Claudelands Events Centre returns 'overly optimistic'

Claudelands Event Centre. Photo / Christine Cornege

Crucial figures for the $68.5 million Claudelands Events Centre were influenced by city council staff who increased the number of events and inflated the revenue expected in the first three years of operation.

A $30,000 peer review of the original "overly optimistic" 2009 Claudelands business case has revealed Hamilton City Council staff told the original author of the business case, Campbell Consulting, to increase the already optimistic number of events in the business plan by up to 50 per cent.

Staff also used higher revenue projections than those provided in the business case in the council's 10-year budget - inflating the figures in the first three years by between 6 and 11 per cent. But at the same time they lowered the operating costs by 6 to 9 per cent, which made the budgets look more attractive.

Hamilton mayor Julie Hardaker said she was waiting for chief executive Barry Harris to complete his investigation into what happened and refused to speculate on whether the council had been deliberately deceived. Council staff had been unable to explain the variation.

The review by Horwath HTL, commissioned in November after staff alerted the council to the centre's poor performance, said the revenue earning estimates were significantly overstated because of "overly optimistic pricing activity and pricing assumptions".

During Claudelands' first full year of operation the council is expected to have a net deficit of $1.5 million as opposed to the $1.1 million surplus identified in the original budget.

The proposed revised budget will add $2.6 million to the city's books this year and $900,000 for subsequent years until 2022, but the council has said the extra money will be found within its existing budgets and will not result in increasing the proposed rate increases.

Ms Hardaker said the review confirmed earlier fears that the revenue figures were unrealistic.

"I've had concerns it wasn't right. It has given us a good understanding of the situation and a good analysis of what the budget should look like in the 10-year plan."

She was deeply disappointed about how things had been done in the past but didn't want another witch-hunt. Instead, she was relying on Mr Harris to get to the bottom of what went wrong and act accordingly.

Horwath HTL said it was worrying that the already optimistic projections had been increased to 316 and felt 214 events during 2011/12 was a more realistic number. The number of concerts, sporting events and exhibitions had also been overstated.

The review said the business plan was shaky from the beginning because key elements had been left out.

Venue hireage was also priced at a premium and went against advice that they should be competitive in order to win the business. Claudelands meeting rooms were the second-most expensive in the city behind the Ibis, and function rooms were 29 per cent higher than the market average.

Mr Harris said he would investigate why higher figures were included in the last budget. More realistic projections for the 2012/22 10-year plan will be discussed at Thursday's full council meeting.

THE FINDINGS

*Staff influenced Campbell Consulting to increase the Claudelands activity projections by up to 50 per cent.
*Expectations of 316 events in the first year were overly optimistic and have been revised at 214.
*The revenue projections from the business case were increased by up to 11 per cent in the 2009 Long Term Plan.
*Operating costs were reduced by up to 9 per cent in the 2009 Long Term Plan.
*Key recommendations for Claudelands success, including investing spending almost $500,000 on marketing before the centre opening, were ignored.
* The centre is projected to have a net deficit of $1.5 million in the first year and will post a deficit until at least 2014/15.