SkyCity’s expected subvention explained for John Roughan

Written By: - Date published: 9:28 am, December 27th, 2014 - 42 comments
Categories: accountability, Economy, journalism, Politics, the praiseworthy and the pitiful, The Standard, you couldn't make this shit up - Tags: , ,

In February 2013, Eddie reposted an earlier warning post from April 2012 which detailed the reasons why SkyCity would inevitably be wanting to extort money and particularly a operating subsidy from  governments, local and central.

People like John Roughan at the NZ Herald ignored such warnings and the linkages to the material behind them.  Today he writes plaintively in the Herald this morning about how he has been a sucker for sweet words.

While it is nice to read that he has finally woken up to the problem. It would have been preferable if he and others like him had actually read intelligent analysis before snapping hungrily at the false fly of a ‘free’ convention centre and incurring  the taxpayer and ratepayer costs to date. Not to mention those legislative boondoggles that our sucker representatives have committed us to.

But I have previously opined on John Roughan’s apparent inability to get past his characteristic short-term thinking, being a sucker for a good line, and apparent inability to read any analysis or reports that isn’t covered in dandruff from picking for wisdom in his own navel.

Eddie’s post was based on a Ministry of Economic Development report (which appears to have now gone missing on the net) that said that that an Auckland convention centre require about $10 million per year in operational subsidies. And that was also likely that they would be holding their hands out for help in attracting conventions to even come into the city to use the facility.

So I’m going to repeat that post for the likes of John Rougham, who now writes (three years later) in “Indifference on convention centre a red flag“…

When SkyCity picked up the tender for a centre of the size and standard long desired by Auckland boosters and endorsed by successive governments, I’d supposed the casino wanted to take its operation to a higher plane.

I thought it reasonable of the Government to give the casino more gambling capacity in return to cater for all those corporate delegates in addition to its existing clientele.

It never occurred to me that they were doing us a favour. As a participant in the New Zealand economy I don’t want favours from the board and management of SkyCity, I want profitable business decisions from them. I’m old enough to have seen how sick this economy became when too much of its activity hinged on public finance and favours.

A $500 million convention centre is not Christmas in the Park or fireworks at New Year, it’s a significant economic investment. I had little confidence in it until SkyCity stepped up. Now that confidence is shot.

Hmmph. All I can suggest to Roughan, and those lazy arseholes like him who allowed this stupid project to go ahead, is that they may like to take some more time to damn well read  the government reports and even well-informed blog posts before becoming suckers. And especially before wasting so much tax  and rate payers time, resources, and effort supporting the planning, crony legislation, and the alienation of taxpayer assets  that has already gone into the white elephant extortion by SkyCity.

As it is, dumping this project and winding back all of the legislation that has been put into place is going to cost more. But it is still going to be cheaper for Auckland than letting this extortion racket proceed.

 

Eddie Feb 2013

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?

————————————————————————————————

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?

42 comments on “SkyCity’s expected subvention explained for John Roughan ”

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  1. phillip ure 1
    27 December 2014 at 10:18 am

    eddie nailed/filled and painted that one..

    (i’ve linked to it..)

  2. tricledrown 2
    27 December 2014 at 10:35 am

    Joyces interpretation of a 30%+ blowout of costs just a little bit more.
    Like the little bit legality of using eminems music!

  3. ghostwhowalksnz 3
    27 December 2014 at 10:37 am

    I picked up on what Eddie was saying at the time and thought the ‘free’ convention centre was just nonsense.
    A rail link to the airport ?. Thats just another white elephant as you cant compete with the space the airport has for carparking, and which they would fight tooth and claw to keep the revenue.

    • Sacha 3.1
      27 December 2014 at 11:44 am

      After decades resisting it, the airport company now seems to support rail ( perhaps because the workers in its expanding industrial estate need it?). They’ll still rake in 8 figures a year for pricey air passenger carparking as they currently do.

      Can’t build an airport line in any case until the CRL tunnel adds extra capacity to the whole rail network. Also requires a government that stops diverting most funding into low-value motorway projects instead.

    • Murray Rawshark 3.2
      27 December 2014 at 6:24 pm

      I’d use an airport rail line on my trips. I never park at the airport anyway, so nothing would change there. I’ve been to heaps of European airports that have train stations, and it’s great. I’d love Auckland to have one.

  4. Ovid 4
    27 December 2014 at 10:42 am

    Eddie’s post was based on a Ministry of Economic Development report (which appears to have now gone missing on the net)

    I hate it when sites mess about with their file names. The summary report is here (the figures Eddie cites are section 9.2.2 on page 35) and the full report is here. Enjoy your holiday reading.

  5. Ad 5
    27 December 2014 at 11:10 am

    Just stunning work LPrent and Eddie.

  6. Red delusion 6
    27 December 2014 at 11:34 am

    Agree 100pc. Muldoonism at its best, boutique waterfront sports venue would be a better option ( tourism, public usage, profile etc) if the government must throw money around, taxing profitable companies to pay for unprofitable companies is never a good idea, corporate reditribution is crazy economics on par with excessive social reditribution

    • Draco T Bastard 6.1
      27 December 2014 at 4:34 pm

      At least Muldoon built stuff that was actually productive. Sure, he paid too much and borrowed even more but we’d actually be fucked today if he hadn’t built those hydro dams. Our economy would have ground to a halt years ago if we didn’t have them as there’s no way we’d be able to afford the fossil fuels to power it.

  7. RedLogix 7
    27 December 2014 at 11:51 am

    What was that brilliant line – golf club government ?

  8. Foreign waka 8
    27 December 2014 at 11:58 am

    Can’t help it, it all looks like Italy’s politics in the 80’s. Why is the current government supporting these sucker deals? Who is winning?

    • BassGuy 8.1
      27 December 2014 at 12:37 pm

      I think it’s a lot like the Forsyth Barr Stadium in Dunedin – it was sold with the idea that if you don’t think big, you won’t win big.

      Of course, it’s never the people who pay for it that win big, it’s the directors, the boards, the managers, and of course, the private companies who claim effective ownership of it.

      • Sacha 8.1.1
        27 December 2014 at 12:43 pm

        .. and most of all the financiers who clip the ticket all the way along. They love big construction projects and this government has been providing a steady stream of motorway projects to keep them happy.

  9. tracey 9
    27 December 2014 at 12:06 pm

    “… And, then, ongoing subsidies both if convention numbers fall short and as a kickback when it does bring in conventions….”

    And they will fall short because

    Christchurch
    Queenstown
    Welington

    are all also building international convention centres to atrract internal conventions…

    Well done Eddie for doing the work of the media, and Lynn for reminding everyone.

    John Roughan spent all his time “researching” his Key hagiography… no time to serve the citizenry

    • Sacha 9.1
      27 December 2014 at 12:15 pm

      None of the other convention centres are in the capacity bracket that the SkyCity project is aimed at. They will probably just displace business from existing smaller local operators (and from each other).

      • Draco T Bastard 9.1.1
        27 December 2014 at 4:36 pm

        What they’ll be doing is losing money hand over fist as they sit empty and unused.

  10. mickysavage 10
    27 December 2014 at 12:11 pm

    The other aspect is that the Government has invested that much political capital in the project that it cannot back out and Sky City knows it. If the convention centre fails you have to wonder what the government has done to create job growth.

    A cycle way? A return to surplus that just is not happening? More subsidies to overseas corporates?

    • George Hendry 10.1
      27 December 2014 at 4:24 pm

      Greetings MS 🙂

      I see no reason to assume that losing political capital would be a problem for this government. Like the ‘federal reserve’ which creates credit from thin air, the ‘political capital reserve’ can summon up the votes to win any election – phantom votes will still win an election as long as enough people believe in them.

      Surely the government has done nothing to create job growth, as that would be interfering with the work of the market. Yes there are more jobs, especially now that one with no guaranteed hours per week still counts as one.

      • mickysavage 10.1.1
        27 December 2014 at 6:28 pm

        Greetings GH!

        Surely the government has done nothing to create job growth, as that would be interfering with the work of the market

        Agreed but for political cover they are trying to give the impression that they do care about jobs. Unemployment has gone down but is still higher than it was in early 2008. Given the Christchurch rebuild and the ending of the GFC NZ should be doing way better.

  11. Saarbo 11
    27 December 2014 at 12:17 pm

    Wow, this is another Key/Nats shocker. The way that Key/Nats work I suspect that Roughans article maybe preparing the public for a government back-out of this deal. Watch this space.

    • tricledrown 11.1
      27 December 2014 at 1:31 pm

      The govt won’t back out but just downsize its capacity.
      Or maybe do a deal for funding the rail loop for council funding.
      One thing for sure the number of extra one armed bandits will remain the same!

  12. DH 12
    27 December 2014 at 1:25 pm

    The SkyCity deal is, to me, a good illustration of how Labour are constantly letting National create the narrative and playing poodle by not challenging it.

    The extra gambling licences SkyCity are receiving have been independently valued at $460 million by Korda Mentha, they’re referred to in the contract as “Agreed present values”

    The Crown isn’t receiving any assets in exchange for that $460 million worth of licences, it buys only a say in the design of the Convention Centre and how it’s to be operated. The Crown conditions for the Centre will have some (negligible) cost to SkyCity but it’s a fact most of the $460 million is a State subsidy.

    There’s nothing ‘free’ about this Convention Centre. It’s costing us taxpayers some $400 million. Why are Labour letting National get away with this ‘free’ nonsense?

    IMO this bickering & quibbling over a few $million in operating costs is classic ‘can’t see the wood for the trees’. People are arguing over some missing petty cash while the thieves get away with the bank vault.

    • Draco T Bastard 12.1
      27 December 2014 at 4:39 pm

      +1

      • Sacha 12.1.1
        27 December 2014 at 9:19 pm

        The Greens were doing most of opposing this at the time weren’t they? Labour may be able to help now that they’ve stopped fighting one another.

    • George Hendry 12.2
      27 December 2014 at 4:56 pm

      @DH –

      ‘Why are Labour letting National get away with this ‘free’ nonsense?’

      Several possible reasons –

      # ‘Labour’ once did some of the same sort of stuff, today’s ‘Labour’ might not entirely disapprove

      # Labour haven’t bought out the media, National did so they could create ‘the’ narrative

      # after ‘the worst election result in 92 years’ Labour are a bit weakened

      # not just Labour but all of us are responsible for letting National get away with free nonsense.

      You seem to be trying to create the narrative that underresourced democratic police are mainly responsible for massive scale daylight robbery.

      Had you planned to say anything about the robber barons themselves? 🙂

    • Murray Rawshark 12.3
      27 December 2014 at 6:38 pm

      Sky City let Labour MPs into their corporate boxes at big games as well. They’re almost a socialist company, and Labour appreciates that.

  14. repateet 14
    27 December 2014 at 2:29 pm

    “…Roughan, and those lazy arseholes like him who allowed this stupid project to go ahead, is that they may like to take some more time to damn well read the government reports and even well-informed blog posts before becoming suckers…”

    “Sucker” implies some sort of gullible person “sucked” into something by naivety.

    In that sense I don’t believe Roughan was a sucker. I believe he was informed but made deliberate decisions to support the scheme of his mates. He has only come out now because the extent of the idiocy of the project (scam) and does not want to be labelled as an author of it and be party to the disaster.

  16. Draco T Bastard 16
    27 December 2014 at 4:29 pm

    The ‪‎Auckland‬ Convention centre was always going to be a dog that SkyCity would use to boost its profits via government subsidy. At this precise moment in time, the government should be cancelling the contract, reverting the laws that they changed and taking back the state land that they sold for well under price as it’s obvious that SkyCity can’t keep their end of the contract.

  17. Penny Bright 17
    27 December 2014 at 5:02 pm

    Wake up folks!

    The FACTS are that Sky City has effectively, in my considered opinion, been able to set up a money-laundering FACTORY in the heart of Auckland City, because nobody who is anybody did ANY ‘due-diligence’ on the increased risk of money-laundering arising from the NZ International Convention Centre Act.

    The DIA ‘Regulatory Impact Statement’ accompanying the NZ International Convention Centre Bill, spelled out the increased risk of money-laundering, loud and clear.

    But the Organised and Financial Crime Agency of NZ (OFCANZ), whose job it is to help prevent money-laundering, didn’t, and held no information on the key mechanism for money-laundering – TITO (Tickets In – Tickets Out) technology.

    Unbelievable – but true.

    Prime Minister John Key did no ‘due diligence’ on the increased risk of money-laundering, arising from the NZ International Convention Centre Act, – neither did Minister Stephen Joyce, nor Auckland Council, nor Auckland Central Police.

    I know – because I asked and have a paper trail to prove it.

    When I asked NZ Auditor-General Lyn Provost to conduct an inquiry into the failure of OFCANZ to carry out ‘due diligence’ on the increased risk of money-laundering arising from the NZ International Convention Centre Bill, she declined.

    But the NZ Auditor-General Lyn Provost, failed to disclose one rather important wee detail,, at the time she declined to conduct an inquiry into the failure of OFCANZ to carry out ‘due diligence’ on the increased risk of money-laundering arising from the NZ International Convention Centre Bill,

    Which was – that Auditor-General Lyn Provost was herself at that time a SHAREHOLDER in Sky City.

    And – which organisation is the number one ‘platinum sponsor’ of Transparency International NZ?

    Oh – that’s right – the NZ Office of the Auditor-General ….

    (File under ‘You Could Not Make This Sh*t Up’ …..)

    Penny Bright

    ‘Anti-corruption whistle-blower’

    • George Hendry 17.1
      27 December 2014 at 5:21 pm

      Thanks Penny…!

      I see now why NZ has fallen to only 2nd in the international least corrupt ratings, when it could easily have fallen so much further. Such a clean country, with whiter!, brighter!, future clean laundering results.

      @‘You Could Not Make This Sh*t Up’:

      Well you probably could, but why make the effort when you just need to wait and it gets done for you 🙂

  18. Penny Bright 18
    27 December 2014 at 5:16 pm

    Remember Auckland Council Mayor Len Brown, did 180 degree ‘U’ turn from being the poster boy for those opposed to problem gambling, to a major cheerleader for the Sky City deal.

    Once it was revealed that Sky City had given Mayor Len Brown free hotel accommodation for his extra-marital sexual liaison, then, in my considered opinion, the matter should have gone straight to the Police or the SFO.

    So – why didn’t it?

    (Remember, back in 2010, both Auckland Mayoral candidates John Banks and Len Brown each received $15,000 from Sky City.

    Len Brown declared this donation, John Banks did not.)

    Check the membership list of the organisation, which, in my considered opinion, really runs the Auckland region, ‘like a business, by business, FOR business’ – the unelected private lobby group – the Committee for Auckland: http://www.committeeforauckland.co.nz membership

    Follow the dollar and start joining some dots …..

    Penny Bright

    ‘Anti-corruption whistle-blower’

    • Sacha 18.1
      27 December 2014 at 9:15 pm

      “Once it was revealed that Sky City had given Mayor Len Brown free hotel accommodation for his extra-marital sexual liaison” – this is not true. Other hotels did, but not Sky City. You undermine your case repeating right-wing talking points like this.

  19. Penny Bright 19
    27 December 2014 at 6:42 pm

    FYI

    Auditor-General Lyn Provost was a shareholder in Sky City at the time I asked her to investigate OFCANZ, for their lack of ‘due diligence’ into the increased risk of money-laundering arising from the NZ International Convention Centre Act.

    Auditor-General Lyn Provost was a shareholder in Sky City when the OAG decided to do an Inquiry into the ‘Sky City deal’ – which is why she didn’t do it – Deputy Auditor-General Phillipa Smith did it.

    See for yourselves:

    http://www.oag.govt.nz/2013/skycity

    “Deputy Auditor-General’s overview

    Inquiry into the Government’s decision to negotiate with SkyCity Entertainment Group Limited for an international convention centre.

    In June 2012, I announced that this Office would carry out an inquiry into the process that the Ministry of Economic Development (the Ministry) followed leading up to the Government’s decision to negotiate with SKYCITY Entertainment Group Limited (SkyCity) about developing an international convention centre in Auckland.1

    …………………

    Phillippa Smith
    Deputy Controller and Auditor-General

    18 February 2013

    1: The Auditor-General has a small shareholding in SkyCity so she has not been involved in this inquiry.

    ____________________________________________________________________________________________

    Penny Bright

    ‘Anti-corruption whistle-blower’

    • ropata:rorschach 19.1
      28 December 2014 at 1:55 am

      Penny can you please just stop? I for one, am exhausted by huge unreadable screeds of dubious merit… do you wear a tin foil hat as well?

      No doubt there are interesting and lurid tales of political malfeasance to be uncovered, but your approach is frankly a bit mental.

      We need more Nicky Hager-style careful investigative journalism, not wild eyed lunatics with a megaphone shouting random disconnected theories at passers-by.

      It wouldn’t be so bad if you engaged the conversation and responded to others, but no, you’re too busy spamming the world.

  20. aerobubble 20
    28 December 2014 at 1:50 pm

    So journo costs tax paers millions, did he offer his resignation, did the editor…

    …no, their zeel was added with frothing at the mouth, that the convention center was inspired Key nation building, brilliant use of tax payers money…

    …another day and cheap journalism wins yet another headline debasing our society.

  21. DAVE 21
    28 December 2014 at 7:26 pm

    where is the ideology here free market ,market forces .magic of the market ,risk reward ,Milton Friedman , privatisation run better , we hate welfare bit ,shrinking the government , oh no corporate welfare for there buddies while trying to strip vector from community ownership
    fuckin crooks

    CUT THE CRAP!

  22. Penny Bright 22
    29 December 2014 at 11:40 am

    Sacha – have you not read the ‘EY Report’ for yourself?

    http://www.aucklandcouncil.govt.nz/…/Independent%20Review%20Report%2...

    Try page 11.

    At least I’m consistent in stand against bribery and corruption.

    You can keep trying to defend Mayor Len Brown’s indefensible (in my considered opinion) actions – but at least try to get your facts straight in so doing?

    Penny Bright

    ‘Anti-corruption whistle-blower’

    • Sacha 22.1
      29 December 2014 at 11:46 am

      Read it when it was released. Your link not working. SkyCity only provided rooms for Brown and his wife, not his mistress. Nobody is ‘defending’ anything here but credibility.

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