Monday, June 13, 2011

Sky City Takes a Gamble on Convention Centre

For some time there has been a myth that New Zealand was missing out on substantial tourism dollars by not having the facilities to host large conventions. Up until now there has been an expectation that public funding will be required to erect a "nice to have" edifice and this was supported by tourism industry groups along with an optimistic publicly-funded feasibility study supporting a Government-planned international-sized convention centre. 

Heywood Sanders, a professor of public administration from the University of Texas, San Antonio that has been researching convention centres in the United States for over twenty years, makes a profession of questioning the overstated conclusions of self-masterbatery convention centre feasibility studies. A longtime critic of publicly financed projects, Sanders scoffs at the flawed "build it and they will come" concept and claims that convention centres are generally built and run by public money because of the poor economic returns. "They routinely overpromise, and they never do what they're supposed to do. The question is how badly they perform."

So it is tremendous news for hapless Auckland ratepayers and central government taxpayers that SkyCity have announced that they will be risking their own capital with plans to build a $350 million convention centre in Auckland's CBD. 

So should Sky City shareholders be worried? Maybe: In order for Sky City to extract a decent return on their $350 million investment and cover the substantial running costs they will need to rely on the new convention centre generating extra traffic through their hotels, bars, restaurants and casino. What seems to have tipped the scales for Sky City is the apparent agreement from the government to increase its capped number of gaming tables and machines and extend its licence beyond 2021.

So does this mean that the tourism industry should prepare ourselves for the expected 101,000 additional guest nights from overseas high-worth individuals that will be flocking to Auckland to and a large convention?, probably not; while the facility will attract some new business, the bulk of the business will come from cannibalising existing conference trade of a more modest scale.

While it is optimistically forecast that the convention centre will attract 800 new jobs after completion, the net result after job loses from competing convention suppliers has not been considered.

What we like about this deal is that ratepayers and taxpayers will not be saddled with the initial capital cost and more importantly will not have the risk of ongoing losses. As an added bonus, the pinko social responsibility crowd will be outraged with Sky City's expansion.

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