ODT: “Stadium site: 2 accidents, 11 ‘near misses'”

### ODT Online Tue, 16 Mar 2010
Caution urged for stadium tours
By Chris Morris
A more cautious approach to visitors may be needed at Dunedin’s Forsyth Barr Stadium, contractors are warning, following two accidents and 11 “near misses” at the construction site. A breakdown of health and safety incidents at the site showed there had been 27 incidents in the 228,000 man-hours since construction of the roofed stadium began last year, a report by project manager Arrow International said.

The report suggested “prudence” when considering future requests for site visits, following a “marked increase” in the number of tours.

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Post by Elizabeth Kerr

26 Comments

Filed under Construction, Project management, Site, Stadiums

26 responses to “ODT: “Stadium site: 2 accidents, 11 ‘near misses'”

  1. Phil

    I especially enjoyed the success footnote to that article, with regard to the current level of fundraising. Does that $30 million not include the $15 million dollar grant given by central government last year? That money was placed directly into the private funding envelope. So, either the total amount sitting in that envelope today is $45 million, or, the actual amount raised by private funding is only $15 million. Either way, the answer is not $30 million. I’m just getting confused now.

  2. Russell Garbutt

    Phil, what you must understand is that confusion is an integral and important component of the whole business.

    The amount of private funding for construction of the new rugby stadium is nothing like either $45m or $30m or indeed $15m, but is more like $30 which is the amount of money donated from the private sector for construction without the expectation of either a corporate box or membership or whatever – in other words without the expectation of something in return.

    All this nonsense about private sector support is simply that – nonsense.

  3. Phil

    Yes, the forward selling of seats has always amused me. The income from the selling of the seats is credited to the construction funding for the stadium, whereas the expenditure from loss of income from those seats (in the form of ticket rebates) is funded by the operational side of the stadium.

    It’s a double hit for the operational side who have to pay for the services needed by that prepaid seat, while receiving zero income for that seat.

    It might be a common practice, but it can’t ever be called funding.

  4. James

    @Phil: This argument is often trotted out, and seems to be the process by which they built the new stands in Christchurch. And yet not only are the capital costs of the stands funded by the sales, but yet there seem to still be seats for sale in them?

  5. Phil

    Not quite sure what you’re saying there, James. I agree that it’s common practice with most new stadiums. Certainly with Wellington, and, as you mentioned, Christchurch. No argument there.

    But I do question as to whether it’s real money.

    Let’s say you build a grandstand with 10,000 seats. Like we’re doing now. And you pre-sell all of those seats for 5 years, at $100 a seat. You now have $5 million in your pocket. You take that $5 million, and use it to fund, maybe 25% of the cost for building that stand. You still have to borrow the other 75% of the construction cost, but it’s better than 100%. Well done, go you.

    You give the flash new stand to a company to operate the facility. Come game day, 10,000 people roll on in. They expect to have someone taking their ticket at the gate, they want to go to the toilet, they want to be nice and warm in their freshly cleaned seat, they want the sweaty armpit odours sucked out of the stadium, they want to hear all the raunchy music over the loud speakers, and they want the pitch to be lit up like a summer day. And for all those significant cost incurring luxuries, they give venue operators……. nothing.

    But the operator is going to get his income from hiring out the venue to the football team, right? So he’s sweet. Not quite. The NZRFU agree to pay a percentage of the gate takings, as a venue hire fee. That’s their rules. Take it or leave it if you want rugby played in your town. Typically around 15%, a bit higher for a test match. So the income received by the venue hire, over the 5-year life of those 10,000 pre-purchased tickets is around $750,000. Or $75 a seat.

    So, for $75, the venue operator has to provide full facility services for one person, for 5 years.

    And that’s why I don’t like it. Common practice or not.

  6. Phil: I would dearly love to see you put that scenario to Malcolm Farry and ask for his comment. It won’t happen in this forum, but you could put it to the ODT letters. If the ODT chose to forward it to MF for comment you would get a reply, of sorts.

  7. David

    Then of course there’s the council con.

    The council said they would only fund the stadium if enough private funding came in.

    The funding target did not eventuate. So they counted people signed up for a 5-year membership twice, to make them a ten-year membership.

    The council agreed to this fraudulent practice and gave the go ahead.

  8. James

    Let’s say you build a grandstand with 10,000 seats. Like we’re doing now. And you pre-sell all of those seats for 5 years, at $100 a seat. You now have $5 million in your pocket. You take that $5 million, and use it to fund, maybe 25% of the cost for building that stand. You still have to borrow the other 75% of the construction cost, but it’s better than 100%.

    Except that is not (or at least it shouldn’t be) how it works. Playing on the Paul Kelly Motor Company Stand in Christchurch. Seats 15,000, cost approx $40 million. Debt funded, so over a 20-year term costs $80 million, so requires $4 million a year to pay off. Require punters to pay a year in advance, so at completion of the stand (costing $40m) you’ve already received $4m, so end up with a loan for only $36m, so total cost to repay over 20 years is $72m, and the annual cost drops to about $3.8m. Sell naming rights to stand for $1m. Sell right to sell liquor to Canterbury Draught (with signage at bars) for $800k pa (with 10% of profits as income, not to loan servicing). Sell food concessions for $500k (also w/ 10% profit). Sell 20 corporate boxes at $50k per year (cost slightly more to build as normal seats, but sell at higher prices). Sell 1000 memberships to a supporters club at $250 pa (which entitles access for autograph signing, meet the players or whatever), and then maybe sell 1000 premium seats (better bar access or something) for $250 pa.

    OK, so I’m not sure on the exact realism of those numbers, but the point is that you can actually pay off a stand over 20 years, and still have the better part of 10,000 seats to sell for each match, plus a share of the concessions revenue. (Plus, if you sell these things on a 5- or 10-year term, then the next time they’re sold, they’ll be at inflation adjusted prices, but the construction cost was still at the old price). My point is, that it is actually possibly to fund a stand or a stadium in this fashion, and not leave zero operating revenue from year to year. If we’re lucky, the private sector ‘funding’ in Dunedin will follow a similar formula, except paying a far smaller proportion of the construction cost.

  9. Phil

    Fair call, James. I don’t know how it works in Christchurch, but my major problem is that the revenue gathering and expense generating arms are, in Dunedin’s case, 2 separate entities. With no connection between the two. The construction organisation reaps the benefits from the revenue, while the management organisation is required to fund the expense generated by that revenue.

    Even if the construction company paid its construction debt off in 12 months, that has no positive effect on the expense, and reduced revenue, carried by the management company.

    Let’s say that you and your neighbour share a driveway in common. And you both want a new driveway. The DCC roading department agrees to build the new driveway. You agree to maintain that new driveway for the next 10 years. And the other neighbour agrees to pay for the maintenance of the driveway for 10 years. However, instead of paying you for the maintenance of the driveway, your neighbour gives the total cost of the driveway maintenance over the next 10 years, directly to the DCC roading department who are building the driveway.

    The DCC roading department, who are funding the cost for building the driveway, now has more money. They don’t need to borrow as much money for the project, and become debt free sooner. Their part in the process is now finished.

    You now have the role of maintaining the driveway for both you and your neighbour, for the next 10 years. While receiving no financial assistance from your neighbour. But your neighbour has the right to use that driveway, and to have it maintained to an expected standard. At your expense. Forget about help from the DCC roading department, they are long gone.

    Exactly how did the pre-selling of the driveway use to the DCC roading department, and their subsequent reduced debt help you? It will never help you. The two transactions are completely independent of each other.

    And that’s how I see the stadium structure. One party benefits considerably more than the other party. In fact, from an operational side, the more seats that are “pre-sold”, the worse it becomes for them. It becomes less self funding, and more reliant on parent company (DCC) funding.

  10. Phil

    I almost left out the last piece of the puzzle. As well as paying for the maintenance of your new driveway for both you and your neighbour, you are also both required to pay a rental fee to DCC roading department, for the continued use of the driveway. Which DCC roading department will use to pay back the money they borrowed to build the driveway in the first place.

    However, as your neighbour has already paid in advance for 10 years use of the driveway, he doesn’t need to pay his share of the rental cost. He’s already done that, just not to you. Leaving you to pay both your cost and his cost. And the only contribution to you for the next 10 years from your neighbour is his car driving happily up and down the new driveway every day.

    Again, there is no benefit to you as the operator if the end user sells their use rights to a third party. And the more neighbours that join the scheme, the greater your debt becomes.

  11. James

    Your analogy seems broken. Unless DCC roading and I share income, submit a shared tax return, and are ultimately owned by the DCC.

    If the management company makes a greater surplus, then presumably the DCC would put the money to use servicing the construction debt. If there is a smaller surplus and construction debt is smaller, then the net outcome to us as ratepayers is the same.

  12. Phil

    I agree with you there. If the management company can generate a nett profit which is greater than the debt being serviced by the construction company, then we’ll all make a shitload of money.

    One can but hope.

    • Elizabeth

      Except that if the management company made a killing, we would’ve been the ones who paid for its, um, “success” anyway – so silly us, we parted out on events and frills and more AS WELL AS a crook idea to support a rugby field with a roof. Hooray.

      Wait-a-minute, we had no money to begin with.
      How many times can we be robbed.

      I hear the GRAND GALA venue opening is to feature the newly commissioned opera: Death of a [Ticket] Salesman.

  13. James

    If the management company can generate a nett profit which is greater than the debt being serviced by the construction company
    There is no chance that will happen, and that’s not at all what I was trying to say. I was merely saying that where the revenue and expenditure is located within the two companies is irrelevant because the DCC owns both, so the net effect is the same.

  14. Phil

    Aha… now you’re catching on, James. Common sense would say that you are exactly right. At the end of the day, it’s the same purse. We’ve all been screaming that for a year or more now.

    As the new stadium involves both construction and operation, the value of the investment should quite properly be viewed as the sum of the parts.

    The question then to be asked is, why have those 2 entities been split into completely separate companies, with completely separate reporting procedures, in the first place?

    Shouting with glee that one arm is budgeting for a profit, while mumbling something about the other arm budgeting for a reduced dividend return has long been a source of disdain for many of us. The way it sits today, the bottom line figure, that you’re looking for, is going to be virtually impossible to determine.

  15. James

    I’m not catching on to anything. All your confused driveway analogy shows is that you have yet to grasp the idea that it is possilbe to sell X number of seats to build X+Y seats, where the revenue from Y is enough to fund the running costs of X+Y, as the Christchurch redevelopment appears to show.

    The way it sits today, the bottom line figure, that you’re looking for, is going to be virtually impossible to determine.
    Actually, I think I worked it out the other day. It appears to be zero. Whether the stadium as a financial enterprise stands or falls depends on the extent to which the cost and revenue projections end up reflecting reality. If the projections are wrong, it could be a terrible disaster, or if they’re approximately accurate then they’re not.

    • Elizabeth

      DVML already knows, by a staff member’s admission when ‘CST’, that only one in five stadiums run at a profit – the person wasn’t confident this one could.

      Also, David Davies has already sensibly mentioned in the media the uncertainty of the global market. Inasmuch as he’ll most likely slog like hell to try and minimise the damage.

  16. Phil

    So are we saying here that the revenue gathered by the venue operator by “casual hire” spectators will be sufficient to pay for the operation and maintenance of the stadium for both casual and contracted spectators? That’s a pretty big call to make. Especially if you are the operator, carrying 100% of the risk. And given the low revenue contract forced onto the venue operator by the NZRFU as the principal user of the facility. We’ll probably have to agree to disagree on that point.

    Nowhere is it mentioned that any operating surplus will be given by DVML to DCHL to repay any capital debt. They are not the same company, despite having shareholders in common. DVML has a number of properties within its portfolio which they will have to take care of before they think about handing any nett profit over to their shareholders.

    I believe that Council’s own commissioned consultant noted that the operation of the stadium would be unable to contribute towards the mitigation of any capital debt. But let’s hope that they are wrong.

    Towering over the whole issue here, is a lack of clear reporting. And it would be niave to suggest that this has been unintentional. To the average person on the street, they believe that the public funding gathered is to be used to build the stadium, lessening the burden on the ratepayer. An excellent idea. However, as the operation of the stadium has been deliberately distanced from the construction, the majority of people have not realised that this tactic will result in a corresponding reduced income for the stadium operations. As you correctly pointed out.

    Most people believe that if 20,000 people turn up to the stadium, then the stadium will be taking money from them every time. They do not realise that half of the money has already gone somewhere else. And yet the fixed operating costs for the stadium remain unchanged.

    I agree entirely with you that the bottom line expenditure (construction, operation, and maintenance) versus income is the only figure that counts. But how will anyone know? The waters have been deliberately muddied by the formation of these two entities. For example, DCHL, as the building owner, can reduce the rent paid by DVML (their tenant), well below the level required for capital repayment, simply so that the DVML can report a profit to their shareholders. DCHL will, in turn, absorb that loss, and report a reduced dividend to their shareholders. The total amount of money available for the Dunedin City Council to use, is unchanged. As you said. But no-one will be quite sure as to why. The level of reporting has been deliberately and unnecessarily complicated. It’s a very short list of reasons as to why someone would choose to do that. DCHL did not have to become property owners. Any tax or otherwise, benefits that are available to DCHL would have been equally available to DVML.

    All we hear reported is that the stadium will cost less money because of the so called private funding. As though it is some kind of victory. It will cost less to build, yes. But not to operate. The cost doesn’t simply stop once Malcom cuts the ribbon to his lifetime golden handshake corporate box. It would be nice if once, just once, one of the shareholders would front up to the stakeholders and line the two sytems (construction and operation) up side by side. If it’s a workable model, why do celebrate it. It looks like, from what you say, both Chrstchurch and Wellington are prepared to do that.

    • Elizabeth

      Phil says:

      For example, DCHL, as the building owner, can reduce the rent paid by DVML (their tenant), well below the level required for capital repayment, simply so that the DVML can report a profit to their shareholders. DCHL will, in turn, absorb that loss, and report a reduced dividend to their shareholders. The total amount of money available for the Dunedin City Council to use, is unchanged. As you said. But no-one will be quite sure as to why. The level of reporting has been deliberately and unnecessarily complicated. It’s a very short list of reasons as to why someone would choose to do that. DCHL did not have to become property owners. Any tax or otherwise, benefits that are available to DCHL would have been equally available to DVML.

      ****

      Just to note, DCVL – Dunedin City Venues Ltd – will be the stadium property owner, and the owner of other council venues such as Dunedin Centre and Edgar Centre. Not DCHL, Dunedin City Holdings Ltd.

  17. Phil: DCHL is not dependent on profit from the stadium to pay down the debt. It is using $5 million per year which would otherwise be paid to the DCC as dividend. That shortfall to the DCC is made up by the ratepayer stadium levy averaging the ‘mystical’ $66. Technically, Dunedin [City] Venues Ltd will own the stadium. It will be indebted to DCHL but not required to pay it. The $5m per year will come from combined group revenues. Dunedin Venues Management Ltd will collect all operating revenue and pay all operating costs (hopefully) including the interest attached to the debt. But as both you and James say, if the operating revenue misses targets then we are all in deep ‘schtuck’

  18. Phil

    Are you sure about that, Elizabeth? It’s much better if that were to be the case. But my understanding is that the asset, being the building, is to be tranferred to DCHL. With DCVL being the tenant.

  19. James

    So are we saying here that the revenue gathered by the venue operator by “casual hire” spectators will be sufficient to pay for the operation and maintenance of the stadium for both casual and contracted spectators?

    In theory yes. That would be what the $3 million projected operating surplus shows. “Casual hire” spectators should cover every day operational costs and some. DVML then subvent the surplus to the machine. It does seem suprisingly convenient that the surplus is $3m. Because if the ratepayers contribute $5m (via the $66), tax savings give us another $2m, then that $3m gets us up to the $10m per annum required to pay off the loan.

  20. Phil

    No, I’ll take you at your word, Elizabeth. You haven’t let me down before. Not that the title ownership really matters I guess. It’s the dividing wall placed between the debt and revenue that annoys me.

    • Elizabeth

      That’s an annoyance shared Phil.
      PS I do make grave erroneous assumptions regularly – without a trace of guilt or shame.

  21. Elizabeth; you are entitled, as indeed are the rest of us to be confused. I see on the other thread that even Richard seems uncertain as to the true position. As someone famous once said, “Oh what tangled webs we weave, when once we practice to deceive.”

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