Calvin's Analysis of Stadium Finances

Calvin Oaten has written a letter to the ODT, analysing Stadium finances. It will be very interesting to see the Council's response to Stadium submissions, when it comes out.
There is a thread on this topic on the ODT site.

Dunedin City Council CEO Jim Harland is working very hard on a standard but "very detailed response" to stadium submissions, including the history of the project, that councillors would be able to debate before sending it to all submitters in an attempt to "de-confuse them". That should be an interesting exercise, which I hope the recipients appreciate. After all, we have spent over $20 million endeavouring to get the council to
understand it and, by all accounts, it is not even certain that they do yet.
It really is quite simple. The plan is to build a stadium at a cost of some $200 million. The DCC is to contribute $85 million, the Otago Regional Council $37.5 million, the Otago Community Trust $7 million, the University of Otago $10 million and the private sector $45.5 million. The Government contributes $15 million, making a total of $200 million. The DCC is to put up an additional $6.4 million, set aside as a capital maintenance fund. The $91.4 million DCC portion is to be paid off by the council-owned company DCHL at the rate of $5 million per annum over 20 years. This means that DCHL’s dividend to the DCC over that period will be reduced by $5 million per annum. This will be made up by the ratepayers at an average cost of $66 per annum on their rates. This leaves a conundrum or two to be considered.
The $100 million of DCHL’s debt at 7% interest over 20 years will cost $70 million, or $3.5 million per annum. Then there is the fact that the private funding has not eventuated in time for the construction period. In fact, there will only be $2.9 million available with the balance of $42.6 million required to be bridged by the DCC. The balance is is now projected to come in progressively through to 2021. Assuming it is equally spread through to 2021, this could mean an interest charge of $1.5 million per annum for 10 years. So, we have an additional $5 million per annum to be found.
Mr Harland will tell us that this will be paid by the venues management company (DCVL) out of its operational revenue. That’s right — a profit of not less than $5 million a year, over and above all expenditure, maintenance and depreciation etc. Of course, with 10-12 rugby matches a year that should be a breeze. But if this does not eventuate then guess who pays?
If the $5 million dividend loss is to cost us $66, then it is reasonable to assume that the $5 million interest costs would also cost us $66 if DCVL does not achieve its projected returns. This means an average total of $132 per ratepayer. Oh yes, I almost forgot - we will all also be paying the ORC for its
contribution, which could easily be an average of $45 per ratepayer. Total now $177.
Then, of course, we should take into account the lost opportunity of the dividend. By this I mean if the stadium was not happening, we would save $66
and get the dividend. This means we in effect pay twice. So, in real terms, the deal could cost the average ratepayer $243 per annum. I will bet dollars to
doughnuts that Mr Harland’s explanation will not tell us that. After all, when he and his counsel were asked by Justice Chisholm to explain how the $66 per ratepayer was arrived at, they admitted that they could not.
Whom to believe? It is your choice.

Calvin Oaten
Pine Hill