Friday 21 December 2012

Long-term financing

The Christchurch Press tells us that the Canterbury Crusaders have paid half of their last year's profits to the Christchurch Stadium Trust.

It's great to see a sporting franchise willing to help fund its stadium.

The temporary AMI Stadium at Addington cost $30 million.

The Government has proposed building a much larger and more expensive permanent stadium as part of the Christchurch rebuild; nobody quite knows what that will cost. $400 million is the number currently cited. Here's John McCrone:
Time to sober up? With the proposed new convention centre and covered rugby stadium, the mutterings are that Christchurch has got rather carried away with its central-city rebuild plans.
"Why are we talking about a $300 million convention centre and $400m stadium at a time when we're broke? It's a nonsense," remarks one insider with a prominent role in the city's events industry.
"I can understand that we are trying to seize the opportunity of a blank canvas here," he continues, "but we're a very small city, only 350,000 people - in many ways just a large farming village. So with these kinds of facilities, it's hard to see how we can afford them, how they will be viable."
Another informed source - again speaking off the record, as now is not a time to be sticking your head above the parapet, he says - points out that the Government is only just now hiring someone to write the business case for the convention centre, even though it has already begun compiling a shortlist of the developers and contractors to build and run it.
"That tells you nobody's done a proper feasibility study yet," he says. It is all seat-of-the-pants, back-of-an-envelope thinking so far.
Now the Crusaders put $87,147 towards the Christchurch Stadium Trust this year in addition to the amount they paid in rent. I'm not sure what the Crusaders pay in rent or whether the figure is publicly available. But I'm pretty sure that the government fronted all of the capital costs for the temporary stadium and that the Trust is only covering operating expenses. A larger stadium would generate greater ticket revenues but would also have larger operating expenses.

Let's suppose that the Crusaders could earn a million dollars per year in profit that could be used towards a stadium above rental charges that cover operating expenditures but not depreciation. And suppose that they promised to give somebody that million dollars per year for the next 30 years if that somebody would give them cash today for building a stadium - a bond issue. If they marketed the bonds to Crusaders fans and thereby got away with paying only 5%, they'd get a bit over $15 million for the flow of future profits. We could maybe imagine, since we're only playing very rough ballpark figures anyway, that that plus other events at the stadium could hit a $30 million replacement cost target.*

The proposed stadium is on the order of $400,000,000. You're not going to get anywhere near that on a $1,000,000 stream but you could do it on a $26 million stream, if you could get people to accept a 5% interest rate.

But I am encouraged to see the $87,147 contribution. Perhaps we could have a few bake sales to help.

* I'm using this as a ballpark measure of whether the government's investment could be construed as having made sense. If the Crusaders were saving now to replace the $30m stadium in 30-year's time, and if the real costs of construction didn't change over the period, and if the Crusaders could get a 5% real return on investment, then it would take them about 19 years of putting $1 million aside to earn the $30m. It would take over 60 years to get to $400 million.


  1. What about one All Blacks game per year? 30,000 at $100 per ticket is another $3m on top of the $1m from the Crusaders.

    Sure, it would still only give you $60m to build the new stadium, but it's an improvement. (Not arguing that a flash new stadium will ever be financially viable.)

  2. Sure, add that in. And what, $1m from cricket?

    It'll be interesting to read whatever business case they wind up coming up with.

  3. If you could get 30,000 people (10% of Chch population) to attend 50 times per year (or 100% of the population to attend 5 times per year), and charge them $50 per time, your total revenue would be $75M per year. That'd give you 5 year payback if you had no operating expenses whatsoever, but I think those assumptions are ludicrous.

    More likely you'd get a half full stadium 25 times a year, at $30 per ticket average. Total revenue is therefore $19M per annum. Assume it costs $5M in staff, utilities, consumables etc. So you have $14M per annum. You've got 28 years payback with no time value of money, more like 50 years if you use any sensible discount rate.

    No way this stacks up. What did the cake tin cost in Wgtn, and how many does it seat? Is the problem that $400M is just a bit expensive for a 30,000 seat stadium?

  4. I think you underestimate how much can be raised at bake sales.

    Kidding. Whole project is nonsense.

  5. What is it with NZ politicians and stadia?
    It seems to be a mental condition.