Part 2: Mount Smart Stadium

2.1
Mount Smart domain³ is a recreation reserve under the Reserves Act 1977. It is part of the Auckland regional parks network and includes a stadium (Mount Smart Stadium)⁴ that is used for sports events such as rugby league games, as well as for other entertainment events such as music festivals. In recognition of its predominantly commercial nature, the Council operates Mount Smart Stadium (the stadium) as a business unit. We expected to find a governance structure appropriate for a business operation, and business plans that adequately describe the Council's commercial and other objectives for the stadium, as well as the management plan required by the Reserves Act.

Statutory requirements

2.2
The Mount Smart reserve is owned by the Crown and managed by the Council. It is subject not only to the Reserves Act, but also to the Mount Smart Regional Recreation Centre Act 1985, which exempts Mount Smart Stadium from several of the provisions of the Reserves Act, to enable it to operate commercially.

2.3
An administering body for a reserve (in this case, the Council) must prepare a management plan for the reserve under the administering body's control. The management plan must provide for the use, enjoyment, maintenance, protection, preservation, and, where appropriate, development of the reserve. The administering body is required to keep the management plan under continuous review, so that the plan is adapted to changing circumstances.

1990 management plan

2.4
The current management plan for Mount Smart is dated May 1990, and is the result of a review of the original 1983 plan. The mission stated in the plan is "to provide and operate a sports and entertainment centre of international standard and significance for the benefit of the community of the Auckland Region." One of five main objectives of the plan is to provide for:

… efficient and effective management and use of the Centre, including maximising revenue without compromising the Centre's mission, and thereby minimising the cost of the services provided.

2.5
The other four objectives relate to spectator safety and comfort, further development of facilities and services, open space, and cultural heritage.

2.6
The plan recognises the need to monitor the operation of the facility, so that the need for any changes to the plan can be assessed. It notes that a formal review would be due after five years. Mount Smart Stadium has undergone a number of changes since 1990 – notably the building of the East Stand, the removal of the athletics track, becoming the home of the New Zealand Warriors rugby league team, and the development of the Oceania Football Confederation's training facility. However, the 1990 plan remains in force, unaltered.

2005 review of the management plan

2.7
The Council has started a review of the 1990 management plan. We were given a copy of a draft management plan dated 21 September 2005, prepared for public consultation as part of the second review of the plan. The Council sought public submissions by 21 October 2005. However, we understand that the document remains a draft.

2.8
The draft plan prepared in 2005 notes that "the broad purpose of reserve management planning under the Reserves Act 1977 is to manage the effects of development and use within the bounds of the reserve".

2.9
The Council's overall objective for Mount Smart, as described in the draft plan, is the provision of "a sport and entertainment stadium of international standard for the benefit of the community of the Auckland Region", an objective largely unchanged since 1990. Included as the tenth of 10 subsidiary objectives is the intention "To generate sufficient revenue from the operation and hire of the facilities to enable the Stadium to be self-funded".

2.10
That objective is restated in the discussion section of the draft plan as "To continue the Council's policy of generating sufficient revenue from the operation and hire of the facilities to ensure that the Stadium is operated and developed at least risk to the region's ratepayers". The question of risk is not further examined – the discussion that follows it is primarily about the need to balance public access with commercial activities.

Governance of Mount Smart Stadium

2.11
The Council recognised the commercial nature of Mount Smart Stadium in 1997 when it structured it as a business unit. The Council considered a number of governance and management options and selected the "business unit of Council" model as best enabling the facility to operate as a commercial entity while providing sufficient public good and community benefit services, and minimising risk to the Council.

2.12
The business unit model involved the Group Manager, Mount Smart Stadium reporting to a business unit director, who in turn reported to the Chief Executive of the Council. A Mount Smart Stadium Advisory Group (the Stadium Advisory Group), including the council chairman, the chairperson of the then Regional Parks Committee, the General Manager Parks, and two external advisors with skills in "strategic thinking, business acumen and entrepreneurial thinking" was established to provide advice on the development of the stadium business, and to act as a sounding board for stadium management. It was advisory only, and made its recommendations to the Chief Executive. Formal decisions about Mount Smart Stadium continued to be made by the Council. At that time, the business unit was under the oversight of the Council's Finance and Administration Committee.

2.13
The Finance and Administration Committee was disestablished in 1998. From then, until Mount Smart came under the oversight of the Parks and Heritage Committee in 2005, we were told that there was no committee overseeing the activities of Mount Smart, so it reported directly to the Council.

2.14
The advisory group model remained in place in 2008 and at the time of our inquiry, but with some modification. The Parks and Heritage Committee had agreed on 12 April 2006 to dispense with external members of the Stadium Advisory Group, and to add instead a councillor selected on the criterion of "relevant experience in business matters, relevant to the types of activities carried out at [the] Stadium".

2.15
Accordingly, the Stadium Advisory Group comprised the Council chairman, Councillor Coney (the chairperson of the Parks and Heritage Committee), Councillor Barnett, the Council's Chief Executive, the General Manager Parks, and the Group Manager, Mount Smart Stadium. By 2008, the Group Manager, Mount Smart Stadium reported to the General Manager Parks (who reported to the Chief Executive). The Parks and Heritage Committee, like all the Council's standing committees, is a committee of the whole.

2.16
The charter for the Stadium Advisory Group provided that: "the Advisory Group has a Chairperson to facilitate and lead the Group and the Advisory Group follows usual procedures for conducting meetings", and "the Advisory Group meet as and when required, at least twice a year may be appropriate".

2.17
The charter did not stipulate who should chair the Stadium Advisory Group. By April 2008 it was chaired by the General Manager Parks, underlining that the Stadium Advisory Group was not a governance body. The Stadium Advisory Group met only rarely. It met in June 2007 and in April 2008, but not again before the LA Galaxy event in December 2008.

Mount Smart Stadium finances

2.18
From the time of Mount Smart Stadium's restructuring as a business unit in 1997, its commercial focus has been reflected in the separation of its finances from the rest of the Council's Parks Department. It has its own balance sheet and reserve account, and separate operating and capital expenditure budgets. Depreciation funding for the Mount Smart Stadium assets is allocated for use at the stadium. The reserve account comprises the stadium's operating surpluses (or losses). The Council identifies the public good element of activities carried out at the stadium and separately funds it from rates.

2.19
To retain the New Zealand Warriors at Mount Smart Stadium, the Council at the time agreed to construct a new stand (the East Stand) and other facilities. That development, in 2003 and 2004, was funded partly from reserves and partly by an internal loan from the Council, repayable over 18 years. The business case for the development included forecasts of increased revenue which would, if realised, cover the costs of servicing the debt.

2.20
In 2007, the Council recognised that the Mount Smart Stadium operation had not met the forecasts in the East Stand business case and had not covered the debt servicing costs. Consequently, the interest component of the debt costs had increased, further increasing the stadium's operating losses. Operating losses in the three years to 30 June 2007 totalled $2.65 million. At 30 June 2008, the reserve account had a negative balance of $4.041 million. In addition, stadium management advised the Council of the need for further capital and maintenance expenditure.

2.21
At its meeting on 15 August 2007, the Parks and Heritage Committee considered the financial position of Mount Smart Stadium, and various options for increasing revenue and reducing the debt attached to the stadium. It asked council officers:

• to quantify the level of expenditure needed by Mount Smart Stadium;
• to prepare future revenue forecasts based on a new strategic business plan; and
• to explore options for reducing the debt associated with the stadium.

Strategic business plan

2.22
The Council provided us with a copy of a draft strategic business plan for Mount Smart Stadium for 2007–2010, dated April 2008. The draft minutes for the meeting of the Stadium Advisory Group on 11 April 2008 say that the draft plan was tabled, and that the members of the Stadium Advisory Group were asked to take the plan away and to provide feedback on it. We understand that, at the time of our inquiry, none of the members had provided comments on the draft plan. Nor did we see evidence that council officers had pursued the matter with the councillors, seeking their comment.

2.23
The draft business plan focuses on business growth in sporting, concert, and community events, and enhanced sales and marketing activity. The first objective is for the stadium to be recognised internationally as New Zealand's premier rugby league and football venue within five to 10 years. The associated short-term (within two years) goal is to host at least two New Zealand rugby league and two international football matches each year.

Comment

2.24
It is clear that the Council expected a commercial return from Mount Smart Stadium, while recognising its mixed commercial and public good objectives. However, the Council had not, at the time, put in place a governance structure appropriate for a business. The draft management and strategic business plans had never been put to the Council, so the Council had had no opportunity to discuss Mount Smart Stadium as a business, or to agree on the business model it wanted for the stadium, or on the Council's willingness to take on commercial risks.

2.25
When the Council considered the proposal that Mount Smart Stadium be the "principal promoter, organiser and underwriter" of the LA Galaxy event, it did so without an agreed understanding of the stadium's business model or the degree and type of risk it might assume. However, the Council did know that the stadium was running at a loss, which was an incentive for it to accept the proposal.

2.26
The continuing lack of a current management plan for Mount Smart means that the Council is in breach of the Reserves Act, and has been since 1995.

2.27
We note that significant commercial operations in local government are usually council-controlled trading organisations (CCTOs), and are often in a company form. The advantage of the company form is that a board has clear responsibility for the governance of the organisation, and has a direct focus on its business. Management accountability to the board is also clear, and an effective board can assist and support the managers of the business.

2.28
The Stadium Advisory Group was not the equivalent of a board. It was only an advisory body, and was convened and chaired by management. The Stadium Advisory Group met infrequently and intermittently.

2.29
The Parks and Heritage Committee does meet regularly, and received reports about Mount Smart, but it was not an effective governance body for the stadium business, and nor did it purport to be. The committee did not regularly focus on Mount Smart as a business. That function was more the preserve of the Stadium Advisory Group , but the Stadium Advisory Group did not meet regularly and advised the Council's Chief Executive rather than the committee. Monthly financial management reports went to the Finance Committee, rather than to the Parks and Heritage Committee. Further, the Parks and Heritage Committee was responsible for 26 regional parks, of which Mount Smart was but one. Senior management responsibility lay with the General Manager Parks, but again, the stadium operation was only a small part of his portfolio.

3: Its legal name is "Mount Smart (Rarotonga) Domain Recreation Reserve".

4: Described in the Mount Smart Regional Recreation Centre Act 1985 as "the regional sports, recreation, entertainment, and convention centre".