Empty seats, empty pockets

CHALKIE
Last updated 15:41 05/03/2014

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OPINION: Political types have been keen on providing plebs with stadiums since Emperor Vespasian decided a coliseum would go down well in Rome.

There's a good reason for that. Stadiums are expensive, even with slave labour, and it's a bit much to ask circus promoters to take on such big capital projects when gladiatorial talent is so, well, perishable.

However, while it's one thing to pay for your stadium with looted riches from the siege of Jerusalem, it's another to finance it with cash taxed from your own loyal subjects. In the former case, extravagance is expected; in the latter, not so much.

This is shaping up as a big issue in Brazil where six stadiums are being built or refurbished for this year's World Cup, despite its existing stadiums reportedly being half-empty because fans are deterred by violence at football games.

The US$11 billion (NZ$13b) cost of hosting the tournament has triggered riots as citizens protest at the extravagance in the face of their austerity. Chalkie can see their point. It is ludicrous to spend so much on buildings with such marginal usefulness beyond a few weeks in the World Cup, especially given the example of South Africa's post Cup "ghost stadiums".

Yet such is the civic fascination with sporting glory it seems the lessons of past mistakes are rarely learned.

Chalkie is therefore concerned by a $48 million scheme to build a stadium in Petone for the benefit of the Phoenix A-League football team and its fans.

From what we know of the proposal, the Hutt City Council - which means ratepayers - will be asked to contribute $25m towards building a "boutique" 10,000-12,000 seat arena at the southern end of Petone Recreation Ground.

The proposal is well advanced, with a charitable trust set up to manage it and a detailed submission made to the council last month. Consultation with ratepayers is due to begin next month.

The good burghers of the Hutt will be best placed to judge the practicalities of the scheme when further details are available, but the financial side has worrying similarities to the set-up of Forsyth Barr Stadium in Dunedin.

Arms length charitable trust controlling the budget? Check. Private sector funding promised? Check. Troubled sports franchise as anchor tenant? Check.

Chalkie should point out here that he is a fan of Phoenix backer Gareth Morgan. The economist, entrepreneur and biker is one of the few willing to stick his head over the parapet and speak his mind, which usually contains interesting and provocative ideas. The trait should be encouraged and celebrated.

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However, while Morgan can do what he likes with his own money, his ideas of what Hutt residents should do with theirs are a double edged sword.

In Dunedin, those involved in developing the city's shiny new covered stadium are far from universally popular after ratepayers ended up with huge debts and an ongoing headache from running the thing.

The original idea, itself controversial, was for ratepayers to contribute $129m - split between $91.4m from the city council and $37.5m from the regional council - towards the $188m cost of the stadium, with private sector funding contributing $45.5m. The balance was coming from local trusts and a government grant.

In the end, the stadium cost $224m and the ratepayers were hit up for $200m of that. The private sector funding was virtually zero.

You could write a book on the series of failures that left a relatively small number of people - Dunedin has a population of about 126,000 - exposed to such high costs. But even in the short version written by PricewaterhouseCoopers it seems councillors were not well informed about the project and financial controls were inadequate.

The controversy still simmers. Local campaigner Bev Butler, a determined and resourceful opponent of the stadium scheme, continues to unearth aspects of the process that do not reflect well on its management.

One of the latest involves the relationship between Carisbrook Stadium Charitable Trust, which runs the project, and the council.

Money from the council was supposed to be transferred to the trust only to pay for third-party invoices billed to the trust. An exception to this rule provided for the trust's administration costs to be covered by a general monthly payment from the council.

These "trust costs" invoices were for between $40,000 and $90,000 a month, running from July 2007 to January 2010. According to Butler's information, which tallies with the council schedule, the payments totalled $2.2m over the period.

An Official Information Act response from the council to Butler said the money was paid "to cover staff and administration costs" of the trust "to facilitate ease of administration".

Chalkie can see that it would be easier to pay for the trust's incidentals in this way. However, it opened a big hole in accountability for spending because the staff and administration costs detailed in the trust's annual reports for the period total $1,068,796, more than $1m less than the sums invoiced.

It is not clear from the accounts how the other $1.1m was spent because no combination of other costs - marketing, PR, fundraising or project administration - seems to come close to the right figure.

Chairman of trustees Malcolm Farry told Chalkie he could provide documents to clarify the details last week, but unfortunately they were not yet available as we went to press.

The problem in this instance is the lack of transparency around public spending, even when there was obviously concern at the outset to keep a firm grip on it.

More than that, Dunedin got in over its head and allowed itself to be the schmuck landed with everyone's bill at the end.

There are several lessons for Hutt City Council, including to beware of using a charitable trust as the development vehicle, to ensure private sector money is paid up front with a buffer for contingencies, and to ensure there is no ambiguity about costs.

Chalkie reckons it should also consider the following.

All the other A-League football franchises use stadiums shared with other professional sports teams, usually rugby league franchises. On its own, the Phoenix may not generate enough money to maintain the stadium.

Attendance at football and rugby games is declining, not growing. Last year the average gate for Phoenix games at Westpac stadium was 6975. The previous year it was 8067 and in 2011 it was 11,101.

Over the last 10 years the average gate to a Super Rugby game at Eden Park has fallen by a third, at Westpac Stadium it has fallen by more than half.

Forsyth Barr Stadium does not appear to publish its attendance figures, except that last year it had an average gate for all sports of 4671 and its biggest Super Rugby attendances were about 18,500. Its capacity is 30,000.

The sniff of silverware can make a big difference, but you can't bank on it.

Such is the dubious financial standing of stadiums it's no wonder councils have to get involved in building them - if they were profitable the private sector would handle it. But Chalkie reckons local authorities should remember citizens would rather have bread than circuses.

Written by Fairfax business bureau deputy editor Tim Hunter.

- The Press

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