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America's Cup: Emirates Team NZ tight lipped on response to $100million offer

by Richard Gladwell/ 1 Jun 19:17 PDT
Emirates Team NZ returns to their Auckland base after winning a fourth America's Cup - America's Cup - Day 7 - March 17, 2021 © Richard Gladwell / / nz

Emirates Team NZ have refused to comment specifically on media reports of $100million package claimed to have been rejected by the team.

A 90day good faith period of negotiation is in place between the NZ Govt and Auckland Council, which is expected to conclude at the end of June.

The reports were run in NZME media including the NZ Herald, which ran a series of stories last year on the team and its financial relationship with the NZ Govt, which were discredited by a subsequent MBIE commissioned audit by Beattie Varley. ETNZ also refused to accredit the newspaper for the 36th America's Cup.

In a second story published later on Wednesday, the Auckland Mayor Phil Goff made various claims to apparently publicly ostracize the team and weaken its negotiating position with the NZ Government.

The media commentary during a sensitive negotiation, by the Mayor, who is a former parliamentary leader of the now incumbent Labour Government, are likely to backfire, increasing the chances of the 37th America's Cup being sailed away outside New Zealand. Former New Zealand Prime Minister Helen Clark was Goff's predecessor, and is now the Patron of Emirates Team New Zealand.

After the initial report of the $100million offer, Grant Dalton the Emirates Team NZ CEO told Sail-World that "the relationship and negotiation with the Government has been professional and open - no complaints on that score,"

Later the America's Cup champions put out a statement in response to the NZ media reports.

“Emirates Team New Zealand is currently still within the exclusive 3-month negotiation period with Government and Council, so it is premature to comment on commercial negotiations until they have concluded. However, we have only recently received the Government and Council position which we will now carefully consider over the next two weeks.”

International sailing talk-show, Sailing Illustrated, which happened to be webcasting at the time of the claim being published, named the source of the leak as being Auckland Council. An action that would appear to be confirmed by Goff's latest outburst.

The NZD$100million (USD$72.4million) figure is expected to have been pumped up with various Value In Kind propositions - which may or may not have the same value to Emirates Team New Zealand, with the more tangible pressures of salaries and other cash outgoings.

The point that seems to escape the local politicians is that as a team, ETNZ is a far more marketable proposition in Europe, than it is at the bottom of the southern hemisphere, competing during the European night. The overriding objective for the team is to provide a stable commercial platform from which can operate, as should be the situation with any other 35yr old business.

With a second Defence, if it were held in Auckland, there is little required by way of new infrastructure - a point that was always heavily emphasised in public discussions about the initial infrastructure spend (for which the Council was always liable on Wynyard Point rectification expenditure).

The figure stated in the NZ Herald report does not unbundle the purported $100million package into that required to part-fund the team and also assist with the staging the America's Cup Event. But it would be expected to show commercial rents/leases being paid for the ground area, marinas and the ETNZ base. However much of that cost is to the financial advantage of challenging teams who would be expected to pay a ground rental in addition to their base costs, if such a charge were touted by the Council as landowner.

Unlike other sports, in America's Cup, there is little opportunity to pick up income through gate sales - pricing tickets at three figure sums similar to a Rugby test Match, rock concert, or Olympic stadium event. The public expectation is that everything to do with the America's Cup event should be free to the public, and free to air, with no injection of public money. Interestingly late this evening (NZT) the International Olympic Committee announced that from 2024 it would introduce a new global hospitality model "along with an important revenue stream that will deliver an exciting and sustainable Games." The new approach will encompass packages that are inclusive or tickets, travel, accommodation and in-venue and host city hospitality.

In a parallel process to the NZ Government and Auckland Council negotiation, Emirates Team New Zealand commissioned UK-based Origin Sports to run a Host Venue selection process. That process concluded before the 36th America's Cup, with the short-listed candidates invited to visit Auckland during the America's Cup. It is expected that the outcome of that process will be compared with the NZ Government and Auckland Council offer.

Part of the Host Venue Process guide was a requirement for ETNZ to be provided with free base facilities. If an overseas venue was selected then ETNZ would have to set up an alternative facility in Auckland, or pay rental on its current base. While the team has mounted several challenges at international venues, it has always done that with a base in Auckland and then arriving in the northern hemisphere venue in April for a June start to the regatta. The team would also be up for increased accommodation costs at an offshore location, instead of having the 100-strong team live at home.

Having been in existence for 35 years, winning the Cup now four times in that period, and being the current holder with hosting rights, the team has made it clear that it needs to be put onto a sound commercial footing, to protect the team and staff on an ongoing basis.

Prior to the 2017 America's Cup, the team's organisation structure was revised and as a private company, it is now controlled by a Board which exercises proper governance over the team. Part of that process is future proofing the team - which in turn means it is imprudent going from cycle to cycle, without any underlying commercial foundation.

The team is not in a significantly different situation to the NZ All Blacks and NZ Rugby Union which is considering an offer from Silver Lake global private equity firm based in Silicon Valley, to sell it a 12.5 per cent stake in a new rugby promotion entity called Commercial LP for $387.5 million (USD$282million). The deal would return NZ Rugby approximately $39million (USD$28.5) annually, and would be used to offset the annual loss being experienced by NZRU.

Included in the Value In Kind as part of the Auckland Council's offer will be the ongoing use of the former Viaduct Event Centre, now the team's Auckland base, which as part of the 2021 Cup host venue arrangement was provided rent free to the team. With the opening of the SkyCity Conference facility in Auckland, use of the VEA is expected to drop substantially.

The Hosting Fee for the last America's Cup was NZD40million (USD$29.6million) which covered about 60% of the costs of staging the event. Emirates Team New Zealand had to find offshore sponsorship for the bulk of the difference for the staging of the event, as well as funding the sailing team - a cost typically put at $100million (USD$72.4million) with the top Challenger budget reported at NZD$220million (USD$169million).

The funding of both the team and event has been compounded by the onset of the COVID-A pandemic, which hit after the sponsorship contracts were signed for the 36th America's Cup, but the team is now operating in an more uncertain sponsorship environment.

Easing the defence and challenger teams' dilemma is the certainty that the event will continue with the AC75 class which both gives certainty in ongoing use of images and other inventory to promote the event to sponsors, as well as creating a second hand market for new teams utilising the eight AC75's that have been built.

Auckland City and the NZ Government spent NZD$200million (USD$145million) on the removal of the 85 year old Tank Farm on Wynyard Point and rectification and improvement work for which the Council liable, as the landowner. The NZ Government shared that cost, and also contributed a further NZD$40million as the event fee. An even bigger infrastructure cost was incurred in the improvements to downtown Auckland geared around the Asia Pacific Economic Conference, which was cancelled after the COVID pandemic.

Auckland and New Zealand suffered heavily after the imposition of extreme rules over the entry of superyachts and their high-value owners and friends into New Zealand. With 110 of the expected 160 vessel fleet cancelling after finding the New Zealand process logistically unworkable. If a future America's Cup is to be hosted in Auckland then clearly MBIE and NZ Government will have to revisit its approach. The net outcome of the 2021 America's Cup was that much of the economic benefit was not realised as collateral damage to the enforcement of strict COVID protocols on entry into New Zealand.

A formal announcement on the outcome of the ETNZ and MBIE/Auckland Council negotiations is expected before the end of June. A Protocol covering the 37th America's Cup is expected in September.

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