In response to an opinion piece in the Mercury from the Coordinator General Our Place Hobart has submitted two articles to Tasmanian Times for publication – the first published earlier this week was “Economic Puff Piece – Stadium Costs are Clearly Understated”. This is the second article.
Assuming All Risks
How Tasmania’s Contract with the AFL Places the Burden of Risk on Tasmanians while Benefits Flow Elsewhere
The ‘contract’ signed between Premier Rockliff and Gil Mclachlan in May 2023 places the entire burden of risk on the shoulders of Tasmanians, while most of the benefits go to the AFL. Hardly surprising considering it was AFL lawyers who drafted the ‘agreement’ and there is no evidence that the Tasmanian Office of the Attorney General or Treasury cast an eye over the wording. It also assigns all rights to waive any contract condition to the AFL, sending the Tasmanian Government cap in hand to the AFL to beg for a waiver.
The major risks to be borne by Tasmanians concern – cost overruns, fines and compensation payments for failure to meet any contract condition, and ongoing operational costs associated with running the venue. Bear in mind that no stadium in Australia runs an operating profit, with governments regularly called upon to bail out venues or pay hefty subsidies to attract performers and specific events.While these often only appear as money moved into a different column in the budget papers, eventually they impact on state expenditure in other portfolios that are pressed to find ‘efficiency dividends’ – i.e. do more with less.
Predicting Cost Overruns
Predicting cost overruns in large infrastructure projects is problematic to say the least, which is why economic analysts include a percentage for contingencies when estimating the final cost for such projects. Standard measures are often applied but have been found increasingly to be wanting since the pandemic and the post-pandemic recovery have amplified inflation in the construction sector beyond expectations.
To try another approach, 10 recent Tasmanian projects and 8 other similar projects around Australia, including 4 stadia often cited for comparison purposes, have been examined to determine the average percentage cost increase.
Cost Overruns or Budget Blowouts – 10 Tasmanian Infrastructure Projects
| Tasmanian Project | % Increase |
|---|---|
| AAD wharf upgrade – quoted $350M in 2022, now up to $500M (increase of $150M) not finished | 42% |
| Expansion of the Southern Outlet – original quote $49M, now $100M (increase of $51M) “on hold” | 104% |
| STP relocation – $140M in 2017, last estimate $314M (increase of $174M) not finished | 124% |
| HPC at Kingston – $60M in 2023, latest estimate $105M (increase of $45M) not finished | 75% |
| Spirit Berth Infrastructure (Devonport) – original estimate $90M, last quote $493M (increase of $403M) | 447% |
| Bridgewater Bridge – initial quote $576M – cost upon opening $786M (increase of $210M) not finished | 36% |
| Cradle Mountain Cableway – initial projection $60M – current estimate $190M (increase of $130M) | 217% |
| Glenorchy Ambulance Station – initial quote $10M – final cost $14.45M (increase of $4.45M) | 45% |
| Brighton High School – initial budget $30M – final cost $74M (increase of $44M) | 146% |
| Marinus Link (North-West Transmission Devt) – Est’d cost $940M – latest estimate $1.14Bn (increase of $200M) | 21% |
| Average percentage increase – Tasmanian projects | 125.7% |
Important notes on Tasmanian calculations:
** Tas Water sought extra funding from government to enable additional works to be completed in the tighter timeframe imposed by the stadium – plus the old pipeline running across the site now has to be moved out from under the stadium and underground carpark.
*** The HPC at Kingston was originally estimated to cost $70M which included a $10M private contribution from the AFL. The latest increase has taken the price to $115M with the Tasmanian Government (i.e. taxpayers) bearing the entire burden of risk, and the AFL contribution remaining unchanged. Only public funding has been included in this calculation.
Cost implications for the stadium:
- Applying 125.7% increase from start of project: $715M stadium would cost $1.6Bn ($1,613,755,000)
- Applying to latest estimate: $1.13Bn would cost $2.55 billion ($2,550,410,000)
Only public money has been included. The source of public funds (local, state or federal) is irrelevant.
Cost Overrun Examples from Interstate
| Interstate Project | % Increase |
|---|---|
| Adelaide Oval – original SA govt commitment of $410M increased to $535M on opening in 2010 | 30% |
| Perth/OPTUS stadium & precinct – original estimate $1.15Bn, final cost $1.8Bn on opening in 2017 | 65% |
| Townsville Stadium – concept design estimate $180M in 2011 – final cost $312M on opening in 2020 | 73% |
| Allianz Stadium Sydney – cost increased from $729M in 2019 to $874M on completion in 2022 | 20% |
| Victoria’s West Gate Tunnel – cost increased from $6.78Bn to $10Bn in 2021 | 49% |
| Commonwealth Games in Victoria abandoned – costs blowout from $2.6Bn to $7Bn (2023) | 270% |
| Penrith Stadium rebuild abandoned – cost blowout from $309M to over $900M (Aug 2023) | 300% |
| GABBA rebuild abandoned – cost increase from $1Bn (2021) to $2.7Bn (2023), latest $3.2Bn | 320% |
| Average percentage increase – Interstate projects | 140.9% |
What this means for Tasmania:
A cost overrun of 140.9% (average of interstate projects) on $1.13Bn (latest estimate from MPDC) = $2,722,170,000
Even excising the abandoned projects from the above list, the average cost overrun for completed projects in other states is 47.4%. This would increase the cost of the stadium to $1,665,620,000.
The Per Capita Cost Comparison
It is interesting to note that states abandoned projects that would have cost their citizens significantly less per capita than a stadium at Mac Point will cost Tasmanians:
- GABBA Olympics renovation @ $3.2Bn: $575.49 per Queenslander
- Commonwealth Games @ $7Bn: $1,005.86 per Victorian
- Stadium @ Mac Point ($1.13Bn): $1,961.95 per Tasmanian
If costs rose by 47.4%: A stadium at Mac Point ($1.67Bn) would cost each Tasmanian $2,891.91
Critical Issue: A potential increase of 47.4% is way beyond the contingency of 21% that the Proponents allowed in their cost estimates for a stadium at Mac Point. As Dr Gruen noted, the potential risk for cost increases was underestimated, citing a recommendation by Richardson for “a 15 percentage point addition to WT Partnership’s 21% contingency allowance, bringing the total contingency allowance to 36%.”
Other Known Risks and Costs
Fines for Failure to Meet Completion Dates
| Completion Milestone | Fine Amount |
|---|---|
| 50% complete by 31 October 2027 | $4,500,000 |
| Fully complete by 30 April 2028 | $4,500,000 |
| Fully complete by 30 April 2029 (provided AFL grants extension) | $4,500,000 |
Compensation Payments to the AFL
Under Clause 5.9 of the contract (Stadia Compensation): if the stadium is not available for whatever reason when the AFL wants to schedule a game, it may elect to schedule the game at an Alternative Stadium. The AFL will then calculate revenue generated and compare it with expected revenue to determine any losses. If losses exist, the AFL will issue a Matchday Revenue Shortfall Notice.
The Tasmanian Government has agreed to pay the AFL the amount shown in any Matchday Revenue Shortfall Notice, with the AFL passing on to the Club that portion the Club would have been entitled to had the match been held at an Alternative Stadium under Equivalent Access Terms.
Important note: “For the avoidance of doubt, if the Actual Match Revenue is more than the Expected Match Revenue, then neither the AFL nor the Club will have any obligation to pay the Tasmanian Government the difference.” In other words, it’s a one-way bet for the AFL.
Scenarios Where the Stadium Might Be Unavailable
There are many reasons why a ‘multi-purpose’ stadium might not be available when “the AFL wants to schedule a game”:
- Turf recovery delays: Forsyth Barr Stadium in Dunedin has been forced to move games elsewhere because the ‘hothouse’ turf takes more time than allowed in the schedule to recover between matches. Forsyth Barr stadium has the same ETFE material as the proposed roof at Mac Point.
- Concert scheduling conflicts: If a major act comes to Hobart to perform, the road crews need several weeks to set up and bump out around show night. Scheduling concerts during the AFL and AFLW seasons could prove problematic when events clash.
- Concert ticket sales precedence: Concert ticket sales of 30,000 will likely take precedence over a Devils home game with 23,000.
- Public health emergencies: If heavens forbid, there’s another pandemic and Tasmania is forced to reactivate the moat.
The Ongoing Costs Problem
Maintaining this behemoth will not come cheaply. The lack of transparency that a ‘commercial in confidence’ classification excuses is also a concern – we may never know the true costs of running ‘our’ stadium.
What Do Other Stadiums Cost?
- Perth’s OPTUS stadium: Runs at a loss; had a $16.8M shortfall over its first 3 years. The WA Government subsidises major acts to perform exclusively on the west coast (e.g. Cold Play) to attract east coast fans.
- Adelaide Oval: Pays the AFL (undisclosed sum but $40M has been mooted) to hold the Gather Round.
- Townsville stadium: Stadiums Queensland paid up to $2M in ‘appearance fees’ to Elton John to have him perform at the newly opened venue.
Critical finding: No stadium in Australia ‘makes a profit’. They all run operational losses and require regular state subsidies.
Projected Costs for Mac Point Stadium
MCI Global predicted: A loss of between $132M (best case scenario) and $480M (worst case) over the first 5 years.
KPMG’s Financial Impacts Review (Appendix G in MPDC submission to the TPC): Based calculations on an average annual lifecycle cost of $5,706,000 and an annual operating loss of $7,848,000.
Even with an optimistic events calendar, KPMG’s predicted return on each dollar invested is 69¢ – and this was based on a cost of only $775M. The optimistic events calendar lists additional events and assumes almost without exception that these extra events will require “Event attraction funding” to “secure events in a competitive market”. This suggests a bottomless pit of ongoing expense for Tasmanians.
Other Cost-Benefit Analyses
Other analyses found even poorer returns:
- Gruen Review: 44¢ return on each dollar invested
- CBA by TPC: 45¢ return on each dollar invested
The TPC Panel found “optimism bias in the Proponents assumptions on the cost of the stadium and associated infrastructure, the estimated event attendance, and the economic benefits flowing from the Project.” These negative CBA results are entirely consistent with the research literature that overwhelmingly agrees that stadia do not earn a positive return for those who fund them.
What the Research Literature Says
In their research into subsidies routinely paid to professional sports stadiums by state and local governments in the USA, Bradbury, Coates & Humphries (2024) cite robust evidence that stadiums are not economic development catalysts and confer limited social benefits. They conclude that:
“Economic research continues to demonstrate that stadiums remain poor public investments, and optimal public funding of professional sports venues is substantially less than typical subsidy levels.”
Coates (2007) on Local Economic Development
In his exploration of the literature on the impact of professional sports teams and stadiums on their host communities, Coates found:
“The broad conclusion of this literature is that stadiums and franchises are ineffective means of creating local economic development, whether that is measured as income or job growth.”
Zimbalist & Noll (1997) on Flawed Economic Arguments
Zimbalist and Noll challenged the usual claims made by stadium promoters, who particularly focus on jobs. They noted that proponents claim sports facilities improve the local economy in four ways:
- Building the facility creates construction jobs
- People who attend games or work for the team generate new spending in the community, expanding local employment
- A team attracts tourists and companies to the host city, further increasing local spending and jobs
- All this new spending has a “multiplier effect” as increased local income causes still more new spending and job creation
However, Zimbalist & Noll (1997) found these arguments contain bad economic reasoning that leads to overstatement of the benefits of stadiums:
“Such promotional studies overstate the economic impact of a facility because they confuse gross and net economic effects. Most spending inside a stadium is a substitute for other local recreational spending, such as movies and restaurants. Similarly, most tax collections inside a stadium are substitutes: as other entertainment businesses decline, tax collections from them fall.”
“Building a stadium is good for the local economy only if a stadium is the most productive way to make capital investments and use its workers.”
The lack of any counterfactual for an alternate use of the Mac Point site means that the government has made no attempt to assess whether a stadium is, in fact, the most productive use of that land.
Case Study Evidence
In an extensive examination of the local economic development argument, Zimbalist & Noll looked at case studies of specific facilities, as well as comparing cities and neighbourhoods that had and had not sunk hundreds of millions of dollars into sports development:
“In every case, the conclusions are the same. A new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment. No recent facility appears to have earned anything approaching a reasonable return on investment.”
More recently, Parker (2015) cites Noll, Stanford Professor Emeritus with decades of expertise in the economics of sport, who concluded:
“Stadiums do not generate significant local economic growth, and the incremental tax revenue is not sufficient to cover any significant financial contribution by the city.”
The Net Outcome for Tasmania
Sadly for Tasmania, a net transfer of economic benefit out of the state is likely. Mainland or foreign corporations will oversee the stadium’s construction; FIFO workers will build it; specialised construction materials will be sourced interstate or internationally; construction and heavy vehicle fleets will have to be enlarged with purchases from out-of-state to avoid crowding out local transporters already struggling to meet demand.
Once operational, 7 AFL games per year and a few other major events (lured by ‘attraction funding’) will not be enough to cover the operating losses, let alone pay loan interest. Meanwhile, big media, big sports, big betting corporations, international airlines, hotel and hospitality chains will take the major share of that 50¢ return on each dollar the state invests, while a few Hobart-based businesses squabble over the leftovers to the detriment of their peers in regional areas.
When he signed that contract in May 2023, the Premier effectively committed the state to a blank cheque addressed to “whatever it takes”.
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