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America's Cup: COVID driving Kiwi America's Cup options

by Richard Gladwell/Sail-World.com/nz 14 Jun 21:40 PDT 15 June 2021
Have Emirates Team NZ bid Haere Ra to Auckland for the 37th Defence. © Richard Gladwell / Sail-World.com / nz

On Thursday, June 17 (NZT), the 90 days "good faith" negotiation period ends for Auckland to be the Host Venue for the 37th America's Cup.

The outcome is expected to be that a traditional America's Cup defence will not be conducted in Auckland, however negotiations are expected to continue with NZ and international parties until an accommodation is reached.

Discussions have been taking place since the end of the 36th America's Cup between negotiators acting for the Government and Council parties, and Team New Zealand and their parties.

The issue boiled over last Tuesday when the Auckland Mayor, Phil Goff broke the silence on what were supposed to be confidential negotiations.

The claim was that Emirates Team New Zealand had been offered a $100million package by the Government and Council parties while the Kiwi media claimed the America's Cup champions wanted $200million.

That leaked information was first aired on the breakfast show on NewstalkZB, by host Mike Hosking, who is better connected than most on America's Cup comings and goings. Hosking put his information to Stuart Nash, the Economic and Regional Development Minister, who has responsibility for the Ministry of Business, Innovation and Employment (MBIE), the NZ Government's interface to the America's Cup organisers

Nash's response to Hosking was that "someone as leaking who shouldn't be" - and was quickly told that by Hosking that indeed it was the Council who was talking out of school.

Nash went onto say that MBIE had contracted "someone else to do the negotiations on our behalf," but was quick to point out that any offer was always subject to Cabinet decision likely to be today, June 15th.

"I would love to keep it (the America's Cup) in New Zealand", Nash continued "but I'm a realist."

That last comment was followed by the obligatory politician's out-clause that there was not a bottomless finance fund. Nash implied that the Government was quite happy, if the ETNZ deal was too rich, to let matters take their course, and for the Cup to go elsewhere.

The first story, that ran that morning in NZ Herald (also owned by NZME who own NewstalkZB) didn't mention any sources but claimed an offer of $100million had been rejected and claimed that the team wanted $200million. A second story later the same morning quoted Goff, as saying the Emirates Team NZ had "never had it so good", and plucked the usual heartstring line about the Kiwi public being very disappointed if the 37th America's Cup Defence was not be conducted in Auckland.

Of course, in their haste to play the Kiwi loyalty card, the politicians and media conveniently ignored Grant Dalton's earlier comment that his first responsibility was to the team, and his priority was keeping the team intact so that another successful defence could be conducted.

Dalton took over the management of the Kiwi America's Cup team, a month after the debacle of the 2003 Match where for the first time in Cup history the Defender failed to finish two races.

Although the team raised $90million in sponsorship that year, the team had taken several design risks which hadn't paid off - the HULA, the topsides that were not water resistant, and the aliminium spreader tips, which caused the mast breakage.

The $90million raised was considered to be the maximum that could have been raised with the available sponsorship inventory, and is probably still the case for a NZ Defence, with TV exposure limited to six or seven race days.

The 36th America's Cup sponsorship and funding was largely sorted and signed before March 2020, when the COVID pandemic hit the planet. The 37th Match will be the first staged in a post-COVID sponsorship environment.

Speaking at a fundraising dinner, back in 2011, as the world emerged from the Global Financial Crisis , Emirates Team NZ CEO Grant Dalton talked about sponsorship in the sailing, rather than just the Americas Cup context.

'An interesting thing about sponsorship, in my view, it is easier to raise sponsorship in a recession than in good times. The reason being that all sponsors rationalise."

'I use Omega as an example which have been with the team for a long, long time. Let's say they are sponsoring ten sports and decide to cut back to five sports but they spend more proportionately on each of the five sports even though their budgets are cut. If you happen to be one of those sports you are better off," he explained at the black-tie dinner.

While the next Cup could be staged in Auckland on the same basis as the last, but there is no point while the New Zealand Government and health authorities retain their current, very defensive strategies, in the COVID-war which are aimed at protecting, in Ardern-speak, the Team of 5 Million. That is a fair call, and maybe a NZ-hosted America's Cup is the collateral damage from that decision.

The next America's Cup, wherever it is held will be subject to "Pandemic clauses" in the sponsorship contracts, for both teams and event organisers. These will cut in if the Event is cancelled, as were the two America's Cup World Series regatta scheduled for April and June 2020. Also expected are sponsorship clauses which will cover "Diminished Benefit" is there is a lockdown imposed by state or federal government, which impinges on the sponsor's ability to extract the contracted benefits from an event. This could cover the event being suspended for a few days in a short-term lockdown, or VIPs and guests being blocked from entering any country because of a short-term immigration ban being imposed.

As matters stand, and as with AC36, no-one other than the teams themselves, officials and some media, can come into New Zealand, and then only under very tight regulation and a 14 day managed quarantine.

In short, other than international TV exposure there is no economic return from NZ investing in the hosting of an America's Cup, unless the borders are completely open to fully immunised international visitors. Whether that is weeks, months or years away requires the services of a tarot card reader, and is not that basis for making America's Cup planning.

USA and UK are 8th and 9th ranked in the world for percentage of their population double-vaccinated against COVID, New Zealand sits at 77th, below the international average. While there is much made of the Trans-Tasman bubble, it is between two countries who are ranked 78th and 95th in vaccination percentage. New Zealand has just 6% of its population vaccinated, while UK and USA both are over 44%.

While the NZ Government would surely claim the expectation that international travel will have resumed by the 37th America's Cup, that is purely aspirational, and delivery is something quite different, and the 37th America's Cup is really only viable in a country that has its borders and country open for tourists and business for at least 12 months before the start of the Challenger Selection Series.

Standoffs not unusual

In March 2018 there was a standoff similar to the present contretemps between ETNZ and the Government/Auckland and Council over the creation of facilities in Auckland to stage the 36th America's Cup. It is well known, and not surprising, that the parties well apart in their positions.

The popular misconception pushed by politicians and mainstream media, and played up by other AC teams, is that Team New Zealand has been heavily supported from Government coffers.

Only once has the team received a Government hand-out - in $5million in October 2013 for the 2017 campaign. The funding was announced without being sought by the team.

There was Government sponsorship in 2007 and 2013 to the tune of about $36 and $33million respectively per campaign (taking signage space on the boat and rig). These arrangements gave MBIE access to the team in Valencia and San Francisco, running trade and similar exhibitions and networking with industry VIP's and similar. The two-cycle deal was signed off by then Minister of Sport, Trevor Mallard, a long-time supporter of the Kiwi America's Cup team, who worked as a Cup volunteer in AC36.

For the 36th America's Cup, there was the $40million paid to the Events arm of Team NZ to cover about 50% of the cost of hosting the Cup, with America's Cup Event raising the rest.

Twenty years previously, in the two previous Auckland Cups in 2000 and 2003 Cups, there was payment by the Kiwi Government, of a few hundred thousand dollars for the use of the Cup Marks in tourism and other promotional uses. The Event, including TV coverage was funded by the teams ( 11 challengers in 2000 and 9 challengers in 2003).

There was no NZ Government investment, sponsorship or otherwise in Bermuda, as there was no NZ trade interest. Had AC35 been held in one of the North American venues the then John Key-led Government indicated they would have been interested in being financially involved again.

It remains to be seen if there is any appetite for the Labour Government to repeat its investment of 2007 and 2013 Cup campaigns in Valencia and San Francisco, and link these to a major tourism and industry/trade push in post-Brexit UK/Europe.

Home and Away

A study of ETNZ's CEO Grant Dalton's history of fundraising for Cup and Round the World race campaigns show that he rarely follows conventional lines. There is always a new and creative angle and AC37 is unlikely to be any different. It is a mistake to expect a conventionally structured America's Cup in 2024.

In many ways the America's Cup competition is similar to NZ Rugby's Ranfurly Shield, which goes back to 1904 , just over 30 years after the America's Cup was first raced. The Shield used to be the premier trophy in NZ Rugby and is conducted on the basis of provincial unions being able to make challenges to the holder/defender, who then decides when and where the Matches will be conducted. Usually these are in the home stadium of the holder, but occasionally when there has been a long defence tenure, the Shield is taken to the minor provinces to boost its profile and provide a big pay-day via gate takings for a minor/amateur union.

In many ways, it is same song second verse for the 37th, and maybe 38th America's Cup.

Much is made of the one-on-one Challenge from Challenger of Record INEOS Team UK/Royal Yacht Squadron. But this option has some big downsides in respect of the other teams, and what they will do sitting on the sidelines watching ETNZ and INEOS having an in-house "friendly".

For sure Dalton would be screaming long and loud if Oracle had pulled this stunt with Artemis Racing or one the "Framework" - and left ETNZ to watch from the sidelines.

A more likely solution is to revisit the vexed Challenger Qualifiers concept that was to be held in Auckland ahead of the 2017 America's Cup, and for these to be held in a European/UK (venues) in the European Summer with the top boat(s) coming to Auckland for a Match the following February/March.

The America's Cup has to grow its base of teams, not shrink them in the likes of a Union Jack Match. [Both NZ and UK share the same Head of State and feature the Union Jack on their national flags.]

The Challenger and Defender's intention to grow the Cup was clear in the statement announcing RYSR as Challenger of Record, where it talked of staying with the AC75 design as the America's Cup Class, and of relaxed nationality conditions for Competitors from "Emerging Nations".

Quite how that aspiration would be turned into reality is not clear, but it would not be helped by a Match for which there was no Challenger Selection Series.

What must happen is that ETNZ, and the AC36 challengers have to share some of their big bag of AC75 marbles with the new players.

One way of doing that could be to allow a new "emerging" team to partner/buddy with one of the four existing teams, and do a technology exchange in return for the ability to train and test against each other.

Again, that cause is not helped by the likes of a Union Jack Challenge. Particularly given that the Cup is still in recovery mode from three years of New York Supreme Court litigation from 2007 to 2010.

Nostradamus?

Playing around with America's Cup cycles and predetermining the Cup venues is not new.

Passing through New Zealand back in January 2005 on this way to the next Challenger meeting in San Francisco in early February, was then Chairman of the Challenger Commission, Tom Ehman (USA) - whose America's Cup pedigree extends back into 1980 when he was a rules advisor for the New York Yacht Club and the defenders.

Ehman went on to be a lead protagonist in the AC Court case of 2007-2010, and was Vice Commodore of Golden Gate Yacht Club when they held the America's Cup (2010-2017). He resigned from his GGYC role when they refused to defend the 35th Cup in San Francisco, and shopped the venue - selecting Bermuda ahead of a bevy of US locations.

'The biggest problem with this event, in my personal opinion', he said in an interview in 2005 on the future of the Cup, 'is the time.'

'It's way too long between events, when we are not changing the boats. This event (31st America's Cup) should be happening right now in '05. We should have raced here in 2003, gone off and done some events like we did. And the Challenger selection series should already be starting in March or April. If that were the case then the cash-burn rate for the teams would be half what it is at present. So you get as much or more sponsorship revenue (some would say more, because you get two big events in four years) for half the price!

'If this event were happening every other year you would get many more teams because it costs half as much money to get the team up and running.

'We have come a long way from America's Cup 31 to America's Cup 32. And now you have to make the next step which is to figure out how to have a main event every other year. If we can make this next event, who ever wins, held in 2009 rather than 2011, then we will have done the sport a huge service.

'We need to regularise and it needs to happen more often, that is the next big goal.

Had Tom Ehman had his own way, Auckland would be sitting back in its armchair and preparing to watch America's Cup 2005 sailed in the Hauraki Gulf.

'From my personal perspective, and I proposed this at the time, regardless of who ever won in 2003, the 32nd America's Cup would have been in Auckland in 2005. Whoever had won in 2003, would have had the venue in 2007. So you give everyone their four years to prepare the venue, and you know with regularity when the next event is going to be and where.

'If everyone gets it in their mind that we will have more teams, more promotion, more excitement and more interest. It is better for everybody that we do it every two years – or conceivably every year.

'As we are showing with these preliminary regattas it's not difficult to move these teams to somewhere like Marseilles, set them down on a big hard surfaced area, lift the boats into water and have a regatta. That, to me, is the next big step the Cup has to make. But that is only possible when you are bidding the venue, and only possible when you have a central organising committee.

'The big problem with these campaigns is that they run for too long. The marginal cost to the teams to participate in these Acts is not that great. What we are learning is that the more events you have the more revenue you are getting.

"So if we have more events with less burn rate, then the cost drops, and it's good for everybody,' Ehman concluded.

Quite how much of this thinking carries over into the current Cup may unfold before the end of the week.

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