The ARC's spectacular own goal

BY GARETH VAUGHAN

OPINION: Everyone has heard the famous Benjamin Franklin saying about how ''nothing is certain except death and taxes''. Right?

Wrong. It seems officials at the Auckland Regional Council (ARC), ironically now facing death as the Auckland super-city is created, forgot all about the taxman when planning their David Beckham-LA Galaxy extravaganza at Mt Smart Stadium in December 2008.

The recently released Audit Office report into the match, for which the ARC carried all the financial risk  and lost its ratepayers $1.88 million, is a lesson in what can go wrong when public bodies organise complex and financially risky events, about which they have little knowledge or experience.

After deciding to host a match, the ARC identified the most significant expense as the Galaxy's match fee. Naturally, this was payable in United States dollars and the American team's travel and  accommodation costs were also significant.

However, council officials weren't aware - and hadn't budgeted for - the Inland Revenue Department putting its hat out for 20 per cent of the match fee through non-resident withholding tax.

The Audit Office says it was some  time before the ARC bowed to the inevitable, given the Galaxy wanted its fee net of tax, and agreed to cover it.

This, plus reaching agreement on the promotional activities the Galaxy team would take part in when in Auckland, helped delay the finalising of a contract between the two parties.

In fact, it wasn't till August 26, 2008, four months after the ARC decided to host the match, that its chief executive signed the contract with the Galaxy. Given the Americans would be paid in their own currency, the cost was closely linked to the kiwi's value against the greenback.

Moreover, ARC policy meant its staff couldn't buy the US dollars needed to pay the match fee until the contract terms were agreed. In April, the kiwi was trading at about US79 cents. By August 6, when the ARC was finally able to lock in US-dollar options, it paid an average price of just US71c.

The ARC had estimated every cent the kiwi fell against the greenback would cost it $25,000. Based on this calculation, the delay in buying US dollars added about $200,000 to match costs, on top of paying the Galaxy a fee 20 per cent higher than planned.

But the tax and currency weren't the only problems.

Overall revenue generated by the match was $1,285,558 - 62 per cent below the expected $3,390,900 after public interest fell well short of ARC expectations.

The original budget estimated a break-even point of 25,000 ticket sales, assuming a US79c exchange rate. This was based on tickets being priced at $80-$150 for adults.

Here it's worth bringing in the highly successful Wellington Phoenix versus LA Galaxy match staged in the capital a year earlier, which was the high profile Beckham's first New Zealand visit.

In Wellington, punters were offered tickets priced at $40-$100 and these also got them into a Phoenix A-League match during the same weekend. Although the Wellington City Council stumped up about $200,000 towards the game, the promoter facing the potential risks and rewards was Phoenix owner Terry Serepisos.

As it turned out 32,000 people bought tickets for the 34,500 capacity Westpac Stadium match.

Wellington City Council events manager John Dawson says about 12,000 visitors from outside the region attended, creating an economic benefit for the city of $6m to $8m, leaving the council very happy with its investment return.

Given Wellington's recent success with the Galaxy, you'd think ARC officials would have tapped into their Wellington counterparts' experience.

But Dawson says the only contact was someone in Auckland phoning to ask how Wellington had organised a public Galaxy training session.

Instead, the ARC was busy deciding it could charge higher ticket prices than Wellington because of Auckland's bigger population, football interest among its diverse population, support for high quality sports events at similar prices and Beckham's crowd-pulling power.

This thinking turned out to be seriously flawed. The match was screened live on free-to-air television, the opposition was lousy and the game was during the busy pre-Christmas period.

Ticket sales stalled at just 7200 until the ARC introduced a two-for-one offer. The final wash up, with 14,409 tickets sold producing revenue of $770,511, shows an average ticket price of just $53.47. The overall attendance of 16,590, including complimentary ticket giveaways, was just 52 per cent of Mt Smart's capacity.

Pretty much every revenue stream fell below budget and every cost exceeded budget. Sponsors coughed up just $210,000 (some $110,000 below budget), the ARC spent $310,266 on marketing,  promotion and public relations ($130,266 over its budget), and the Galaxy's travel and accommodation costs exceeded budget by $186,344.

The Audit Office notes that by treating the event as business as usual, the ARC never considered what additional resources or expertise could have been called in to help.

It appears the ARC never considered a risk-sharing arrangement, such as proposing a profit-loss sharing arrangement with the Galaxy or seeking its own Serepisos.

Nor did the ARC consider delaying the signing of a binding contract with the Galaxy until it knew the Oceania Football Confederation could deliver a high quality opposition lineup.

As it turned out, somewhat appropriately, the Oceania ''All Stars'' were a well beaten team of has-beens and no-names.

- © Fairfax NZ News