Rotorua's controversial Mudtopia Festival is too financially risky for the council to run and someone else should take it on, a new report recommends.
The report, prepared by Rotorua Lakes Council arts and culture manager Stewart Brown, also recommends the council talk to the Ministry of Business, Innovation and Employment about calling the Mudtopia Investment Agreement.
The council's operations and monitoring committee will vote on the recommendation at a meeting on Thursday.
The festival has been dogged with issues, including the cost to ratepayers, controversy over paying for and importing mud from Korea and the number of tickets given away.
The total loss for the event was $570,387, plus $170,000 of capital expenses.
Mudtopia held from December 1 to 3 last year, attracted about 14,000 visitors but only 1500 people paid for their tickets.
The report said the council's event team "reacted quickly" to "ensure the event was vibrant" by giving away 12,000 tickets to locals and 3000 to sponsors and suppliers.
The festival was expected to become self-sustaining, but given its failure to attract revenue from ticket sales and the high fixed costs, the report did not believe the council-owned model should continue.
The report said the council's decision to fund the event was based on a "comprehensive feasibility study" and business plan. The event specialist that delivered the festival, Event Engine, said the festival could be deemed a success in many ways.
Brown's report to the council committee says that although festival costs were well contained, the type and scale of the event meant a number of suppliers and musicians had to be contracted early, resulting in a high fixed cost component that was difficult to mitigate once ticket sales became clearer.
It said the lack of income from ticket sales, sponsorship and other funding were affected by media coverage of the intended purchase of mud powder from Boryeong in South Korea.
Mudtopia's timing, close to Christmas, may have also had an effect on ticket sales.
The council decided in December 2015, it would own the event through a structure and directors. The council also agreed to underwrite up to $500,000 each year until it reached a sustainable level.
An investment agreement was signed with the Ministry of Business, Innovation and Employment Major Events in January 2017 with a commitment of $1.5m over five years.
Brown's report said after discussions with ministry officials, Mudtopia still had the potential to be an "exciting addition to the Rotorua events calendar", which was why it recommended it would continue to explore options for others to run it.
"However, given the failure of the event to attract acceptable revenue levels and the high fixed costs, we do not believe the current council-owned model should continue."