Stadium finances dismay

The Forsyth Barr Stadium. Photo by the ODT.
The Forsyth Barr Stadium. Photo by the ODT.
Dunedin Mayor Dave Cull says the Forsyth Barr Stadium's finances are "not sustainable", after confirmation the company running the venue lost nearly $1 million more than expected in its first year of operation.

The result was contained in Dunedin Venues Management Ltd's 2011-12 annual report, released to the Otago Daily Times yesterday, which showed the company lost $3.2 million in its first year.

That was $814,000 worse than the $2.4 million loss forecast in May, when DVML's revelations of a half-year, $1.9 million loss prompted the council to launch a review of the entire stadium operation.

The loss was largely fuelled by the nearly $4 million in rent DVML was required to pay to Dunedin Venues Ltd, the separate company that owned the stadium, to cover loan-servicing costs.

However, the results showed DVML would have made a loss of $302,000 even if it did not have to pay rent to DVL.

Mr Cull said the council had not been anticipating "a great result", but the final figures were worse than expected.

"It's not sustainable. There's no doubt about that."

That made the review of the stadium and DVML all the more pressing, and getting "a good result" even more important, he believed.

"There's all sorts of possibilities could come out of the review, and I mean all sorts.

"Anything could change."

Questions about DVML were referred to board member Peter Hutchison, who said the results were "a disappointment", but insisted the company remained in start-up mode and results would improve in time.

The results reflected delays staging some events, and others that failed to eventuate, but also the "pretty typical" frustrations of a new venue in its first year of operation, he said.

"It was a disappointment to everyone, including the board, that we kept on having that frustration."

Asked why the result had deteriorated since May, he said it was because of a "combination of factors" which could not be detailed at short notice.

However, one example was a delay moving the media suite from the south stand to the north stand - a switch that, through increased television coverage of advertising hoardings, provided more revenue to DVML, he said.

The company was also continuing to struggle against the impact of the global economic downturn, which had fuelled a drop-off in the events market, meaning less revenue than expected from concerts, Mr Hutchison said.

"It's pretty difficult to achieve a result when you have a market and an economy that's going backwards," he said.

The performance of the Highlanders and the Otago ITM Cup rugby teams had been highlights for the venue, but it was not yet known whether DVML made a profit from the ITM Cup, he said.

If it had, it would be small, he said.

Dunedin needed an events fund to compete with other centres fighting to lure big concerts and other events to the city, he believed.

"If the city wishes to see leading concerts in the city then there has to be a way to attract those concerts, and that's about money.

"At the moment, those types of incentives simply don't exist here," Mr Hutchison said.

It was a point raised by DVML's former chief executive, David Davies, before his departure, and one Mr Cull said was to be considered as part of the stadium review.

Mr Hutchison insisted the company was capable of recording a small operating profit, and was forecasting one for next year, but only before rent was paid to DVL.

The nearly $4 million rent was "a pretty big number for a stadium to meet", but whether the arrangements were sensible was a matter for Dunedin City Holdings Ltd and the council to consider as part of the review, he said.

"It is my understanding that that is one of the components of the review."

Whether the company could ever pay rent and make a profit would be "a tough ask", but there remained ways DVML could improve revenue streams, he said.

A profit could be achieved, "but it's going to take time".

A copy of Dunedin Venues Ltd's annual report was also released yesterday, and showed the company that owned the stadium - and received rent from DVML - recorded a $4.312 million loss for the same period.

Mr Hutchison cautioned against adding the two losses together, as they overlapped, and because DVL's results were largely accounting losses - not cash - and expected.

"It [DVL] is behaving exactly as it should do."

Council finance and resources general manager Athol Stephens also defended the results yesterday, saying the first year of operation had been "hardly a normal year" for DVML.

The report covered the year from July 1, 2011, but the stadium was not handed over to DVML until August 5, and then almost immediately taken over - together with its revenue - for last year's Rugby World Cup, he said.

That meant lost income on top of the disruption of feeling out a new venue, and the real test would be results from the first full year of operation, he believed.

"That's the context in which the performance has to be placed."

chris.morris@odt.co.nz

Big, real, ugly, stadium loss

Mr Hutchison says that "DVL's results were largely accounting losses - not cash - and expected". In saying this he is implying that the year's loss is mostly not a real loss. Our accounting system has evolved over a few thousand years to provide the most "real" measure of profit/loss. This is about the best we can do, and that means that both cash and non-cash items are included. If Mr Hutchison thinks he has a better way, he should write a book about it, but in the mean time he needs to stick to the standard NZIFRS method. His statement is in fact wrong, because most of DVL's expenses are actually cash expenses and because the loss is a real, authentic, auditor certified loss. DVL's finances are a sensitive area for the DCC, and Mr Hutchison should not be seen to be promoting any particular viewpoint.

Stadium losses add up

Mr Hutchison, the director of the stadium owning company DVL, says that the losses of DVL and DVML can't be added together because they overlap. This is misleading and seems to go against the basic principles of accounting. Each of the companies is a separate entity and they have separately audited accounts. To say that the losses overlap is to claim that one or both full year results are wrongly stated. As a director, Peter Hutchison did however vote that these accounts were true and correct; Their auditor has agreed with this. There is no overlap, and they can be added together.

Adding the two losses gives $3.2m + $4.3m = $7.5 million. The real loss is, however, a lot more than $7.5 million because this figure does not include a number of disclosed and undisclosed subsidies, paid either directly or indirectly by Dunedin's renters and ratepayers. The DCC has so far actively avoided providing the total of all the ongoing losses and costs of their stadium.

What's a few bob between friends!

How ingenious of the council to adjust the stadium's rates bill by $1.9 million per annum as they did simply because DVML couldn't pay the bill. Isn't it wonderful that such brilliant creative accounting was able to reduce the losses from $5 million to just over $3 million. We should be eternally grateful.

DVL loss not as expected

DVL and DVML director Peter Hutchison says that the size of DVML's $4.3 million loss was as expected. This statement does not match with the official forecast in DVL's Statement of Intent which predicted that the year's result for 2012 would be $6.5 million (before the ratepayer subsidy). This latest result is a loss of $11.6 million (before ratepayer subsidy) - so this is much worse than expected.
The loss of $11.6 million is much bigger than the official $4.3 million loss because this doesn't include the $7.3 million DCC subsidy. It is wrong to exclude the DCC subsidy when considering the overall effect on the finances of the DCC and the ratepayers. Both DVL and DVML are paid a subsidy that doesn't show-up in their net profit/loss figures.

 

Investment 102

GW_Scam: I suggest you look at the failure rate in business and differentiate between private and public funding. Public funding is meant for community building, private funding for speculative investment. The business paradigm you propose arrived several decades ago in Dunedin and placed this once beautfiul Victorian city in decline.
Unlike you I will be staying and investing. The ship has not sunk just yet.

Financial projections

GW_Scam: The problem is that the past Council decided to proceed on financial projections that showed an annual profit - right from year one. We now have the operators of the stadium saying that they "might" make a limited loss if they didn't have to pay rent to the owners of the stadium who are having to meet the debt costs. So they are in financial la-la land. I'm sure Walmart and those other supermarket chains could also make a profit if they didn't have to pay costs.

Quote

GWScam: I've read through my previous post and can't find the phrase 'so called expert' anywhere.

Ghost town

@Goblin - I suggest you look at case studies of companies like Kmart, Bunnings, even Walmart in the USA - in most cases they expect to run at a loss for the first two or three years when they open a new store; I believe Kmart in NZ ran at a loss overall for up to ten years or more! You have to establish your business, get people used to coming to you, spending their money with you, etc.

@NightimeJohn, it wasn't a 'so called expert' it was someone who if asked to come up with a marketing plan for Dunedin would firstly place most of the commenters here on a small unstable boat and send it off to an Island called "Whingers Paradise" where there are no large business enterprises in sight to complain about.

Lastly, I still can't believe their are some who say "Close it down" - are you serious! Dunedin would become the laughing stock, not just of New Zealand, but of the world. Investors would not only stop coming here, but those already here would run a mile, and I wouldn't blame them one bit.

As a professional who moved here some years ago, who loves the city, but still shakes his head in disbelief at many of the long-term residents, if this nonsense about 'close the stadium', and 'stop the hotel' doesn't cease very soon, I will sadly pack up by bag and leave. I am sure many of you will party at the thought, but let me warn you, I would be the first of many - eventuating in Dunedin becoming a ghost town within a few years.[abridged]

The stadium

The Titanic no doubt was a spectacle as it sank, too.

The seven who wanted the stadium

The seven stadium councillors I mentioned voted for the stadium as well as the late ex cr Walls, ex Cr Guest and ex Mayor Chin, making Chin's council all for the stadium. Cr Guest and fellow stadium councillor said the stadium would be only $66 a year, and Cr Collins told us that any against the stadium were 'glass half empty' sort of people, similar to Cr Brown's declaration that any against it were 'naysayers'.

They were the majority of ten councillors pushing very loudly for the stadium against the minority of Crs (then) Cull, Staynes, Wilson, Butcher and Stevenson. In the end of this minority only Stevenson, I think, still stood up in the end to the writing on the wall.

After the last election three stadium councillors (among all of them who became very shy about telling voters of their stadium support) were not re-elected and Vandervis and Mactavish were elected. Makes one wonder; isn't it odd how we do not hear the stadium councillors who orginally pushed for the stadium crowing about their stadium vision? Politicians are not known for being shy about their support for popular public initiatives.

Events fund

DVML and Dave Cull, and almost all of his councillors, want to do something about the stadium debt by borrowing more money to keep it afloat.
An events fund to encourage patronage is a further cost to us, along with the capital and interest debt that is steadily building up.
Instead of being headless chooks we need to do a cost/benefit analysis for the stadium and go from there. If closure is the best option, so be it.[Abridged]

 

Who voted for the stadium

All the Greater Dunedin councilors voted in support of the stadium in the final vote.

Councillors against the stadium

It's correct to say that only councillors Stevenson and Butcher voted against the stadium as more information became available, but it's also relevant to remember that the first councillors to consistently oppose it from the very start were councillors Vandervis and Prendergast.
They both lost their council seats in the 2004 elections, something opponents attributed to their anti-stadium stance.
That's not a realistic analysis, as Vandervis missed in Hills Ward by about 4 votes and Prendergast's vote in the Mosgiel-Taieri Ward was split against Brown and Wilson, the latter likely gaining popularity as former community board chair, and there were only two council vacancies for the ward.
The really interesting thing if you study the voting record (as I have) is that then Councillor Cull voted for the stadium as late as 17 March 2008. See here
I have no idea why he claimed this was purely a 'procedural' vote and so that presumably on this occasion. [Abridged]

 

 

You told us so?

Farsighted; I expect to see your name on the ballot next time Dunedin goes to vote.

Yes but who were they?

Who of the current mob voted for the stadium?

Reality check

GW Scam cites an unnamed expert as saying, 'The stadium, everyone in NZ wants to experience it, it is the one major drawcard the entire South Island now has for major sports events or
concerts." This may be true if in fact an event or two was exclusively staged here. I myself will be travelling to Wellington to see Morrissey perform next month so it must be true that major concerts can draw people from all over New Zealand. Can anyone else see the one flaw with our stadium?

Who voted for the stadium?

Now we know who voted against it, who of the current mob voted for it??

Who voted against the stadium

It is recorded in the council minutes, that the final vote for the stadium to proceed at the full council meeting, only two councillors. Cr. Stevenson and Cr Butcher voted against. All other councillors voted in favour.

Who voted for the Stadium?

In the final final vote on 18 March, 2008, the only DCC councillors who voted against building a new Stadium were Councillors Butcher and Stevenson. The count was 12 for and 2 against.

Investing 101

@ GW_Scam I am a young investor in Dunedin and it amazes me how some people cannot grasp basic principles such as risk management, risk threshold and exit strategies, they are investment 101. As Mr Buffet would say, first rule of investing is don't lose money. Your business reality is frankly jurassic, i'ts 2012 and we need to become more strategic and sustainable when investing ratepayers' money, especially in a global economy.

@ Stevepf for once I agree with you, these large payments for under performing bureaucrats need to stop now.

Who is accountable?

Jonkey; You have got to the very heart of the matter. The seven councillors who voted for the stadium spend: Crs Acklins, Collins, Weatherall, Brown, Bezett, Noone and Hudson. They hold the  majority on the present council. It is indeed very interesting that these councillors have been very quiet about their responsibility for the stadium and for its business plan. Important to note too that they were very shy about sharing their stadium support on the run up to the last local election and did not mention it. One wonders if they will be shy on the run up to next years local election? since all seven are likely to want to be re elected again next year. If they are not going to remind readers/voters who will? The media likewise seems to be suffering from amnesia when it comes to reminding readers who is responsible for the stadium build and resulting unsustainable debt.

Just say YES!

Should we build a new stadium? YES!

Should we buy an existing stadium? YES!

Should we build a new musuem? YES!

Should we build a new shopping mall? YES!

Should we buy some property in Queenstown and Wanaka? YES!

Should we forgive lots of debt? YES!

Should we buy a farm on the peninsula? YES!

Is the council financially prudent? YES! Stop asking stupid questions!  

It's called business reality

For those old fogeys now rubbing their hands together, and saying "We told you so" - having a loss in the first 2 or 3 years, maybe longer, of a major business enterprise is fairly standard.

I am not a rugby fan at all, nor do I think this stadium should have been built when the same money could have been used to cover in, and fix up Carisbrook.

However - the stadium is possibly the one thing that is keeping Dunedin in the spotlight in New Zealand. Only the other week was I talking to someone who you could say is an expert in promotions, marketing, tourism, etc - in her words (and no, she doesn't live in Dunedin):

"There are two things that Dunedin has that will take it forward into the future.  1) The stadium, everyone in NZ wants to experience it, it is the one major drawcard the entire South Island now has for major sports events or concerts.  2) The new hotel that is proposed - it would help develop the whole city around the waterfront, and be the biggest asset, outside the stadium, Dunedin has."

So what do you lot want to do?  Can the stadium, and stop the hotel. Go figure. 

Arts vs rugby

Well we all know your thoughts on the stadium, but interestingly you all stay quiet on the salary/pay outs of Mr Shimrath Paul ... another council controlled organisation with exhorbitantly overpaid staff like many within the DCC. Or is that fact that this ridiculous council spend is 'arts' based as opposed to 'rugby' based that you don't mind enough to make comment?

Calculations

I'm more than a little confused as to just how the numbers stack up, the stadium lost $3.2 million, which was apparently the result of 4 million in rent. So therefore one would expect that if they did not have to pay rent one would expect a profit of $800,000 to be made. "However, the results showed DVML would have made a loss of $302,000 even if it did not have to pay rent to DVL", Can some one please point out where the magic 1.1 million vanished to?

The council wanted the stadium, the council should fund the stadium and see it as a loss leader to get people into Dunedin. But first we need some real events...

Which councillors voted for the stadium?

It is very hard to find out who voted for the stadium. It seems that an almost uncanny effort has been made to wipe this information from public memory. Could someone out there enlighten us.

The true stadium cost

I would really like to know exactly what is meant by the statement that the loss of DVL & DVML should not be added together as they "overlap". It can't possibly mean that it would be counting the same cost twice. Maybe it's just spin code for "it will disclose the true stadium charge on ratepayers for the year, and we don't want that".

Do all councillors really understand what is going on or are they just too busy worrying about the cost of opening or closing JW Drive, again. If they don't understand then they should take advice from a reputable accountant who will understand, for example, that a loss can't simply be magiced away by saying that its non-cash or that it wouldn't be so bad if rent wasn't paid. Ratepayers deserve some honesty and, for that matter, accountability.

Wow- that was lucky

Oh dear, I suppose that that means we will have to shut this unadaptable not-terribly-good rugby stadium with its massive overheads, mouldy turf, leaky roof, and dangerously pinched exit facilities... but that will mean the poor ol' pro rugger boys will have nowhere to go... tragedy ....

Oh, but wait a minute. Apparently we ratepayers have been keeping another rugger stadium unused but in perfect nick for over eighteen months on the other side of town....

Wow! that was lucky!......

Or was it planned like that all along? 

 

What we all need to do

I'm not sure whether many of us should be saying "we told you so" even more than we were at the time of the decision to build this wretched new rugby stadium, but it certainly seems from your story that those that are in positions to make decisions are still clutching at straws to justify their transparently woeful past decisions.  Mr Hutchison wants more ratepayer money to "incentivise" promoters to use the stadium, while our City's Chief Financial Officer, Mr Athol Stephens, is clearly intent on producing more and more smoke and mirrors to cover up the fact that we are the most indebted City in New Zealand.  This is neither prudent or conservative stewardship of our City - something that is actually required under the Local Government Act.  But the biggest responsibility must fall on the cabal of those Councillors who chose, against overwhelming public response and all reliable external advice and research, to plunge us into debt of a unprecedented scale.  We must all remember their names when we get to vote for the next Council.

The mayor's lemon

I have to sympathise with Dave Cull in some way, remember he voted against the stadium. Unfortunately he and probably successive mayors for some time to come will bear the brunt of public anger over what was always going to be a lemon.

I think the mayor or the next one whoever that should be needs to call for a royal commission into how the city and its elected officials were conned into building this white elephant. If it was a finance company those selling the idea would be in front of the SFO and facing charges of presenting a false prospectus.

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