Public opinion is turning against subsidising Team New Zealand's America's Cup campaign and hosting the competition in a billionaires' tax haven is only likely to make the situation worse, the Government warns.
Prime Minister John Key said the international yachting regatta was increasingly seen by Kiwi taxpayers as "billionaires playing with their toys".
"Turning up in Bermuda hardly helps in terms of breaking down that image."
Bermuda was announced yesterday as the next America's Cup venue, pipping San Diego at the post.
Team New Zealand may now need to secure rights to the America's Cup qualifying stages in Auckland to have any hope of getting Government funding, after ministers said the choice of Bermuda as the host country offered few incentives for a taxpayer subsidy.
Government ministers said the small island nation provided fewer commercial opportunities for local companies to leverage off a New Zealand bid.
They also noted that New Zealanders' growing opposition to subsidising a rich man's sport was unlikely to be helped by the decision to hold the competition in Bermuda - a billionaires' playground and known tax haven.
Team New Zealand was expected to present a business case to government soon, which could include a proposal to host the official qualifying series regatta for the America's Cup in Auckland's harbour.
Mr Key said a challenger series featuring all of the competing syndicates would "certainly help" the business case.
However, the likelihood of Auckland securing a major part of the competition was far from certain.
Economic Development Minister Steven Joyce said: "Some people have suggested that the challenger series would be in Auckland. But I think that's unlikely given that they're expecting most challengers if not all of them to turn up in Bermuda."
He also said a decision on hosting rights for the qualifiers would not be made until February, which was "frustrating for us frankly and ... I imagine also for Team New Zealand".
The minister described Bermuda as a "much less attractive" choice than the West Coast of the United States, which offered commercial spin-offs for New Zealand's food, beverage, information technology, marine and high-tech manufacturing companies.
The Government invested $36 million in the previous campaign and Team New Zealand is likely to seek a similar amount for 2017.
But Mr Key said public opinion was turning against subsidising the yacht race.
"I think there's been a bit of frustration growing over the years, and I think a lot of voters and a lot of New Zealanders have just seen it as billionaires playing with their toys."
The Bermuda location did not appear to have deterred Team New Zealand's major sponsors.
Omega were reportedly interested in retaining their sponsorship and Toyota New Zealand said the location presented "unique opportunities" for the company.
Logistics sponsors such as Emirates - who could not be reached yesterday - could face bigger commitments because of Bermuda's remoteness but were believed to be onside.
Treasury advised Government against investing in the America's Cup Team New Zealand in March, saying it was poor value for money and the benefits of a New Zealand bid could still be gained if public money was not spent.