One tower to rule them all

HAMISH RUTHERFORD
Last updated 05:00 20/07/2013
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Illustration by Sharon Murdoch

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OPINION: The price casino companies are willing to pay to operate can, quite literally, be seen from miles around.

Flying into Auckland, or in virtually any panoramic shot of New Zealand's largest city, the 328 tall Sky Tower looms large.

In the 16 years since it was completed, love it or hate it, the concrete tower has become peerless as the icon of the city. Hundreds of thousands of visitors a year are drawn to it, creating its own tourism industry.

But that was not why it was built. Not really. It was part of the price to be paid in return for being allowed to build a vast gambling establishment, with all of the associated social damage that comes with it, right in the centre of a major city, with profits going direct to shareholders. The rest is just a spin off.

This same process is playing out again, with the Government passing legislation to reach a deal to have SkyCity build a convention centre in Auckland – for some reason described as "international" – in the hope of boosting business traffic to New Zealand.

Such an investment – some $400 – is no act of charity.

Protests by National that the deal is a victory for its programme of economic development have been drowned out by months of headlines about the makeup of the deal itself.

In return for building the centre, SkyCity will get more pokie machines, more and different gaming tables and a raft of regulatory concessions.

More pokie machines – 230 of them in the end – was for a long time seen as the crucial political element of the deal, an easy attack point for opponents.

In the way that the drinking age became the only issue being debated when alcohol legislation was last reformed, the number of extra slot machines in one location in central Auckland somehow became a proxy for the issue of problem gambling across the entire country.

In reality, the crux of the deal appears to be SkyCity's much longer operating licence and a promise of protection from the risk of law changes that could hurt its profits for years after the centre is completed.

On Wednesday, Economic Development Minister Steven Joyce released hundreds of pages of previously unseen documents giving details into the bargaining that led to the deal.

His office immediately crowed that the documents revealed the extremes of what SkyCity had initially asked for, including a licence to operate in Auckland forever, far more pokie machines than it was eventually granted and even for the gambling age to be lowered.

If Mr Joyce really believes that talking SkyCity down from its wildest dreams is significant he would be naive. It is no good defending paying too much for your house by claiming the seller wanted even more. The only thing that matters is the agreed price.

What was revealing in the papers, however, is that SkyCity threw repeated curve balls with new and creative demands up until just months ago, and that the Government gave key ground.

Only last November did SkyCity claim it was so concerned by the political storm the convention centre was causing that it might walk away, unless it was promised compensation in the event that gambling taxes were increased in the future.

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Officials working on the deal told Mr Joyce that they appreciated such guarantees would be of "huge" value to SkyCity, and was well outside the negotiation brief they had been given.

Nevertheless, a deal was struck in which SkyCity was promised seven years of protection from taxes and a licence to operate until 2048, a 27-year extension.

Mr Joyce has since boasted that in return for roughly the same number of extra pokies SkyCity was allowed in 2001, it had extracted a much larger convention centre than the casino built back then.

But forget the pokies; what the concession does is effectively lift from the casino's shoulders the risk of intervention from another, future government, when it appears that risk is climbing.

An independent report commissioned by the Government and SkyCity to assess the merits of the deal put the value of the regulatory concessions at up to $115 million.

Explained in little over a page, there is every reason to believe the risk of regulation is higher than KordaMentha believed, and the value to SkyCity of concessions higher.

Immediately after announcing plans to regulate the electricity industry, Labour insisted that it was not part of a wider plan for overhaul. Nevertheless its rhetoric – even in the SkyCity corporate box apparently – has been staunch on the issue of the convention centre. The Greens have gone so far as to promise to repeal legislation enabling the deal. Even government partners are talking tough on the cost of gambling, indicating it could become a key platform.

Just minutes after becoming Maori Party co-leader last weekend, Te Ururoa Flavell told party faithful they needed to back policies that promoted less harm, putting gambling alongside drugs and unhealthy food.

"We need to hold to account those industries that ... make profit from misery."

The risk of casino licences around New Zealand being cancelled altogether seems remote. There is though, every chance that the price to stay there might ramp up in the future.

Higher casino tax? Possibly. A flat fee demanded when licences are renewed? It happens elsewhere.

SkyCity need not worry. Not at its flagship Auckland site at least – that concern had been taken out of the game for years in some cases and decades in others.

The Greens have argued this week's release shows SkyCity had Mr Joyce "over a barrel", forcing him to go through with a deal not in New Zealand's best interests.

Yes, it would have been enormously embarrassing for the Government to return with its tail between its legs to the tendering process, asking parties who had expressed an interest earlier to have another go. However, the real missed opportunity seems to have been to hold SkyCity over a barrel when it has eight years left on its licence.

In 16 years we've extracted both a Sky Tower and a smaller convention centre out of them. Now, it looks like the convention centre, which even Treasury is cool on, might be the only prize for having them around for another 35 years.

- The Dominion Post

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