The SkyCity convention centre deal has returned to haunt the Government - and provoke new controversy. In the first of a two-part series, David Fisher investigates the shifting landscape of the agreement.

The deal

SkyCity is building the Government an international convention centre in return for the Government changing the law to allow the firm to increase profits from gambling at its casino. SkyCity will operate the convention centre once it is built.

The deal was signed in July 2013 at the end of two years of negotiation and after SkyCity chief Nigel Morrison gave the Government a list of law changes he wanted. SkyCity also wanted to protect its casino monopoly by having its licence extended to 2048.

The casino company gets another 230 pokie machines and 12 automated gaming tables at which multiple people can gamble. It will also be able to include another 40 standard gaming tables.

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SkyCity CEO, Nigel Morrison.

There are also changes in the way gambling will be paid for, with about a fifth of pokie machines and automatic table games taking denominations higher than $20.

SkyCity must beef up measures to restrict problem gambling. Auckland Mayor Len Brown insisted on facial recognition technology to ward off banned gamblers. SkyCity says it is "making good progress with facial recognition technology trials".

A rare voice was experienced government consultant Tim Robinson. He expressed concern about the financial model to advisory firm KordaMentha, which reviewed the deal: "Our work relies on SkyCity's modelling and analysis because much of the information in each party's submission is provided by SkyCity."

The International Convention Centre at SkyCity is now forecast to cost $470-530 million.

He said there were "concerns about the objectivity and credibility of SkyCity's modelling".

His opinion is included in documents released to the Herald under the Official Information Act.

But not a 'done deal'
After two years hammering out the agreement, SkyCity and the Government have yet to agree a design.

The original timetable shows a final "detailed design" to be completed by July.

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The documents the Herald obtained show SkyCity started making changes almost immediately after it secured land from TVNZ in September 2013.

The most significant was the placement of a 300-room hotel on the TVNZ land. SkyCity had said for years the land was needed for the convention centre.

It was one of two "major initial concerns" held by officials. It meant "none of the convention centre is actually built on ex-TVNZ land".

In a briefing document a month later, officials said the change in hotel location made use of land that was "more valuable" and the "value proposition needs to be adjusted".

They drafted "suggested draft terms of reference" for the convention centre "evaluation" but no new valuation was conducted.

Economic Development Minister Steven Joyce said he expected details to change because the design had not been finalised.


Economic Development Minister Steven Joyce

Other changes included the "skybridge" across Hobson St no longer connecting directly to the convention centre. Instead, it now led to SkyCity's new hotel.

The $130m hole
At the end of last year, SkyCity said the original $402 million cost had been "revised" to $470-530 million.

Mr Morrison said "design improvements" would "further enhance the quality of the convention centre".

The original estimate in the 2009 feasibility study had been pegged at $329 million, but for a 27,000sq m centre.

Mr Morrison said SkyCity wanted a taxpayer top-up and told Radio NZ: "If New Zealand doesn't want it ... we don't have to do this."

He would not be interviewed by the Herald, but said in a statement: "We believe the architects and designers have delivered an amazing convention centre that we can all be proud of and one that will punch above its weight in attracting world-class conventions and exhibitions to New Zealand, providing jobs, tourism and other economic benefits for many years to come."


Design of the International Convention Centre

Property financier James Kellow, who owns NZ Mortgages & Securities with the Mansons TCLM family, questioned the cost.

He said central Auckland's 40-level Vero building was 39,000sq m and valued at $299 million. "If any government or council money was put into the project I'd hope they would open it up to a competitive tender -- or at least check the process."

The minister
Mr Joyce said SkyCity had raised the possibility of a $30-40 million in the first half of last year.

When the casino came back with a $70-130 million shortfall, he said: "We have to talk about this publicly." He told SkyCity to get the consent application in - it was already months late - "and we'll talk about it later".

Talking included floating the idea Auckland ratepayers could help cover operating costs, Mr Joyce said it was not an idea he ran past Mayor Len Brown. "Len floats lots of things that central government should do." He was sure the mayor would be fine with it being a two-way street. "He's robust enough."

On the day he spoke to the Herald, he was talking down the ratepayer cash idea and suggesting the council look at its regulatory fees for the consent and construction process.

Mr Joyce was also deeply involved in the detail - he was talking of finding a balance between "nice-to-haves" and "a concrete bunker".

He said the open market showed the original deal was "fair value for both parties. The original deal hasn't shifted their share price."

There was no need to revisit the agreement. "What we would want to do is ensure anything that was agreed over the top of that was fully tested."

He didn't believe the financial hole had put off supporters. "There's nobody else coming through the door who will pay $400 million of their own money for a convention centre."

Why do a deal?
In 2008, Mr Morrison had nowhere for his business to grow.

Profits were good but future prospects were crippled by Labour's 2003 law banning any increase in gambling. SkyCity went to court three times to find ways to increase business. By the time National came in it was clear there was no way around the law.

The company relied on making more money with the same number of pokie machines, card games and roulette wheels. While every other business in town could enjoy growing with the city - tipped to top two million people by 2031 - SkyCity was frozen in 2003.

Meanwhile, the new Prime Minister John Key was also stuck. He had announced $250,000 funding for a study into an international-scale convention centre, saying: "The lack of a large convention centre is losing us business visitors."


Prime Minister John Key

The feasibility study findings, published in September 2009, told Mr Key convention centres increased the local economy but didn't make money, saying "private sector parties are unlikely to invest". It would need government money.

SkyCity executives dined with Mr Key's chief of staff Wayne Eagleson during the study to tell him of "expansion" plans for its convention centre.

The PM and SkyCity came together for dinner on November 4, 2009. Mr Key told the casino team to not just expand the existing convention centre. "Think outside the box" and build something world-class, he said.

SkyCity would build a convention centre to host 5000 people, the PM was told, but it wanted to extend its monopoly licence, lock in its tax obligations and change the law to increase the opportunities for people to gamble.

And just like that, SkyCity's prospects changed.

Is this normal?
There is nothing normal about the SkyCity deal, says international business mentor, management consultant and academic Patrick Rottiers.

"Is this about the convention centre or about extending a virtual monopoly? The two are strongly linked from the beginning."

He said the "beneficial interest" lay with SkyCity, which was unable to grow in a rapidly expanding city.

"It's a strategic exercise from SkyCity around the casino revenue rather than the convention centre. If I were to evaluate management talent and strategic thinking, the points would go to SkyCity. They had that capacity problem and they realised if they weren't going to do anything about it, they were stuck."

Mr Rottiers said the deal had the appearance of being shaped by the personalities involved - starting with the Prime Minister.

There was none of the characteristic transparency NZ liked to pride itself on, there did not appear to be a fully tested open tender and the Government was outside its core business comfort zone.

The mayor
Len Brown's office assured the Herald that "as with any proposal of this scale and importance to Auckland, the mayor is obviously kept well-briefed".

When it came to Mr Joyce's suggestion of ratepayer funding, the mayor's office admitted it wasn't briefed before the minister spoke.


Mayor Len Brown

Mr Brown was an unlikely champion having been an ardent opponent of pokie machines when Manukau mayor. As Super City mayor, his view broadened at the prospect of a massive new facility in the heart of the city. A memo to the Government expressed strong support and said he "would neither support nor oppose the amendments to the gambling regulations being sought by SkyCity".

The mayor continued to back the plan even after losing a council vote over support for the deal funding the centre.

Mr Brown's ability to cheerlead the project was further damaged when it emerged he had enjoyed free use and upgrades to hotel suites while conducting an extramarital affair.

Next steps
SkyCity submitted its application for resource consent to the council on December 19. The commissioners considering the 1700-page application have to decide whether it needs to be publicly notified - allowing public submissions - or can pass without being put out for public comment.

Documents show the Government expected 18 months to be added to the timetable if it was notified publicly.

The council has been working with the firm since April 2011- two months before it was chosen as preferred bidder - to iron out difficulties. An early briefing paper from a council executive to the Ministry of Business, Innovation and Employment said there were four significant planning issues: architecture, heritage buildings, excessive parking and the Hobson St skybridge.

One city executive wrote in 2013: "Given the concern around the nature of the project [it] could be expected to attract a wide range of submissions."

SkyCity's ideal situation is to avoid a round of public hearings and associated media coverage.

SkyCity and the Government have until the end of February to agree the design and final cost of construction.

The project

The proposed International Convention Centre will be 38,000sq m on four levels. It will include:

Exhibition space: 8600sq m of exhibition space for 3500 people in three halls.

Theatre: To seat 3000 people for presentations or stripped out for large banquets and other events.

Gallery: A series of bridges connecting people to meeting rooms and theatres across the levels.

Meeting rooms: 3000sq m of meeting rooms and breakout spaces. Walls can be moved to adjust the size of the areas.

Sunset Room: To accommodate up to 1000 people for dinner or cocktails. It will look across the upper harbour and Waitakere Ranges.