Friday 19th July 2013
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The government employed Financial Markets Authority chairman Simon Allen to help negotiate its $402 million convention centre-for-gaming concessions deal with SkyCity Entertainment Group.
Allen, a former investment banker who has chaired the market watchdog since May 2011, took a key role in talks with the casino and hotel group, according to papers released by Ministry of Business, Innovation and Employment Minister Steven Joyce this week.
Joyce said he tapped Allen, who he met as chairman of Crown Fibre Holdings, after he became minister following the 2011 election. While the officials had done a good job, "I did feel that we needed some stronger commercial expertise," Joyce told BusinessDesk. SkyCity "definitely had a strong negotiating team."
Allen wasn't immediately available to comment on any perceived conflict of interest with his role as chairman of the FMA though Joyce said: "If at any stage we thought there would be one he would have stepped down."
The talks had ground on since SkyCity first made its proposal in September 2010 to fully fund a national convention centre in exchange for a list of wide-ranging concessions. That list was virtually cut in half by the time a heads of agreement was signed this year. Prior to Allen coming on board, the company and government officials couldn't even agree on what had been said at meetings they both attended, papers show.
"I think he understood some of our arguments and the commerciality of the situation, so that was helpful instead of people who'd worked in the MED all of their life," SkyCity chief executive Nigel Morrison told BusinessDesk.
The deal has been criticised by opponents ranging from the Labour Party and Greens, to advocates for problem gamblers and media reports have cited the Treasury's luke-warm view of the economics of convention centres in New Zealand. Labour's Economic Development spokesman David Clark said today SkyCity had "hit the jackpot" with the deal.
But SkyCity's Morrison said the deal "is no windfall." The convention centre itself offered only "a marginal return, so we had to get our returns out of other things" such as the value in an extended licence. "We're not counting on the convention centre to be a big profit centre."
"It is a good deal for the government and a good deal for SkyCity," Morrison said. "It gives us an increase in gaming machines and tables and allows us to meet medium-term growth expectations of our company."
The deal had become "good political fodder" though the extra 230 gaming machines amounted to just 1 percent of total New Zealand pokies, he said.
The value of the 27-year extension to SkyCity's exclusive gaming licence is about $75 million, in line with a valuation by KordaMentha, the company has indicated.
Allen is a veteran of financial markets, having founded and run ABN Amro New Zealand and chaired the NZX until 2008. His name first appears in a Jan. 18, 2012, note to Joyce from the Ministry of Economic Development which says he "is now assisting MED with the negotiations." The papers show he was in direct talks with Morrison during the negotiations.
Shares of SkyCity fell 0.7 percent to $4.28 on the NZX today. In the past year the stock has gained about 20 percent, lagging behind a 31 percent advance in the NZX 50 Index.
Forsyth Barr analyst Jeremy Simpson, who rates the stock a 'buy' with a 12-month price target of $5.13 estimated the net benefit of the convention centre deal at 15 cents to 20 cents in a May research note. His view has softened a tad since then, he said today.
The company has more to gain from its $350 million Adelaide development, which includes a 6-star hotel, expanded gaming floor, 500 more slot machines, 100 extra gaming tables and an extension of its exclusivity until 2035.
"Adelaide remains more of a game changer as in my view that market is much less developed and the casino to date has had a relatively weak position in the market - the changes there will transform that business," Simpson said.
Key risks now for the company relate to building the new facilities in Auckland ahead of generating any revenue from them and without disrupting existing operations, he said.
"Casinos need to make the most of any potential regulatory changes as the opportunity probably happens once a generation," he said.
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