Convention Centre your way to being on the map

By Eric Crampton 19/01/2015


Matt Nippert has a nice round-up on the SkyCity convention centre. He there quotes me accurately; I’ve pasted below the email summary I’d sent him after a phone chat.

“The deal we were sold when the SkyCity Convention deal was proposed, or at least as I understood it, was that SkyCity would provide a Convention Centre in exchange for some casino concessions. It makes sense to run a convention centre in conjunction with or near a casino as there seem to be complementarities – conventioneers often like taking advantage of casino amenities. The deal was not costless to the government because it could have sold off those casino concessions at auction instead and taken the cash – this was the opportunity cost of the arrangement. But one important cost was, I had thought, taken off the government’s hands: the risk of construction cost overruns, and the risk of ongoing operating losses if the centre turned into a white elephant.” “Under the deal as I understood it, we probably had the least bad way of getting a new convention centre. I’m not convinced that one was needed, but if the alternative were that the government were going to build and run a convention centre anyway, the SkyCity deal beat that – and especially because the government was not going to be on the hook for cost over-runs. If government is going to be on the hook for costs, the case for the deal is much weaker. It’s possible that it’s still the least bad way of getting a new convention centre, but we likely need a rather more thorough business case if the government takes on any of the risk of ongoing operational losses. A one-off contribution towards construction costs is at least limited. But if risk winds up falling on government if fewer conventions book in at the new centre than are expected, we do need a pretty robust look at how many more conventions would really come to New Zealand.”

When this all started, the business case for the convention centre really didn’t matter. SkyCity was taking on all the upside and downside risk, so if they were overly optimistic about how many net new conventions would come to town as consequence of the new convention centre, government didn’t need to care as SkyCity would take the losses. If the deal now is that the government will cover losses, then somebody needs to be taking a hard look at the business case and weigh it up thoroughly, accounting also for any diversion in custom from existing convention centres.

Government’s already shelling out close to $300 million for a convention centre in Christchurch. Queenstown’s getting one or two. Wellington too. I wonder how we’d rank on an international league table of “convention centre spaces per capita”.

Nippert writes:

Sue Sullivan, head of industry body Conventions and Incentives New Zealand, which has been lobbying for an international convention centre for more than a decade, was unwilling to argue the project was now value for taxpayer money.

She said a convention centre had considerable spin-offs, pointing to studies which showed international convention centre visitors were big local spenders. “We see it as an opportunity for new business, significant business. It puts New Zealand on the map,” she said.

Yes, on the map.