Part 3: Auckland Regional Council's involvement in the LA Galaxy event

Auckland Regional Council: Management of the LA Galaxy event at Mount Smart Stadium.

This Part describes how the Council came to be involved in the LA Galaxy event, the Council's decision to act as promoter and underwriter for the event, how the decision was implemented despite lengthy negotiations and the weakening New Zealand dollar, and how council officers organised the event.

How Auckland Regional Council became involved in the LA Galaxy event

Auckland City Council passed the opportunity to Auckland Regional Council

Council officers first learned of the opportunity to organise and promote a football match for LA Galaxy in Auckland when contacted by officers from the Auckland City Council's City Events Group in March 2008.

The City Events Group had been told late in 2007 that LA Galaxy was interested in playing a match in Auckland in late 2008 as part of an end-of-season tour. The City Events Group was keen to investigate the opportunity and worked with the Eden Park Trust Board (the Board) on the viability of using Eden Park for the match. The Board was initially also keen on the opportunity. However, it decided not to proceed after identifying the following risks:

  • resource consent for a night match (Eden Park could host only a limited number of night matches and would need consent to host an additional one);
  • lack of information about who the opposition team would be;
  • the condition of Eden Park at the time of the proposed event, because of the proposed demolition and reconstruction of the South Stand for the Rugby World Cup 2011;
  • public support – the event was not a "first" because it had already been done in Wellington in 2007; and
  • financial viability – the Board's financial analysis forecast a loss of around $500,000 on estimated ticket sales of 24,000. The Board noted that Auckland City Council would need to underwrite the event for it to be viable for Eden Park.

The City Events Group told us that it considered jointly underwriting with the Board and that this would have been a first for the City Events Group. Neither party would have taken all the financial risk.

Council officers considered the opportunity

The City Events Group approached council officers in late March 2008 about using Mount Smart Stadium when it had become clear that Eden Park was not viable as a venue. The City Events Group was positive about the potential benefits for the city. It gave the council officers information about the likely match fee for LA Galaxy and the terms on which agreement could be reached on a match in Auckland. The City Events Group suggested that the Council talk to Eden Park management about their financial estimates and reasons for deciding not to proceed.

The City Events Group told council officers that the Council could expect some financial support from the Auckland City Council for the event by way of a capped sponsorship arrangement. Auckland City Council later contributed $80,000 cash and additional in-kind support, and worked on promoting the event in partnership with the Council, with particular focus on providing access for schools to an LA Galaxy training session.

Council officers who were approached were keen on the idea. The two main council officers involved in all aspects of the LA Galaxy event were the Group Manager, Mount Smart Stadium and the General Manager Parks.

From the time that it was informed of the opportunity, the Council was under some pressure to express its interest within a short time. Council officers were dealing with an agent for LA Galaxy, who advised that he needed to make a recommendation to LA Galaxy by 21 April 2008.

Council officers discussed Eden Park's budget projections for the event with Eden Park management. They got some information about ticket prices and attendance figures for the Wellington LA Galaxy match held in December 2007 and discussed – with Eden Park management, three ticket sales agents, and another contact with experience in large events – likely attendance figures and ticket prices for an Auckland match. The people they talked to were optimistic about the likely attendance at an exhibition football match involving LA Galaxy and estimated an attendance of 30,000 to 40,000.

Council officers also discussed ticket pricing with the same people, and received advice that the Auckland market could sustain higher ticket prices than had been charged for the Wellington match.

Council officers also discussed the possibility of the Oceania Football Confederation (the Confederation) providing the opposition team for the event. The Confederation agreed to take part.

The budget, estimated attendances, and ticket pricing

Council officers prepared a budget for the event. The most significant expenditure item was the match fee required by LA Galaxy, followed by the team's travel and accommodation costs.

The match fee was payable in United States dollars, so the viability of the proposal was highly sensitive to the value of the New Zealand dollar relative to the US dollar (USD). The budget projections were based on two exchange rates – the then current value of the New Zealand dollar (0.79 USD) and a projected weaker value (0.73 USD).

The success of the event depended on ticket sales revenue, which needed to meet around 70% of the Council's expenditure. The rest of the revenue was to be raised from sponsors, sales of corporate and hospitality suites at Mount Smart Stadium, a black-tie welcoming function, commission on food and beverage sales, and the sale of television rights.

The budget estimated profit or loss results based on five scenarios ranging from sales of 20,000 seats to sales of 40,000 seats. It showed a break-even point of 25,000 ticket sales, assuming the 0.79 USD exchange rate.

The budget was based on four ticket prices, depending on the location of the seats, ranging from $80 to $150 for adults. There was no discount for children's tickets in the prime seating areas, but $405 tickets were to be available for children for uncovered seats behind the goal posts. More expensive tickets could be purchased for corporate hospitality suites. The estimates of revenue assumed that more people would buy the expensive tickets in the East and West stands rather than the cheapest seats behind the goal posts, and that a high proportion of the more expensive seats would be sold.

Mount Smart Stadium Advisory Group considered the proposal

The proposal was discussed at the meeting of the Stadium Advisory Group on 11 April 2008. Councillors Lee, Barnett, and Coney, the Council's Chief Executive, the General Manager Parks, and the Group Manager, Mount Smart Stadium, attended the meeting. Council officers had discussed the proposal with some councillors before the Stadium Advisory Group meeting.

Council officers gave the Stadium Advisory Group salient information about the opportunity and its financial viability, including that it would involve the Council being the main promoter, organiser, and underwriter of the event.

Draft minutes for that meeting suggest that the discussion focused on the risks involved, financial delegations, the need to secure overseas exchange before the New Zealand dollar weakened, the quality and attractiveness of the Confederation's opposition team, and the need to include the revenue and expenditure in the annual plan for 2008/09. This needed to occur because the significant expenditure and revenue envisaged were not covered by the then current approved budgets for Mount Smart Stadium.

The councillors asked council officers to develop the proposal further for consideration by the Council at its next meeting.

A proposal of this kind would usually have been first considered by the Parks and Heritage Committee, because it is the committee responsible for Mount Smart Stadium. However, because of the urgent need to provide an answer to LA Galaxy about Auckland's interest in the event, the proposal was put on the agenda for the next available Council meeting on 28 April 2008, which was before the next scheduled meeting of the Parks and Heritage Committee.

Auckland Regional Council approved the proposed event

The Council met on 28 April 2008 and considered a report from council officers on the proposal. The report said that the concept for the event was a three-day football festival centred on a match between LA Galaxy and an Oceania "All Stars" team. Associated events would be a black-tie dinner and an event for school children. The report:

  • made clear that the proposal involved the Council being the main promoter, organiser, and underwriter of the event, and that this was a departure from Mount Smart Stadium's usual role; and
  • noted that the primary risk associated with the proposal was not selling enough tickets to achieve the projected break-even point. The risk had two aspects:
  • the event not having enough public appeal; and
  • ticket prices being set too high.

The report had a budget attached. On financial aspects, the report said:

  • analysis had shown that support for the event was likely to be strong, even if ticket prices were higher than for the LA Galaxy match in Wellington. This was based on Auckland having a larger population, interest in soccer from its diverse ethnic mix, support for other high-quality sports events at similar prices, and the crowd-pulling power of David Beckham;
  • financial modelling showed a break-even point of 25,000 tickets at the then current New Zealand dollar value of 0.79 USD; and
  • although the Council would take the financial risk, there was also the possibility of a healthy financial return.

The budget showed the number and type of tickets available for the event and noted an average ticket price of $92.

The report to the Council said that the Stadium Advisory Group had endorsed the further development of the proposal for the Council's consideration, and that the Stadium Advisory Group:

  • saw the proposal as a good opportunity for Mount Smart Stadium to move into a more promotional way of operating, with likely benefits to Mount Smart Stadium through raising its profile as a venue for major events, and increasing public awareness that the stadium is run by the Council;
  • had assessed the risk of not selling enough tickets as relatively low and a risk that was worth taking;
  • saw the event as an opportunity to generate a healthy amount of revenue and that it was better if the Council rather than a promoter took the profit; and
  • noted the importance of buying the US currency needed for the match fee as soon as possible and before the New Zealand dollar weakened.

In discussing risks, the report suggested that it should be reasonably easy to sell 25,000 tickets, given that more people had attended the Wellington match. The report noted that ticket prices had been set at a level higher than for the Wellington match, but were comparable to prices charged for other large sports events in Auckland.

The minutes of Council meetings do not record the discussion on agenda items, but include the text of reports considered and the Council's resolutions. We asked councillors and council officers about the extent of discussion and questioning of the proposal, including whether councillors discussed their comfort with taking on the role of promoter and underwriter. We were told that there was some discussion of the risks highlighted in the report, but that councillors were positive about the work done by council officers and the opportunity.

At the 28 April 2008 meeting, the Council resolved that council officers should proceed with the event and authorised the Chief Executive to purchase the US currency needed, after:

  • receiving confirmation of the terms and conditions of the payments to LA Galaxy; and
  • consultation with members of the Stadium Advisory Group and the chairperson of the Council's Finance Committee.

Implementing Auckland Regional Council's decision

The next phase of the project was for council officers to implement the Council's decision. They put together a team from different areas of the organisation to assist with the LA Galaxy event, including staff from the Mount Smart Stadium business unit, the Parks Department, and the Communications and Marketing Group (part of the Corporate Services Department).

The date of 6 December 2008 was agreed for the match in Auckland. It was envisaged that LA Galaxy would play a match in Brisbane around the time of the Auckland match and that this would mean the travel costs for LA Galaxy could be shared with the organisers of the Brisbane match. Unfortunately for the Council, the Brisbane match did not happen and this increased the Council's costs.

Negotiations with LA Galaxy took much longer than expected

The viability of the event was affected by the value of the New Zealand dollar against the US dollar, because the match fee was payable to LA Galaxy in US dollars. The match fee was the most significant expenditure item for the event.

Council officers could not arrange the purchase of the foreign currency required to pay LA Galaxy the match fee until the terms of the contract with LA Galaxy were agreed – to accord with the terms of the Council's authorisation, and with the Council's treasury policy. Therefore, council officers needed to agree the terms of the contract with LA Galaxy. They wanted to do this quickly to take advantage of the then high value of the New Zealand dollar (which was around 0.79 USD).

However, council officers became aware during negotiations that non-resident withholding tax of 20% of the match fee would be payable to Inland Revenue. The parties had not been aware of the tax element when the match fee had been discussed.

LA Galaxy wanted to receive the match fee net of the tax and for the Council to bear the cost of paying the tax, but the Council had not budgeted for this.

It took some time to reach agreement on this issue and it delayed finalising the contract. Negotiations on other matters in the contract, including the promotional activities the team would take part in when in Auckland, also took longer than expected.

By email dated 12 May 2008, the General Manager Parks told the members of the Stadium Advisory Group, the chairperson of the Finance Committee, and the General Manager Finance about the tax issue and other matters arising in negotiations. At that point, council officers considered that the Council would need to pay the tax to secure the event and were negotiating with LA Galaxy for the team to do more promotional activities in Auckland in return.

At the same time, council officers recalculated the budget for the event based on the increased expense to the Council of bearing the cost of the tax. In a memorandum dated 15 May 2008, sent to the members of the Stadium Advisory Group and the chairperson of the Finance Committee, council officers said that the increased expenditure could be offset by increased revenue from:

  • sponsors (at that stage, potential sponsors had shown high interest in the event and council officers considered that estimates of revenue in the original budget were likely to be exceeded);
  • the Confederation, which council officers wrongly thought had agreed to meet the costs associated with the opposition team, thereby saving the Council this expense; and
  • ticket sales (ticket prices had been increased by $5, $10, and $20, with the biggest increase for the most expensive seats).

Councillors were advised that ticketing companies had said they saw no problems selling tickets for the event at the increased prices.

Council officers said that these factors in combination meant that the event remained viable and the break-even point remained at around 25,000 tickets at a New Zealand dollar value of 0.76 USD. They advised that the level of risk was similar to the proposal approved by the Council in April 2008, and recommended that the proposal proceed and that the Council enter into a contract with LA Galaxy.

It appears that the councillors consulted were comfortable with proceeding with the event based on the information provided, including the updated financial information. On 20 May 2008, the Chief Executive was told that three of the four councillors consulted were comfortable with going ahead, and council officers were waiting to talk to the fourth councillor. Council officers continued negotiating with LA Galaxy.

The New Zealand dollar fell as negotiations continued

The effective increase of the match fee by 20%, payable as tax, made the event even more susceptible to the value of the New Zealand dollar. Council officers had watched the New Zealand dollar value closely because the event's financial viability depended on the dollar maintaining its value against the US dollar. The value of the NZ dollar relative to the US dollar had weakened significantly during April and May 2008.

Despite the efforts of council officers, LA Galaxy still delayed finalising the agreement. Council officers estimated that for every cent the New Zealand dollar fell, they would have to raise an additional $25,000.

New Zealand dollar movement

Figure 1 shows the movement in the value of the New Zealand dollar compared with the US dollar in the period from April to August 2008. This was the period from when the Council approved the event on 28 April 2008 to 6 August 2008 when the Council purchased the option for currency required to pay the match fee to LA Galaxy and then signed the contract with LA Galaxy on 26 August 2008. The time elapsed was much longer than anticipated, because of delays in reaching agreement with LA Galaxy.

Figure 1 also shows critical events in this period, which we discuss in paragraphs 3.45-3.62.

Figure 1
Timeline, from April to August 2008, showing the NZ dollar relative to the US dollar and significant decisions and Council actions

Figure 1: Timeline, from April to August 2008, showing the NZ dollar relative to the US dollar and signifi cant decisions and Council actions.

Council officers considered pulling out of the event

In early June 2008, with agreement yet to be reached on the tax issue and a further fall in the value of the New Zealand dollar to around 0.75 cents, council officers decided the event had become unviable. They calculated that these factors had added $686,000 to the Council's costs. To break even, they would need to sell at least 34,000 tickets at the ticket prices approved by the Council, or 28,000 tickets at revised higher prices.

Council officers did not think that the higher attendance figures or higher ticket prices were attainable. The higher ticket price would have increased the average cost of a ticket for the match to $112, rather than the average of $92 noted when the Council approved the proposal. Council officers estimated a possible loss of $400,000 to $500,000. They considered that the event was not viable unless the New Zealand dollar strengthened to at least 0.78 USD.

Council officers were also beginning to doubt the Confederation's ability to put together a high-quality opposition team for the available funding of $100,000, and were frustrated that they had not reached agreement with LA Galaxy. On 11 June 2008, they recommended to the Chief Executive and the General Manager Finance that the Council cease negotiations and pull out of the event. Their recommendation was accepted. They were asked to brief the councillors concerned and to prepare a media strategy to deal with the cancellation.

Council officers prepared a draft memorandum dated 16 June 2008 to the councillors on the Stadium Advisory Group and the chairperson of the Finance Committee, advising that the risks in the event had become unacceptable and the Council would be risking ratepayer money in proceeding. The three major concerns affecting viability that they identified were:

  • failure to reach agreement on which party would bear the cost of the tax due on the match fee;
  • the falling value of the New Zealand dollar; and
  • that the Confederation had not agreed to meet the costs of the opposition team.

Doubt had also emerged about whether an Australian match would take place. If no Brisbane match occurred, this would increase the costs to the Council of the LA Galaxy's airfares.

The councillors to whom the memorandum was addressed told us that they did not receive it. Such advice would usually be given to councillors by email and in hard copy, but there is no evidence that either occurred. The record indicates that the chairman of the Council was broadly aware of the possibility of cancellation, but not of any detail.

Although council officers had concerns about the viability of the event, they kept negotiating with LA Galaxy to keep the option of a match open, rather than ceasing negotiations.

Agreement reached on the tax issue

There was then a critical development: the Council and LA Galaxy agreed on most outstanding matters of significance in the contract – including who would pay the tax on the match fee. At this time, the New Zealand dollar gained about a cent over a week to reach 0.76 USD. This meant that of the three key concerns about viability noted in paragraph 3.48, the most significant concern – liability to pay the tax – had been resolved, and the New Zealand dollar had stabilised for the time being.

Based on the resolution of the tax issue and the New Zealand dollar improving in value, council officers advised the Chief Executive and the General Manager Finance that the event was viable again.

Council officers appear to have then regarded the risk associated with the event as being the same as when the Council had approved it on 28 April 2008, so the event was back on. However, this was not an accurate assessment – the value of the New Zealand dollar had fallen since April, and there was uncertainty about LA Galaxy's travel costs because the Brisbane match might not proceed. Council officers considered that the risk of the Confederation not assembling a high-quality opposition team remained, but that David Beckham would, in any case, be the main reason for spectators to attend the event.

US currency secured

Negotiations continued with LA Galaxy on other terms of the contract from late June through to 23 July 2008, when the parties signed a non-binding terms sheet and agreed to enter into a formal contract by 31 July 2008. In fact, the contract was not completed until the end of August 2008.

The New Zealand dollar fell further in July 2008, from around 0.76 USD to 0.73 USD from the start to the end of that month. It then declined sharply in value in early August 2008.

A revised budget prepared by council officers on 1 August 2008 using a "worst case" scenario – with the Council being liable for all of the cost of LA Galaxy's airfares and a weakened New Zealand dollar of around 0.72 USD – showed that the break-even point had again moved upwards. The Council would now need to sell 28,500 tickets (or 24,600 tickets at revised higher ticket prices). This budget was given to the Chief Executive and senior council management.

On 6 August 2008, the Council entered into a contract with a bank (an "option") that gave the Council the right to buy US currency at agreed rates in order to pay the match fee in two instalments – later in August and in December. It did so because the Council considered that the New Zealand dollar was likely to fall further and the contract with LA Galaxy was due to be signed shortly. The analysis at the time shows that the average exchange rate for the currency purchase was around 0.71 USD, including the cost of the options.

The Council's April 2008 resolution authorised the Chief Executive to purchase the foreign currency required for the event after the contract terms had been agreed with LA Galaxy, and after consultation with members of the Stadium Advisory Group and the chairperson of the Finance Committee. There is no evidence that the Chief Executive or the other council officers formally consulted the chairperson of the Finance Committee or the members of the Stadium Advisory Group. Both the currency purchase and the signing of the contract with LA Galaxy appear to have been covered at the meeting of the Parks and Heritage Committee on 6 August 2008. Of the four councillors who needed to be consulted, only one was present at that meeting.

The Chief Executive signed the contract with LA Galaxy on 26 August 2008 on the recommendation of the General Manager Parks. The Chief Executive told us that, in signing the contract, he relied on assurances from the General Manager Parks that he had briefed the relevant councillors and they were comfortable with proceeding.

However, in hindsight, the Chief Executive considers that he should have referred the matter back to the Council.

The Council announced the event to the media and public on 2 September 2008.

How Auckland Regional Council organised the event

During the three-month period that it took to finalise the contract, council officers were working on other aspects of the event. They had seven months to organise the event from the date of the Council's approval in late April 2008 to the match day on 6 December 2008. There were many things to organise as well as the contract with LA Galaxy, including contracts with sponsors and suppliers, strategic matters such as a marketing plan, finding an opposition team, and numerous logistical matters for the LA Galaxy visit to Auckland, the match itself, and the surrounding events.

Council officers devised a project plan for the event in May 2008. The plan involved a 15-person project steering group of officers from the Council, the Confederation, Auckland City Council, and the Auckland Regional Transport Authority. The project team first met in early May 2008, then in June, July, and September, with fortnightly meetings from early September until the time of the match.

Eleven smaller work stream groups were formed to organise aspects of the event, such as match-day logistics, communications and media, marketing, sponsorship and partnership, and ancillary events such as the training session for LA Galaxy that school children attended. The leaders of the 11 work stream groups were members of the project steering committee.

Work stream leaders were responsible for providing updated work stream templates to the chairperson of the project steering committee from time to time. These templates required work stream leaders to identify risks and steps to mitigate those risks.


Council officers obtained cash and in-kind sponsorship for the match from several companies and suppliers, including accommodation for both teams, and uniforms for players and Mount Smart Stadium staff. The value of the cash contributions from sponsors was $210,000 against a budget of $320,000. The in-kind sponsorship offset other costs and was of considerable value to the Council, particularly in saving accommodation costs.

Marketing and promotion

The contract with LA Galaxy covered the events that David Beckham and his team mates would take part in while in Auckland. The Council had spent time negotiating these aspects because the opportunities to promote the match were closely related to LA Galaxy's willingness to take part in the extra events during their time in Auckland. These surrounding events included a press conference featuring David Beckham, a training session at Mount Smart Stadium that was open to school children, and a VIP "meet and greet" and autograph session. The Council also organised other events and opportunities, such as an airport welcome and a black-tie event for children's charities to which the LA Galaxy team would be invited.

Public relations and communications firms were used to help with the branding material for the event and to buy advertising in print and other media. Council officers prepared a marketing plan that identified segments of the community that the match would appeal to and tactics for promoting the match to those markets. An initial version of the plan suggested some actions if ticket sales were too low as the match day approached.

Responsibility for marketing and promotion initially sat with the Council's in-house Communications and Marketing Group but moved to the sales and marketing manager at Mount Smart Stadium (who began working for the stadium in June 2008) as the event got nearer.

The major marketing and advertising campaign began in earnest in late November 2008 after the FIFA under-17 Women's World Cup matches.

The Council spent $310,266 on marketing, promotion, and public relations against a budget of $180,000. It obtained significant in-kind advertising through arrangements with media organisations.

The opposition team

The Confederation was involved as a partner in the event from April 2008, with responsibility for forming an opposition team. Despite its early involvement, the Council did not finalise its agreement with the Confederation about the opposition team until October 2008.

The composition of the opposition team was important for the marketing and appeal of the event. The initial concept was that the Confederation would use its influence to obtain one international star (past or present) from each of the other five football confederations (Africa, Asia, Europe, North America, and South America) to appeal to those communities in Auckland. However, the Confederation did not achieve this goal. The Chief Executive of the Confederation told us that it was difficult to get a commitment from agents of the players on his "wish list", and that it might have been easier if the date for the match had been set with regard to FIFA's co-ordinated match calendar for all football activities. The Confederation did secure one Confederation ambassador, Christian Karembeu, who captained the opposition team. The rest of the team was from Pacific Island countries, Australia, and New Zealand.

Council officers were concerned about the lack of appeal of the opposition team because of a lack of star players. In the week before the event, council officers directly engaged Dutch soccer star Edgar Davids to take part in the Oceania "All Stars" team. It was hoped this would help to boost sales.

The Council had wanted the Confederation to meet the costs of the opposition team, but this was not agreed because the Confederation saw these costs as the responsibility of the promoter. The Council spent $67,283 on the opposition team, not including Edgar Davids' appearance fee. We note that the budget considered by the Council on 28 April said that the Confederation would meet the opposition team costs, estimated as $100,000. The Confederation told us that it did in fact contribute about $40,000 to the opposition team costs.

Ticket sales

Tickets went on sale on 19 September 2008 through sponsors, and public sales were available from 24 September 2008. This was about 12 weeks before the event. Council officers received updates on sales from the ticketing agency. There was an initial burst of interest with 7200 tickets sold, then sales flattened out and did not pick up again until the "two-for-one" ticket offer near the time of the match.

Council officers were assured by the LA Galaxy agent that, as was typical for such events, they could expect a large boost in ticket sales in the week leading up to the event, especially when the LA Galaxy team and David Beckham arrived in New Zealand, and could also expect a "walk-up crowd" on the day of the match.

However, the surge in ticket sales did not happen. As the event approached, it became apparent to council officers that their break-even target for ticket sales would not be achieved. Shortly before the event, the Council announced a two-for-one ticket deal to boost sales.

Mount Smart Stadium had 32,000 seats available because extra seating had been put in for the rugby league final held in September 2008, and the extra seats were retained for the LA Galaxy match. The attendance was 16,590 (around 52% capacity), with 14,409 purchased tickets and 2178 complimentary tickets issued. Many of the 14,409 tickets sold were either the cheapest seats available or half-price tickets. This was contrary to the budget assumptions that a high proportion of the more expensive tickets in the East and West stands would sell. The two-for-one deal generated 3078 sales, and 1106 people who had already purchased full-price tickets took up the offer of one extra ticket.

Ticket revenue was $770,511, against an expected $2.577 million. This was $1.806 million less than forecast and is very close to the amount of the loss that the Council ultimately incurred in staging the event.

Ancillary events

The main ancillary event was the event for school children at Mount Smart Stadium the day before the match. Around 6500 school children visited the stadium to see the LA Galaxy team, including David Beckham, and the Oceania "All Stars" team.

There was positive media coverage of LA Galaxy's visit to Auckland, including an airport welcome, a press conference before the match featuring David Beckham, and the schools day.

5: The ticket price for children was later set at $45.

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