Gladwell's Line: America's Cup Auckland - will history repeat?
by Richard Gladwell 5 Mar 2018 14:15 AEDT
5 March 2018
The Viaduct Harbour was developed from an old lighter basin to the current jewel of Auckland's waterfront © Richard Gladwell
A week ago the submission deadline for Panuku Developments' America's Cup base proposal was extended for reasons that are not exactly clear.
The line from the statement by Auckland Council read: "The extension is to allow for ongoing work on the base options currently under consideration for hosting the America’s Cup and for Council to consider any implications for the consenting process should there be a requirement to do so."
It is understood that there are two parallel consulting exercises under way - one believed to be into evaluating the costs and time-lines of the various options; the other into the detailed examination of the required remediation (if any) of the Wynyard Point sites which are included in two of the later proposals.
The only plan which can proceed on the currently lodged Resource Consent is that submitted by Panuku Developments - which has Bases on Wynyard Wharf only, and not Wynyard Point.
Any variation to the current Resource Consent Application must fit within the same footprint. In other words, any other Proposal can only be based on Wynyard Wharf, Halsey Street Wharf and Hobson Wharf.
On February 14, Emirates Team New Zealand produced their "Hybrid" plan, for bases only on 75metre extensions to Halsey and Hobson Street wharves. The ETNZ "Hybrid" is within in the boundaries of the Panuku Developments scheme and can proceed within the currently lodged Application.
The other two options are another so-called "Hybrid" put forward by the Ministry of Business, Innovation and Employment (MBIE) which has several bases on Wynyard Point, and needs a new Application and as well full accompanying documentation.
The Viaduct Harbour Holdings plan is also a whole new application as it too involves land not included in the Panuku Developments application (in fact very little of the VHHL plan is contained in the Panuku Proposal). So that too requires a new Application and suite of Reports - which are not an overnight exercise to create. Plus it has the kicker of taking away Site 18 from the superyacht rigging and servicing industry which has a major opportunity cost.
Cost estimates real?
Currently, there are a lot of “estimates" being bandied about which need to be verified. It will be interesting to see if these are released ahead of next week's extended closing date of Submissions.
So far we have seen attempts to add in costs which are not real - i.e. $30million value in the water views in the Halsey Street Wharf extension; ignoring the multi-million remediation per site for the use of old storage sites including Stolthaven - on the basis that the cash-strapped Council is already up for that anyway.
Also not included are incentive payments to Stolthaven for early lease termination (believed to be $6million). Not included are similar payments to ASB for early release of their carpark. (Also on an ex-fuel storage/hazardous substances tank site.)
The VHHL proposal also appears to have the same deficiencies as the MBIE Hybrid plan, along with the added intrinsic cost of the loss of Site 18 - as the Superyacht servicing industry will be largely destroyed unless an alternative suitable site can be provided. Also not included is dredging on the western side of Wynyard Point at Site 18 to get the AC75’s to Site 18 - with one estimate being $7million.
The initial approximate estimate for the construction of the Infrastructure cost of the Panuku Developments scheme was put at $150million (excludes berthage for superyachts - not part of the AC Regatta, and also excluding the costs of the relocation of fishing and car ferry).
That estimate is believed to have increased - but given that the ETNZ Hybrid only includes two of the three elements in the Panuku Developments application, then the cost of the ETNZ Hybrid option must also reduce.
Logically the ETNZ Hybrid has to be the cheapest - with ETNZ claiming the cost reduction is $50million less than the current Resource Consent.
Equally or more importantly, the ETNZ Hybrid is a "clean build" - it involves new construction only and drops the difficulties inherent of the rectification of the almost century-old Wynyard Wharf, its fuel pipes and other time-consuming issues.
Time critical:
Time is now even more important than money.
The base construction needs to start in September of this year, for bases to be available in October 2019) so that teams can get to Auckland and set up for a summer training and testing at the Cup venue. Normally that would start in October 2019 run to the end of the Cup Regatta to the end of summer/Match in April 2021.
If the project is delayed through restarting Resource Consent applications (as in MBIE and VHHL proposals above), then the visiting Teams will be forced into running a two-season strategy.
That means they will sail their first AC75’s in the northern hemisphere in 2019-2020 and then relocate to New Zealand in the period June 2020 - October 2020.
This second scenario at least halves the economic benefit to NZ Inc from team spend. In fact probably more so as there is a strong option for boats (other than hulls) to be constructed in New Zealand facilities - either by the teams themselves or using NZ marine and composite construction firms.
There are few if any locations in the world which have better composite engineering facilities and expertise than is concentrated in Auckland.
Repeat Defence:
Many of the Armchair Admirals have queried why a lot of the projections are based on two Defences by Emirates Team NZ in Auckland.
Statistically, the chances of New Zealand defending are very good.
In 160 or so years of America’s Cup history, there has been only one first Defence loss of the America’s Cup (Australian in 1987 because they ran a very fractured Defence series). Only one first time Challenger has won the America’s Cup - Alinghi in 2003 after many of the Team NZ "A" team left to join the fledgeling Swiss team in April-May 2000.
It is reasonable to look at the America’s Cup benefits on a two Match basis in Auckland. If the proper infrastructure expenditure is put in place for the 36th America’s Cup, then the 37th match should require minimal expenditure and with similar economic impact from AC36. (The relevant numbers for 2003 in Auckland were an economic impact of NZ$500million for an outlay of NZ$8million).
Economic benefit not seriously in doubt:
There is a lot of debate over the economic benefit of an America's Cup.
However, the figures that have been published since 2000 all have a similar theme and can be reconciled by factoring in Challenger team numbers and their arrival times in the America’s Cup venue.
OTUSA was in Bermuda for two years, Artemis racing for slightly less, and Softbank Team Japan and Land Rover BAR for around 6-12 months. ETNZ and Groupama Team France arrived just three months before the beginning of the 35th America’s Cup Regatta - reducing their spend in Bermuda.
It is a cheap shot to claim that the economic impact calculations are all fiddled to produce the desired outcome. There are at least four studies covering three venues which come up with reconcilable numbers.
The economic benefits can also be calculated as a percentage of team spend using some accepted percentages.
Budgets for AC36 for the overseas teams look to be USD100-120million.
For a normal AC - i.e. where a team is able to set up two years before the event in the Host venue, the team normally spends approximately 50% of their budget in the Match venue. So of that $120million, USD 60million per team should be spent in Auckland.
A team also spends about 60% of their budget on people/payroll - so that spend can also be estimated from a team budget perspective.
Currently, there is no provision for overseas teams to be exempt from paying tax in NZ (GST/provisional/PAYE).
In New Zealand (and many other similar countries) individuals can claim to be a non-NZ resident for tax purposes only if they are resident outside NZ for more than 183 days in a 365 year period.
The point is that the MBIE Hybrid and VHHL options will involve later completion and occupancy dates for the bases.
Under that scenario, the full Challenger teams will only arrive in NZ after mid-September 2020. That date means they have less than 183 days residency in New Zealand, and for all team member remuneration they will all be NZ tax exempt (provision/PAYE), and will instead pay tax in their usual country of tax residence.
Much of the tax and payback for NZ Inc will be lost.
It is a mistake to believe that just because a base is available in Auckland, that a team will occupy it from the outset.
America's Cup bases are not like office rental.
The reality is that the teams will only take up occupation from the start of the NZ sailing summer season (October - April) and outside this timeframe, they will sail and train in the northern hemisphere - with longer daylight, better temperatures and more consistent/relevant weather.
They will send weather teams to NZ each summer preceding the America's Cup - but that is a very small operation.
No Long Term Plan option:
The reason for the current planning conflict over the America’s Cup bases is because Auckland Council failed to include the possibility of an America’s Cup win by a New Zealand domiciled team in its Long Term Plan (LTP) going out to 2040.
That is despite ETNZ having twice won the America's Cup, and made the Challenger Final on each multi-Challenger Cup in 2007 and 2013, (and again but not including 2017).
The Auckland Council and its development arm, Panuku Developments did have an extension to Halsey Street wharf in a 2012 refresh of the LTP. The uses of Halsey St Wharf extension were initially explained as being for Superyacht and fishing boat use. Instead, the thrust of all Long Term Planning was to develop cafes and pedestrian access around the area which would take in waterfront themes such as a working fishing industry.
The fishing industry has semi-relocated out of Auckland because of fishing restrictions now imposed and set to increase in the Hauraki Gulf. Auckland Council's Governing Body dropped the Halsey Street extension from its consideration of America's Cup planning options on November 23, 2017.
That left the so-called Wynyard Basin and Wynyard Point options alive before deciding in favour of the Wynyard Basin option at its meeting on December 14, 2017.
On the basis of that Decision, Panuku Developments lodged the Resource Consents on January 15, 2018. That met the timeline necessary to achieve construction start by September 2018 and availability for teams by Sept-October 2019.
Lack of understanding of Cup requirements:
The undercurrent in all debate since the Emirates Team NZ America’s Cup win in 2017 has been a very poor understanding of the requirements of an America’s Cup - ETNZ excepted, of course.
Panuku Developments were also off the pace initially, but have taken input and the plans and options put forward on November 23, and December 14, 2017, meetings were very good and well considered.
Unfortunately, many of the Auckland Council Governing Body and MBIE have largely ignored that advice and have proceeded using their own “knowledge” and inputs, or on philosophical grounds as to how they feel about the America’s Cup.
Ultimately Emirates Team NZ and their club Royal New Zealand Yacht Squadron will decide the venue for the 36th America’s Cup.
It is expected that decision will be made ahead of the outcome of the Environment Court decision on the Resource Consent if the Government and Council continue to steer their current course.
The Hosting Fee is an important consideration as it goes to the heart of the commerciality of the 36th America’s Cup and whether teams can get a return for their sponsor’s investment - which is linked closely to the level and standard of TV and media coverage, and VIP opportunities.
Unfortunately, the Government and MBIE appear again to be running an adversarial line negotiating against ETNZ and do not appear to be working cooperatively with the team. The release of the "Hybrid" Plan by MBIE on February 14, was not a friendly act. The parties should at least be seen to be working together and presenting a united front rather than firing salvoes via the media.
There are other ways of funding the Hosting Fee. However, these do not involve Auckland and NZ Inc.
For Auckland and NZ to benefit without a Hosting Fee, a sponsorship package for NZ Inc would need to be negotiated.
The RNZYS is the America’s Cup Trustee and is the current holder of the America’s Cup Marks. These copy-righted properties include the words America's Cup and Cup symbols, and can only be used on a basis authorised by the America’s Cup Trustee via America’s Cup Property Inc, a New York registered corporate.
The Protocol for the 36th America's Cup is very clear on ambush marketing.
The comment by the Mayor that ETNZ "will get the facilities they need not desire" is typical of the arrogance shown towards the America’s Cup winners, who have made an art form of running their campaigns since 1992 on spartan budgets for a total of 30 years of America’s Cup competition.
Why would Team New Zealand want a "Taj Mahal" solution? It's completely counter to their 30-year history and culture.
History never repeats?
The current plans and background work developed by Panuku Developments are well researched and are excellent documents.
They have been responsive to logical input and challenge and have made amendments accordingly, however like ETNZ they would seem to be getting very little support. Certainly, any proposal should be challenged, but that must be constructive, and not using the occasion to drive other agendas.
What is overlooked in this current exercise is that Oracle Team USA/Golden Gate Yacht Club, after defending the America's Cup in 2013, walked away from San Francisco as a venue for the 2017 Regatta for very similar reasons with the San Francisco authorities which we are now seeing being played out in Auckland.
The decision to host the 2007 America's Cup in Valencia, rather than Cascais, Portugal also came completely out of the blue.
The departure of Russell Coutts, Brad Butterworth and friends to the welcoming arms of Ernesto Bertarelli in May 2000, also happened very abruptly. While some of what happens in the America's Cup is signalled or can easily be deduced, much of it is not.
It should come to the surprise of no-one to see history repeat in 2018.