Surprise – convention centre is loss making!

Radio NZ report:

Wellington city council officers say the $180 million Tākina convention centre has made “lower-than-expected revenue” in its first year of operation.

The multi-level 1280 square metre CBD site was opened just over a year ago, with Wellington Mayor Tory Whanau saying after it was complete that the building would be “the first step in the rebirth of Wellington.”

But one year on the results did not look to be quite as rosy.

This is absolutely unsurprising. Business cases done for organisations who don’t have to wear the cost of failure, almost always are far too optimistic.

Let’s consider you work for a Big 4 consultancy firm and a Council comes to you saying we want a business case for a convention centre. Then of course you deliver them a business case that shows it can be profitable, because that is what the client wants. You just have to make the right assumptions.

But let’s say you are a hotel chain owner, and you are considering building say a hotel and convention centre in Wellington. You’ll do a business plan, and the last thing you’ll want in there are optimistic assumptions. You’ll take a cynical approach to the development, because if it ends up loss making, you’ll probably lose your job, and the company’s owners (who appoint the board) will lose money. So you look very carefully at any assumptions, the evidence behind them, and what it will mean if they end up wrong.

When the Council is paying for it, then the price to pay for getting it wrong ids basically zero. The staff do not get impacted. The CE does not get impacted. And the current Council can blame it on the former Council who authorised it. The loser are the ratepayers.

Under the convention centre’s operating model Te Papa was appointed to run the business side of the building (its operating costs and revenue related activities) and the council would contribute to its building costs.

The centre’s financial issues prompted council officers to conduct a review into its operating model.

That report found in three options for the centre’s operating model that the council has been asked to consider.

They were maintaining the status quo, adjusting the existing model, or changing the arrangements between the existing parties (Te Papa and the council).

The agenda stated neither the council nor Te Papa supported maintaining the status quo, while Te Papa were not confident, they could adjust the existing model to make it achievable for them.

This is code for that Te Papa can see no way at all to make the convention centre profitable (and they don’t even have to cover capital costs) which means inevitably the Council will take on the losses.

And we wonder why rates are going up almost 20%.

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