The weak rand has ‘put paid to a lot of projects that we were working on’.
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HILTON TARRANT: A study by the Tourism Research in Economic Environs and Society Department at the North West University has revealed that the total economic impact of all international concerts held at stadia built for the 2010 Fifa World Cup to date is R970m.
Research was conducted for Big Concerts, the country’s largest live concert promoter. Justin van Wyk is chief financial officer of Big Concerts.
Justin, eight tours at those stadiums built for the World Cup, including U2, Neil Diamond, Cold Play, Kings of Leon, The Eagles, Linkin Park, Lady Gaga and Red Hot Chili Peppers – R970m economic impact across these eight tours. Is this impact related to really simple stuff like security, like the cost of medics, the cost of sound, the cost of stadium rental, or are there a lot of indirect spinoffs as well?
JUSTIN VAN WYK: Well, it’s really two things, the first one is the spending by the attendees at the event. So various accommodation, it’s food, it’s beverages, it’s transport. Those are the major recipients of that spending.
The second aspect of that is the actual spending by us as the organisers, as well as the stadium and the people involved in the event. So it’s all very labour-intensive, it’s all security people, it’s the people who put up the sound and the lights, it’s the people who clean the stadiums, it’s the various services that go into presenting the event. It doesn’t include what the provincial and the national government spent over and above, and that’s with regard to things like deployment of the Metro Police, deployment of the South African Police Service, disaster risk officials. So that number potentially could be a whole lot bigger once you factor in what the government is actually spending and the municipalities are actually spending in the presentation of these events. …
HILTON TARRANT: Looking at your major events, you typically have one big concert in Johannesburg at FNB Stadium, one big concert in Cape Town at Cape Town Stadium. Beyond that, though, do the economics only make sense for those two venues?
JUSTIN VAN WYK: They generally only make sense because of the enormous cost involved in doing these productions. We have done other events at Nelson Mandela Bay Stadium and Moses Mabhida Stadium. But, but take Durban for example, it’s so close to Gauteng in terms of getting on a plane, 45 minutes – there are buses, there are private vehicles. People can travel up, it’s a weekend away.
A very similar thing happens in the Western Cape, people can drive from the Garden Route and people from Bloemfontein even, it’s a four-hour drive. It’s very difficult to move these big productions. U2 was 250 people, we were 160 containers, we were so many trucks. To move it six hours away doesn’t make financial sense. It makes more financial sense the other way around – for fans to travel and make a weekend away.
HILTON TARRANT: You mention those enormous costs and, without getting into too much detail, obviously, the cost of hosting these big events like U2, like Red Hot Chili Peppers – are those costs typically in the hundreds of millions?
JUSTIN VAN WYK: Ja, they are, a typical big stadium tour for us is a R50m, R60m project. U2 was a R140m, R150m project. So those are big numbers; they’re very, very risky, the break-even percentages are very high. We would typically not make any money before we reached 85% to 90% capacity.
And when you have those sorts of costs the margins are small. We don’t always reach capacity; we often have to do a lot of deals. In Cape Town recently we’ve been playing 35 000, 40 000. Those are not capacity shows. So they’re very expensive and we tend to do them where there’s a very high number of middle-income households, because of the ticket prices having to be in excess of R450, R500 on average for these big shows to make sense in South Africa.
HILTON TARRANT: With the recent weakening of the rand that’s, I guess, not helping either, given that ticket prices are creeping higher, given that a large percentage of these costs are dollar-based?
JUSTIN VAN WYK: Ja that’s definitely not helping. To put it in perspective when we paid U2 in February 2011 we were paying them at R6.80 to the dollar. We’re now paying Bon Jovi and Justin Bieber at R9.30 to the dollar. You can work out the maths. We certainly haven’t pushed our ticket prices up by 25%; the households just won’t be able to pay that amount of money for what is ultimately in a way luxury goods or a luxury service. So it definitely made a lot of projects that we were working on no longer feasible. We have to wait for the rand to fall back to R8 to R8.50 for a lot of those projects to actually make financial sense.
HILTON TARRANT: That full 12-minute interview is online at Moneyweb, along with the transcript. A fascinating discussion about the business of these mega concerts. David, U2, the payment was made at R6.80/dollar. Justine Bieber, which comes up in about a month’s time, is at about R9.30/dollar.
DAVID SHAPIRO: Gee, I was hoping that would keep him away! [Laughter]
HILTON TARRANT: Pearls of wisdom from Mr Shapiro.
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Article source: http://www.moneyweb.co.za/moneyweb-safm-market-update/r-1035