Will the stadium pay its own way?
Gareth Parker,
State Political Editor,
January 14, 2016, 10:37 am
If you build it, they will come. It worked for Kevin Costner in the classic baseball movie Field of Dreams, when Costner, playing Iowa farmer Ray Kinsella, heeds ghostly urgings to build a diamond in his cornfield.
And so they do, first the ghosts of the 1919 Chicago White Sox, banned for throwing the World Series at the behest of gamblers, then Ray’s father, then the people, fulfilling the prophecy.
As it turns out, this is also Colin Barnett’s strategy for the new $1.4 billion stadium rising rapidly from the former Burswood golf course.
Everyone has their view on whether the decision to build the thing is the right priority or not, but what remains clear is that the financial rationale for the building is highly uncertain.
The numbers story on the stadium is not an easy one to tell and the Government is just fine with this. Getting to the true picture of the stadium’s capital cost is an exercise that only recently yielded results, thanks to some dogged work by the Opposition in last year’s Budget estimates hearings.
It’s not as simple as doing the drawings, going to tender and getting the thing built for a price, because the Government settled on a delivery model that called on the successful proponent to design, part-finance, build and maintain the stadium for 25 years. We can say with a fairly strong degree of confidence now that the capital cost of the stadium, its surrounding plaza and precinct, and necessary public transport upgrades, including a new train station and pedestrian footbridge over the Swan River, is $1.379 billion.
But that is by no means the end of the story. Building the stadium is one thing. Running it is quite another. Running it profitably another thing again. As part of the delivery model, the Government will, on completion of the stadium, begin paying the Brookfield-led Westadium consortium a monthly sum of money for the next 25 years. What is the sum? The Government continually refuses to say, despite repeated attempts by the media and the Opposition to make the figure public for the past 18 months.
In an estimates hearing last year, Treasury’s major projects and asset sales boss Richard Mann, a diehard Swan Districts supporter, was grilled about why this liability wasn’t made explicit in the Budget papers. He explained that the Government had assumed that continuing operating costs, including the monthly payments to Westadium, would be met from stadium revenues. But that was never really much of an explanation as to why the liability was not recorded.
It was interesting to observe, then, that Treasury acknowledged this issue in the mid-year review released in the run-up to Christmas. Included in the list of spending risks to the Budget was a note on the stadium. While it repeated Mann’s working assumption about costs being covered from revenues, the note admitted that this was no sure thing — and that the final landing spot depends mostly on where the Government ends up in critical negotiations with the stadium’s no.1 user, football. We will return to this shortly.
While facilities management costs (the still-secret monthly payments to Westadium) are “confirmed”, according to the note, “other operation costs for the Perth Stadium are dependent on the final terms and conditions of the Stadium Operator Contract and User Agreements with the relevant key sports entities”, Treasury said.
The battle for the operator contract is being duked out between Perth Stadium Management, a vehicle of the WA Football Commission in partnership with Live Nation, Ticketmaster and Delaware North; AEG Ogden, which manages Perth Arena among its global portfolio of venues; Nationwide Venue Management, a division of Spotless which runs the Perth Convention and Exhibition Centre; and Stadium Australia Operations, operator of Sydney’s ANZ Stadium.
The companies have been sworn to the strictest confidentiality arrangements and the Government is saying nothing about the financial structure of the deal. But it’s another mouth to feed.
And then there are the User Agreements — the most important of which is the one with the Fremantle Dockers and West Coast Eagles, who will provide the bulk of the stadium’s “content” (which is to say its fans are the ones who will buy the tickets, food, drink, merchandise and whatever other revenue opportunities can be squeezed out of the new palace).
It is another negotiation about which little specific is being said; suffice to say that the clubs are being asked to pay much more for access to the new stadium than they are now paying to play at Domain Stadium. The extent of that gap is why no deals have yet been signed, because no matter how shiny the new stadium is, no responsible administrators would sign their club up to a worse financial deal.
“The finalisation of the terms and conditions of the Stadium Operator Contract and User Agreements is critical to validation of the assumptions in the Perth Stadium financial model, in respect of both revenue and costs,” Treasury says.
“Significantly, Perth Stadium revenue (and to an extent, operating costs) is ultimately dependent on the number and type of events hosted by the Stadium, attendance at those events, and pricing across the wide range of Stadium revenue streams.
“There is a risk that the actual revenue and cost parameters outlined above will give rise to a financial outcome that is less favourable than the modelled outcome, potentially requiring additional funding for ongoing Stadium operations.”
And this is where Barnett’s Field of Dreams strategy has the potential to expose taxpayers. Football, at the moment, has a sweetheart deal at Subiaco which entitles it to the lion’s share of revenues which accrue to the benefit of the Dockers and Eagles, who are among the AFL’s strongest clubs financially, and to the WAFC, which funds the business of grassroots football.
And now, there is a situation of great uncertainty; where a $1.4 billion stadium is being built without a clear idea of the business rationale for doing so. The Westadium consortium will get paid, and the operator might. If the operator is not football, can the WAFC fund community football? If it cannot, you can guarantee the game will be coming back to the taxpayer for more support.
And if West Coast and Fremantle are less profitable at the new stadium, because new revenues are not enough to outweigh new expenses, their owner, the WAFC, faces smaller dividends and the same issue.
Maybe this is all going to be fine, but the fact there is not a wink of transparency around the process makes it impossible to judge.
Taxpayers are again asked to take the Barnett Government on trust.
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