The AFL's Etihad Stadium dilemma: Renovate or detonate?

We’re talking stadiums again, and after last weekend’s 20,000 strong crowd at a dilapidated Princess Park, it looks like the development of a boutique stadium in Melbourne is the issue de jour.

Adam Collins, new to The Roar but most certainly not new to Australia’s sporting conversations, wrote an excellent piece discussing the charm and character of suburban footy grounds. It was a lament in many ways, and his is a view shared by a very large segment of Australian rules football fans.

Football in Melbourne has been fighting with itself – often in the shadows, with occasional spurts of open warfare – about what the long term stadium situation should look like. As it stands, the nine clubs that call the 15-kilometre radius around the Melbourne Cricket Ground home are tenants of either the ‘G to the east of the CBD, or Etihad Stadium at the Docklands to the west. Geelong, whose home ground is a short helicopter ride down the coast, play a handful of big-drawing games at Etihad, too.

This is how it has been for almost 11 years, following the stadium consolidation agenda which has, as Adam points out, been an overwhelmingly net positive for the structural health of the AFL in Melbourne.

Etihad Stadium has a capacity of 55,000, while the MCG can hold six figures worth of ranting and raving football fans.

Both stadia have agreements in place, whereby 45 games are to be scheduled at the ‘G, and at least 40 at Etihad, during the regular season. The MCG also effectively has hosting rights for all finals in Melbourne, unless there are too many in a single weekend and your name is Geelong and you get a special dispensation to play a final at your home ground despite its poor access for travelling fans – and it ends up blowing up in your face anyway. But I digress – that is the state of play.

The yearn of a smaller stadium is understandable at an emotional level, particularly compared to the relatively robotic feeling that the enclosed Docklands conveys. There is only so much strobe lights and a hovercraft can do to make a stadium feel more inviting. Adam’s piece captured that brilliantly, so let’s not rehash those warm fuzzies here. Instead, let’s briefly talk economics, and politics, and all of those other realities that influence major investments like sports stadia.

Yes, the AFL could, and perhaps even should, build a boutique football stadium in Melbourne for any of its nine Melbourne-based clubs to play at. But it won’t.

Right now, the AFL will take ownership of Etihad Stadium in 2025, under an agreement struck before the stadium began operating with Melbourne Stadium Limited (MSL). That agreement saw the AFL pay MSL $30 million in 1999 for what is effectively a leasing arrangement, where the company is required to maintain the asset but controls all elements of its commerciality. That’s an important point to keep in the back of your mind.

While this structure has a lot of positives, one of the downsides is that it creates a situation where the tenant clubs of Etihad – Essendon, Carlton, St Kilda, North Melbourne and the Western Bulldogs – can be subject to onerously high fixed costs that the stadium operator can pass on to them on the basis it is acting commercially. The AFL’s relationship with the MCG and its operator the Melbourne Cricket Club is substantially different, and is somewhat less onerous.

This is an issue I’ve touched on briefly in the past, when discussing the AFL’s ‘crowd crisis’ in 2014. That whole discussion was a gross over-reaction to some short-term trends in the data. There is, however, some consideration to be given to crowd size and how this may relate to major stadia in Melbourne.

The excellent fellow at www.afltables.com.au has crowd figures for every single AFL game going back to 1921 – some 12,000 games or something remarkable like that. We don’t need that many, but taking the last five years of crowd numbers reveals the average home-and-away crowd at Etihad has fallen from around 33,000 in 2011 to 28,000 in 2015.

That decline, and the hypotheticals as to why it has occurred, don’t interest me here. What does interest me is that even in 2011, teams struggled to draw a crowd that would help address the high operating costs that come with a large and expensive asset such as the stadium at Docklands. This eats away at the financial strength of the Etihad tenant clubs; a situation that is made worse the longer it is allowed to happen.

In recent times, the AFL and its chief Gil McLachlan have made overtures about buying out the Etihad deal early, using its new TV rights deal and the millions that will flow as a cash cover for what could be a very expensive transaction. The league could then help ease the direct burden faced by those clubs by restricting the stadium’s finances – either as the stadium’s owner/operator or just the owner.

Somebody still has to pay, though, and what would likely occur in that situation is the richer clubs effectively cross-subsidise the more Etihad-tenant-friendly agreement through reduced AFL grants. That might fly, but I suspect a proposal like that wouldn’t make it out of the first Collingwood boardroom briefing.

This is where the boutique stadium argument gets interesting.

The average Etihad crowd was 28,000 in 2015, with just three games recording a total crowd in excess of 50,000 people. Just three times in the past 237 games at the venue has the crowd looked close to reaching capacity. The majority of games, 155 of the 237 (66 per cent), had between 20,000 and 40,000 patrons.

Is it wrong to think that maybe the stadium is, well, a little “gold plated” for what the AFL and its saturated Melbourne market need? Does the AFL actually want to own Etihad Stadium?

If the AFL is seeking to address the financial issues posed by having an expensive, possibly overcapitalised stadium solution for more than half of its Melbourne-based clubs to use (interesting side note here: in the past five years, Etihad has hosted 237 games to the MCG’s 229), a potential solution would be ditch the Docklands and look to build a stadium of smaller capacity somewhere else in Melbourne.

This sounds crazy, and in a lot of ways it is, which is where the “could and maybe should, but won’t” line of thinking comes full circle.

There has been increased talk from local government and city planning types in Melbourne that the Docklands precinct is cut-off from the rest of central Melbourne by this great big lumbering collesium known as Etihad Stadium. Some have gone as far as to suggest it should be knocked down and “re-activated” – whatever that means – to help improve the ‘vibrancy’ – whatever that means – of the CBD.

Are you thinking what I’m thinking?

As it stands, the League will buy Etihad at some point in the future, perhaps refurbish it, and make the most of the situation its predecessors created for it at the turn of the century.

There is a clear alternative option for the AFL here: buy Etihad early, sell the land to a developer, and use the difference to help finance part, or perhaps all, of a new, smaller stadium development.

In essence, the AFL could renovate, or they could detonate.

One would assume the land that Etihad Stadium is currently occupying is worth a pretty penny – maybe even a few hundred million pretty pennies. Depending on what the City of Melbourne, or whomever controls planning policy for the CBD, decides to do with the zoning of the land in a “detonate” scenario, the value could be even higher.

That would go some way to helping finance the development of a new stadium, which would include land acquisition and construction. No one can put a reliable figure on these things without doing a lot of due diligence, but it is worth considering the proposed Manuka Oval redevelopment – which includes a lot of bells and whistles that may not be required at a new AFL owned and run stadium – was priced around $800 million.

Perth’s New Stadium, which is gold plated in every way other than seating capacity, is to set the WA Government back some $1.4 billion, but that also includes land reclamation, significant earthworks and a bunch of neat, if pricey, public transport solutions.

A reasonable guide might be the $200-300 million that has been expended on the Kardinya Park development over time, given that is mostly centred on stands and other facilities in keeping with hosting an AFL game.

The other questions are timing, and location. The New Perth Stadium is effectively a greenfield project, and has a roughly four year completion time if all goes to plan. Given the likelihood that a new Melbourne stadium would be on an established site, that would bring additional complications that might extend that timeframe out a little.

With the AFL set to take over ownership of Etihad for $1 in 2025, the timing of a project matches up quite well – the League may not have to buy Etihad’s owners out early. That doesn’t solve the short term problem with small club finances, admittedly, but if the AFL is planning on financial jiggery-pokery in the renovate scenario, that might not be a major consideration. The timing, at a very, very, high level seems to line up.

How about location? There are heaps of options in Melbourne and its surrounds, all which are likely to have benefits and costs. The established club grounds would make the most sense, however that brings with it the issue of what to do with the displaced club.

North Melbourne’s home ground, nestled in the northern part of central Melbourne, has been floated in recent days, while Western Bulldogs chairman has floated Whitten Oval as an ideal venue given its distance from the MCG (and for no othe reason at all, of course…)

If it were to ever come to that, politics would undoubtedly come into play. And those politics, the inevitable power grabs and back room moves that come into play when million or billion dollar infrastructure is up for discussion, might just be what leads the AFL down the renovate path.

A move like this is incredibly risky, and involves careful consideration and planning. A lot of parties, all with different motivations, have skin in the game when it comes to major statia. The recent, sudden leadership change at MSL suggests the politics are already heating up.

Still, the substantive point remains: Etihad Stadium might not be the stadium that best suits the AFL now, nor in the future. There are options out there, which the AFL could, and in this columnist’s view should, give great consideration. Football’s new broadcast agreement, and the rude financial health of the organisation at the central level, affords great opportunity.

The lure of a boutique stadium, attractive on so many levels – even those that tug at the purse strings over and above the heart strings – will likely remain a subject of much discussion and debate. An opportunity exists to do something that might transform football in Melbourne. Let’s hope the AFL seizes it.