Casino deal works for dice and 'Mice'

16:00, Feb 23 2013
SkyCity national convention centre
BIG SPENDERS: Auckland Council tourism boss Brett O'Riley says the SkyCity convention centre will be an asset.

Auckland economic development boss Brett O'Riley has a "very excited convention bureau team" on his hands, following the green light this past week from the auditor-general on the SkyCity national convention centre project.

O'Riley, who heads the city's Tourism, Events and Economic Development body (Ateed), says building a convention centre to host large-scale events is a key plank of Auckland Council's 10-year visitor plan.

Ateed is very clear about its targets - to grow the visitor economy from $3.33 billion in 2010 to $6b by 2021, a 5.5 per cent annual growth rate or 80 per cent over the decade.

O'Riley concedes these are ambitious numbers that are already running behind thanks to the political shenanigans surrounding casino operator SkyCity's bid to build the $350 million convention centre.

The auditor-general has dismissed allegations the Government gave SkyCity an unfair advantage in bidding for the job, but raised concerns about the process used.

Ateed's Auckland Convention Bureau is tasked with prospecting around the world for conferences to bring to the city.


"We've been itching to get some certainty around the process, because there's nothing worse for our team to be out there at these events internationally and not be able to talk about availability," O'Riley says.

In the past year Auckland has lost out on two major events because of its lack of facilities - one was the 9000-delegate world congress of anaesthesiologists in 2020, worth $37m to the local economy.

"The fact that we couldn't definitely confirm that a national convention centre would be built was a leading factor in losing the bid," he says.

What development bosses desire is Mice visitors - those coming for meetings, incentives, conventions and exhibitions - because of their much higher value. Ateed's research shows Mice tourists spend an average $365 a night, compared with leisure visitors who spend just $200.

A 2009 feasibility study on a convention centre by international hospitality consultants Horwath, done for the Auckland City Council and the Government, says there was 6.7 per cent growth in international conferences between 1999 and 2008, and even greater growth in the Asia Pacific region.

New Zealand has punched above its weight in attracting smaller conferences, but in order to make the most of the industry it needs a venue capable of hosting events averaging 3500 delegates, it said.

A new convention centre could attract an average 35 conferences a year, allowing it to operate on a break-even cashflow basis.

It would bring in 22,000 additional international visitors a year and add $85.4m in tourism-related expenditure to the economy.

SkyCity has claimed a convention centre would attract 350,000 to 400,000 high-spending conference delegates each year, spending an average of $650 per day.

The Horwath study is at odds with a paper from Washington DC's Brookings Institution on convention centres as an economic development tool. The report was written in 2005 and from a US perspective, but gives pause for thought.

Author Professor Heywood Sanders said the overall convention marketplace had been declining since 2000 due to trends including client industry consolidation, cuts in business travel, and alternative means of sharing information.

However, cities, often with state assistance, had "continued a type of arms race with competing cities to host these events".

The decision to invest in the facilities was based on a "if you build it, they will come" assumption. But demand for the space was not keeping pace with its growing supply and many US convention centres operated at a loss, Sanders said.

Market watchers say it is difficult to estimate the business case for SkyCity building a national convention centre because no specific details of the project have yet been provided.

Morningstar analyst Nachi Moghe took a stab at the numbers in a research report last May.

Key to his figures is any deal SkyCity does with the Government over more pokies and gaming tables and an early extension of its casino licence in exchange for building the centre.

An extension of its licence beyond its current 2021 renewal date would provide cashflow certainty over the long term and please the firm's bondholders, and it would make SkyCity more attractive from a takeover perspective, Moghe said.

But the "biggest benefit by far" would come from a growth in gaming revenue.

If SkyCity gets 500 more gaming machines and 20 more tables it would mean an additional $41m in gaming revenue a year, Morningstar estimated.

The convention centre including additional car parks was likely to contribute an extra $10m in pre-tax earnings.

There would also be increased hotel, food and beverage and Sky Tower ticket sales, "but we think the contribution is unlikely to be material", Moghe wrote.

The benefit of the extra gaming facilities would push SkyCity's value up between 65-70 cents per share or 15 per cent. SkyCity shares were trading on Friday at around $4.04.

Despite the economic development benefits espoused by local and central government wallahs, it would appear the viability of a convention centre rests on whatever agreement SkyCity can reach over additional gambling facilities.

Sunday Star Times