F-B Stadium - more of the same

Admittedly, I wrote my previous post rather late at night and with the story only just emerging. This morning, with the benefit of a few more details, I can write a little more on the sorry state of the Forsyth Barr Stadium.

From the New Zealand Herald:

The company is now forecasting a full-year loss of $2.4 million, followed by losses of $1.2 million, $1.1 million and $1 million for the following three years, council information shows.

From the Otago Daily Times:

The six-monthly result represented a dramatic turnaround from DVML forecasts released last year, which tentatively predicted profits of $91,000 in 2011-12, $30,000 in 2012-13 and $46,000 in 2013-14.

Hmm. When support was being drummed up for the facility and throughout the process of construction, Westpac Stadium was touted as the poster child for New Zealand facilities - and a quick look at the first ten years shows why:

Figure 4.1: Net Operating Surpluses ($m): Westpac Stadium, 2000-2009

 

Source: Wellington Regional Stadium Trust Annual Reports, 2000-2009.

This figure was from my PhD thesis completed last year (note to self: it's about time this chapter was published!). In each of the ten years post-construction, the stadium ran operating surpluses which were then used to pay down debt. Forsyth Barr Stadium doesn't look to be close - but things might get better over time (and they are forecasting reductions to losses). It wasn't until the second five years, however, that the Westpac Stadium started to post stable surpluses. The key was establishing a regular usage for the facility, among other things - something the F-B Stadium has had trouble with to date.

I particularly like Paul Walker's take on the developments at Anti-Dismal:

I can't help thinking that the obvious lesson from Dunedin is that if you want to inject economic life into your area don't build a stadium.
I just hope that other city councils learn from the Dunedin experience and don't try building grand new stadiums in their cities. Take note Christchurch!

Stadiums are typically built as stimuli - to shake loose the shackles of impending economic doom by attracting people back to the city and getting them spending, and the impacts will trickle down to all concerned and things will come right. While an admirable sentiment, that hardly ever happens. This is why I find the popular defence of attributing poor financial results on the state of the economy a classic case of the pot calling the kettle black. I've alluded elsewhere to stadium construction as being a case of keeping up with the Jones'.

While one year is hardly a sufficient number of observations to read the final rites over the F-B Stadium, there are more than a few examples of stadiums in this country that have caused grief to ratepayers in recent years - with the North Harbour Stadium and Waikato Stadium two examples that spring immediately to mind. I sincerely hope that the Forsyth Barr Stadium is not added to the list - but things (and quite a few of them) will have to change for the better.

Of course, if Christchurch builds a bigger and better stadium and the associated increased competition for events, etc, is going to make things very interesting in Dunedin. Buckle in for what is sure to be an eventful ride!

The first six months of the Forsyth Barr Stadium - and a forward pass already!

Unfortunately for proponents of the brand new Forsyth Barr Stadium in Dunedin, the first six months hasn't exactly been that encouraging ...
I'm not one of these 'I told you so' people, but this report can't exactly be described as a surprise (although the extent of the losses are perhaps higher than many would have anticipated) as much of the international experience has been the same. They don't make money. Period. If you cover your costs, you are doing very, very well. Let's just hope that the folks in Dunedin can turn it around - although it is difficult to see how, if they don't attract major events that they were banking on. And they must also hope that cornerstone tenants remain financially viable and can contribute their share of the costs.
I do find the move by the Mayor interesting - ordering a review of the stadium's operations. This hot on the heels of the DCC having an observer at the ORFU. I know the Council has invested a ton (and a bit more)  of money into the Stadium, but losses were anticipated, and with the two big events in the first six months enjoying the Stadium rent-free, the benefits (if there were any) were never going to show on the Stadium's balance sheet. If I were Council, I'd be nervously awaiting the latest economic data to see what has happened to local and regional GDP in the past two quarters. If the stadium has been as beneficial as was claimed pre construction, one should expect to see gains to the local economy that outweigh the losses incurred at the Stadium. The chances of this actually happening would be slim, based on previous national and international experience.
I can see this being a subject that just won't go away - which is good for one who researches in this area!
Thanks to Eric at Offsetting Behaviour for the tip!

The climax to the ORFU saga

So a deal has been reached! The Otago Rugby Football Union (ORFU) has staved off liquidation! Just a few short weeks ago liquidation was a fait accompli, now they live to fight another day, in the finest traditions of the battling underdog overcoming the insurmountable odds that is so synonymous with sport.

But the tipping point wasnt't due to money being coughed up by a benevolent benefactor, rather it was the Forsyth Barr Stadium, the fear of losing a tenant and what it would do to facility revenues.

After a seven and a half hour meeting yesterday, the Dunedin City Council has agreed to 'forgive' a $480,000 debt from the ORFU to ensure that professional rugby remained in the city, and more importantly, guaranteed the new stadium at least one rugby tenant. But they were not exactly happy with either the ORFU, and the need to do so. This from Dunedin Mayor, Dave Cull, on the ORFU:

"I think there is pretty much universal agreement that they cocked up, and that they cocked up on a chronic basis. Pretty reprehensible really, but we have to deal with the situation as we find it."

and on reasons for the bailout:

The ORFU was bailed out because "the financial model around the so-called private sector funding component of building the stadium is dependent on revenues from the games that professional rugby play there.
"I'd have to say, before it was being built and right up until now, that was the most imprudent, risk-laden way of financing anything. It was basically pretty stupid, but we've got it, and we have to find a way of maintaining the revenue stream for that, or it falls back on the ratepayer. This deal has avoided that,'' he told Radio Sport.

While I can totally understand the frustrations, and the fact that the DCC have painted themselves into a corner, the story gets murkier yet. Why? Because of this juicy tidbit, revealed later in the article:

Cull said it had been discovered that there were no agreements in place for either the Otago ITM Cup team or the Highlanders to play at the stadium.

''Whether the ORFU went into liquidation or not, DVML was left with a very risky situation, as there were no contracts in place guaranteeing an income stream from professional rugby in our region. DVML had taken on the running of the stadium under the impression that those contracts were in place, underpinning that revenue stream.'' 

I'm sorry? I didn't just hear that. There are NO agreements in place for ANY local rugby teams/franchises to play at the new stadium? The one that is very, very dependent on future revenues from rugby to make ends meet on a regular basis? I have to scratch my head in amazement. It wasn't long ago that the ORFU admitted that they hadn't factored in the cost of playing in the new stadium into their cost projections, and now it emerges that there wasn't in fact anything actually tying them to the new stadium at all? Where is the communication here? What is going on? There really doesn't seem to be any semblance of coordination between two parties who obviously need each other to survive. If this is the state of play with rugby in the new stadium, I'd hate to know what the security of the other anticipated relationships is like.

So, when it boils down to it, the DCC (and the ratepayers who paid for the majority of the Forsyth Barr Stadium) are actually behind the eight ball to the tune of almost $500,000 when they should have been 'ahead' due to the revenues earned from rugby being played at the stadium. The other way you can look at it, I guess, is that it has just cost the DCC and ratepayers almost $500,000 to lock in a rugby presence in the new stadium. Was this cost in the budget for the new stadium? I should think not. And what of the Highlanders? They are higher profile than the ITM Cup. I can just imagine them saying: "Now, Mr Cull, you've just helped out the ORFU. How much do you want to pay us for to play at your swanky new stadium? You need us. Your figures show you'll have a very hard time without us, in fact. There is nothing stopping us from hightailing it elsewhere to other parts of the country for a better deal. Show us the money!". My goodness! Shades of the US professional sports now start to appear before my eyes, ones where franchises and cities are at war with new stadiums smack bang in the middle.

I'm sure that there will be more to this story...

The tip of the iceberg?

Further to the ORFU saga over the past few days, the New Zealand Herald has examined the financial performances of each of the 14 ITM Cup provincial unions, and has pointed fingers at Counties Manukau, Southland and Manawatu as prime examples of unions with debt issues.

This from the article:

Few unions performed better in their last reporting year than the previous, indicating that the cashflow problems are endemic.

Hmm. I'm not completely sold on that claim, and here's why.

These results have to be taken in context, which is complex. With global economic uncertainty causing this country's growth to remain rather flat, people don't have more money to fork out to go along and watch the ITM Cup. Massey sports management expert Associate Professor Andy Martin was on TVNZ's Breakfast yesterday (see the video here) and made a very good point (one of many, in fact) that behind the All Blacks and Super Rugby, the ITM Cup is really a third-tier competition. Couple this with increasing competition for the consumer's entertainment dollar with a wider rugby-playing window that now competes at times with cricket, soccer and basketball, it is little wonder that the ITM Cup unions are suffering. Thats not to mention other areas in which the consumer entertainment dollar can be stretched to, like movies (the introduction of 3D), among others. Lets not forget that the last two years have seen developments around the Rugby World Cup, of which (a proportion, I assume, of) facility upgrades and the like are likely to be reflected in the costs of unions. Locals would have been holding off going to as many ITM Cup games with an eye to the more expensive RWC tickets later in the year. These, added to rising player costs (some eye-popping figures in the Herald article, including Southlands $2.2m player wage bill in 2010 - I'm sure SBW wasn't moonlighting in Invercargill as a Stag) has made their economic environment a tough one.

In saying this, as I said yesterday, teams need to live within their means. This also from the Herald article:

The salary cap for the ITM Cup is now pegged at $1.3m or 36 per cent of commercial revenue, whichever figure is higher. 

Southland must have had a heck of a lot of commercial backers! Maybe the Ranfurly Shield does bring with it extra benefits... I just hope it was worth it. I wonder if Taranaki will experience the same in 2012?

The ORFU drama - is it time to go cap in hand to Government?

I guess it was only a matter of time before someone made the suggestion that the Government could bail the Otago Rugby Football Union (ORFU) out. Fortunately the PM has poured cold water on this suggestion.

This from the PM:

"It's a bit of a worry, it's a very old union, historically very successful. I understand, amongst other things, they had a lot of debts racked up against Carisbrook that they couldn't sell for the price they anticipated they would."

If there's one thing I've learned over time, it is that history counts for very little when it comes to paying the bills. Sport is no different, semi-professional or not, than any other business. If the bills can't be paid one way or another, then maybe it is time to shut up shop. I have two concerns with a proposed Government approach. My main concern would be what message would be sent to other unions who have been and continue to struggle by on modest means if the Government decided that the ORFU was worthy of a bailout. It might seem heartless, but the reality is that sports must also pay their way and live within their means, just like the rest of us. The other concern is the movement of good money following bad - how much would be 'enough'?

Of course, if there was a wealthy benefactor (or more) in the deep South who felt that the continued presence of Otago rugby was worthy of private investment, I am sure the ORFU would gladly consider all offers!

ORFU to be liquidated - is rugby in trouble?

This today from the NZ Herald: The Otago Rugby Football Union is to be liquidated, with the union facing a massive loss after years of poor financial results. The New Zealand Rugby Union (NZRU) has decided enough is enough, and will not bail the union out.

This puts rugby in a somewhat uncertain state in the deep South. Not too long ago the Southland union needed NZRU assistance with meeting financial shortfalls, and now Otago is to cease trading. Let's not mention the Christchurch temporary stadium arrangement - it's been an unfortunate sequence of events for southern rugby.

This has implications for the recently built Forsyth Barr Stadium in Dunedin. Sure, the Highlanders Super Rugby franchise will continue to play there (the ORFU is a separate entity to the Highlanders), but they were counting on an Otago NPC/ITM Cup team playing to fill in some dates and draw in some crowds to make the economic impact figures stack up. Admittedly nobody saw this coming, but it does make things even tougher on the Stadium to break even. Longer term, if there is no Otago ITM Cup team, does this mean that the Highlanders franchise might be 'up for grabs' with only the Southland union playing? Taranaki were known to be keen on a Super franchise - does the growing uncertainty in Otago open the door?
Some have wondered whether sports are recession-proof - here's a little bit of evidence that our national game, alongside many Australasian sports leagues including the A-League, the NBL, and even the NRL if you go back to the late 1990's with expansion and then the Super League war and contraction - is just as susceptible as any business in a period of downturn. A rugby fan hopes that this is an isolated incident, but an economist wonders whether it is merely the tip of the iceberg. Teams generally don't make profits - if they do, they tend to be small. Ironically, this might have been the ORFU's best chance at recouping some of their losses, with a likely increase in attendances in the form of the new stadium's honeymoon effect, where people come along to see the new facility as much as the game. Unfortunately they don't appear likely to get that chance.