A Sport New Zealand spokesperson confirmed the proposal's current form was not supported.
"Sport NZ does not support the proposal in its current form, but we are now providing the council with further research and analysis so that they are in the best position to arrive at a proposal which is aligned with community needs now and in the future, and which complements other facilities in the region.
"The need for these outcomes is nothing new."
Mr Dalton said central Government's Treasury blueprint was followed when the business case for the facility was written.
"Sport New Zealand paid for it to be peer reviewed and while they had some minor areas when they requested us to do some further work, they were in general supportive of the project," he said.
"Now they have come up with some alternatives which they think needed investigating, and we'll investigate them."
He said Napier City Council had already undertaken high-quality research on how to best meet community needs, completed public surveys and consulted with sporting bodies. He was both disappointed and delighted with the delay, he said.
"If this project goes ahead we need to have all our Is dotted and all our Ts crossed.
"If delaying it means that we are going to do further research, which we are, and it means we get the project absolutely right, I'm happy about that."
He said Basketball Hawke's Bay immediately needed four extra courts and the facility supplied three.
If the facility did not go ahead, extra indoor courts were unlikely in the short term, with a proposed sports facility at the Hawke's Bay Regional Sports Park not providing community court space and Napier City Council possibly focusing on aquatic facilities, he said.
An urgent resource consent application for the sports facility was lodged in January to meet a March 15 deadline for applications to the New Zealand Lottery Grants Board's Significant Projects Fund.
The fund provides grants to purchase, create or improve community assets that have regional or national significance with a cost of $3m or more. The fund is not an annual allocation and it was unknown when it might be available again.
Napier city councillor Maxine Boag said the fund application could still be made but lack of council support could prove a barrier.
Hawke's Bay Regional Council's announcement it would concentrate on environmental projects was another barrier, because a $2.5 million contribution from the regional council was hoped for.
She said she was not convinced Napier ratepayers wished to spend significant amounts of money on the facility, a question that was unanswered by the business case for the facility.
The lack of space for indoor sports was "pretty dire" and there were more economical ways to provide the space than the proposed facility.