:quality(75)/cloudfront-us-east-1.images.arcpublishing.com/bloomberglinea/ZVFSJJMKSJH7HBJ3CZF7Z2CQ6Q.jpg "Imagem projetada do estádio do Pacaembu reformado pelo Consórcio Allegra Pacamebu, que ganhou a concessão para administrá-lo por 30 anos (Foto: Divulgação)")
Sao Paulo — The announcement of the largest naming rights deal in Brazilian sports history, with MercadoLibre expected to pay more than R$1 billion (US$200 million) to have its brand associated with the Pacaembu Stadium for up to 30 years, has reignited interest in the complex’s ongoing renovation project in the city of Sao Paulo.
“The deal with MercadoLibre confirms the vision we’ve had since the beginning of the project, that a stadium is much more than just a football stadium,” said Eduardo Barella, CEO of Allegra Pacaembu, in an interview with Bloomberg Línea. The consortium won the rights to manage the complex for 35 years in 2019.
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“We always saw it as real estate with a very important and emblematic football pitch for the city, but that it could be transformed into a complex with much broader public use, from which businesses can be created,” added the executive, who also heads Progen Engineering, the company behind the consortium with a history in infrastructure works since the 1980s.
Five months ahead of the expected delivery of the complex at the end of June, as per the concession agreement, the number of contracts is multiplying, including agreements that are directly related to football.
:quality(75)/cloudfront-us-east-1.images.arcpublishing.com/bloomberglinea/U3TPBSTQ2NFP7HJAYQDSCMWZSA.jpg "Imagem com a projeção de um boulevard do novo Complexo do Pacaembu, previsto para ser entregue ao público ao fim do primeiro semestre de 2024 (Foto: Divulgação)")
The consortium has signed contracts for three of the country’s biggest clubs, São Paulo, Santos, and Cruzeiro to play matches in the renovated stadium, using the matchday experience model that is commonplace in Europe, and where attractions go beyond the 90 minutes of football, Barella told Bloomberg Línea.
In the envisioned model, the clubs stop paying rent for the stadium as is common in other locations, and instead enter into a revenue-sharing agreement with the consortium, whose share varies depending on circumstances such as the potential for business generation.
The plan is to encourage fans to extend their stay in the arena, arriving hours before the game and leaving much later through activations like early gate openings, pop-up stores, studio recordings with athletes, etc. “After the game, we can offer a show in the events space. We have a menu of what we can offer to the fans,” said Barella, emphasizing that there will be consumption and experience options for all budgets.
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Mandatory fixed expenses, such as security and cleaning, will be shared in a public spreadsheet; revenues from ticket sales and extras like parking, food consumption, hospitality, etc. will go into a pool, first to cover operating expenses, and then to be shared between the parties. “When a club plays in another stadium that is not theirs, they complain that they only get ticket revenue, even though they are responsible for bringing the content. We want to change that model,” he explained.
The contracts with the mentioned three clubs are non-binding, allowing them to host a certain number of games without obligation. Barella is expecting 20 games in the second semester of this year, and 35 matches throughout 2025, similar to what took place at the stadium before renovation works started in 2019.
The projections for the new business model, which was developed with specialized events and experience companies UmaUma and Octagon, indicate that clubs may have a higher net income with this equation than by only keeping the ticket money.
The model also allows clubs to work on their fan base beyond their native city or state, the executive said. “Thinking about Cruzeiro, there are many people from Minas Gerais who live in São Paulo. And there are people who support a team from the capital, but also sympathize with Cruzeiro.”
Eighty shows per year
Another source of income will be Four Even an investment fund that will pay R$26 million per year for the right to organize events on 80 dates from January to December, including the field and the convention center. The “take or pay” contract (the fund pays even if it fails to negotiate all dates) has a duration of up to ten years.
“It would be very difficult for us to negotiate event by event, in retail. We had conversations with many producers, and they [Four Even] understood our proposal. And this gives us great ease of mind with the revenue flow on top of this guaranteed ‘cushion’ of events,” explained Barella.
He said the consortium would need to approve the schedule in advance and have veto power to prevent events that could detract from the planned concept for the complex. “We are aware of our responsibility as private managers of a public facility. If there is a deviation from what Pacaembu is, the project is lost,” he stated.
The Four Even fund was born and grew during the pandemic, a time when many artists were unable to perform and, therefore, were not receiving. It brought together producers and professionals from the financial market to advance payment, following the receivables model. One of the first contracts was with the sertanejo singer Gusttavo Lima, with a schedule of about 200 shows.
Five million people per year, or more
With an increasingly booked schedule, the “very conservative” forecast, in Barella’s words, is a daily circulation of 15,000 people when the complex is fully operational, pointing to at least 5 million people per year.
This projection takes into account the audience for events, what will be working in the future offices, and the equivalent migration of 3% of the frequency of Shopping Pátio Higienópolis, currently the most sought-after attraction in the region. But there is a potential extra demand from new attendees.
If confirmed, it will be a significant leap compared to what was recorded before the concession, especially on weekdays without games. In measurements taken in early 2020, before the pandemic, the consortium estimated a daily frequency of about 300 people, according to a report in the City Council’s commission in May 2022. Generally, the audience for sports facilities and facilities consisted of registered residents from surrounding neighborhoods, among the most expensive in the capital.
“We want and need people to frequent the new Pacaembu so that we can be remunerated,” said Barella. He rejected accusations of “gourmetization” or “elitization” of the new Pacaembu and noted that the old turnstiles that restricted access to the population and the requirement for prior registration were discarded, along with the high walls that obstructed the view of the complex.
One of the strengths is the central location, proximity to three major universities - FAAP, Mackenzie, and PUC - as well as the USP School of Medicine, and accessibility through three different subway lines, as well as a future station - FAAP-Pacaembu - under construction and scheduled for delivery from 2027. The estimate is that currently around a hundred thousand students circulate within a 2-kilometer radius.
“As the American saying goes, it’s location, location, location,” Barella compared to the strategy around real estate assets.
Skepticism and Lack of Trust
This scenario of heated demand contrasts, as Barella pointed out, with the skepticism faced at the beginning of the project, which entailed difficulties in securing credit for the venture. The total investment is estimated at R$600 million, which includes the R$111 million to win the bid in 2019 together with the Navona fund, with payment of an approximate R$80 million grant at the contract signing.
“In the first conversations with banks and investors, they would say, ‘I know you, Progen, and your delivery capability, but that’s in infrastructure. There’s no track record for what you want to do now,” he recounted about what he used to hear in the initial meetings.
The memories of “white elephants” in the aftermath of the 2016 Olympics in Rio de Janeiro, including abandoned facilities at the Olympic Park in Recreio dos Bandeirantes, a few years earlier, exemplify the risks associated with real estate projects worth hundreds of millions of reais.
Initial credit was secured in a R$46 million fundraising operation, with Progen guarantees offered to investors. “The first operations were more difficult and had to rely on corporate guarantees. Later, they moved to a project finance structure because the project already had life,” said the executive.
The consortium issued a CCB (Bank Credit Certificate) in the concessionaire, which was then settled by a CRI (Real Estate Receivables Certificate), and then this by another CRI, with reduced costs and guarantees requirements with each operation - there was a final debenture issuance for delivery. The operations were structured by the private credit team serving B.Side Investimentos companies.
With each promised performance delivery in the issuance, Allegra Pacaembu could not only retain prior investors but also attract new ones.
The plan is for a debenture issuance in 2025, with tax exemption, to spread distribution among retail investors. “Pacaembu has a lot of appeal.”
The Allegra Pacaembu CEO did not want to disclose the investment’s return figures and whether profit will be reached sooner than expected. “As in any project, there are points that fall short of expectations, others in line, and others that exceed. The agreements already made are in line with the business plan.”
But he emphasized that, despite the “sex appeal of talking about sports and entertainment, the focus has always been on delivering results,” citing a history of involvement in engineering and construction.
“Despite being a real estate asset, the structuring resembles an infrastructure project. And the real estate professional doesn’t know how to put this together,” said the Progen CEO when discussing the challenges in the market for the operation that now serves as a barrier to entry for competitors.
The consortium also submitted a request for economic-financial rebalancing of the contract, claiming unforeseen losses due to the pandemic, with a delay of about four months in the issuance of permits by the city and a downward measurement of the total area of the complex, from 75,000 to 65,000 square meters. The request is under review at the city hall with no decision date. The request places Praça Charles Miller, in front of the stadium’s entrance, as an area that could also be explored by the consortium.
From hospitality to health services
With regard to monetization plans for Pacaembu, Barella drew on his company’s experience. “In infrastructure, much of the success comes from the turnover [financial] on the asset.”
The plan always considered three fundamental criteria: (1) the flow of people - “the more people circulating and using the equipment, the better”; (2) the occupancy rate of spaces - “we created 45,000 square meters of new areas”; and (3) the time people spend, given that “we think of a mix of offerings that takes into account that people increasingly want to consume experiences, not products,” he said.
According to the executive, addressing these issues would not necessarily be possible if the asset in question were not precisely Pacaembu, given the low rejection by São Paulo residents, who have nicknamed it “the second home of all fans” for many years, alluding to the fact that the four major state clubs, Corinthians, Palmeiras, São Paulo, and Santos, played games there for decades.
The presence of offices should ensure, according to the executive, the circulation of more than a thousand people regularly, who, it is hoped, can arrive earlier to use the gym or engage in physical activities and leave later after dining in the bars and restaurants area.
“The team’s mantra is space occupation, as long as it meets, of course, the criteria I mentioned as important,” said the executive.
In presenting these arguments, the CEO of Allegra Pacaembu explained why, in his view, comparing the values and term of the contract agreed upon by MercadoLibre with those of naming rights for other stadiums in the country is not appropriate. “They are assets of different nature,” he stated. São Paulo announced earlier this year that it sold the naming rights for Morumbi to Mondelez for R$75 million for three years.
Barella mentioned the agreement for up to 30 years with Universal Music Group (UMG) for the launch of a UMusic Hotels unit in the complex, scheduled for delivery at the end of 2024.
The brand that involves the concept of accommodation with musical entertainment was launched in 2020 by the world’s largest record label, which includes artists like Taylor Swift, Coldplay, Adele, and Drake, and has one unit in Madrid (Spain), in addition to three already announced in the United States, in Atlanta, Biloxi, Mississippi, and Orlando.
Another announced agreement, of undisclosed value and a 15-year term, includes the Albert Einstein health group, which will open a sports rehabilitation center at Pacaembu, as well as bringing Eretz.bio, its innovation center, to the location.
“These were two anchor agreements that gave us more peace of mind to gradually fill this ecosystem until this moment now with the largest of contracts,” said the executive. He said that a criterion always taken into account is the experience that can be worked on by partners. “We never wanted to close a location by itself. We will have offices so that people can work during the week and stores linked to running, yoga classes, and testing of sports equipment on the field.”
Barella highlighted that the project has received all necessary approvals, including from public agencies for heritage protection, such as Iphan and Condephaat, for example, as well as a license from the city that took a year and four months to be issued, beyond the one-year deadline provided in the bid. If the delivery deadline in June is met - “we have no doubt that we will succeed” - it will have been three years of restoration work on the claimed 75,000 square meters, in addition to the mentioned new areas.
Agreements with sports federations
Before the contractual delivery deadline, the Allegra Pacaembu CEO said he intends to deliver in phases over the next few months. These will include facilities such as the multipurpose center, the tennis court, the Olympic swimming pool, and the multipurpose gym, which were restored without losing sight of their original concepts, as well as a new convention center for 8,500 people.
To expand its use beyond the residents of the surrounding area who already frequented them before the renovation, the consortium also entered into partnerships with sports federations of the respective modalities, from athletics and water sports to handball and boxing, among others.
The business model foresees that competitions be held at the complex, with costs being borne by sports brands through partnerships, with the consortium acting as an intermediary, given that governance requirements are sometimes an obstacle for certain entities.
The concession contract provides for the complex to operate from 6 am to 10 pm, but considering the hotel’s operation, Barella said that, in practice, it will be 24x7 (24 hours a day, seven days a week).
Another highlight of the project, according to the executive, is the return to the stadium’s original concept of “permeability” of its areas, that is, allowing visitors to have a broader view of the complex from different points, such as being able to see the football field from the access gate on Itápolis Street. This was not possible with the grandstand known as Tobogã, built during the military regime and which was eventually demolished with the necessary authorizations.
The Allegra Pacaembu CEO said he hopes the project becomes a reference for public-private partnerships. “The city is almost like a partner in the project because it ceases to have an underutilized and deficit equipment, which required putting money in every month, and becomes surplus, with the right to a percentage of revenue, in addition to the grant amount received [about R$80 million].”
The consortium won the right to reform and concession the Mineirinho gymnasium in Belo Horizonte, a less complex project from a restoration standpoint and that requires less investment but with a similar business model, according to the executive. “And we are looking at other assets.”
