Investment Return of the Kai Tak Sports Park (KTSP) in Hong Kong
The Kai Tak Sports Park (KTSP) project has finally been awarded by means of a DBO (Design, Build and Operate) Contract to a consortium led by the local developer The New World Development, at about HK$30b. The site is a 28-hectare development and the contract is a 25-year contract with 5 years’ design and construction period and 20-year period for operations. 
The facility will include a 50,000-seat multi-purpose stadium, a 10,000-seat indoor arena and a 5,000-seat community sports ground, plus shopping and dining space.
However, the government estimated that the net operating profit of the KTSP can only achieve $291m p.a. (See Table 1) In other words, the development could never be payback (103-year?!), not to mention the 20-year operation period. Thus, all the $30b initial investment has to be paid by the government.
In other words, for such an operating profile, the maximum capital investment can be $3b, rather than $30b (1/10 of the current one). Let’s estimate the Internal Rate of Return (IRR) of KTSP project if the design and construction costs are $3b.
Chart 1 shows the cash flows of the project, with the first 5 years cash outflows for design and construction, and the remaining 20 years cash inflows for net operating income (NOI). All amounts are in MOD.
As shown in the worksheet, the estimated IRR for the project is 4.9%, if the D&B cost is $3b. It exceeds the government’s internal guidelines of exceeding 4%. Unfortunately, the current D&B cost is $30b, there can never be a reasonable IRR estimable.
As a conclusion, from public accounting perspective, KTSP project would not be justified financially if the design and construction cost exceeds $3.312b (IRR = 4%).
 KTSP (2019) Homepage. https://www.kaitaksportspark.hk/en/index.html