Should they stay or should they go?
The old rules are gone about where the winner might host the next America’s Cup.
Team NZ victories in the America’s Cup trigger a wave of national euphoria and if it secures a fourth win next month that’s unlikely to change.
What will change, though, is the question of ‘‘what next?’’ For the first time ever, New Zealand may have to compete with wealthy overseas cities for the right to stage the defence of the Auld Mug.
Formal bids from cities interested in hosting the 37th America’s Cup – should Team NZ retain it – close on February 28, and the Government may find others are prepared to pay more.
Considering the uncertainty over the future of Team New Zealand, the cup itself, and a world hopefully emerging from the Covid-19 pandemic, are the past arguments to invest in a cup defence still relevant?
Team New Zealand signalled the biggest shift in October 2020, opening a global bidding process run by a London-based agency to gauge interest in offshore hosting.
That process was sparked by the need to explore the commercial value of the event for a team unique in being built almost entirely on sponsorship, rather than billionaire backers.
CEO Grant Dalton believed the team’s future could depend on it being able to be supported by the fee paid to host an event, which it won at its own expense.
‘‘In the scenario that the event was paid for, but the team was not, you wouldn’t have a team to be in its own event,’’ he told the Sunday Star-Times.
The oddity of sailing’s premier league is that the winner owns the event and can largely do what it wants. When Alinghi from landlocked Switzerland took the cup in Auckland in 2003, it sold the hosting rights for a series of regattas across three years to Valencia, Spain, for $147 million.
With 12 teams, Valencia’s hosting of the 32nd cup was the biggest in 30 years, and made a profit of $108m, delivering a profit share of $47m to Alinghi and $14m to Team New Zealand.
That was by far the cup’s biggest commercial success. When Oracle sold the rights to San Francisco for 2013, an eye-watering deal based on between eight and 15 teams crumbled when only four turned up.
San Francisco-based Oracle Team USA sold the 2017 rights to Bermuda, and was negotiating with Chicago, when Team NZ’s win brought it back to Auckland.
2007 showed the commercial value of racing held in a market as big as Europe. But the Global Financial Crisis of 2008-9; three big, costly technology changes in successive America’s Cup boat classes; and finally the Covid-19 pandemic has changed all that.
The economic benefits forecast by the Government from hosting the 2020-2021 races were based largely on the two previous Auckland events in 2000 and 2003; namely overseas visitors and a boost to the marine and boatbuilding industry through visits by superyachts.
The Helen Clark-led Labour Government also contributed to offshore challenges, with $36m towards the 2007 Valencia campaign, $10m of which was early money to retain crew. That was in return for trade, tourism and business promotion opportunities.
‘‘There are events New Zealand has proven it is a world winner at, one is rugby and one is yachting,’’ Clark, who is Team NZ’s patron, said in November. ‘‘If we have successful brands like the All Blacks and Team New Zealand, the country should get officially behind it for Brand NZ, really, and look for the opportunities to leverage.’’
For 2020-2021, an economic impact assessment forecast thought between $555m and nearly $1 billion of benefit would flow over four years with between six and 10 challengers and 160 superyacht visits.
But most of the big ticket contributors to the economic forecast fell short with three challengers instead of between six and 10. A retrospective assessment of the regatta is due in July.
Professor Simon Milne, director of AUT’s NZ Tourism Research Institute, said immediate and longer-term tourism benefits from America’s Cups and other mega events were hard to accurately measure, and global tourism in a ‘‘Covid-lite’’ world is unclear.
‘‘We do need to be more careful, what we have seen is the idea we are sold, of an event based on certain projections, those projections are not always robust, and even if they are they can be totally thrown out by something like Covid,’’ Milne said.
‘‘I’m sceptical that we would have reached those benefits, even if we had not had Covid.’’
Eric Crampton, chief economist at the New Zealand Initiative think-tank, is doubtful about the economic benefit arguments mounted to big events like the America’s Cup and the Rugby World Cup, pointing out that corrections to the Government’s original Cost-Benefit Analysis left the outcome of this America’s Cup around the break-even point of one-to-one.
‘‘If the main benefit is a giant party, you should just be honest about that,’’ said Crampton.
Tourism Industry Aotearoa said the biggest promotional benefit remained the less tangible impacts of showing off Auckland as a venue, the country’s technical ability, and its sporting prowess.
‘‘That can lead to more people coming that year, the following year and the next decade, because of that positive impact,’’ said chief executive Chris Roberts.
‘‘With the America’s Cup there is a sense of pride and ownership as well – so are we prepared to take a lower return on investment – as long as it is still positive – because we want it to be part of New Zealand?’’
A politically sensitive part of the equation is the biggest single economic contributor of a vibrant America’s Cup in a world free of Covid-19.
Visiting superyachts and their wealthy owners are often cited by critics of the events as the aspect they most dislike. Yet the Marine Industry Association said that had 140 large boats not turned back from committed voyages to New Zealand due to Covid-19, they would have spent more than $430 million here.
‘‘We see (government support to secure event) as a business investment, not an investment into a yachting regatta,’’ said Peter Busfield, the chief executive.
Win or lose, Team New Zealand is funded cup by cup, so after the last race the coffers are empty. Traditionally its wealthy individual backers like Monaco-based Matteo De
Nora have contributed seed funding to help retain crucial team members until new sponsorship deals are done.
There is already speculation about whether its main and naming sponsor for the past 18 years, Emirates Airlines, will continue in a Covid-19 world that has decimated air travel.
The team’s biggest assets after the final race are its intellectual property and – if it wins – owning the rights to its next defence. Dalton is determined to keep any future cup defence in Auckland if possible, but his first priority is the survival of the team.
‘‘If I have to balance the emotional aspect of the employees who sweat blood for this place compared to the greater New Zealand good, I would always go for the people who work here,’’ Dalton said.
Dalton wouldn’t talk about who was bidding and how much, but said some interest had been ‘‘exciting’’ both for the event and for the future of the cup.
Part of the future is to find a way to attract more teams, making the high-tech AC75 foiling monohull class easier for new, lower-budget entrants.
Team New Zealand is likely to have to find a replacement Challenger of Record – the event partner and co-funder, after its long relationship soured with the owner of Italy’s Luna Rossa, Patrizio Bertelli.
From the outside there is much that could be problematic in negotiations with the government on a new hosting deal, even though almost all the infrastructure spending for a repeat event has already been made.
The hosting fee of $40m paid for 2021 covered only part of the event costs, with Dalton saying that only in recent weeks did the team’s own commercial fund-raising mean all the costs were covered.
That $40m looks too light for next time, if Team New Zealand seeks a deal generous enough to also cover some campaign costs. But there are many ways a deal could be structured.
For 2020, the Ministry of Business, Innovation and Employment (MBIE) led the management of the government’s investment in a host partnership with Auckland Council and Team New Zealand’s America’s Cup Event Limited (ACE).
The MBIE-ACE relationship is effectively dead after the ministry worked with a selfstyled ‘‘whistleblower’’ – a contractor inside the team – and commissioned an investigation for months without alerting its partner, the team.
It is likely the government will have to create a new constellation of bureaucrats to explore a 2023 hosting deal.
If Team New Zealand wins, the only certainty is that a decision must be made within months. The team’s agents are already finalising a short list of any overseas bidders, and refining draft agreements. That will get put to one side during a three-month exclusive negotiation period to June with the government, before Team New Zealand decides whether the next defence will stay or go.