky Bridge was reconstructed. Sochi Sochi airport was reconstructed. Northern Cluster Source: open sources, Program for preparation of the 2018 World Cup, LOC Report Southern Cluster Central Cluster Yekaterinburg Volga Cluster Yekaterinburg Koltsovo airport was reconstructed; Railway station was modernised. Nizhny Novgorod Strigino airport was reconstructed; One new, Strelka metro station was launched; Molodezhny Avenue was reconstructed. Kazan Kazan airport was reconstructed; Tram network was extended; the P-239 highway in Tatarstan was reconstructed. Saransk Saransk airport was reconstructed; the road, connecting Airport Saransk and Mordovia Arena, was constructed and renovated. Samara Kurumoch airport was reconstructed; the central railway station and the M-5 Ural highway in Samara Region were reconstructed. Volgograd Volgograd airport was reconstructed; new railway line, connecting Gumrak and Volgograd airport, was built; P-22 Kaspiy highway in Volgograd Region was updated. 8

Hotels During the period 2014-Q1 2018 56 branded hotels with 10,349 rooms were opened in Russia. 11 hotels, 1,606 rooms 23 hotels, 5 169 rooms 11 hotels, 1,617 rooms 10 hotels, 1 816 rooms 1 hotel, 141 rooms Source: JLL Northern Cluster Southern Cluster Central Cluster Yekaterinburg Volga Cluster

France South Korea & Japan Germany South Africa Brazil Russia Comparing expenditures A new chapter for FIFA began in 1994, when it decided to let a country with limited football development to host the World Cup. The USA became the host of the 15th World Cup. As a result, FIFA broadened the range of host countries to North America (USA), Africa (South Africa), Southeast Asia (South Korea and Japan), Middle East (Qatar). Russia also hosts the World Cup for the first time. In addition, the concept of the preparation for hosting the main football event was overhauled, with infrastructure expenses added to budgets. According to the latest estimates, Russia has spent RUB683bn on the 2018 World Cup, of which 39% was on sport venues. The latter share is comparable to stadium budgets in South Africa in 2010 (40%) and in France in 1998 (30%). In South Korea and Japan the shares of expenses on sport venues were significantly higher, 67% and 52% respectively. Despite the fact that Russia was the only organizer which had built or reconstructed all the 12 stadiums, the share of expenses in its budget on stadiums was lower than that on infrastructure. Nevertheless, the average cost per stadium was the highest among the recent organizers, at USD380m per stadium. World Cup cost comparisons Years 1998 2002 2006 2010 2014 2018 Countries Investments in infrastructure (transport, communications, security), USD bn 1.4 3.5 5.8 3.1 8.0 7.1 Investments in stadiums, USD bn 0.6 4.6 1.9 2.1 3.6 4.5 Total investments, USD bn 2.0 8.1 7.7 5.2 11.6 11.6 Total investments, % of GDP* 0.11 0.18 0.27 1.65 1.36 0.77 Average investment per stadium, USD bn 0.06 0.23 0.16 0.21 0.30 0.38 Number of cities 10 20 12 9 12 11 Number of stadiums 10 20 12 10 12 12 * Relative to nominal GDP in the year before the World Cup. Source: open sources 10 10

USD bn 16 12 8 4 0 2,0 1,4 0,6 1998 France Investments in infrastructure and sport venues 8,1 7,7 3,5 4,6 2002 South Korea&Japan 5,8 5,2 3,1 1,9 2,1 2006 Germany 2010 South Africa 11,6 11,6 8,0 7,1 3,6 4,5 2014 Brazil 2018 Russia Investments in stadiums Investments in infrastructure Total investment 14,0 12,0 10,0 8,0 6,0 4,0 2,0 0,0 25 20 Number of existing, built or reconstructed stadiums 20 1 15 10 5 0 9 9 1994 USA 10 4 6 1998 France 19 2002 South Korea&Japan 12 2 10 2006 Germany 10 4 6 2010 South Africa 12 12 2 10 2014 Brazil 12 2018 Russia Number of built or reconstructed stadiums Existing stadiums Total number of stadiums Source: open sources 11 11

Economic impact According to preliminary estimates of the local organizing committee, the total impact of the FIFA World Cup on the Russia economy in 2013-2018 is RUB867bn, or about 1% of annual GDP. Most of the impact is attributed to investments and operating costs, which totaled RUB746bn. The bulk of the expenses were made in 2016-2017, corresponding to the peak of investments in infrastructure and sport venues. The inflow of tourists will contribute RUB121bn to the country s GDP in 2018. According to the estimates of the Organizing Committee working group, the impact of the 2018 World Cup is estimated at RUB150-210bn annually during the next five years. Impact of the 2018 World Cup on Russia GDP, RUB bn 250 224 235 150-210 200 180 121 40-70 150 121 100 75 180 224 50 33 75 121 114 110-140 0 33 2013 2014 2015 2016 2017 2018 2019-2023 (annually) Countribution of investments and operating costs Countribution of tourism Total impact Source: LOC Report 12 12

Economic impact According to preliminary estimates, the overall impact of the FIFA World Cup on Russia economy will amount to USD15bn, and will be comparable to effect in Brazil and Japan. Relative to GDP, the impact will be below only that of South Africa, whose economy is of a lower size relative to other organizers. Tourism will bring USD2bn to Russia, which is comparable to the level recorded in Brazil, South Africa and Japan. The overall impact of FIFA World Cups on hosting country s GDP USD bn* relative to -4 1 6 11 16GDP, % 13 2 15 1% Russia, 2018 Brazil, 2014 12 1-2 14-0.6% South Africa, 2010 5 2 7 2.0% Germany, 2006 7-8 4 12-0.3% South Korea, 2002 6 1 7 0.7% 14 2 16 Japan, 2002 0 5 10 15 Countribution of investments and operating costs Countribution of tourism 0.3% * Impact on hosting country GDP was adjusted to 2018 prices in local currencies and converted at the February 2018 exchange rate. Source: LOC Report 13 13

World Cup 2018 legacy. The FIFA World Cup is a major event which will have a profound effect in Russia. The legacy of the championship is associated with the following: development of sport venues, transport infrastructure development, new job creation, tourism development, creation of football development centres. According to the Legacy Programme, each stadium will be used for trainings and official matches of Russia football clubs, and national sport events. Not all regions will be able to fully maintain the stadiums after the World Cup, and the number of seats exceeds the needed capacity for the majority of hosting cities. Therefore, some will apply for state subsidies on maintenance. According to the experience of other countries, the World Cup encourages football development in organizing countries. The effect is particularly evident in the states with low level of football development. For instance, Japanese and South Korean football players had been almost unknown in the main European football leagues before the 2002 World Cup. Since 2002 they have become a constant presence there, including top clubs. Their national teams ratings also rose, with Japan and South Korea rated by the FIFA 34th and 42nd respectively six months prior to the World Cup, rising to 22nd and 20th six months after. The World Cup enhances the level and quality of infrastructure, especially in transport. Medium and long-term impact is significant for the countries with extensive construction or reconstruction. The USA was a special case, as it used existing stadiums during the 1994 World Cup (mainly the stadiums of professional and student American football teams). Nevertheless, further growth of football popularity resulted in construction of new stadiums for almost all Major League Soccer teams. The main beneficiaries of construction for the World Cup are local football clubs. All stadiums in Russia will be passed to professional football clubs (see the table on pages 15-16). The constructed sport infrastructure allows to attract global contests in the future. For instance, South Korea hosted FIFA U-20 World Cup in 2017, Brazil welcomed the 2016 Summer Olympic Games after the 2014 FIFA World Cup. The World Cup will trigger tourism development in some regions. Russia has a positive experience of the 2014 Olympic Games in Sochi, where the level of tourism services and occupancy rate of local resorts increased significantly after the Olympics. This was a result of infrastructure improvements implemented within the preparation for the Olympics. 14

Future of the stadiums Stadiums in federal ownership Stadium Current/future owner Intended use of the stadiums after the 2018 World Cup* Volgograd Arena Russian Federation / Volgograd Region Rotor-Volgograd FC Stadium Yekaterinburg Arena Russian Federation / Sverdlovsk Region Ural FC Stadium Kaliningrad Stadium Russian Federation / Kaliningrad Region Baltic FC Stadium Nizhny Novgorod Stadium Russian Federation / Nizhegorod Region Olympiec FC Stadium Rostov Arena Russian Federation / Rostov Region Rostov FC Stadium Samara Arena Russian Federation / Samara Region Krylya Sovetov FC Stadium Mordovia Arena Russian Federation / Republic of Mordovia Mordovia FC Stadium Source: State decree On the 2018 World Football Cup Legacy program * All stadiums will also be used as multifunctional objects 15

Future of the stadiums Stadiums in regional ownership Stadium Current/future owner Intended use of the stadiums after the 2018 World Cup* Luzhniki Stadium Moscow Matches of Russia national team, the Football Union of Russia and football club matches Spartak Stadium / Otkrytie Arena Spartak Stadium LLС Spartak FC Stadium Saint Petersburg Stadium St. Petersburg Zenit FC Stadium Fisht Stadium Krasnodar Territory Back-up stadium for the Russian Cup games Kazan Arena Tatarstan Republic Rubin FC Stadium Source: State decree On the 2018 World Football Cup Legacy program * All stadiums can be used as multifunctional objects 16

Contacts Olesya Dzuba Head of Research, Russia & CIS +7 435 737 8000 Olesya.Dzuba@eu.jll.com Ksenia Zenkina Analyst, Research +7 495 737 8000 Ksenia.Zenkina@eu.jll.com Jones Lang LaSalle 2017 Jones Lang LaSalle IP, Inc. All rights reserved. The information contained in this document is proprietary to Jones Lang LaSalle and shall be used solely for the purposes of evaluating this proposal. All such documentation and information remains the property of Jones Lang LaSalle and shall be kept confidential. Reproduction of any part of this document is authorized only to the extent necessary for its evaluation. It is not to be shown to any third party without the prior written authorization of Jones Lang LaSalle. All information contained herein is from sources deemed reliable; however, no representation or warranty is made as to the accuracy thereof.