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SkyCity’s convention centre would need $10m+ subsidies – MED

Written By: - Date published: 12:06 am, April 22nd, 2012 - 46 comments
Categories: business, capitalism, national - Tags: , , ,

Key’s selling our gambling law to SkyCity in return for a convention centre with no government capital contribution. But, according to the MED, we taxpayers would be subsidising that convention centre with $10m for starters. Plus marketing costs. And, then, ongoing subsidies both if convention numbers fall short and as a kickback when it does bring in conventions.

We know that an international convention centre will never generate a return on the capital invested in it. Which is why no private organisation will do it without the government chipping in money, or doing it legislative favours.

But, the convention centre will, at least, cover its own running costs, won’t it?

Nope. MED’s feasibility study says that an international convention centre would need $10 million of operating subsidies in its first 6 years. Remember, this isn’t about capital costs, which SkyCity is agreeing to pay in full as the price for buying our gambling law. Here’s what MED says:

“it is assumed that the centre’s operating costs will break even. However, in the pre-opening phase, and initial years while the centre is establishing itself, it is likely that operational subsidies will be required. These have been assumed as:
• $2.0 million per annum in each of the three years before opening, for setting up operations and initial
marketing
• $2.9 million in the first year after opening
• $1.4 million in the second year after opening
• $0.5 million in the third year after opening”

On top of that, Tourism New Zealand would be expected to pay for the centre’s marketing:

“Tourism New Zealand, Tourism Auckland and CINZ for example will undoubtedly be active convention marketers.”

Yay! More subsidies. [Important reminder: we can’t afford to extend paid parental leave]

And it gets worse.

See, the fundamental problem with building a great big fuck-off international convention centre in the most isolated country on Earth is that nobody’s going to want to host an international convention centre there. And the other fundamental problem is that there’s already lots of international convention centres, all of them competing for a decreasing number of international conventions.

MED recognises risks – potentially leading to bailouts on top of the subsidies already mentioned – for an international convention centre in the form of a weak global economy (amusingly it says this shouldn’t be a problem because the centre won’t be built until after 2011, by which time everything will be better), increased use of tele-presence, and environmental concerns about flying thousands of people around for what are, invariably, pretty pointless events.

What’s important to recognise is that, while those risks affect all convention centres, they would affect a new Auckland International Convention Centre more than any of its competitors in the rest of the world. This is handsomely illustrated by the fact that, while the number of international conventions worldwide fell 5% between 2008 and 2010, the number in New Zealand fell 40%.

Every year the convention centre doesn’t make the revenue expected, SkyCity will be wanting a handout to keep it going.

But really the crazy thing is this: MED sees SkyCity getting subsidies for hosting conventions too.

Say a few international convention centre organisers are batshit crazy enough to fly 3,500 people to the most isolated country on Earth when there are perfectly good, cheaper alternatives, to a city that doesn’t even have a rail link to its airport, or one to the site of the convention centre. Well, then, there’s insidious idea called ‘subvention’. It goes ‘we’ve got this crappy convention centre that sits empty most of the time but when people come from overseas for conventions here they also spend money on accommodation, gambling, food, hookers, and sometimes they do some tourist stuff too, we don’t provide all those services in our business, but we want the profits’. Or, in MED’s language, ‘subvention (incentive) policies recognise the economic value of conferences to host destinations.’

So, SkyCity would continually have its hand out for more public money as kickbacks.

Subvention works because the convention owner can always threaten to close up, leaving the government with massive empty halls and a whole lot of unneeded associated public infrastructure in the middle of a major city and deny the government some revenue from tourism. The convention centre owners internalise the wider economic benefits of convention centres into their own profits by holding a gun to the government’s head.

It’s interesting to reflect at this juncture on where the term ‘white elephant’ comes from. In Thailand and Burma, white elephants were considered possessions that brought great prestige to their owner (it’s all to do with Buddha). Of course, elephants eat a lot, which is expensive and prestige-bearing objects would require special care, meaning extra expense. Usually, an elephant paid its way doing heavy labour but it was illegal to make a white elephant work. So, the King would give enemies a white elephant. It denoted prestige, but it weakened them in the way that counted, by being an expensive burden.

Do we need or want to have a huge ‘prestige’ project in Auckland that we will have to continually subsidise because it can’t pay its way? And is it worth selling our gambling law, creating more gambling addicts, and inflicting more crime and social costs on our community to get it?

46 comments on “SkyCity’s convention centre would need $10m+ subsidies – MED”

  1. fender 1

    Key should be the patron who tops up any shortfall in revenue. Hes rich enough to practice philanthropy for a project he seems so passionate about.

    This blatent abuse of power has to end. Giving cronies another 500 money vacuum machines and a white elephant that the taxpayer has to feed is a step too far even for a gambling addict PM.

  2. hellonearthis 2

    John Key isn’t n idea’s man, first term was the cycle way and this term looks like it will be a convention centre. John, please stick to things you know, smiling and waving won’t cost NZ millions…

    • felix 2.1

      You could say his smiling and waving has cost us billions.

    • Fortran 2.2

      The Sydney Convention Centre in Darling Harbour is being demolished – great news !

      But, it being replaced by one four times the size, and will connect closer to the Casino.

      • ghostwhowalksnz 2.2.1

        I think they are demolishing the Sydney Entertainment Center and its carpark which is to the south of the current Convention Centre and adjacent Exhibition Centre.
        Then the old building will be be demolished and sold for ‘private development’
        But much is still up in the air, depending on ‘who is paying off who’

        There is an old saying about ripping off the government by building something for them.

      • Colonial Viper 2.2.2

        But, it being replaced by one four times the size, and will connect closer to the Casino.

        So the Sydney Convention Centre is going to quadruple its capacity? Sounds like there is going to be a glut of convention centre capacity in this part of the world.

        An apparently money losing proposition just got even worse.

      • mike e 2.2.3

        footrot NSW and corruption are one in the same.
        Shonkey insider trading NZ Rail how many shares does shonkey have in sky city

  3. taxicab 3

    since the land that this edifice is going to be built on belongs to skycity no doubt in a few years time when the subsidies become too much of a burden the govt of the day will extracate it’s self out of it’s interest in the whole fiasco and skycity will fill it with the 5oo gaming machines and extend it’s footprint at our expense and laugh all the way to the bank.

  4. locus 4

    Excellent post Eddie and great link to the statistics produced by the International Congress and Convention Association.

    It’s increasingly bizarre that many National supporters believe the forex trader and his casino promoting associates have a good grasp of business and economics. The stats you linked to show very clearly that not only are total conference numbers falling worldwide, but so is the average number of people attending. And this fall in demand for international conferences is a consistent 10 year trend – i.e. started before the global financial crisis.

    Interestingly, during the same period the top 7 conference cities (Vienna, Barcelona, Paris, Berlin, Singapore, Madrid, Istanbul) held an increasing number of conferences, which reflects the ever increasing pressure on organisations worldwide to host international events in hub cities to reduce travel costs.

  5. Kevin Welsh 5

    It never fails to amaze me with all the intricate a bizarre ways they find to transfer wealth to corporations.

    • Jim Nald 5.1

      Indeed. And also, not only is John Key selling our laws (they are not his to sell), he is gambling away our money.

  6. tc 6

    Top post full of those facts and numbers you never get from shonkey, like business are going to choose akl and it’s non existent infrastructure to a venue like Melbourne, a truly world class city, if they decide to come all the way down under.

    I hope this runs and runs burning the arrogance, public funds for the already wealthy and corruption into voters brains, hopefully they may even show up next time.

  7. John Dalley 7

    What do we then do with the likes of Vector Areana and the Town Hall?

    • ghostwhowalksnz 7.1

      Vector Arena is a private ‘build operate’ contract.
      They had to wear the cost overuns

      The Town Hall has allways been publically owned.

      • Chris 7.1.1

        The council put a significant amount of money into Vector arena – it’s not all privately funded

  8. ak 8

    Cracker Eddie. The golden whale has hit the strand and not a host of his sychophant scribes can float him. As r0b noted, the media contrast with the hehenhate campaign could not be more stark nor grotesque: if Nactzi survives this, kiss goodbye to any last trace of this beautiful country’s reputation – and our mokopuna. The corrupted Disneyland of the South Pacific: bought to you by a calloused handful of jaded hacks in the thrall of mammon.

  9. RedLogix 9

    Key has never done an honest, useful day’s work in his life. That’s why he doesn’t KNOW how to create any value.

    Last week I came up with good idea that will reduce our costs by about $50,000 pa and costed about $600 in my time to implement. Done. Value added; just as do tens of thousands of other ordinary working Kiwis do every week.

    Key by contrast was only ever a shuffler of other people’s money, a ticket clipper and wearing the smiling shark-suit.

  10. marsman 10

    Auckland must say NO to an unnecessary convention centre.

  11. Janice 11

    A lot of the profits from any big convention will not stay in New Zealand anyway. The delegates will probably be staying in overseas owned hotes, playing at an overseas owned casino, if the conference is big enough there will even be some overseas hookers come as well, so there will only be crumbs for the locals.

    • Dan 11.1

      Yes, and the overseas owned hotel will pay NZ tax on their income and the overseas owned casino will also pay NZ tax on their income… as for the hookers, well who knows?

      • Colonial Viper 11.1.1

        Your defence would be sound but shame that corporate tax rates are so low then.

        Maybe we should nationalise the assets then we could keep it all. Just like our power stations. We currently keep 100% of the earnings for the people of NZ.

        Not that you’re interested in anything like that.

    • Fortran 11.2

      Janice – you are right

      I see that the Hilton Hotel on the waterfront in Auckland has been sold to a foreigner – a Singaporean family.

      They already own a number of hotels in Australia and New Zealand.

  12. Foreigh Waka 12

    If we are to contribute to this Center – direct or indirect – we are ENTITLED to see a business plan. So, where is it? Or are we in a bad movie?

  13. David 13

    Nice article in the Sunday Herald by Kathryn Powley.

    http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=10800577

    To sum up, it looks like this: Back the Auckland City/ Edge deal, Auckland gets a re-vamped St James Theatre and no more pokies. Back the SkYCity deal, Auckland loses a significant theatre space (so the pokies can go in asap!!), a theatre which had previously been a condition of the SkyCity license. Hmmm.

    • tc 13.1

      Yes yes yes the st James is an awesome venue for everything from movies to bands and it’s just tragic that it’s been dormant for years as it is part of akl heritage.

      Reclaim our heritage rather than embellish an already pus filled casino with as much soul as a McDonald outlet.

  14. Jim Nald 14

    Whaaa? The Herald on Sunday awaketh. Must buy a hard copy if the standard of editorial and journalism is improving:

    “Pokie deal is a devil’s bargain”
    http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=10800530

    “The liquor and gambling industries thrive at our well-documented social cost.

    “This social harm should, of course, be seen as intolerable even if we get a free convention centre in return, because we are trading human misery for putative economic prosperity – a devil’s bargain if ever there were one.

    ” More important, the evidence now coming to light makes it plain that Key’s behind-the-scenes discussions with SkyCity were at least extremely exceptionable and almost certainly entirely improper.

    “The whole matter could do with the disinfectant of a thorough airing. It is well beyond the point that the PM can smile and shrug off public concern.”

    (and lots more excellent points in the piece)

  15. Matthew Hooton 15

    Please stop writing posts that I agree with. It’s embarrassing for both of us. See http://www.nbr.co.nz/article/pokie-poll-wakeup-call-john-key-117207

    • ghostwhowalksnz 15.1

      Of course you are right Matthew.
      The classic National party deal should be to change the ‘policy only to create a level playing field ‘, which is all the bidders get to have 400-500 poker machines and 75 table games.

      So we could have a ‘casino choice’ in Auckland ?

      But somehow Key wants to ‘pick winners’ ( pun intended) in clear violation of long standing National policy

    • RedLogix 15.2

      The really embarrassing thing Matthew is that if any ordinary public servant, in central or local govt , were to conduct a tender so very badly…. they would either be disciplined, demoted, sacked, their organisation might well end up in Court, or any combination thereof.

    • Blue 15.3

      You’re embarrassing yourself just fine, Matthew. In the midst of an otherwise perfectly sensible article you suddenly go off on a bizarre tangent about how the EFA ‘made it illegal to effectively criticise the government in election year.’

      Even the most partisan hack should have some scruples.

  16. bad12 16

    There will only be one thing which can be described as ‘good’ which will come out of the shady dealings emanating from the 9th floor of the Beehive in Wellington,

    Blown away is the smoke and shattered are the mirrors behind which such corrupt little deals are stitched together,

    The public, including many of those who voted for National on the basis of its down home folksy leader, the poor Kiwi-kid who made good in the world of high finance and came home to little old New Zealand to fulfill His child-hood dream of leading the country into a better future,

    All a load of f**king bullshit of course, a public relations coup dreamed up to hide the venal shortcomings of a political leader carrying an empty suitcase of intellectual and moral rigour hiding behind the folksy down home Kiwi-kid facade with a carefully scripted fast paced smile’n’wave brand of politics,(akin to the weet-bix ads you see on the TV),

    Whats exposed,is what I and many others have from day one of the current Prime Ministers tenure always maintained to be the true Slippery nature of the real person behind that facade of smile,n,wave politics,

    A Slippery charlatan, someone who I and many others have maintained would sell you,me,and,this country down the road in a second if HE thought there was a buck in it for Him or any of His fellow traveling, card trick purveying, shyster mates…

  17. bbfloyd 17

    an update for you…. steven joyce was on the radio whining that the deal was “still in the negotiation stage”, and that it was possible the government could still back out…..

    well done ladies and gentlemen…. the cowards are getting ready to run away again….

    of course, you won’t be seeing, or hearing johnny “sparkles” making any public backdowns any time soon….. that’s being dumped into joyces lap…. seeing as how the sparkly one is far too busy rolling himself in glitter to take time out to actually be a leader….(the stuff just doesn’t seem to stick on as well as it did)….

    • Treetop 17.1

      “Still in the negotiation stage.” Joyce on Q & A this morning said the same thing.

      I am left asking why the tendering process was closed down and Sky City have been awarded the contract when the government are still in the negotiation stage?

      More like the REnegotiation stage to minimise the backlash from the public when it comes to the government not playing on a level playing field as one business entity is asking the government to change the law and others who tendered for the national convention centre were not given equivalent access to government. Even though the law was changed for the Hobbit movies this was inclusive of everyone in the film industry.

  18. yeshe 18

    Jim Anderton said on Q and A that the premier of South Australia has recently turned down Sky City on a very similar deal over there ? Implied they were sent packing …

  19. Draco T Bastard 19

    When the greater economic benefits of building the trains here was mentioned the RWNJs poo-pooed the idea and now, all of a sudden, they’re used as justification to build a convention centre that will be a constant loss on the economy?

    Something tells me that the right are stealing the language of the left again.

  20. Steven Joyce struggled to effectively defend the Sky City convention centre decision on Q & A and revealed his complete disinterest in the issues of problem gambling. It’s all about the money!
    http://localbodies-bsprout.blogspot.co.nz/2012/04/national-hell-bent-on-selling-new.html

  21. Anne 21

    the fundamental problem with building a great big fuck-off international convention centre in the most isolated country on Earth is that nobody’s going to want to host an international convention centre there.

    That’s easily solved. Sell Air NZ to some filthy, rich middle-eastern sheik (Sultan of Brunei springs to mind) on the proviso they arrange for NZ to host a minimum of three international conventions of… 3000 delegates plus per annum. Deal done I reckon Johnny boy? (sarc)

    • Fortran 21.1

      Anne

      Since when has Brunei been in the Middle East. ?
      It’s an oil rich country in Borneo due east of Singapore-
      duh !
      Assume you are a teacher.

      • Anne 21.1.1

        Sell Air NZ to some filthy, rich middle-eastern sheik (Sultan of Brunei springs to mind)

        Should read (Sultan of Brunei also springs to mind).

        Happy now rwfw?

      • squirming 21.1.2

        No, more likely an ex politician.

  22. DH 22

    Thanks Eddie, that’s good work. It’s a shame our media aren’t up to the same standard, this interview by the obsequious Campbell is just embarrassing to watch;

    http://ondemand.tv3.co.nz/Campbell-Live-Friday-April-20-2012/tabid/119/articleID/6262/MCat/73/Default.aspx

    To quote Key on the Crafar decision, at 1:03;

    “So, the government needs to follow the law…”

    In light of the Sky City deal that’s real foot in mouth stuff and Campbell didn’t even pounce on it. The law forbids Sky City to install more pokies and Key isn’t following the law there is he. The hypocrisy is quite galling.

  23. Observer 23

    Everyone knows you can earn big money by owning a low overhead, low maintenance Pokie Machine, but does a big Convention Centre earn the same day in and day out wealth?

    Or put another way, will SkyCity with expanded pokie capacity earn sure and large profit while the NZ Tax Payer props up and pays for a much less sure Convention Centre?

    I would rather be on SkyCity’s money train – than on a Convention Centre’s. Would you?

  24. Very interesting article in the ODT today regarding the proposed Dunedin Conference Centre upgrade. To be completed by 2016, they expect to host 36 conferences a year, up from 16 a year in 2008. Even if this unlikely number of conferences is achieved they will still be operating at an annual deficit of $4.5 million.

    Are these people insane?

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