Tirone: sign the damn thing!

After several weeks of uncertainty, Palmeiras president Arnaldo Tirone might today (Tuesday) finally sign the document that formally gives WTorre green light to continue construction of the New Arena. Although the imbroglio has been touched upon briefly before at Anything Palmeiras, you’ve deliberately been spared the details in the ongoing negotiations, and this for two reasons: 1) I can’t in my wildest of dreams (alias, nightmares), imagine Tirone NOT signing the agreement, and 2) the whole episode is utterly embarrassing. Embarrassing for Palmeiras, that is.

In my humble opinion, the involved gentlemen representing Palmeiras have acted like amateurs, disrespecting the history of the institution and, in particular, Palmeiras’ partner in this endeavoure: WTorre. Certain individuals at Palmeiras seem unable (or, more likely, unwanting) to grasp the most basic concept of a win-win situation, even if you break it down to them to a child’s level or shove a “Business Opportunities for Dummies 1.0” in their greedy faces. The Palestra Itália is today halfway demolished and a spectacular New Arena will replace it; this is a fact and happening as we speak. The deal with WTorre will, from day one, secure revenues to Palmeiras in an order never before seen in Brazil: an estimated US$ 625 million in the following 30 years and – as always worth remembering – without Palmeiras investing one single cent in the construction. What’s there to bitch about?

This is where it gets really bad. Tirone, possibly giving ear to a strong lobby group headed by former president Contursi, has expressed insatisfaction with the Performance Bond clause in the contract. What’s a Performance Bond? It’s a kind of insurance – very commonly used in larger construction/infrastructure agreements – that stipulates a percentage of the remaining cost to be paid by the original constructer to a new constructor in case the former bails out of the agreement or goes bankrupt. An example: construction of skyscraper X is budgeted at US$ 100 million. The Performance Bond is set to 15% (which is bang on target: normal market rates are 5-20%). The construction company “Trouble Inc.” is halfway through the building of the skyscraper and then, for one reason or another, abandons the construction. In this case, the Performance Bond obliges Trouble Inc. to pay out 15% of the remaining construction cost (15% of US$ 50 million = US$ 7.5 million) to any other company taking over the construction of the skyscraper. The new company – “Doright Inc.” – will receive a total of US$ 57.5 million for completing the service (the remaining service originally budgeted at US$ 50 million); this makes taking over the construction a lucrative business and “guarantees” that the skyscraper is built no matter what.

As previously explained, normal market rates for the Performance Bond is somewhere around 5-20% (for the reforms of the 2014 World Cup stadiums Maracanã and Mineirão, the bond has been set at 10%). What if Palmeiras demand a higher one? Negotiable. But there are limits. Walter Torre, owner of WTorre, went as high as 38% – practically unheard of on the market – before crying out that enough is enough: the situation was getting completely out of hand as representatives from Palmeiras, obviously clueless, were asking for a Performance Bond of 100%. At one point, Walter Torre even hinted toward the option of interrupting work on the construction site.

Should Tirone sign the document today, the matter will be settled. WTorre will not only go about its business constructing the most modern multipurpose arena in Latin America, but also, as soon as the Arena becomes operational as of April 2013, run it. WTorre will be responsible for the maintenance, negotiate seats, shops, restaurants, VIP areas… In short: a professional firm will run the Arena for 30 years, securing revenues for Palmeiras and, obviously, for WTorre. Now that is REALLY bad news for those who put personal and political interests 1st and Palmeiras 2nd, 3rd or 11th place for all we know. There are many consiglieri who have enjoyed all types of privileges (free tickets, parking spaces, God knows what else) throughout the years. The change in administration of the Arena will be the dawn of a new era.

TIRONE: SIGN THE DAMN THING!

A final word: thank you Walter Torre for all your patience. True palmeirenses will always remember your priceless contribution to helping Palmeiras make that great leap forward at a crucial moment in the club’s history.

AVANTI PALESTRA!

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3 Comments

  1. I am in the construction field, nothing like this. I do work with Bid bonds and performance bonds. I do understand where he is coming from, giving the keys to the castle must be a very difficult step in his career. Any man with that kind of power to willingly give up 30 years of great opportunity and trust to a construction firm is a hard step to take.

    Now that being said, I have never been to the present stadium so this is a very distant opinion. The new stadium looks great and will be… but when there is this much money involved patience is one of the biggest keys.

    1. Rafa,

      I agree with you, it’s a big decision. But in my point of view, a decision that has been taken a long time ago. In addition, we all know that it’s in WTorres interrest that the New Arena is run the most efficient way possible, that it’s taken care of. That’s the best way for WTorre to get back the 350 million reais invested. Other clubs that are building stadiums are in fact giving away their land or construction to the companies. Not Palmeiras. Palmeiras will just hand WTorre the keys for 30 years, but have part in the profit from day 1. I think it’s a fantastic deal. ANd I salute Walter Torres patience. It can’t be easy being in his business, used to close multi-billion deals, and having to explain to Palmeiras counsellors over and over again that there is no such thing as a 100% Performance Bond…

      Cheers!

  2. Sign the goddamn agreement already! Soon the Arena Palestra will be on the same path as the Fielzao. Nowhere.

    When will Mustafa Contursi die?

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