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The house always wins

Written By: - Date published: 11:01 am, February 16th, 2015 - 23 comments
Categories: Andrew Little, john key, national, same old national, Steven Joyce - Tags:

Sacha is right.  The initial framing of Joyce’s announcement that Sky City will not seek further financial contribution by the Government to the Sky City convention centre is all wrong.  What is happening is that SkyCity is now allowed to build something cheaper in consideration of which it will receive the same significantly valuable legislative changes.  And John Key’s concern that we will not get a world-class, iconic convention centre has succumbed to the weight of the political reality that further public money being paid to Sky City was not going to happen.  It may be that the project is now a dog but Key can only blame the clearly flawed process for this.

SkyCity has still won. The negotiations that were completed two years ago have obviously been based on underestimated costs. And the concessions to SkyCity are unchanged. These include:

  • Extending SkyCity’s Auckland casino licence, due for renewal in 2021, to 30 June 2048, and amending it to cover all of SkyCity’s properties in Federal Street
  • Allowing an additional 230 “pokie” machines
  • Allowing 40 extra gaming tables
  • Allowing a further 12 gaming tables, with SkyCity able to swap each table for an automatic table game that seats up to 20 players
  • Allowing up to 17 per cent of electronic gaming machines to accept banknotes greater than $20, but only in restricted areas
  • Allowing ticket-based and card-based cashless gambling across the Auckland casino (Ticket in- ticket out), with differential limits applied to the amounts that could be deposited and withdrawn.

The reduction in size must affect the financial sustainability of the centre.  The original feasibility study said that “[i]n order for the convention centre to maximise its economic impact it must be capable of hosting conferences averaging 3500 delegates, including associated activities such as exhibitions”.  The revised plan will mean that the main hall will be unlikely to fit 3,500 delegates making the goal of conferences averaging 3,500 impossible.  The report also said that 35 conferences a year would be required, 25 of them international conferences.  On this basis the centre would operate on a break even cash flow basis.  Any reduction in delegate numbers would obviously mean the centre will be losing money.  The centre being at a break even position appears unlikely and you can bet your bottom dollar that SkyCity would expect a public subsidy to be paid.

The politics are interesting.  National  essentially had three options:

  1. Pay the further money and face the wrath of the public.
  2. Allow the cost and the size of the centre to be reduced.
  3. Toughen up and say no.

None of the options were good ones.  The possibility of option one was causing huge public ructions even from those usually supportive of National.  Option three risked the prospect of the project being cancelled with huge amounts of political egg on face.  Option two was realistically the only choice Key and Joyce had but the dawning realisation amongst the public that SkyCity has again won will cause increasing political damage to National.

Andrew Little has gone on the offensive and has targetted not only Joyce but also SkyCity chief Nigel Morrison.  According to Stuff:

Labour leader Andrew Little welcomed the announcement [of no further money being paid], but said if the Government had pushed ahead with a cash injection, the furore would probably have forced Joyce’s resignation.

Little also launched an attack on Morrison, SkyCity’s chief executive since 2008, saying he had played a political game along with Key and Joyce, knowing that any added costs would fall on the taxpayer.

“They all made a promise they couldn’t keep. They all led taxpayers to believe that there would be a free convention centre that would be iconic and world-class.

And he has also come up with a phrase that will no doubt start to rival “cut the crap”.  He was reported as saying that he hopes “this Government has the cojones to hold SkyCity to its promise”.

Hamish Rutherford has summarised the situation well:

[I]t appears Morrison went for more, publishing details of a significantly more expensive centre at the end of last year, knowing full well that the added costs would fall on the Crown.

In short, he breathed new life into a controversial issue for the Government, undermining the central defence that somehow National was delivering something for nothing.

SkyCity must now go back to the original deal on the original terms, offsetting higher costs by building a slightly smaller convention centre.

But its act of brinkmanship has humiliated the Government, which is already sensitive to claims that it engages in corporate welfare.

Worse still, it has made it seem as if Key and Economic Development Minister Steven Joyce were outsmarted in commercial negotiations.

One of Key’s biggest selling points to date is his claimed corporate expertise.  SkyCity has shown through an act of brinkmanship that a short term money trader approach to significant public contracts will lose out every time.

23 comments on “The house always wins ”

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    Dear Leader, our esteemed gambler in chief just lost his cojones if ever he had them.

    edited.

  3. Sacha 3

    Glad to see Little emphasising this govt’s lack of commercial competence.

    “The report also said that 35 conferences a year would be required, 25 of them international conferences. ”

    25 seems extremely optimistic. But no doubt Sky City will have quietly secured an agreement from our masters of the universe for ongoing subvention subsidies to offset any risk.

    • stever 3.1

      Yes…so would someone in the MSM ask the SkyCity chair: “what have you planned if you don’t get to the break-even numbers of conventions? Because there must be a plan.”

  4. dv 4

    On simple math 3000 cf to 3500 means 41 conference a year – 80% occupancy to break even.

    Seems a bit high to me.

  5. Iron Sky 5

    Our country is being run by a 2 year old who uses the Tu Quoque Fallacy

    Nationals-National Radio morning report (TM) giving there friend little Johnny his usual formulaic sound bite responses to accusations of incompetency (aka skysore or whatever)….

    I wonder how many times Johnny and his merry band of gerbils have said this on RNZ (with RNZ letting them get away with it)

    National Party Member Formulaic Response:
    1. They did X to (X = whatever you want)
    2. Therefore we can do X to

    http://www.logicalfallacies.info/presumption/tu-quoque/
    Tu Quoque Fallacy

    Explanation

    The tu quoque fallacy is committed when it is assumed that because someone else has done a thing there is nothing wrong with doing it. This fallacy is classically committed by children who, when told off, respond with “So and so did it too”, with the implied conclusion that there is nothing wrong with doing whatever it is that they have done. This is a fallacy because it could be that both children are in the wrong, and because, as we were all taught, two wrongs don’t make a right.

    Example
    (1) The Romans kept slaves.
    Therefore:
    (2) We can keep slaves too

  6. Iron Sky 6

    17 Major Conferences in NZ from now till the end of the year?

    Is that really limited by the size of our convention centers or is it our geographical location?

    You decide:

    Conferences in New Zealand http://www.conferencealerts.com/country-listing?country=New+Zealand

    Major conference cities: Wellington, Auckland, Alexandra

    Listing 17 events (go back)

    1 All

    February 2015
    17th The 2nd Annual Women in Leadership Summit 2015 Auckland, New Zealand
    24th 2015 Business Resilience Forum Wellington, New Zealand
    24th 2015 New Zealand Emergency Management Summit Wellington, New Zealand
    24th The 2nd Public Sector Women in Leadership Summit 2015 Wellington, New Zealand
    March 2015
    17th Women in Engineering Leadership Summit 2015 Auckland, New Zealand
    26th
    Medicine for Psychiatrists 2015 Auckland, New Zealand
    April 2015
    8th Transforming Together Coaching and Mentoring Conference Hamilton, New Zealand
    15th The 18th Annual New Zealand Association for Cooperative Education Conference Wellington, New Zealand
    16th Te Kura Roa: Minority Language & Dialect Conference Dunedin, New Zealand
    21st Women in Professional Services Leadership Summit 2015 Auckland, New Zealand
    May 2015
    20th Public Sector Executive Assistant Summit 2015 Wellington, New Zealand
    June 2015
    9th Women in Not for Profit Leadership Summit 2015 Auckland, New Zealand
    10th APacCHRIE 2015 Auckland, New Zealand
    July 2015
    13th ISATT 2015 – 17th Biennial Conference of Teachers and Teaching Auckland, New Zealand
    September 2015
    9th 2015 Royal Australasian College of Medical Administrators Conference Auckland, New Zealand
    15th Coasts and Ports 2015 Conference Auckland, New Zealand
    December 2015
    7th The 5th New Zealand Discourse Conference Auckland, New Zealand

    • Lanthanide 6.1

      There was someone from Tourism NZ (or something) on Morning Report, saying that NZ is not even in the top 50 countries for conferences, while Australia sits at 13.

      Australia has 250 conferences in the next year: http://www.conferencealerts.com/country-listing?country=Australia

      The interviewee said that the biggest conference centre we have in NZ can manage 1000 people, which cuts us out of the big market for conferences in the 1000-3000 people range.

      Certainly it looks like there is genuine demand for bigger conference centres. But whether this demand is anything like SkyCity et al are saying it is, is another matter.

      • Draco T Bastard 6.1.1

        Steven Pearlstein: Debunking the conventional wisdom about conventions

        Washington’s experience was hardly unique, as Heywood Sanders, a professor at the University of Texas at San Antonio lays out in a new book, “Convention Center Follies.” U.S. cities invested tens of billions of dollars, expanding convention center capacity by 30 percent since 2000, while the demand for the space has barely budged.

        All those consultants’ reports, it turns out, were based on optimistic assumptions and failed to anticipate the impact of industry consolidation and slower economic growth on the demand for meeting space. Even more curious was the consultants’ failure to take into account all the other cities contemplating subsidized expansions — something they surely knew because the same group of firms had prepared virtually all of the reports.

        So, the only growth in the Convention Industrial Complex across the world is in the amount of competition there is and the amount of taxpayer dollars being fed into it on the back of pure codswallop.

        Cui Bono?

  7. English Breakfast 7

    This is a shambles, no question about it. And Sky’s CEO making comments that appear to contradict what Key and Joyce have said is more oil on the fire. I’m guessing Curia’s polling changed the Govt’s mind on this, and not much else.

    • Lanthanide 7.1

      Guyon asked Key “how much polling have you done on this” and Key hesitated and said none.

      I wonder if he was just being incredibly literal, in that Key himself hadn’t done the polling, nor would the National Party have done the polling – but Curia would have done it *for* them.

      Key in effect would have told a lie, but knows the media will never have the proof of this. The only chance would be if an employee from Curia wanted to discredit him, but it seems like a pretty minor thing to effectively throw away your job for.

  8. Treetop 8

    The cost to build has ballooned by 30% to $532,000,000 ($402,000,000 + $130,000,000). The government have stated that they would not accept anything smaller (reduction in size) than by about 10% which takes $53,000,000 off the bill. The cost of the build would be $479,000,000.

    Would there not be more land for the 5 star hotel which would increase profits?

    Has anyone heard how much the hotel is going to cost?

    • Lanthanide 8.1

      Building costs are not linear, you can’t say that by decreasing the size of something by 10%, you automatically decrease the cost of it by 10%.

      Likely a good chunk of the cost reductions will be from a lower-spec interior (and possibly exterior) fitout.

      • Treetop 8.1.1

        I agree about the 10%.

        No matter what, SkyCity went courting the government for $130,000,000. It will be interesting to see what the final cost and size of the build will be.

      • Tracey 8.1.2

        Was at a Mediation last Friday at which a Quantity Surveyor was present. in the interval we discussed rises in construction costs. He said from 2014 to 2015 not much rise but 2013 to 2014 was 8 to 12%.

        • Treetop 8.1.2.1

          There was an American architect who works in London who was on RNZ, think before 7am and he thought $402,000,000 was sufficent to build a world class covention centre and that a rise of 30% seemed to be too steep.

  9. wyndham 9

    Excellent summation from the inimitable Gordon Campbell.

    http://www.scoop.co.nz/stories/HL1502/S00093.htm?source=email

  10. What most people don’t seem to get is that just like McDonalds, the core business of Sky city is not so much hospitality, conferences and gambling, it is real estate. To them trying to weasel the money out of us, the Kiwi taxpayers was just a gamble and a bit of fun. Their real business is Real Estate and on that they will win big time!

  11. ianmac 11

    “Prime Minister John Key says the SkyCity convention centre plan grew in both size and “flashness” until a public backlash persuaded the Government not to spend any more money on it.”
    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11402525
    And there we have the predictable spin. Thank you so much Mr Key for listening to the people. You are such a good leader to be able to get a good deal. Thank goodness we have you and Mr Joyce working tirelessly for we peasant folk.

    Oy! What happened to the Eyesore?

  12. Murray Rawshark 12

    A decent government would have a 4th option. Cancel the contract, charge the CEO of Sly City with attempted blackmail, and nationalise the casino. There is also a possible matter of manipulation of share prices. I hope to live to see a decent government.

  13. felix 13

    Matthew Hooton spelled it all out very well this morning:

    http://www.radionz.co.nz/national/programmes/ninetonoon/audio/20167381/political-commentators-matthew-hooton-and-mike-williams

    (Mike Williams agreed with Matt).

  14. Iron Sky 14

    Lanthanide & Draco T Bastard I Like your posts both of you (i.e. different perspectives)

    I’m trying my best to remain objective (i.e I am not a fan of spending public money on this or their arrogant cost overruns but in the desire to stay fact driven here is an interesting report figures ):

    Note the actual market for conferences in the world has almost grown exponentially.

    From:
    1963-67 2,069,060
    to
    2008-12 21,962,221
    http://www.iccaworld.com/cdps/cditem.cfm?nid=5180

    Yet the % attendance per conference is dropping (i.e. you don’t need big convention centers – well you can still cater for the smaller ones at the same time using the bigger convention center)

    Questions
    1. Is it the fact that we don’t have enough conference facilities in NZ to access the market (if we do, then what is stopping us as the market seems to be growing for smaller sized conventions below the 500 participant number)?

    2. If the potential market in NZ is so lucrative why are we actually giving away money to the private sector to make more money for themselves (a Casino), what do we the public actually get apart from dribble down?

    3. Why the hell is AKl getting it all?
    Questions if the average number of participants per conference

    4. If it is so lucrative why the hell does not Skysore just build it themselves unless they are after a CHEAP lone.

    http://www.iccaworld.com/cdps/cditem.cfm?nid=5180
    Year # Participants Numbers
    63-67 2,069,060
    68-72 2,707,543
    73-77 3,141,762
    78-82 4,048,112
    83-87 4,997,936
    88-92 6,816,187
    93-97 9,018,874
    98-02 12,596,377
    03-07 17,325,864
    08-12 21,962,221

    http://www.iccaworld.com/cdps/cditem.cfm?nid=5180
    Year Average participant numbers
    63-67 1,253
    68-72 1,104
    73-77 840
    78-82 725
    83-87 621
    88-92 591
    93-97 572
    98-02 528
    03-07 454
    08-12 424

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