What's the connection between Beckham & Iron Maiden?

You might wonder what the connection is. Well, the first connection is that there was a separate story about each on TV1 news last night. They were in the same news hour.

In the first story ARC's Chief Executive had to front the announcement that ARC had sustained a $1.74 million dollar loss in hosting the Beckham LA Galaxy Soccer event at Mt Smart Stadium. You can see some of the devastatingly empty seats behind the pic of Beckham shown here. He put on a good show.

The second story on TV1 was about the concert being held tonight at Mt Smart (20th Feb) where Iron Maiden is to perform. It was a nice story about 3 guys sleeping outside the gates for tickets. They came up with a question about Iron Maiden that even the band's manager couldn't answer - and it turns out the trio will get free passes back stage tonight, so they can ask their question in person. Fantastic.

But here's the thing. TV1 also announced a "two for one deal" on Iron Maiden tickets. Now where have I heard that before? What does it usually mean?

And to wrap this one up, just to note that ARC's Chief Executive on TV1, said that the lessons of running the Beckham Event will be learned by the Auckland Regional Council, "...so that this sort of thing never happens again..."

Who to blame for ARC losses?

The ARC is groaning under the weight of Official Information Act requests for details of losses sustained by the LA Galaxy/Beckam football event held at Mt Smart late last year. During the night of the dramatically low turnout, the ARC Chairman appropriately fronted TV cameras and accepted full responsibility. But as the full magnitude of the loss became apparent, and details emerged about which staff member had done what, tactics changed and ARC's Chairman asked the Office of the Auditor General to investigate everything and anything related to the event. The O.A.G. has been offered wide terms of reference for its investigation. Last I heard that report might come in a few months. These things take time.

Interestingly, on a David Beckham blog site at: http://www.davidbeckhamnet.com/ the following extracts from a NewsTalkZB report are quoted:

"The new Local Government Minister wants to know what went wrong, after the
disappointing LA Galaxy exhibition match which will leave the Auckland Regional
Council out of pocket.For organisers to break even, 19,000 people were needed to
attend Saturday night's game at Mt Smart Stadium between David Beckham's
football team and the Oceania All Stars. However, the crowd numbered only 16,600
with many taking advantage of the two-tickets-for-one deal which was on offer
when it was realised attendance would be lower than expected.Minister Rodney
Hide says if the Auckland Regional Council can afford to promote football
matches, it is obviously swimming in cash. He says rates need to be brought
under control and ratepayers need to be getting value for money.The ARC has said
ratepayers will not be affected and the loss will be offset by profitable events
such as the upcoming Big Day Out and the Iron Maiden concert. LA Galaxy won the
match 3-0. Earlier this year, The Herald reported that the Galaxy's match fee
was $1.71 million...."

While the details of the ARC meeting (Full Council 28th April 2008) which decided to go ahead with the Beckham event are confidential, you don't have to be a rocket scientist to guess how much the event would have cost in total, adding to the match fee: LA Galaxy travel and accommodation costs; marketing and promotion costs; and all the other costs that are properly associated with a professionally run event like this.

We can all see what happened. The idea of a Beckham event in Auckland was attractive. But it could only be guaranteed if LA Galaxy were booked and paid for well in advance. The die was cast in the middle of 2008. Then along came the mother of all crashes. But the show had to go on. It was then a question of maximising attendance in the teeth of a recession which saw people scratching around to fill their family christmas stockings. A completely different economic context from the time when the decision to commit to LA Galaxy was taken.

Who do you blame for the recession?

Anyway, shortly after the Herald published a dramatic front page expose of ARC's losses on another front (losses sustained by its treasury function ARH which manages Ports of Auckland Ltd, Regional cash reserves, Waterfront development etc on ARC's behalf)

(see: http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10554681),

the Hon Rodney Hide paid the ARC Chairman a visit. I can't reveal what was discussed, but again, you don't need to be a rocket scientist to guess.

What a conundrum. The Chair has stated he's responsible for the Beckham losses - speaking for the ARC Council. Now everybody and their dog wants to know what the losses are, and they are leaving no stone unturned trying to get at the facts. And now the Auditor General has been asked to investigate. Where will it all end?

The Beckham thing is all very interesting, but surely the losses sustained by ARH - following decisions by the ARC - are of rather greater significance. Somewhere between $35million and $70million in the past 12 months. With more in store. Who is to blame for them? Who is accountable? How did those decisions get made based on available information?

Surely it would be a better use of public money to have the Office of the Auditor General investigate that one, if it is to investigate anything at all.

ARC couldn't organise a booze-up in a brewery

"...ARC couldn't organise a booze-up in a brewery, even if they did get DavidBeckham over to pour the drinks. But it's true, apparently...." - that's what Jim Hopkins wrote in NZ Herald newspaper on the 11th December. And now the public waits while the Auditor General gets to the bottom of the Beckham matter. Everybody wants to know how much public money it cost, and who to blame.

Funny how this story obscures the really painful ARC story. Just a couple of days later, the NZ Herald reported: "...Plunging global share prices have wiped $25 million in three months from a $1.2 billion fund for public transport and stormwater in Auckland. The books of Auckland Regional Holdings turned red in the first quarter of the 2008-2009 financial year on the back of an investment exposed to emerging market shares...."

But nowhere in that report can you find a single quote from the ARC politicians accountable for the decision to invest around $300 million of regional savings in global investment schemes. The $25 million loss is "unrealised" at the moment. $25 million are the paper losses for September 2008. The ARC hasn't been advised yet what the losses are for the months of October and November 2008. But these months saw spectacular losses internationally. Could be another $50 million down the toilet. Makes the Beckham thing look like a Sunday School picnic by comparison.

It gives me no pleasure at all to have voted against this investment. I was one of a minority of councillors who opposed it. The decision was taken a couple of years ago - in the last term of ARC. The politicians in charge then are the same as now: Cllrs Bassett and Walbran sat on the ARH Board then (and do now), and Cllr Mike Lee was in the ARC Chair (as he is now). They led the voting in support of this risky investment.

I well remember how the debate went. What was extraordinary was that ARH was not only recommending investing public savings in global investments - they advocating taking out a big bank loan as well, paying the interest, and investing that money in global investments also. They really believed this was a sensible thing to do, and that they could beat the bank rate.

My experience of this stuff hasn't been significant, but what I know I learned as a councillor on North Shore City Council when we sold our shares in Auckland International Airport. This was sometime before the end of 2004. We got over $82 million. I remember our investment bank advisers were keen that Council should invest that money. "Maximise return", they said. But NSCC finance officers advised that the prudent action for a city council was simple. They advised we desposit the money in the bank - to minimise risk.

The emphasis was on risk minimisation. Not return maximisation.

That time, councillors took the advice of their officers. The money went into the bank. It has since been applied to North Shore infrastructure projects.

While ARC councillors were persuaded to take a risk with regional savings, they have not - yet - agreed to take out a bank loan and chuck that into international bonds. But Cllr Walbran reckoned it was an OK thing to do. His business restores old MGs. Tweedledum reasoned this way: "it's like me taking out a loan to buy MG car parts. I get more from selling car parts than the loan costs me. It's like that..." I wasn't the only one to question his judgement. Would you buy $300 million in MG car parts? Using someone else's money?

Anyway. The upshot was that a "Diversified Financial Asset" was set up by ARC's treasury subsidiary ARH - with ARC agreement to that material transaction. And now we hear there's a $25 million loss. But that's just the start of the bad news. Bruce Jesson must be turning in his grave.

We need that financial asset as security against the bank loan ARC will use to buy electric train infrastructure. That loan will be around $500 million. The plan is to pay the interest on that loan from fuel tax revenues. That part of the plan is OK. The problem the ARC faces is that the value of its assets is in freefall on international markets. How will the bank assess ARC's financial security? Perhaps we'll have to put up a regional park or the Ports of Auckland as security.

That is one of the biggest issues for 2009.