$500m Rugby World Cup deficit

Graphic / NZ Herald

New Zealand will spend more than $1.2 billion on investments backing the Rugby World Cup - but the tournament will make only $700 million in direct economic returns.

A Herald survey asked RWC organisers, local authorities, government departments, public bodies, transport hubs and sponsors what they had prepared for the World Cup and how much they would spend.

"The important thing is to understand the scale of this thing from New Zealand's point of view," said Rugby World Cup Minister Murray McCully. "It's way bigger than anything we've ever done before."

Included in the survey are projects that will be useful after the cup - such as improvements to signs - and spending that has come out of existing budgets.

Some, including turf upgrades, might have been necessary regardless of the tournament.

Other expenses - such as the $12 million inflatable rugby ball used to advertise the tournament and $150 million in hosting fees paid to the International Rugby Board - are of more limited benefit.

Stadium upgrades costing $555 million account for almost half the investment.

The $256 million upgrade of Auckland's Eden Park is the most costly, followed by Dunedin's new Forsyth Barr Stadium at $198 million - though World Cup organisers say that was not built solely for the tournament.

According to the Herald count, New Zealand's ratepayers will provide $288 million of the funding.

Taxpayers will provide $266 million in direct funding for tournament structures and at least $53 million more for cup-related activities by police, Tourism NZ, the Transport Agency, NZ Trade and Enterprise and Government departments.

In 2005, when New Zealand won the right to host the cup, a Treasury worst-case scenario suggested $70 million of public money could be needed over six years.

Mr McCully said the World Cup would have lasting economic value for New Zealand, but probably more important was the country building its brand on the international stage.

"We convince more tourists to come here, we convince more businesses to do business here with New Zealand companies and enter partnerships with them," he said.

"So those legacy values are arguably the greatest, and that's why we're determined to do it properly."

Reserve Bank Governor Alan Bollard forecast in January that the World Cup could add about $700 million to the economy.

Mr McCully said there was real value in an event such as the cup. "We'll get about $700 million or so of income as a country from people coming to visit, and we also will be investing in assets that will provide a return for many years."

But University of Auckland economics professor Tim Hazledine says official estimates are overblown, and the benefit to the economy will be much less than $700 million.

To calculate the true benefits, it was necessary to deduct the tourism dollars that would have been spent in New Zealand anyway and account for profit margins, he said.

"In total, you can find about $150 million actual money-in-the-pocket benefits to New Zealand."

The economic case for hosting the Cup was weak, Professor Hazledine said.

The tournament will be run at a loss, and the expected deficit has grown by 30 per cent to $39 million. Two-thirds - $26 million - will be covered by taxpayers, and the NZ Rugby Union will pay for the rest.

Mr McCully said ticket sales were expected to yield $268 million - down $12 million from original estimates of $280 million.

About $310 million will be spent on the tournament's operational costs and fees, $130 million on upgrades to ports and airports, $107 million on local expenditure, $41 million on the activities of public agencies, $40.3 million on World Cup-related facilities (including the "Cloud" on Queens Wharf ) and $9.5 million on events.

Martin Snedden, chief executive of Rugby New Zealand 2011, the tournament organisers, said there were many intangible benefits in having the cup in New Zealand.

"It's not easy to measure in hard dollar terms but you can understand, if you are aware of these events, the really extensive worldwide media coverage and television coverage it gets and just how much opportunity it has on the world stage - it goes to so many different countries."

Excluded from the survey total is KiwiRail's planned $1.1 billion investment in rail and ferries needed to carry spectators around the country.

This was considered to have benefits too broad to count as a World Cup expense.