Tuesday, May 14, 2013

"Free" Convention Centre Finally Announced

Nothing much has changed from our views on this deal when I posted about this in April last year. The build cost has risen from $350 million to $402 million, the increased gambling concessions of 230 more pokies and 40 additional gaming tables are less than what has been reported in the past...

The Greens have again outflanked Labour by claiming the extreme outraged left and are threatening further economic sabotage by legislative change. Hopefully the mandatory petition that the Greens will be commencing, won't cost the taxpayer as much as their last failed attempt:
"I've been following the SkyCity convention centre story with some interest.

Armchair experts, including the Tourism Industry Association have been long-time cheerleaders of the myth that New Zealand was missing out on substantial tourism dollars by not having the facilities to host large conventions.

Up until recently, there has been a will and expectation that public funding will be required to erect a "nice to have" edifice and ironically this has been blindly supported by various tourism industry groups.

The announcement by SkyCity that they will risk their own capital with plans to build a $350 million convention centre in Auckland's CBD seemed to be good news for hapless Auckland ratepayers and central government taxpayers that were being lined up as reluctant investors in the dynamic loss-making convention industry.

SkyCity's deal with the government is dependent upon an agreement to increase its capped number of gaming tables and machines and extend its licence beyond 2021. It is expected that this will generate sufficient income to compensate for a convention centre that even a wildly optimistic mayor Len Brown claims will only break-even.

And as for the alleged social cost, I'll leave the hand-wringing to the pinkos to worry about the consequences of a small element of the public that are unable to cope with the responsibility of personal choice. Gambling is a legal and legitimate activity and as far as I'm concerned the less regulation and controls for all businesses, the better.

While increasing consumer entertainment choice and relaxing regulation has to be seen as positive, the concept of a government adopting crony capitalism by picking winners is harder to accept.

So should Sky City shareholders be worried? "Brokerage Goldman Sachs last month estimated SkyCity would need 350 to 500 extra machines to profit from the deal, generating as much as $46m of revenue in the first full year of operation."

In order for SkyCity to extract an acceptable return on their $350 million investment and cover possible operational losses of a convention centre, they will need to rely upon their new gambling facilities to perform. And the new convention centre will also need to generate extra traffic through their hotels, bars, restaurants and existing casino facilities.

The  consequences of  the government giving special favours to a private company will be interesting to gauge as SkyCity distort the New Zealand market by building an entity that a free market would not normally allow. On the plus side there will be new inbound business that are attracted to a new facility, however a large share of additional income will come from cannibalising existing domestic conference and gambling/entertainment trade.

SkyCity will need to work its new facility hard in order to minimise losses and this will have unintended consequences for competing businesses throughout New Zealand.

Maybe the tourism industry should have been more careful what they wish for?" 

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