Christchurch stadium debate

Time for a random blog post ...

After the publication of an opinion piece in this morning's Press (no prizes who came up with the headline), I've jotted down a few more thoughts in response to some of the other stories that have been published in recent times.

Some question whether the logic applied to stadiums (and the outcome) means that other publicly-funded facilities like infrastructure (sewerage, roading, etc), libraries, museums, churches, etc, would also fail a benefit-cost test and therefore shouldn’t be funded. I would argue that critical infrastructure projects have higher benefit to local residents than a sports facility by simple virtue of the fact that these projects are necessities – people who live without sewerage and adequate roading will know what an inconvenience it is not to have them. The value of such projects is high – and so there can be a higher cost attached to them for the projects to make economic sense. For things like museums and libraries, the same logic applies. What is the benefit of a library to a local populace? If people value the amenity, then there is a cost that is potentially commensurate with that value and it can be considered to pass the benefit-cost test if the cost is less than the benefit.

A key difference between infrastructure projects as well as amenities like libraries, museums, etc and sports facilities is that those who advocate for the importance of “cultural” amenities often don’t tie the value of the amenity to the (potential) impact resulting from spending from visitors to the city – which is a staple (and sizeable) component of advocacy documents produced routinely for sports facilities. A supermarket generates visitor spending. Does that mean supermarkets should be publicly funded?

The issue I have is not that Christchurch doesn’t need a new stadium – it is rather that public money from local, regional and central government is being poured into something that may end up costing more over time than the benefits accruing from the facility to the local population.

There is no question that Christchurch needs a sporting/events facility. The temporary facility in operation since 2011 hasn’t prevented some acts (Bruce Springsteen, for one) from coming to Christchurch. People still watch rugby at the temporary facility. Has the Christchurch economy collapsed in the absence of events that they could have hosted? No. The local population gets on with things. You can’t miss what you never had. And sport in Christchurch continues to be played – a testament to the “can do” resilience of sport.

Who should be responsible for funding the construction of a new facility, and how big should it be? The CCC has said that a $253 million facility is insufficient. So they instead advocate for a facility costing just under twice that price while knowing that there’ll be an almost $250 million shortfall – and saying that central government should pay the difference.

What is wrong with an open air “provincial stadium” that seats 17,500 people (with temporary seats added it will increase in capacity)? Surely it is likely to be better utilised locally than a facility that seats 25,000? And who says a roof is a "must have" for stadiums in this country? There’s only one roofed stadium in New Zealand – so the sample size from which to draw conclusions is pretty small. We’ve had outdoor facilities for as long as we’ve been a nation. Do we really need a “one size fits all” solution in the form of an expensive roofed facility that can “do it all”?

Here’s an idea. Why not build an affordable smaller outdoor facility for sport – and also build a covered arena-type facility (like Auckland’s Spark Arena) for the indoor aspects like concerts, trade shows, beer fests etc? It would probably be quite a bit cheaper to do things this way – it would almost certainly cost less than $496 million.[1] Plus, you get two facilities for less than the price of one – and facilities that are arguably better suited to their purposes than a single facility. Sport would get an intimate venue that is likely to be better utilised (from the point of view of having near-full capacities) and have more atmosphere (which is what spectators at an event often value) than a much larger (and less utilised) venue. An indoor arena would be tailored for concerts, trade shows, etc without the complexity of a larger facility with a removable turf. For those that argue that a new indoor arena is unnecessary as the Horncastle Arena already exists for that purpose, then that's fine - more money saved!

A small stadium is a stupid idea, you say – it immediately rules out All Blacks tests. But how often does an All Blacks test occur in a city? And when it does, to what extent does the local population actually benefit? (Sounds like a future research project - might keep me busy over summer!) The Crusaders and Canterbury rugby will still play there every season – which is arguably more important to Christchurch residents than an All Blacks test every two years. And the vast majority of the proposed event calendar in a new facility are locally-oriented. Surely this means that a locally-oriented facility makes sense from an operational perspective?

In the wash up, the true benefit and value of a stadium to a city is largely the value that people in a city place on having it. If an All Blacks test is something than Christchurch residents value above all else, then by all means Christchurch residents (via rates) should fund the construction of a facility to host this type of event. The benefit will justify the cost.

Should central government fund any shortfall? Only if having a Christchurch facility makes the rest of the country demonstrably better off. Is this likely to be the case? If Christchurch is competing with other cities for the same events, then the argument is likely to be no. It is akin to taking money off one city and giving it to another.

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[1] A crude back of the envelope calculation: Westpac Stadium and Spark Arena were built at twice the cost, it would come to $432 million.

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?