Analogy not quite right

NBR reports:

“So, if the centre is now going to be 10% smaller, then obviously the concessions afforded to the casino should be 10% smaller. For example, the increased number of pokie machines should be about 205 instead of 230, the increased number of large tables should be 36 instead of 40, and the increased length of the gambling license should go down by about five years.”

I disagree. Because is still spending the same amount of money. The concessions were valued at around $400 million (net present value), which is what they will still spend.

In comments to NBR and on social media, critic Matthew Hooton mined a similar theme, posting: “If I contract to build you a five-bedroom house with a swimming pool for $2 million but then you agree I can build you a four-bedroom one with only a hot tub for the same $2 million, then I have come out better than you in the negotiations. Does our press gallery understand this? Do MPs? I bet @nztreasury does.”

Matthew’s analogy fails on a key point. If you are a building company and you build a smaller swimming pool, then it doesn’t affect you at all – because you do not benefit from the swimming pool when complete.

But what Matthew, and others miss, is Sky City will be the operator of the convention centre. They will be the one who benefits or loses from how well patronised it is.

If we get a couple fewer conventions coming to NZ because the centre is a bit smaller, then it is Sky City that will not get the convention rental, the room hires, the meals, the entertainment spending.

Sky City have an incentive to make the convention centre as attractive as possible to attract conventions, because they (not the taxpayer) have to pay for the ongoing operating costs.

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