I was asked earlier today for my comment on the Sky City deal with the Government to allow Sky City to operate up to 500 more cashless pokie machines in return for Sky City building a $350m, 3500 seat national convention centre in downtown Auckland. A portion of my e-mail comments were read out on air (not something I was expecting) but essentially focused on the purported $85m annual increase in tourism expenditure that the new national convention centre would bring to the local economy. Now, casinos and convention centres are not exactly my area of expertise, but they share more than a few similarities with stadiums, an area I am familar with, and some of the warnings that come on the labels of a new stadium are just as applicable to a convention centre. Eric Crampton was on Jim Mora's Afternoon programme this afternoon and made some good points that neither ruled out nor supported the proposal, but he noted that two instances where convention centres were successful in the mid 1990s were in New Orleans and Las Vegas, where the centres were in close proximity to casinos. The potential complementary nature of the facilities suggest that it might well be a successful operation in New Zealand.
Of course, a successful operation doesn't necessarily translate into a flow-on effect into the local economy. Increased profits don't necessarily flow through to the rest of the economy in the manner usually associated with government projects. The usual caveats surrounding projections of spending and their use for justifying the project apply here - caution must be applied with any projections, which tend to be optimistic in nature; impacts do not equal realised benefits to local economy, and so on. It is worthwhile noting that although the cost of the project is borne entirely by Sky City (in which case cost overruns don't hit the pockets of local ratepayers), the incentive to move on the project is still given in economic impact terms - $85m increased annual tourism spend, 1000 jobs during construction and 800 new jobs when the doors open. All of these can be questioned.
According to this December 2011 story from the New Zealand Herald, international visitor receipts in Auckland were $2b. This would mean that an increase of $85m would be around 4.25% of visitor receipts, which while not large, is not insignificant either. As for jobs, it is highly likely that the 1000 jobs in construction will be sustained during this period rather than created - other work will be moved to accommodate the new centre. This is an opportunity cost that should be considered. The 800 new jobs - this will be very much dependent on whether the new centre generates new business or merely reallocates existing convention business from elsewhere within Auckland. I have no doubt that a new facility would bring in some new business - whether it is enough to justify the cost, that is another matter entirely.