On March 23 last year, the day Prime Minister Jacinda Ardern announced a national lockdown to smother Covid-19, a High Court judgment landed with a $5 million thud.
It might provide salient lessons for Christchurch’s councillors, who just voted to spend an extra $50 million to build an expanded 30,000-seat, $523 million stadium with a roof.
(An earlier council decision to stick with 25,000 seats was based on spending an extra $88 million.)
The High Court judgment was issued quickly last year as Aurora Energy, the electricity lines company for Dunedin, Central Otago and the Queenstown-Lakes, had agreed to a Commerce Commission fine of $5 million for breaching quality standards.
The market’s regulated because there’s little or no competition. These regulations are designed to prevent companies from banking excessive profits by underspending on their networks.
Well, that’s the theory.
Aurora, wholly owned by Dunedin City Council, admitted breaching two industry standards between 2016 and 2019. (For the record, they are “system average interruption duration” and “system average interruption frequency” – how many outages occur, and for how long.)
It turns out Aurora breached one of the standards in 2011 and both in 2012, but the Commerce Commission opted to send a warning letter. Consultants were ordered in, and found “serious inconsistencies” between the published condition of its assets and the on-site condition, and there were inadequate budgets for asset management.
The judgment reads: “Aurora accepts it failed to exercise the skill, diligence, prudence and foresight to be reasonably expected.”
Between 2010 and 2016, Aurora failed, “without adequate justication”, to spend $37 million of forecast expenditure replacing and renewing assets. This led to a significant proportion of network assets “being at or near the end of their lives”, the judgment said.
The timing of this scandalous neglect was no coincidence, says whistleblower Richard Healey, of Dunedin, who exposed Aurora’s potentially harmful problems in 2016.
While a backlog of dangerous power poles weren’t being replaced across Otago, Aurora and sister company Delta paid $30 million in “subvention payments” – shifts within a corporate group, between profit-making to loss-making companies, for tax reasons – to Dunedin’s stadium.
“There were other factors and decisions related to maintenance that made sure we were always going to end up in this mess,” Healey says. “The key to the whole proposition is the fact that that money, which should have been used for the rebuild of the network, was portrayed by various people within council as some magic pot of gold that could be shifted across to fund the stadium – and it wasn’t.
“That was money which should have been and could have been more properly applied to rebuilding the network.”
Aurora was effectively a paper company until 2017, as it outsourced its management, operation and management responsibilities to Delta Utility Services, another subsidiary of council-owned holding company Dunedin City Holdings. The companies even shared a chief executive, Grady Cameron.
After Healey’s revelations the companies were structurally separated. But the financial pain of those decisions continues.
Aurora applied to the Commerce Commission to spend $609 million over five years, $177 million more then it’s permitted to, to replace its ageing infrastructure and run its network. The commission has curtailed that to $563 million.
Power bills are expected to rise progressively. By 2026, monthly lines charge increases for medium residential electricity users will reach $32.40 in Dunedin, $51.30 in Central Otago, and $33 in Queenstown-Lakes. For high residential users, the hikes in Central Otago are predicted to be almost $900 a year. But they could be higher.
All this because a council desperate to minimise stadium-related rates increases decided to sweat its assets.
Newsroom tried to contact Dunedin Mayor Aaron Hawkins and former mayor Peter Chin, whose support of the stadium cost him his job in 2010 when he was unseated by the late Dave Cull. Neither responded.
But in a 2019 story in the Otago Daily Times, marking a decade since the controversial stadium project was given the green light, Chin said debt was always part of the stadium plan.
”The … reality is we would not have done anything with that money, because there was no other vision there for it to have been spent.
”We wouldn’t have had any of the concerts we have had, the events that have happened that have added economic growth to the city.”
In the same article, Cull, a three-term mayor who died of pancreatic cancer in April, said stadium opponents, like himself, who thought the financial model was too risky, and proponents who were for a covered facility, were both right.
“It has brought enormous benefit to the city, and the financial effects have been really very challenging.”
Malcolm Farry, head of the Carisbrook Stadium Trust, was the public face of the project. He told the ODT two years ago the stadium was part of Dunedin’s renaissance. “Now everyone wants to copy us. That is the mark of success.”
It’s fair to assume Christchurch councillors’ decision yesterday to opt for a 30,000-seat stadium involved a tinge of jealousy, as their southern rivals (population: 126,000) staged concerts, and hosted All Blacks games.
Meanwhile, rugby fans in the larger city, with a population of 370,000, have been confined to a makeshift stadium in Addington, after the loss of its 38,500-seat Lancaster Park, south-east of the city centre, in the earthquakes of 2010 and 2011.
Supporters of a larger stadium might have charged their glasses last night but Healey, the whistleblower, sounds a note of caution.
“If the people of Christchurch want the nice, shiny thing – a stadium – and they’re prepared to pay for it, good luck to them. But you need to be realistic about what that cost is and where that money comes from in the community, and what else you could buy for that.”
Delving into Dunedin’s numbers
There are striking differences between Christchurch and Dunedin, of course.
For one, the push for Christchurch’s stadium isn’t coming from self-appointed business people, says Dr Michael Sam, an Associate Professor at the University of Otago.
Sam, a co-director of the NZ Centre for Sport Policy and Politics, says the Government has put in a significant amount ($220 million), and there’s an insurance payout from Lancaster Park to factor in.
Christchurch’s council had earmarked $253 million for the stadium – but councillors have been warned it’ll have to stump up the extra $50 million if it can’t be found elsewhere.
To see how costs can get away it’s worth interrogating the promises and forecasts of Dunedin’s stadium, which has a capacity for rugby of about 30,700 seats. (Sam says while Dunedin is billed as multi-use, “the reality, of course, is that it’s a rugby stadium”.)
The initial cost, in 2009, was estimated to be $188 million, with Dunedin’s council committing to paying $91 million. However a 2012 review by consulting firm PWC said costs, including interest, reached $224 million.
(Items not included in the “guaranteed maximum price” were toilets in one stand, a scoreboard, turnstiles, and kitchen catering facilities.)
All but $8 million came from government sources. The bulk of the funding, $163 million, came from the city council, and its venues management arm. The Otago Regional Council contributed $37.5 million, and the Government chipped in $15 million.
A $10 million contribution from the University of Otago has been described as “mainly illusory” – being mainly for land for a new university building on the site and a shared wall.
The project had hoped to raise $45 million from private backers, but it raised a paltry $700,000 from sponsorship and seat sales by the time it opened. (A 2008 report from the stadium trust said private sector funding at that level was “very much achievable”. Meanwhile, in a full-page newspaper ad, the trust said the stadium would be “debt free”.)
Arguments were made the stadium build wouldn’t cost more than $66 per average household a year for 20 years. But opposition group Stop the Stadium argued, because of rising council costs the community needed to consult again on its long-term plan.
The Court of Appeal didn’t agree, noting “discussion of figures of considerable complexity”. This included complex financing arrangements designed to keep rate hikes down.
One loan was repaid by ratepayers, and the larger debt, transferred to a new entity, off the council’s books, was covered by council-owned companies, including Aurora and Delta.
As whistleblower Healey points out: “Any money from council companies was directly subtracted from money the council had to run the city.” If the money was spent on replacing power poles, gables and transformers, it wouldn’t have been taxable, he says – and “we wouldn’t now be in the shit that we’re in”.
There were also hidden costs, like $10 million towards re-aligning the state highway, and a costly electricity system upgrade by, you guessed it, Aurora. “Because the company is council-owned it was seen as being part of Dunedin City Inc,” Healey grumbles.
“We know these stadiums aren’t going to make money.” Dr Michael Sam
The tale of financial woe is covered in a 2019 journal paper lead authored by Sam, the University of Otago associate professor, titled Big stadium, small city: A catalyst for turbulence and governance reforms.
The city council wore a $2.3 million “cash loss” from the sale of the old Carisbrook stadium land and surrounding properties. (Christchurch’s council is weighing selling its Addington stadium.) And it emerged Dunedin City Holdings, the holding company of council-controlled units, was borrowing to pay dividends.
After it opened, the Dunedin Stadium plunged to a $3.2 million loss – blamed on a $4 million rent payment to the property-owning company, to service its loans. Sam says the stadium was forecast to make $30,000 a year for the first three years. That’s a big margin of error.
Financial strain caused community projects like playgrounds and walkways to be deferred. Also deferred, almost immediately, was the stadium’s $5.3 million depreciation and maintenance.
Delta, Aurora’s sister company, embarked on a series of “risky and imprudent deals and investments” in a bid to boost dividends to the council – for which it was criticised by the Office of the Auditor General in 2014.
Over several years, council-controlled companies borrowed more than $40 million to supplement dividends. The closer scrutiny led to councillors being banned from serving on those companies’ boards. In the end, the entities created to keep the stadium debt off the council’s books were brought into the fold.
Last year, Dunedin Venues Management, which manages the stadium and other Dunedin venues, made an after-tax loss of $64,000, compared to a $160,000 profit the previous year. Meanwhile, the land-owning company, Dunedin Stadium Property, made an after-tax loss of $8.2 million in 2020, $1.2 million worse than the previous year. Its long-term borrowings as of June last year were $86 million.
Sam, the associate professor, notes the forecasts of the consultants and their contractors were very wrong. “There’s no accountability for them to be mistaken on these projections.”
Another part of the picture – what whistleblower Healey calls mythology – is the post-event predictions of economic benefits. Those figures are always “devious”, Sam says.
Assumptions might include that before being filled by event-goers, hotels and restaurants were empty. Pre-event costs, like payments to concert promoters or sports teams, might not be factored in. (The fee for an All Blacks game is reportedly $800,000 to $1.2 million.)
Sam: “It just irks academics when these numbers are thrown around because we never get to see the methodologies that are around these economic impact studies.”
A 2018 story about bumper spending in Otago over Easter, thanks to Ed Sheeran concerts at the stadium and Warbirds over Wanaka, noted Paymark sales figures were strongest in “hardware and appliance stores”.
“It was a great concert,” Sam enthuses, “and it did bring a lot of people in. But at the same time we can’t forget that that concert took place in the first week of studies for university and polytech students. The city was filled anyway with parents dropping their kids off in the halls.”
(Another question is, where does this supposed economic benefit go? How many extra staff are employed in the busy motels, bars and restaurants?)
Sam’s paper, Big stadium, small city, notes the Christchurch Stadium Trust was realistic about the project’s financial prospects in 2017. It predicted a new covered stadium wouldn’t make enough money to cover debt repayments, and the council shouldn’t expect a substantial contribution from the private sector.
“We know these stadiums aren’t going to make money,” Sam says. “It’s just a matter of being able to resist the temptation to capitulate to some very sincere fan support and very sincere emotional support for this type of thing but, really, I think, economically there’s just not really much of a case for it.”
An economic forecast completed for yesterday’s Christchurch council meeting said building a bigger stadium – costing at least an extra $50 million, remember – will only pull in an extra $12.5 million over 10 years.
If the council had to cover the whole $50 million cost blowout, rates will rise $13.70 a year for 29 years from 2024, advice to councillors said. But that should be seen in the context of a council whose gross debt is forecast to rise from $1.5 billion to $3.6 billion within 10 years.
Last night, Christchurch Mayor Lianne Dalziel, who changed her vote from a month ago, said: “It’s going to make the world of difference in terms of restoring our pride as the sporting capital of New Zealand.”
Only two councillors voted against the bigger stadium. One of them, Sara Templeton, said instead of paying for an additional 5000 plastic seats, that money could have been used to plant five million trees, make buses free for under-25s, or build 100 homes for families. She worried stadium costs could escalate to $700 million.
After all, as the history of the Dunedin stadium suggests, strange decisions can be made when the financial screws are turned.
Healey, the whistleblower, says he understands the human nature behind the push for new stadiums.
“People like nice, new, shiny things. And every day, people in every walk of life make ridiculous decisions that can’t be justified with logic and reason, in order to purchase nice, bright, shiny things. But they will ignore the blatantly obvious downsides to their decision.”
He challenges those who backed Dunedin’s stadium to prove the benefit to ratepayers. “Show me how that’s improved the lot of someone on a fixed income and may never step foot inside the stadium because they can’t afford to.
“If you want a stadium and you’re prepared to pay for it then that’s fine. But we don’t seem to have the discussion about the true costs of the stadium.”
