Time left for the first
match at "Dinamo"
At the end of the last year as a result of the image campaign VTB Arena park made the headlines for creating a brand new city ensemble proposing distinct vision on integrated projects further spreading within the metropolis, though formerly it was known for the Dynamo stadium reconstruction alone. This move was quite unexpected by the real estate market and prompted the independent experts to rank it high and include in the top three in terms of sales on the property market. What stands behind such a brand positioning? Was it simply a showy marketing ploy or a part of the business strategy. This question was address to Mr. Andrei Peregoudov, Senior Vice-President of JSC VTB Bank, VTB Arena park project Director.
- It is not about apartment space or functional purpose of the facilities that we put an emphasis on, the all-embracing idea of healthy lifestyle of the city dwellers, the chance to live a life worth living in the very heart of the capital are at stake. This very same idea became a basis of the integrated city ensemble concept. The complex which is being created as part of the VTB Arena park project composed of elements that shape up the city ensemble. These elements are unique in terms of functionality and ideal combination of architectural solutions. The residential area, the historical park, office buildings, hotel, sports Academy, renovated Small Arena, revitalized Stadium (one of its kind worldwide which combines such facilities under one roof) all these facilities are interconnected with each other by retail and street retail areas. And all these elements are assembled into organic whole and managed by single control center. All utilities within the territory are converged in one junction point – engineering unit which will control all facilities and surrounding territory. This system will allow to develop and implement leading edge solutions, service and life safety standards which are entirely new for Moscow city.
- You have described the idea itself. What about the implementation?
- Specifically for achieving the set goals VTB Bank shareholders in liaison with All-Russia Society of Sports and Physical Training "Dynamo" established Arena park Management company - the wholly-owned subsidiary of CJSC MC Dynamo. It is planned as Russian operator capable of efficiently managing the project of this kind. The main purpose of creating our own operator is effective management of diversified processes: operations, safety, event management, catering, ticketing schemes, creation and promotion of entertaining, mass media and information contents. Actually our aim is to build the company which might figuratively be called Russian AEG – largest operator of multi-purpose facilities which comprises sport arenas, hotels and apartments. AEG is our consultant right from the start.
- Your project covers the huge territory with various facilities, which issues are you going to tackle with the help of the single operator?
Firstly, it is safety provision bearing in mind operating modes of all the facilities of the project.
Secondly, due to diversified customer groups with divergent requirements the major task is to provide exceptional service and comfort.
Thirdly, emergence of a new urban subculture as we invent a new paradigm of municipal harmony, create the specific environment – the ideal place for Muscovites to live, work, rest, stay in shape and realize their potential.
It would allow us to meet the major challenge of the single operator: operational expenses reduction in addition to an increase of trading income earned with comprehensive management of the project. The engineering and technical complex which is currently being constructed is tend to become the single control center in charge of whole project infrastructure maintenance. It will include managing office accountable for buildings and facilities administration, safety service and other divisions set up to provide excellent operational service for all the facilities starting from football stadium to Hyatt hotel.
The vivid example of the centralized service which “Arena Park Management” is liable for is food and beverage scheme. There are about 150 concession stands among them bars, restaurants, cafes, VIP suites and each of them supposed to be capable of providing various options including fine dining dishes of high quality apart from fast food. We consider food and beverage part of the project not as ordinary money gaining but more like service feature. Therefore quality tracking and maintenance of uniform service standard are our priority which could be reached via comprehensive strategy approach towards centralized management.
The very same strategy will be used for arranging cleaning and setting up parking lot. . And surely enough we are planning to use centralized approaches in sponsorship rights sales.
- How do you plan to increase the income from commercial activity of the project?
- According to the strategic financial model which has been approved by VTB Bank apartment sales is planned to form the basis of the project's revenue along with rental of premises, upkeep of the buildings, facility management including sports and entertainment complex maintenance for instance...
- Well, it is quite obvious that you predict proceeds from apartment sales and lease of the premises. And do you know which particular way are you going to convert sports part of the project into profitable one?
- Main share of the profit for the sports part is expected to be brought by the content program, the more extensive program we have and the more diversified and colourful events we hold, the more profit we earn.
As an example that's the way it works in our cooperation with FC “Dynamo”: together with IMG consultant we have developed the concept of the joint commercial program of Dynamo Central stadium and Football Club “Dynamo Moscow”. The concept envisages that the realization of all commercial assets of the Football Club and Dynamo Central stadium involves pooled sales. It means that we create joint promotion programs for the content related to the football events and to the venue itself. The closer links will be established between the Stadium and Football Club the more profit will be gained.
- How do you assess current situation between the Football Club and the Stadium?
- On the one hand the main prerequisite for the future success of the renewed Stadium is existence of its primary user especially if this user is the famous and distinguished football team. On the other hand emergence of the renovated Stadium will become the foundation for sustainable development of the Club. Dynamo Central stadium is the real home for the team and its fans. We will make sure that the Club will be involved in the decision making process pertaining to the equipment and decoration of the key areas (lockers, fan section, museum and others).
- The Club currently has to pay rental charges for Arena Khimki lease, are you planning to set any rental fees after its returning to the “home stadium” and how much would that be?
- Within the given context there will not be any rental fee as such. Dynamo Central stadium is a home arena for its namesake team. The income and expenses are due to be shared in compliance with the single profit sharing program.
- What will be the proportion of the income distribution between the Club and the Stadium then?
- VTB Bank and All-Russia Society of Sports and Physical Training "Dynamo" are the shareholders of the Club therefore this decision will be made with due regard to the interests of the Football Club, VTB Arena park investment project and in accordance with requirements of financial fair-play. And our current target is to maximize deferred income.
- But that single program with the Football Club is not the only opportunity to derive profit from, do you have additional business opportunities?
- Certainly. Bearing in mind the diversity of the project there are several sources of income: sponsorship program, hospitality arrangements, catering agenda, ticketing scheme, venue rental service and others.
Exercise of the title rights would become one of the major part of the profit, I mean naming rights for the entire project (belong to VTB Bank) and naming rights for the new multi-purpose arena. As we have already stated the football stadium, Sports Academy and park of physical education and sports would retain the old name Dynamo.
- And still you have decided to preserve the old name of the stadium after all?
- VTB arena park is the name of the entire project and is unfamiliar for contemporary Moscow. Dynamo is the time-proven brand and its retention is of significant importance to us. The arena will be called “Dynamo Central stadium”, no one has ever changed this name and still no one has such intentions. Secondly, we have the same-named Sports Academy and the area where all these facilities are located has the same name – Dynamo physical education and sports park. Over the main entrance of the stadium there is a sign “Dynamo”. Management Company which I head and which will own several facilities also holds this name. And I hope that people who will be planning to visit our park or stadium will put it as follows: “We are setting off for Dynamo”.
- And what is the cost of the title rights?
- De facto our major shareholder use VTB arena park name. Real value of the title rights of the multi-purpose arena will be determined by the market which currently is only emerging. In case if VTB Bank would decide to sell them I can say that at the moment we notice preliminary interest in acquiring of these rights shown by Russian and foreign companies.
- Internationally title rights in the projects similar to ours are income accelerator. Many arenas and stadiums throughout the world reserved for high revenue events all year round also sell title sponsorship for the building and naming rights. Barclays Center in Brooklyn and O2 Arena in London hosting more than 200 events yearly (interestingly enough, in the absence of the domestic team). We thoroughly examine the best world practices and the experience of the industry leader – AEG company which manages more than 100 arenas and stadiums all over the world. I think that by having three home teams – football and hockey Dynamo teams and CSKA basketball team– naming rights cost will be not less than 10 million per year.
- You are talking about profitable part and what is the cost for managing this intricate sports infrastructure?
- As a rule turnovers of the similar facilities are accounted for tens of millions of dollars a year. The sports part maintenance of our project – football stadium and multi-purpose arena in particular - will cost us according to the preliminary estimates $30 million a year. I would like to point out that this amount already includes the arrangement of more than 150 events per year. Football matches share in this events calendar for the entire complex is less than 20%. No single stadium in Russia which holds about 20 games a season is capable of self-financing without being subsidized.
- Does the phrase “effective management system” imply cost saving policy?
-The main economic impact is to make it possible that the sports part will not affect rate of return figures and that the entire project will not be burdened with it. We undertook to provide return on equity of 23,2%. Therefore when we make our calculations of the total cost of construction we know that the sports part is not a burden for our project as it frequently happens when similar multi-purpose facilities are being erected. The most profitable part of the project is apartment sales, next is retail segment, a little less profitable Hyatt and office premises. The sports part is often considered as a hindrance, but that is not the case in our situation. Besides we managed to strengthen the social component of the project which is embodied in the creation of modern sports infrastructure. In the vicinity of Sports Academy there will be a school. We are also planning to open a clinic in one of the office buildings and currently seeking the ideal form of interaction with medical community.
- Which stage of the project are you currently on?
- All main contracts are signed. Codest company is responsible for construction of the commercial part of the project. It stands to reason that there are a lot of urgent questions raised that requires immediate attention but nevertheless I satisfy with the construction progress and work pace We are on the final step of utility networks relaying and the only thing left is to complete heating pipeline.
As for the stadium construction Vinci company entered upon mobilization phase. At the same time underpinning works of the historic wall are being held which is time and labour consuming process: 365 piles 15 meters deep, shoring of excavation and we hope that upon completion of mobilization phase Vinci company address itself to construction itself. The papers are currently being considered by the State Expertiza and soon we expect to receive positive conclusion and Construction Permit. The workflow is fully compliant with facility completion deadline. As to the other facilities, the hotel opening and three office buildings completion are scheduled for 2016 and apartments part we are planning to complete by 2017. The commissioning process for these 6 buildings is expected to be step-by-step. We also hope to accomplish construction of Sports Academy. By the end of 2017 active phase on the entrusted territory is due to be finished. Developer’s work is done, financing is received now we have to concentrate on meeting the deadlines and quality control of the construction. This project is good enough by itself but the intention will not be embodied without our obligations fulfilment in terms of quality and time frames.
As to current apartment sales we exceeded the target figures of the previous year by 35%. The sales were opened only since 2nd of November and as of the 31st of December 234 apartments out of 1002 were sold. These figures show the deferred demand and current year also began with convincing results. We'll start to sell the apartments with finishing shortly as up to now we sold them in “shell and core”condition.
- Is that true that you are involved in the production process of the film dedicated to Lev Yashin? What is your contribution to this tribute?
- We established the organizing council in charge of film shooting and Mr. Sergey Stepashin kindly assented to become its head. Mrs.Valentina Yashina, renowned goalkeeper’s widow also joined the council along with All-Russia Society of Sports and Physical Training "Dynamo" representatives, FC Dynamo and Mr. Pavel Kolobkov, Deputy Minister of Sports of the Russian Federation. Up to the present moment we’ve already had three sessions. We also had a chance to engage Mr.Oleg Kapanets, film producer and Kremlin Films founder in our discussions. Mr. Kapanets is famous for his “Gagarin: first in space” movie which he had done in cooperation with his team. I saw this film twice, attended the first run together with Mrs. Valentina Yashina and in my opinion it is very touching and impressing.
- And what was the reason for the emergence of the Council?
- Mrs. Valentina Yashina read a lot of scenarios to base the film on however she didn’t approve any of them. Then we came up with the idea to engage her in scenario development process and base the film on the true story which Mrs. Valentina Yashina as the dearest person to Mr. Lev Yashin kindly shared with us. We also asked Mr. Vladimir Valutsky, famous script writer to take part. He is amazing person with irreproachable artistic taste for dramatic art, author of the scripts to the following films: “Nachalnik Chukotki”, “The adventures of Sherlock Holmes and Dr. Watson”, “Mary Poppins, goodbye”, “The Admiral” and many others. The synopsis for the film is already approved by Mrs. Yashina. This is a great work we are all involved in and it is definitely an appropriate time for this film to be created. Mr. Lev Yashin’s merits for the country are unquestionable. The Grand Opening of the renewed stadium which is scheduled for October 2017 we want to start with the premiere of this film and this is not by accident as the 22nd of October is a birthday of our incomparable goalkeeper. Isn't that symbolic?