Frank Newman: Stadiums and pet projects

The Otago City Council has during this last week faced up to something that has been blindingly obvious to most ratepayers for many years – Council’s fancy $230 million covered stadium will forever be a black hole that eats ratepayer money.

In a report to the Dunedin City Council the Council’s CEO said the operating deficits of the last two years were going to get worse. No international rugby tests are expected to be held at the Forsyth Bar Stadium in the coming year and major events are not returning after previous shows failed to attract worthwhile crowds. Quite simply, there are not enough people in Dunedin to sustain the level of activity the stadium requires to come close to being viable.

Something must change, says the CEO, and all possibilities are being considered – there is now even talk of privatising it! That notion is really quite absurd. One thing is certain, private enterprise is not as stupid with their own money as politicians are with other peoples’ money. There will be no private sector bailout. Other options include bringing management in-house, which is a bureaucrat’s way of having ratepayers subsidise it without being fully transparent.

There will be no easy fix for Dunedin’s ratepayers. Their elected representatives of the day were reckless and ratepayers will be punished for a very long time because they (as a society) elected a reckless bunch of people to make decisions on their behalf. Maybe that’s the way natural justice works. People lose what they have (or have control over) to those better endowed with a sense of reality.

The reality is, Dunedin is now a city handicapped with debt. A significant part of that debt is the original $91m they committed to the stadium, plus the additional $57m they coughed up to pay for the cost overruns. The city’s finances are in poor state, they just don’t want to admit that yet.

Although Dunedin happens to be at the other end of the country, it is nevertheless relevant to all. It reveals a basic truth about elected bodies – they are hugely over-optimistic when it comes to projecting the viability of their pet projects. We have seen it here in Whangarei with the Regional Events Centre, but fortunately on a smaller scale. Although promises were made that the Centre would make ends meet – last year it lost $140,000. That loss would be much worse had it not been for a minority of sensible councillors of the day who used their influence to downscale what was a grandiose proposal into a more modest and sensible redevelopment which is what you see today.

As for the long-term benefits of stadiums, a study carried out in 2005 by Sam Richardson from Massey University found, “The vast majority of research into the economic impacts of sports stadiums and franchises fail to find any evidence of positive contributions of professional sports teams or stadium construction to employment, wages/salaries and economic growth.”

I would go further and say that stadium, and indeed most civic amenities like museums and cultural centres actually destroy ratepayer wealth over their lifetime. I am not suggesting there should be no development of community services – the point is there should be an honesty in the debate so communities know how much they will have to pay. Furthermore, ratepayers should demand their councillors have more common sense than borrowing to build an asset that will operate at a loss. That just does not make any sense to me.

The lesson in all of this is that the projections councils provide when they moot their pet projects are likely to be far too optimistic.