Re-run: SkyCity’s convention centre would need $10m+ subsidies – MED

Written By: - Date published: 11:22 am, February 21st, 2013 - 15 comments
Categories: business, capitalism - Tags: , ,

A year ago, I wrote that SkyCity was pursuing the dirty practice of ‘subvention’ – where owners of white elephant infrastructure extort governments for subsidies – for the convention centre. The msm has caught up and is reporting on it now. MED is denying there will be any subvention, but Joyce says it’s all on the table. And what about the $10m+ in operating subsidies the centre would need?

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Key’s selling our gambling law to SkyCity in return for a ‘free’ 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?

15 comments on “Re-run: SkyCity’s convention centre would need $10m+ subsidies – MED ”

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  1. Rogue Trooper 1
    21 February 2013 at 11:36 am

    Joker’s Wild (Excellent Article Eddie)

  2. Te Reo Putake 2
    21 February 2013 at 11:53 am

    Great article, EDDIE, Subvention is going to be my word of the day. An article just up on the NZH websites confirms that Key was being more than a little optimistic yesterday when he said Skycity and TVNZ had done a deal on land for the convention hall. They haven’t, despite Key’s repeated claims to the contrary.

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10866808

  3. paul andersen 3
    21 February 2013 at 1:58 pm

    excellent article. the aluminium smelter people are trying their own variation on the same scam here and in northern australia(and probably everywhere else). its a variation on the old privatise the profits,socialise the losses trick. right about now you will have some right wingers on here , trying hard to distact people with the old change the subject, cause an argument rort.

  4. vto 4
    21 February 2013 at 2:28 pm

    More welfare for the corporate sector.

    As a taxpayer I am sick and tired of having my taxes going towards free-lodaing bludging businesses.

    Like farmers.
    Like the NZX.
    Like Mediaworks
    Like finance companies

    Bloody bludgers

    • Draco T Bastard 4.1
      21 February 2013 at 4:46 pm

      +1

      Biggest bludgers around are the rich and they’re the ones that this government is governing for which is why they keep giving the bludgers more of our money.

  5. marsman 5
    21 February 2013 at 2:41 pm

    Thanks EDDIE. Two days ago on James Henderson’ post about the SkyCity Scam I commented:

    ‘And if the thing does not make enough profit for Sky City the taxpayer gives them a top-up. Nice when you are spending other peoples’ money John Key.’

    That comment was replied to by ‘swan’ with: ‘Link?’

    Hello swan.

  6. Treetop 6
    21 February 2013 at 2:49 pm

    Key and his government want a convention centre funded by exploiting pokie addicts. This tells me how disconnected the man is when it comes to being a worthy leader.

    HOW DISRESPECTFUL.

  7. Afewknowthetruth 7
    21 February 2013 at 5:37 pm

    Peak Oil = death knell for tourism. No wonder ‘nobody’ wants to talk about it.

  8. Lanthanide 8
    21 February 2013 at 5:38 pm

    Mass-market tourism, certainly.

  9. Ed 9
    21 February 2013 at 9:38 pm

    I must admit to being confused. The MED cost / benefit analysis for the Auckland Council appeared to assume that teh convention centre would be wholly owned and paid for by the Council (or the government). Now there seems to be talk of Sky building the convention centre “free” (but being goven by a law change pokie licenses), but now the assumption seems to be that the centre would then be owned by Sky (possibly with land being purchased of an SOE at mates rates but that’s not clear), with all profits going to Sky. That may still bring tourism benefits to Auckland (subject to assumptions about number of extra visitors) which my have some value, but its not clear whether the projected subsidies are now to be paid by Sky.

    When Key tells us we are getting something free, I’d like to know who is we, who is paying, who benefits and who is worse off.