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Filling empty seats: How sports clubs can sweat their real estate assets during lockdown

Posted on 08 July 2020

"Behind closed doors", "empty arena matches" and "neutral venue games" – phrases that mark some of the ways competitive sports have had to adapt during the COVID-19 pandemic.

In countries with lower infection rates, such as Australia, the Government has green-lit proposals for smaller crowds to attend National Rugby League and Australian Rules Football matches for a much missed "day out at the footy".

On the other side of spectrum, such as Germany, the US and the UK, major competitive sports are expected to continue with reduced schedules and resume behind closed doors. The English Premier League's 'Project Restart' kicked off in June without the usual roars of passionate fans. In the States, the American National Basketball Association is working towards restarting a modified season on 31 July with a reduced playoff format.

The fact remains that a sport club's largest real estate asset, its stadiums and arenas, will be underutilised. As with all COVID-caused disruptions, this will likely remain the state of play at least for the foreseeable future.

Revising your game plan

Sports clubs are some of the largest real estate owners in the UK. The land surrounding stadiums and arenas are often located in prime, sought-after locations within their cities. When new stadiums are built or existing stadiums are redeveloped, the local community is often injected with new housing offerings and retail and employment hubs.

As with all real estate owners, the lockdown has presented a good opportunity for clubs to pause and consider whether they could better monetise non-operational/under-utilised land. Where help is required, clubs can partner with developers with a track record in the local area or asset class, and leverage off their expertise.

Savvy investors could take one step further to shop for good deals on land adjacent to existing assets, which may have become cheaper as a result of economic downturn, and take a long term view to amalgamate and bank land for future redevelopment.

Like the economic downturn in 2008, it is worth assessing whether retail and office properties can be converted to residential use or developed for better alternative use such as build-to-rent or retirement living. Ideally for employers, sports associations would already be assessing the requirement for head office space, as more and more staff are expecting to work from home.

The goal is to unlock more value in real estate holdings and create income streams to supplement the drop in ticket sales and merchandising revenue, for example.

An assist to the community

During the peak of the crisis, sports clubs have offered their support to the NHS by offering the use of their grounds (e.g. Durham and Kent county cricket clubs), car parks (e.g. the rugby union club Leicester Tigers) and other properties (such as Chelsea FC's Millennium Hotel) for meeting spaces, warehousing needs and accommodation for NHS staff.

Even before the crisis, sports clubs such as Crystal Palace FC and Sunderland FC have contributed to the local community by offering their home ground as a shelter for homeless people. With live games limited, we expect sports clubs and associations to continue to support the NHS and the local community, especially once the colder seasons come in.

Looking to the e-sporting future

EPL, Formula One, Spanish La Liga, NBA and the UFC are among the many mainstream sporting organisations that have invested in their online gaming presence. These organisations are well positioned as the post-lockdown e-sports market is expected to be very buoyant. The video games industry has performed well during the lockdown and e-sports in particular has unsurprisingly seen a significant boost following the initial cancellation of traditional sports.

The post-lockdown world could see more teams incorporating e-sports facilities within their stadiums, clubhouses and other properties to support the growing online market. By hosting the games at the clubs' grounds, loyal fans would be rewarded with a more immersive experience and a chance to interact with other fans, while at the same time creating a further revenue stream for sports clubs.

Following the same line of thinking, new income streams can be created by using the sports grounds to host other hospitality events, beyond e-sports. The restriction on live traditional sports, puts sports clubs in a unique position to use their large sports grounds to host events which are compliant with social distancing requirements.

Some legal considerations

Planning law should be front of mind when considering change of use for major redevelopment or minor adjustments to "business as usual".

The first port of call for alternative use is to review your existing planning permission and consider whether it permits the proposed use. Any future redevelopments and "heavy" change of use will, in most cases, require new permissions. If redevelopment (of operational or non-operational land) is on the cards, clubs could make the most of the current downtime to take advice on development feasibility and, where opportunity presents, take steps to start the clock on lengthy planning processes, and to do deals with neighbouring land owners.

"Softer" changes such as reconfigurations to access arrangements (including security installations and expansion to car parking), extensions to/new club facilities and the introduction of non-sporting uses (such as some noted above), may also require further planning approval. There are exceptions under planning law for permitted development rights (for categories of minor works) and temporary events, which should be considered on a case-by-case basis.

In cases where the club's properties are held under leases, it is important to consult the permitted use provisions of the lease documents and seek the landlord's approval to any proposed changes in use which are not within the confines of those provisions. Commercial leases also tend to limit the tenant's ability to part with its occupational interests – this means landlord approval is often required before a tenant can license an area to third parties (such as to the NHS). 

Putting aside the freehold or leasehold distinction, sports associations are required to follow Government COVID-guidance. It is worth bearing in mind that specific and separate guidance is in place in respect of catering offerings at sports grounds and clubhouses.

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