1. Introduction
The undertaking analyzed called Improvement of sports infrastructure through the reconstruction of the Stadium in RZESZOW consists of carrying out the first stage of reconstruction of the Stadium located in Rzeszow at 69 Hetmanska Street, currently ceded by the Communal City of Rzeszow to the Institutional Sports Club Stal Rzeszow. As part of the investment, nine stadium segments (stands) are planned to be built on the current premises on the east side of the stadium together with the access roads. The realization of only nine segments (not the entire stadium) is conditioned by the financial possibilities of the City, as well as the accessible allocation of means as part of the Subcarpathian Voivodeship Regional Operation Program (RPO WP). The new stands will allow the stadium’s capacity to be increased by some 4,711 seats for spectators of sports competitions. After the investment is made, the stadium’s capacity will increase to 14,211. The completion of the project will also increase the level of driving safety and comfort, as well as participation in sports games and competitions, adapt the facility to the needs of the people with disabilities, improve the image of the city, rationalize the operating costs of the facility. The improvement of the sports infrastructure of the stadium in Rzeszow is strictly related to the conception of the reconstruction of the swimming pool in the “Karpik” housing estate in the south of Krakow, which will be enriched with a competitive trough for diving in the Olympic class together with a platform ten meter dive. A common part of both tasks is the prospect of creating in Rzeszow a supra-regional center of various sports disciplines, especially in the branches that require intensification and assumption with a sports sponsorship of the sections in charge, demonstrating the best results in competitions both in internships national and foreign. The sprinting section in Rzeszow, the diving section of the ZKS Club, as well as the “Sokol” swimming club have proven many times that investing in young talents results in effective promotion of the city as a major center of professional sports. and qualified. The STAL Rzeszow Institutional Sports Club will be responsible for the exploitation of the fixed assets established as part of the project.
2. Methodology and methods used
The investment expenses in the realization of the project were received on the basis of the estimated cost calculations in the range of investment tasks (initial pricing of the Speedway football stadium in Rzeszow on the basis of the headwork green friendly project), the calculations of the beneficiary and the contract with the executors of the feasibility study. Total gross investment expenses included in the sum of 30,000,000 Polish money.
Based on the assumptions presented below, the Stadium operator’s financial plan for the activity directly related to its use was drawn up. The plan includes the balance sheet of the operator, especially its essential positions to prepare the demand on the net working capital, the profit and loss account and the money flow account. The most important assumptions of the forecast are presented below.
The income acquired by the project operator comes from three sources: income from the sale of tickets for sporting events and other events organized at the Stadium; income from advertising placed in the Stadium buildings and income from the organization of various events in the Stadium. Due to the small size of event hosting revenue, these revenues were aggregated along with revenue from advertising sales. The income generated by the operator for the management of the Stadium in the years 2005-2007.
The construction of any ticket demand model that authorizes participation in events organized in the Stadium facilities would be encumbered with the risk of reaching the level that casts doubt on the practical usefulness of such models. The price elasticity of demand for tickets is minimal. The revenue projections prepared are therefore based on the assumption of proportional growth in revenue from ticket sales due to the increase in seats in the stands. The number of places will increase by 50%. The average level of ticket prices, according to the forecast, will not change, so the annual revenue from ticket sales in the reference period will increase by about 150%. The forecast also includes proportional growth in advertising revenue. Because ticket revenues in recent years have been characterized by significant fluctuations, the weighted average of revenues in particular years was accepted as input for the forecasting objective. However, the arithmetic mean of the years 2005-2007 was accepted for revenue from advertising sales.
Both the analysis of the historical data and the cost projections are based on distinguishing the costs related to the activity carried out with the use of the Stadium facilities from among all the costs incurred by the operator. Indirect costs were allocated based on their estimated share of revenue in particular years.
The forecast of particular types of costs was made on the basis of the division into constant and variable. The costs recognized as variable (or predominantly variable) were expected in a certain proportion to the expected change in the number of places in the stands. In addition, the instructions of technical experts on the scale of growth of particular costs as a result of the commissioning of the new objects.
The realization of the commitment will not directly cause significant changes in the generic structure of the stadium’s operating costs. The essential abrupt growth in costs will occur in 2011 as a result of putting new objects into use. Below are the detailed assumptions of the projected costs.
In the years 2005-2007, the costs of materials and energy constituted an average of 14.5% of the total operating costs of the Stadium, excluding depreciation. Both material costs and energy costs were recognized as variable cost items, although their degree of reaction to the increase in booth space is small.
In the years 2005-2007, external services constituted an average of 18% of the total operating costs of the Stadium, excluding amortization. These costs include the costs of current repairs, protection services, telecommunication services, transportation of impurities. Outside services were included in variable costs. It was assumed that the coefficient of increase in the costs of external services constitutes a % of the rate of increase in the number of seats in the stands.
The facilities that made up the composition of the Stadium used by the operator in 2007 were fully remitted. However, the property is still used in operator activity and was never formally closed. For this reason, the basis for making amortization copies is the value of the investment expenses increased with the gross value of the existing buildings, fully remitted. Based on the records kept by the operator and in accordance with the norms of the law on income tax of legal entities, the depreciation rate in the amount of 2.5% for the Stadium buildings was accepted.
The average annual participation of remuneration and derivatives in unamortized operating costs was 56% in the years 2005-2007. The project meant maintaining the current employment situation and the level of remuneration. Derivatives that had the character of “mark-ups” on remunerations were directly related to the majority of the remuneration budget. Due to this fact, both cost positions were integrated into the analysis.
Due to the negligible amount of taxes and payments, they were added in the remaining generic costs position. In the years 2005-2007, taxes and payments constituted an average of 11.9% of the Company’s total costs. The remaining costs include training costs, business trips, performances and advertisements, insurance. Its average annual share of unamortized costs in the years 2005-2007 was 10%.
The financial results of the forecast operator on the activity related to the operation of the Stadium were included in the profit and loss account. Both in the variant before the completion of the project and in the variant after the completion of the project, Stadium achieves a positive result in the sale. The substantial increase in costs in effect of making payback copies of the investment made of an environmentally friendly modernization character is balanced by a significant increase in revenue from ticket sales.
Distinguishing the income and costs related to the operation of the Stadium among all the economic transactions of the operator and the analysis of the profitability of the activity so distinguished justifies the correction of the result on the operational activity of the project on the amount of the profitable tax. In accordance with the provisions of article no. 17 of the 5th law on the tax on the benefits of legal persons, the earnings of taxpayers that are sports clubs, as defined in the law of July 29, 2005 on qualified sports in the part oriented to training and sports competition for children and young people, are tax free. Based on the analysis of historical data, it was assumed in the forecast to allocate 75% of the gains to children’s training and competition. Throughout the forecast period, the assumed rate of profitable tax for legal entities is 19%.
In recent years, the operator had relatively small inventory states, past-due and short-term obligations. It is also opportune to highlight its gradual decrease in the period analyzed, reflecting the rationality in the management of circulating capital. The projection is based on the calculation of the average circulatory coefficient for the years 2005-2007 and intends to maintain this coefficient in the coming years.
In the “with project” variant, it was assumed that the reconstructed expenses will be incurred each year, starting from the year in which amortization copies of the investment made will begin to be made. It was accepted that the reconstructed costs in the “without project” variant grow around 3% per year, which means that it will be necessary to increase the annual reconstructed costs as the installation wears out. The rate of increase of the reconstructed expenses in the variant “with the project” is also 3% per year. The amount of the reconstructed expenditures in the base year for the “without the project” variant was established based on the analysis of historical data. The reconstructed expenses rise according to the instructions of the technical expert and assigning to the reconstructed investments 10% of the amortization copy already in the first year of the economic use of the investment made. This assumption is appropriate for the exercise of the activity of subjects controlled by public bodies or that act in the public sector that habitually condition the amount of investment expenses to the amortization of the copies.
