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Market Force

Market Force

Since SkyCity began “negotiating” with Steven Joyce in October, its share price is up 12 per cent.

This column first appeared in the March 2015 issue of Metro.

Above: Looking up Hobson St. The proposed hotel is at right with the convention centre beyond

 

Can we stop the bullshit about a “free” convention centre? And the equally ignorant idea SkyCity has “backed down”? It’s now more than 2000 days since John Key told tourism officials to stop working on a formal business plan for a convention centre and just deal directly with SkyCity.

Since then, pretty much whenever there’s been a development or Key and Steven Joyce have opened their mouths, SkyCity’s share price has risen. Those whose careers and fortunes rely on analysing the true economic impact of all this know who is being suckered, and the politicians have relied on the daily media’s basic economic innumeracy to get them through the news cycle.

First, most audaciously, was Key’s original claim that the centre would not cost taxpayers or ratepayers a cent. This was always untrue. Bleeding-heart, left-leaning journalists tried to counter him, arguing the 230 extra pokie machines and 40 new gaming tables would cause social harm that would later cost taxpayers, but Key and Joyce could answer that the total number of pokies in Auckland was falling.

The real reason Key’s words were untrue is that the government was forgoing revenue in the future — and what the Treasury could have charged SkyCity for 230 extra pokie machines and 40 extra blackjack tables was not even the half of it.

The most valuable part of the deal to SkyCity was the extension of its Auckland casino monopoly from 2021 to 2048, more than a quarter century longer. The government legislated away its right to auction this licence later this decade. It’s of enormous value to SkyCity, and its competitors would also have entered the bidding, if only to drive up SkyCity’s ultimate price.

As it happens, we know what SkyCity would have paid for these concessions: at least $402 million, because that’s what they agreed to pay to build the convention centre. Taxpayers forwent more than $400 million in exchange for this building.

If you can’t afford the groceries, it makes sense to raid the kids’ uni fund, but be clear: that’s what Key and Joyce have done. There’s never, as they say, a free lunch.

If you doubt a magazine columnist, take a look what happened when the deal was announced: SkyCity shares immediately jumped 10 cents.

Now Key and Joyce have got away with it again, arguing SkyCity has backed down from asking for a top-up, after finding it would cost them up to $530 million to build the centre as contracted. The casino, Joyce says, has accepted the government’s demand to keep the cost to $402 million.Taxpayers’ interests have been protected.

Nothing of the sort has happened. If a property developer proposes to build you a five-bedroom house with swimming pool and tennis court for $4.02 million worth of concessions on another project, and you sign a contract to that effect, that is what they must do. If they come back and say the house will cost $5.3 million and you must pay the difference, you’re not the winner if you agree to make it four bedrooms and accept a hot tub in place of the pool.

A great deal of analysis went into the original specifications, outlined in the contract, that the centre must have “at least 8600sqm of exhibition space” and “3500sqm of dedicated meeting/breakout spaces” and provide “the full suite of convention facilities capable of hosting a full programme for 3500 delegates as well as providing the capability to host multiple concurrent events”.

International consultants had found this scale was necessary for the centre to compete with others in our region. Moreover, to compete successfully, the contract demands the centre be “unique in style to New Zealand, and… designed and constructed in accordance with contemporary international design standards”.

Key and Joyce have now released SkyCity from these obligations but the casino still gets its 230 extra pokie machines, 40 extra gaming tables and the 27-year extension to its monopoly.

So who really has backed down and who really is the winner? Here’s a hint: when announcing the latest deal, Joyce said it would boost GDP by $49 million, a mere 0.02 per cent. Since SkyCity has been negotiating with Joyce, its market capitalisation has increased by more than $220 million, around 12 per cent. As the Treasury said at the outset: “Private benefits to SkyCity will exceed public benefits to New Zealanders.”

Someone should have listened.

 

More on the SkyCity Convention Centre:

Our Biggest Should Be Our Best: Simon Wilson on how timidity and a misplaced cost mentality are failing Auckland.

The Big Gamble: Urban design critic Chris Barton on SkyCity’s disappointing plans for the convention centre.

Politics