An investigation by the Office of the Auditor-General found the casino's promise to cover the $350 million cost of building the convention centre gave it a clear advantage over any other interested party.
It means the casino and executives can get back to negotiating over the casino's list of changes to the Gambling Act which it wants to trade for building the centre next to its Auckland headquarters. The casino has said it wants 300 more pokies, extra table games and an early extension to its exclusive licence.
While the report revealed SkyCity was treated "very differently" to other bidders, Prime Minister John Key said it "utterly refuted" allegations his Government had struck a "cosy deal" with SkyCity.
He blamed officials for "a few procedural matters" but said there was "nothing of substance that would have changed any of the outcomes".
The process problems identified by Deputy Auditor-General Phillippa Smith emerged in the report from the time the Prime Minister - also Tourism Minister - became personally involved. In August 2009, Mr Key told officials to halt a scoping project on a convention centre proposal to "close off the SkyCity angle". He later explained he had a "broad awareness" SkyCity had development plans.
Mr Key's understanding of the casino's desire for development followed a meeting between himself and SkyCity executives although neither Mr Key or the casino "can recall the discussion" on May 14, 2009. There was also a later meeting between the casino and the Prime Minister's chief of staff Wayne Eagleson on June 17, 2009, at which development was discussed.
After the PM halted the scoping project, SkyCity met the PM's senior advisers in September 2009 who said they wanted changes to the Gambling Act which had previously stymied the casino's expansion plans by limiting the number of pokies and other games allowed.
Then Mr Key was briefed on options for the convention centre at a dinner with SkyCity board members and executives on November 4, 2009. He urged them to "think outside the box".
As the casino and Beehive moved closer together, Treasury began raising concerns about "process and probity".
Ms Smith said: "We have concerns about the apparent readiness of officials to support those discussions developing into more substantive negotiations without preparing to give advice on the Government's procedural obligations and options."
Warnings about process were conveyed to Mr Key in a briefing note on November 12, 2009.
In 2010, the Government began calling for an expression of interest from groups wanting the contract. At a meeting with officials, Mr Key said the SkyCity deal was "a good proposal".
However Ms Smith said the process "fell short of good practice in a number of respects". That included the fact ministers and officials continued to have contact with SkyCity to discuss its proposal.
Ms Smith said these meetings were "not appropriate" as it provided SkyCity with information other bidders did not receive. She also said the casino had the advantage in knowing the Government didn't plan on putting any money into the project, allowing it to shape its offer.
In September 2010, the casino put forward a list of changes to the law it wanted. It also said it wanted the Government to buy land from TVNZ to accommodate a large design for the centre.
SkyCity was announced as the preferred bidder in June 2011 with Mr Key promising changes to the Gambling Act would only come after a public submissions.
Greens co-leader Metiria Turei, who sparked the inquiry with a complaint, said the report was "hugely damning" and showed "the relationship with SkyCity was so cosy that the other proposers didn't stand a chance".
Labour leader David Shearer said: "This has had John Key's fingerprints all over it and it was a shonky deal and John Key is donkey-deep in it."
- David Fisher and Adam Bennett of the New Zealand Herald
