How corrupt is the Government's SkyCity convention centre deal? According to rightwing political commentator Matthew Hooton, the development of the deal was 'as close to corruption as we ever see in New Zealand'. This is Hooton's verdict in his must-read NBR column, which has been made available online today: Close to corruption.

His column is useful in understanding the Government's bizarre SkyCity convention centre deal, which now appears to be unraveling. Hooton paints a picture of a conspiracy of Establishment lobbying to get the dodgy SkyCity deal done, and how the ideological underpinnings of this government have changed.

Whereas in the past New Zealand governments have kept to rather neoliberal conventions about public policy process - in which government deals with individual businesses are verboten - the current government is devoid of such principles. According to Hooton's version of how the John Key Government works, it's all about friends in high places doing deals. He suggests that the SkyCity deal was driven by 'politics and political friendships' rather than economic rationality.

Furthermore, Hooton explains how the PM's righthand man, Wayne Eagleson worked behind the scenes to cook up the highly unorthodox convention centre deal: 'Eagleson - whose best friend and Las Vegas gambling buddy is Mark Unsworth, SkyCity's Wellington lobbyist - had been conducting private talks with SkyCity through 2009 and early 2010, including about what regulatory relief SkyCity wanted'.

Hooton, who has extraordinary access in government and business spheres, also reports on how John Key came to take on the Tourism portfolio, which then naturally led to what Hooton sees as an obsession with getting convention centres built.

Hooton suggests it was big business that encouraged Key into that role: 'The origins of this fiasco lie in the close private relationship established between John Key and SkyCity in the mid 2000s. When he became prime minister, Mr Key surprised many when he appointed himself minister of tourism but it was old news to SkyCity. Its executives had advised business partners well before election day that things were looking up because Mr Key had "agreed" to become tourism minister'.

So now that the SkyCity deal has essentially fallen apart, why doesn't the Government pull the plug and start again? Hooton suggests something somewhat sinister: 'The problem is that SkyCity has a guaranteed casino monopoly in Auckland and changing that would create enormous litigation risk. Beyond that, SkyCity knows too much. They have been talking privately with Mr Key and Mr Eagleson for many years. Abandoning the project would therefore create unmanageable political risk. Plus there are long-standing personal friendships to consider'.

Left and Right unite

It goes without saying that the political left is strongly opposed to the SkyCity deal. What's more remarkable is the degree to which the right is lining up to condemn their own government over the issue. Toby Manhire points this all out in his column today, Time to bail out of SkyCity bailout. Amongst others on the right, Manhire quotes Sean Plunket as saying: 'I think this is the biggest mistake John Key has ever made'.

National blogger David Farrar is as strongly opposed to the deal as Hooton - see his posts, Better a free eyesore than a taxpayer funded coliseum, and Sign the petition against taxpayer money for Sky City . Farrar even congratulates Andrew Little for his performance in opposing the deal: 'he sounded rational and flexible, not just sloganeering against the Government'.

Looking at the comments left on Farrar's blog posts, Pete George also aggregates various National Party supporters' views opposing the SkyCity deal - see: Nats slam Sky City scam.

And like Hooton, even National loyalist Cameron Slater has alluded to 'corruption' about his own government, criticising National for continuing to go with the SkyCity deal when the public are so opposed: 'Another ditch that National are dying an unnecessary death in. I normally can see why, but this has me stumped. I'm starting to come up with tinfoil hat theories and they lead me to the "C" word' - see: Bill English sings from different SkyCity song sheet than Key and Joyce. What gives?.

Further to the right, libertarian blogger Peter Cresswell complains that 'taxpayers and ratepayers are being made ready to assume the position so that a private business can look after a bottom line - privatising its profits while quietly socialising its overruns' - see: SkyCity deal: this is what cronyism looks like.

Public revolt and condemnation

The public's revulsion towards the idea of $100m+ of taxpayers money going to SkyCity is strong. Campbell Live has reported on its phone poll this week: 'More than 10,000 texts votes came in for a poll we hadn't promoted before we went to air - 97 percent of voters said no' - watch its amusing 13-minute video: SkyCity fundraiser brings in $41.20. And for more public feedback, see TVNZ's SkyCity's demands for top-up 'not fair' - ONE News readers.

The public can also declare its opposition via two online petitions: The rightwing Taxpayers Union petition currently has 1093 signatures, and the Labour Party petition currently has 25,533.

Newspaper editorials are also condemning the latest chapter in the SkyCity deal, mostly with plenty of gambling analogies being used. The strongest one so far is today's Dominion Post editorial, Pokies paradise a folly Nats should let go, which says: 'The SkyCity pokie deal with the Government was never a good one. Now it goes from bad to worse... This is a shambles and it has clearly caused a schism in the Cabinet at the highest levels'. See also, an earlier Dominion Post editorial, Eyesore threat ups the ante , which suggests that John Key has now broken his promise.

The Otago Daily Times also argues that the changing convention centre deal amounts to a broken election promise, saying: 'Throughout the 2014 election, Mr Key told New Zealanders they were getting a ''free'' convention centre. The deal was done, the ink was apparently dry' - see: Rolling the dice.

For other editorials, see Matthew Dallas' Manawatu Standard editorial, SkyCity deal looking like a hustle, and the Waikato Times' If SkyCity abandons convention centre, too bad.

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Other commentators have been scathing. For instance, TV3's Patrick Gower says: 'So a "deal", is not a deal. It looks like Key and Joyce may have been totally played by the casino. SkyCity knows the Government cannot back out of this deal without severe political embarrassment, so it is testing the Government by asking for extra money. There is no doubt Key and Joyce are great dealmakers, but it seems the casino may have outwitted them' - see: SkyCity pokies deal a total rip-off.

In defence of the SkyCity deal

Not everyone opposes giving SkyCity more money. Mike Hosking wrote an opinion piece yesterday in which he dismisses the 'cynic's view' of the deal, and puts forward the argument in favour of more taxpayer funds for SkyCity: 'This is an investment and should be operated on the very simple adage that if you're going to do something, do it properly. Cheap isn't properly. Lord only knows the Auckland architectural landscape is festooned with the short-sighted idiots who did it cheap. I like to think my tax money is not only wisely spent but well spent. Convention centres, places to do business and attract people are aspirational investments, and aspirational investments are almost always money well spent' - see: The Old Renovator's Curse.

Of course, Hosking's piece is prefaced with a disclosure statement: 'Mike Hosking has had a commercial relationship with SkyCity in the past'. And for a very amusing parody of Hosking and the SkyCity relationship, see Scott Yorke's blog post, It's about friends helping friends. Similarly, see David Kennedy's SkyCity's Glorious Deal.

Another proponent of SkyCity's centre is 'former Sky-City executive' Heather Shotter, who published her advocacy in the Herald: We cannot afford to delay centre.

The Herald itself is less than enthusiastic about giving more taxpayer funds to SkyCity, but its editorial today does suggest that as an answer to the current problems, the Government just let the casino company get away with a lesser convention centre than promised: 'if SkyCity has found a 3000-seat convention centre to be uneconomic without a public contribution of capital or running costs, then the Government should change the specification rather than put in public money. Let SkyCity build to whatever scale it believes it can operate profitably' - see: $402 million enough to buy us the centre we need.

Government and corporate spin

The political management of the unraveling SkyCity deal has been particularly awkward. According to Vernon Small, 'This week ministers have been trying to rewrite history on just what "free" meant. Economic Development Minister Steven Joyce, whose name is on the deal, indulged in contortions unbecoming of a minister of a certain age, claiming the deal was "free to the agreed value of $402m".' - see: Counting the cost of 'free' .

The NBR's Nick Grant has been relentlessly attempting to get answers from the Government about certain inconsistencies and implausible explanations provided about the unraveling SkyCity deal and has reported the stonewalling from various politicians' offices. In his article, Key refuses to rule out convention centre taxpayer top-up , Grant says that 'The government is "spinning faster than a roulette wheel"'.

In today's NBR article, 'Govt, SkyCity refuse to respond to convention centre queries' (not currently online), Grant writes that 'spin doctors for Mr Key have refused to directly address NBR's questions about the convention centre'. He reports on the responses, in particular, from 'Chief spin doctor Sia Aston', which have ranged from the opaque to the blatantly disingenuous. For example, in attempting to explain one inconsistency, Aston replied: 'In trying to understand any differences in the language used around this issue, it's probably just important to note that the situation has clearly changed and therefore the nuances in language have changed'. In response to further attempts to understand the evolving SkyCity deal, the spin doctor simply replied: 'We have already answered your queries'.

In Grant's article, I am also quoted as explaining that the floundering political management exhibited at the moment indicates the 'severely poor situation' the Government is in. I explain that 'the government has lost control on this issue and is lurching from one spin to another' in its attempts to manage the unraveling of a deal gone wrong.

What is to be done?

There's a clear message from many commentators that the Government should walk away from the SkyCity deal, or at least hold SkyCity to what was originally agreed - see, for example, Duncan Garner's Key must say no to SkyCity. Garner points out that 'The 'eyesore' argument from John Key is his weakest since he has been in office. It's laughable'.

However, would other bidders even be interested in a new process after the disaster of the present one? Certainly, according to Radio New Zealand, the original four other bidders don't appear to be overly interested - see: Convention centre cost rise questioned.
John Key has shifted his tone considerably over the past week, and now appears less enthusiastic about a taxpayer bail out for the convention centre. As Vernon Small reports, 'Key has toughened up his opposition to putting taxpayer cash into the planned SkyCity convention centre. In a further retreat from his earlier stance that a cash top up would be necessary to prevent "an eyesore" being built, Key today said he would take a lot of persuading to top up the $402m SkyCity had pledged' - see: John Key in retreat on SkyCity convention centre (http://bit.ly/1AsTm8M).

The PM's language has shifted significantly from that reported in Nicholas Jones' article, Key warm on taxpayer funds for convention centre.

Other options for solving the unraveling deal include, according to Vernon Small, 'a 50-50 split' on the increased costs from both sides. Small says, 'That would leave the taxpayer on the hook for about $65m - enough to be politically awkward but not so much that the Government will bring the house down' - see: Counting the cost of 'free'.

An alternative scenario could see the Government stumping up with a considerable amount of money in return for a clawback of some of the regulatory benefits that SkyCity have negotiated - for example, a shorted extension to their gamling licence, or fewer additional pokie machines.

But if SkyCity thinks it has the Government 'over a barrel' on this, they should probably think again suggests Rob Hosking in his column, Purple Haze over SkyCity deal (paywalled). He points out that Finance Minister Bill English appears to be strongly against providing more taxpayer funds, and that 'Neither Mr Key nor Mr Joyce are as keen on the SkyCity deal as they once were, for a whole batch of reasons'. According to Hosking, the Government may indeed walk away from the deal, which will leave SkyCity without its highly sought after regulatory changes, leaving the company vulnerable to a future change in government that may not extend its gambling licence: 'If the politics are a bit iffy now, SkyCity executives could by then be dealing with decidedly unfriendly Labour-Green government'.

For some more novel solutions, see Toby Manhire's Time to bail out of SkyCity bailout.

Winners and losers of the deal gone wrong

The National Government will ultimately be damaged by the SkyCity deal going wrong. Steven Joyce's reputation, in particular, will be tarnished. And as Patrick Gower points out, the issue has been incredibly useful for the opposition - see: SkyCity deal political jackpot for Little.

What about SkyCity? Gower also reports that 'The Government's willingness to pay means the casino has already had a win - a jump in its share price' - see: SkyCity share price jumps on Govt announcement.

But with the debate shifting against SkyCity that also could change. Newstalk ZB's Larry Williams says the publicity has been very negative: 'My gut feeling is that the Government, if they do give anything to SkyCity it will be minimal. I might be wrong, but the hostile reaction from the public will have registered. The biggest loser in all of this is actually SkyCity. They are perceived as underhand, devious and manipulative, reneging on a deal. Trying to take the Government for a ride. It absolutely destroys the millions they spend on PR' - see: The First Word: Sabin, Halbergs, SkyCity, Harbour.

The SkyCity deal might come to be seen as one of the Key Government's defining symbols - a deal that went badly that was based on no other political philosophy or ideology than 'crony capitalism'. Of course there's been plenty of other 'corporate welfare' handouts under the Key National Government (the Tiwai aluminuim smelter, Hollywood studios, South Canterbury Finance investors), but this one is the one that has unravelled the most. This episode therefore provides a useful guide to how power operates in 2015 in New Zealand politics.

Finally, for a visual version of how the SkyCity controversy is unraveling, see my blog post, Cartoons and images of the SkyCity deal.