Part 6: Auckland Regional Council's actions after the event

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

6.1
It was apparent to councillors and council officers who attended the match on 6 December 2008 that the Council would lose money on the event. Council officers met on Monday 8 December to consider the outcome of the event and estimate the financial result.

6.2
The Chief Executive initiated an internal review of the event and sought input from councillors on the terms of reference for the review.

6.3
On 12 December 2008, the chairman of the Council asked the Auditor-General to consider inquiring into the Council's undertaking of the event. The Auditor-General decided to do so and issued terms of reference (see the Appendix) on 4 February 2009.

6.4
Council officers prepared two reports on the event. One report was sent to the Parks and Heritage Committee, while the second report was prepared by the Chief Executive.

6.5
The report to the Parks and Heritage Committee covered the background to the event, the reasons for the loss, and the financial result. The Parks and Heritage Committee considered this report on 18 February 2009. It agreed to inform the public of the amount of the loss. The chairperson of the Council made that announcement the next day.

6.6
The Chief Executive's investigation focused on the performance of council officers involved in the event and the quality of material given to the Council. The Chief Executive reported his preliminary conclusions to a meeting of the Chief Executive Review Committee on 18 February 2009.

6.7
Both reports identified specific issues relating to the operation of Mount Smart Stadium and the LA Galaxy event, and more generic issues about the management environment throughout the Council as a whole.

6.8
In paragraphs 6.9-6.20, we discuss the nature of the reports and the Council's response to them.

Report to the Parks and Heritage Committee

6.9
The report to the Parks and Heritage Committee gave the council officers' assessment of the reasons why the event had not met expectations and the overall financial result. The report also noted the positive aspects associated with the event, including:

  • the successful schools day;
  • the benefits to the charities involved;
  • the broadcast of the match to people across the Pacific and the west coast of the United States; and
  • favourable international media coverage of David Beckham's visit to Auckland.

6.10
It provided a detailed breakdown of actual against budgeted expenditure and an explanation for variations in revenue and expenditure. The report said that the LA Galaxy event raised a number of issues for the Council and the Chief Executive to consider. These were:

  • the adequacy of advice provided to the Council when the event was initially proposed, particularly about the change in business model – from facility operator to event underwriter and promoter – that was proposed, and the associated risks;
  • the decision to proceed, after protracted negotiations with LA Galaxy, without presenting a revised proposal and risk assessment to the Council;
  • the adequacy of risk identification and management for the event;
  • the adequacy of event planning;
  • the capability and capacity of the Council to carry out roles in relation to Mount Smart Stadium other than facilities manager; and
  • the effectiveness of governance frameworks for Mount Smart Stadium.

Chief Executive's review

6.11
The Chief Executive's review of the event was critical of the way council officers had addressed and managed the matters outlined in paragraph 6.10. The Chief Executive attributed this to "the Beckham factor" – all those involved had believed the event would succeed because of the star quality of David Beckham and the apparent success of LA Galaxy's visit to Wellington in 2007. He considered that this optimism had led to a failure to identify and manage risks.

6.12
The Chief Executive noted that a number of significant issues associated with the decision to proceed were not adequately addressed, including:

  • the capability of the Mount Smart Stadium business unit and council staff to carry out the roles of promoter and underwriter;
  • the appropriateness of the Council taking on the risks associated with those roles;
  • the magnitude of the risk associated with becoming an underwriter; and
  • the capacity of the Mount Smart business unit to absorb those risks.

6.13
The Chief Executive considered that the initial proposal to the Council did not adequately assess the significance of the proposal for the Council to take on the roles of event underwriter and promoter, or the possible risks. He said that a major shortcoming of the proposal was a lack of assessment of the market for the proposed event at the ticket prices suggested. However, he noted that the Council accepted the proposal and resolved to continue.

6.14
The Chief Executive said that, with hindsight, he should have asked the Council to reconsider the proposal in June when council officers became concerned about its viability and before entering into the contract with LA Galaxy. The Chief Executive also had concerns about:

  • whether the council officers involved had acted within their delegations;
  • too much faith and confidence being placed in the Confederation to deliver a high-quality opposition team;
  • sponsors being secured in the absence of any council policy on sponsorship;
  • lack of analysis of the Council's in-house capability to carry out the role of promoter for the event;
  • the effectiveness of the marketing campaign and the public relations approach;
  • lack of reporting by officers about ticket sales, particularly when they were concerned about low sales; and
  • the project team's focus on delivering the match and ancillary events, rather than on "big picture" issues, or on the growing media interest in the potential for a loss-making event, so that councillors and the Chief Executive were unable to plan how to respond.

Outcome of Auckland Regional Council's reviews

6.15
The Chief Executive considered that his review highlighted some systemic issues about council systems and processes. After reporting to the Council in February 2009, he acted to improve the Council's control environment. He reported to the Council's March 2009 meeting that actions taken or under way to address those systemic issues included:

  • revoking financial delegations for staff other than senior staff;
  • restating all financial delegations more clearly, and setting out expectations for how they would be exercised;
  • restating expectations and obligations of managers for timely reporting and reporting on emerging risks;
  • changing work practices to tighten controls over compliance with policy;
  • restating to all staff the need to be prudent and careful stewards of public funds;
  • fast-tracking the review and amending all management policies and procedures so that all staff have greater certainty about their obligations and responsibilities; and
  • amending all project management templates and guidelines to place greater emphasis on risk identification and risk management.

6.16
On the issues specific to Mount Smart Stadium, the Chief Executive:

  • engaged consultants to work with the Council on a review of the business strategy and operations at the stadium; and
  • recommended a new governance arrangement for Mount Smart Stadium.

Business strategy

6.17
The consultants' work on the business strategy had not been completed at the time of our report.

Governance of Mount Smart Stadium

6.18
The Council considered a report on the governance of Mount Smart Stadium at its March 2009 meeting. The report recommended establishing a new committee of councillors and external members to provide stronger oversight and governance of future operations of Mount Smart Stadium and to ensure that the stadium was given direct and focused attention from the Council.

6.19
At its March 2009 meeting, the Council agreed:

  • to establish a new Mount Smart Special Committee, with four councillors and two external appointees as members;
  • to appoint four councillors as members;
  • to disestablish the Stadium Advisory Group; and
  • that the Parks and Heritage Committee would no longer be responsible for Mount Smart Stadium.

6.20
The Council delegated responsibility for overseeing Mount Smart to the new committee, including:

  • responsibility for financial management, which includes preparing and recommending an annual budget to the Council and monitoring and reporting financial performance against that budget;
  • preparing:
  • a business strategy;
  • a risk management framework for events;
  • a management plan under the Reserves Act;
  • a contractual and pricing framework for events, tenants, and users of the stadium; and
  • identifying opportunities for events, tenancies, and uses of Mount Smart.

Comment

6.21
We are satisfied that the Council has correctly identified the problems with its governance and management of Mount Smart Stadium, and that it is taking appropriate steps to address those shortcomings. Therefore, we have not made any specific recommendations about the actions we consider that the Council should take.

6.22
The measures the Chief Executive has taken to improve the Council's control environment, including project management templates and guidelines to place greater emphasis on identifying and managing risks, should assist in a more considered and consistent approach to risk management for future events.

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