The Waikato Rugby Union was buying shares in a Hamilton bar while it was defaulting on rent payments for use of the Waikato Stadium.
The cash-strapped rugby union bought a 15 per cent share in the House on Hood bar in April 2010 for $208,000.
Months later, its bill for overdue rent to the Hamilton City Council had reached $500,000, the union's annual report for last year shows.
But Waikato Rugby Union chief executive Graham Bowen yesterday defended the bar investment as a way of obtaining extra income as the union faced financial hardship. The annual report said the bar was purchased to be the "home of rugby".
"I guess we were starting to feel things were pretty tight, trying to get more investment," he said. "I guess it had some revenue potential which was quite important at the time."
He said the union started missing rent payments a few months after the deal went through. But the Hamilton City Council says the union owed it $500,000 in mid-2010 and this was a significant part of a year's rental.
Hamilton deputy mayor Gordon Chesterman said the bar purchase was disturbing and reflected "poor decision making" by the union, which saw the council as a "soft touch".
"They have a clear obligation to pay rent for their primary business which was rugby instead of siphoning off money for a commercial investment in a bar."
City council finance and monitoring chairman Dave Macpherson said the union "clearly had its priorities wrong".
"You can read into it that they thought city ratepayers should be the last cab off the rank and risky investments were better than paying off debts to the ratepayer."
The cost of the union's 15 per cent stake puts the total value of House on Hood at about $1.38 million and makes it one of the most expensive bars in Hamilton.
In 2008, when the union also missed rent payments on the Waikato Stadium, it paid $240,000 for a stake in Kelly Sports, a business providing after school and holiday sports programmes to children.
Last year the union had to borrow $1.51 million to keep afloat. The city council moved the overdue rent into a $500,000 three-year bank loan with 7 per cent interest, the NZ Rugby Union loaned it $454,000 and Gallagher Finance and Management's $500,000 loan was reduced to $250,000 after the Gallagher Group took a sponsorship package.
Mr Bowen said he was confident the union would be able to pay off its debts within the next four years, largely because it had reduced its operational costs.
He said House on Hood returned a dividend of about $35,000 a year.
DEBITS AND CREDITS
* $208,000 investment on House on Hood in 2010.
* $240,000 stake in Kelly Sports in 2008.
* $1.51m in loans from Hamilton City Council, Gallaghers and the NZRU.
* $28,150 surplus in 2011.
* $195,765 current debts exceeding assets.