Stadium margins tight

David Davies
David Davies
Dunedin's Forsyth Barr Stadium is set to begin operations with tight profit margins, and no guarantee financial predictions promising profits will prove accurate.

Both Dunedin Venues Management Ltd (DVML), the company set up to run the stadium, and the Dunedin City Council, agree profitability would be unknown until it had been tried and tested.

But council acting chief executive Athol Stephens said he had studied the budgets "line by line" and believed they were "reasonably conservative".

Yesterday, the council agreed to the company's statement of intent, subject to an annual review.

DVML chief executive David Davies said of the issue: "The very least the ratepayers deserve is absolute honesty."

"We don't have possession, or a full understanding, of the building yet.

"Until we use it, and understand the costs around using it, it [profit] is always going to be uncertain."

The company's latest budget projections have been released as part of DVML's and stadium owner Dunedin Venues Ltd's (DVL) statements of intent.

They show profits for DVML for the first three years ranging from $91,660 next year to just $30,567 in 2013.

Mr Davies gave similar warnings last year, when draft statements were first seen by the council.

A report to the council from Mr Stephens said "uncertainties" remained about the companies' budgets.

Assumptions had been made about the venue's events programme, and the budget had been "rebuilt from the ground up" based on private-sector product sales.

"It is very common for a new business in its first year of operations to exceed its cost estimates," Mr Stephens' report said.

"By year two, they are expected to, and usually have, settled down.

"This adds to the uncertainty of budgets for 2011-12."

Mr Stephens said governance and management at the stadium would need to give "particular emphasis" to cost control, so cash flow could be maintained at a level anticipated for the company to contribute to debt servicing.

Quarterly reports to the council, and monthly reports to Mr Stephens, were stipulated.

At the council meeting, concerns were raised about aspects of the statement, and a rule regarding reporting of DVML spending of more than $1 million was tightened.

The statement was approved by a voice vote , with no councillor voting against.

The rental paid by DVML to DVL would go towards paying stadium debt, and the level of the rental was based on what DVML could afford, Mr Stephens said.

The budgets were tight, and it was "hard to say, really, with any confidence at this stage", whether the profits could be met.

"Something councillors need to fully understand is we are going into something we've never done before."

Mr Davies said the market looked buoyant at the moment, but it was difficult to say what effect Christchurch earthquakes would have on events in Dunedin.

Either more could come to Dunedin, as they could not go the Christchurch, or business could stay away from the South Island, as it was seen generally as unstable.

- david.loughrey@odt.co.nz

 

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