Show us your assets
You’re among Adelaide’s many tens of thousands of SANFL footy club members, or perhaps one of the South Australian Cricket Association’s loyal 25,000. What if you discovered that the Adelaide Oval Stadium Management Authority (AOSMA) executives were prepared to deliver up the SANFL’s and/ or SACA’s assets, or other ‘undertakings’ (not publicly defined), to a total of $21 million each, as collateral into the hands of government treasury officers to get a hotel construction loan without ever asking you beforehand whether it was a good idea? No public business case presentation. No hotel revenue forecasts. No risk analysis.
It turns out that this is exactly what was going to be necessary when AOSMA presented an in-confidence business case just over one year ago, on 9 October 2018, offering the Marshall state government your club’s assets as equity for a huge loan. That was about six weeks before the SANFL or SACA announced an oval hotel plan to their members – but without revealing those specifics.
A 12 December 2018 ‘indicative’ loan document that spelled out that offer, and other financial details, didn’t surface for almost another two months, until 4 February 2019. But only then because a parliamentary select committee was soon to begin asking questions. Double that $21 million and it comes to the $42 million that the borrower, the AOSMA, sought to build a park lands ‘Oval Hotel’. But the lender, state treasurer Rob Lucas, wasn’t interested in AOSMA’s assets. These had a net value at 30 June 2017 of only $5.1m, according to the state auditor general. Not enough. Instead, the guarantors are SACA and the SANFL.
Monday not far away
Monday 2 December 2019 is the day that a $42m loan at 4.5% interest via the state treasurer, Rob Lucas, becomes available to AOSMA. It may be used to begin addressing the uncomfortable consequences of a higher interest Commonwealth Bank bridging loan, driven by the AOSMA’s impatience to begin building its hotel many months ahead of 2 December. The 2011 oval stadium legislation says that AOSMA can’t get its hands on fresh government money before 1 December 2019. If it wants to begin demolition and start reconstruction months before midnight, 1 December 2019 (which was apparently critical, and is now occurring), it has to find the dough elsewhere.
Curiously, however, the Lucas construction ‘indicative’ loan arrangement appears to be authorised to help settle aspects of that bridging loan in the period leading up to 2 December. In other words, it is needed to cover the early construction costs racked up by AOSMA during the winter and spring of 2019, during which they activated the tilt-up slab construction teams off-site. There’s also the cost of the architect’s fees for plans and drawings, and/or revisions, given that the room tally changed from 128 to 138.
This loan arrangement appears inconsistent with the intent of the 2011 oval legislation. Here’s the indicative loan offer wording (emphasis my own):
“The construction loan facility is only to be applied by the borrower toward payment of, or reimbursement for, eligible expenses incurred for the purposes of the project, including payout of any existing short-term debt relating to the project. Eligible expenses will include reasonable costs for demolition, construction of the hotel building (including fit-out), necessary external Adelaide Oval plaza works, required infrastructure, necessary professional fees for design and construction, and any statutory fees payable as described in the ‘Adelaide Oval Business Case’ prepared and submitted to the state on or around 9 October 2018.”
The construction loan period will be brief, commencing 2 December 2019 and ending on 31 August 2020. Then it becomes a term loan. It’s a race against time.
Bubble bubble, toil and trouble
AOSMA proposes to create hotel accommodation targeting 2020 Cricket World Cup visitors, which explains why there was a June 2020 completion date (now extended to September), leaving time to finalise fit-out, turn down the bed covers and fill the bar fridges. But AOSMA is well aware of an angry Adelaide hospitality industry that sees an oval hotel competing with existing as well as new hotels under construction in Adelaide’s CBD. In acknowledging and responding to that anger, its documents curiously presented compelling evidence that 2020 is precisely the wrong time to open a new oval hotel because it will coincide with a new Adelaide CBD hotel room glut.
There are already thousands of city hotel beds; now there’s going to be even more. An SA Tourism Commission website reproduced by the AOSMA noted that a new hotel construction boom is occurring now and will last until 2020: Adelaide Casino hotel development, 123 new rooms; Crowne Plaza, 326 new rooms; Sofitel Hotel, 251 new rooms, plus the recently opened airport Atura Hotel, 165 rooms. A total of 1,476 additional new city-based rooms will be opening by 2022. Recent new announcements now add to that tally. Competition will be fierce, discounting rampant. Many rooms will stay empty.
The money model
One Adelaide witness to the
parliamentary select committee brought long local experience in the business of
city overnight accommodation. He claimed that in the first year of a new hotel,
no money is made. The second year might see ‘break-even’. The third year might
see profit, but only if you know the business inside out. AOSMA oval hotel
completion: 2020, followed by three very challenging trading years. Poor Year 1
sales could be overwhelmed by loan interest payments, and oval annual lease
payments. Year 2 sales: possibly the same. The AOSMA’s books already show
declining revenues. What do the tens of thousands of SACA and SANFL members
think? Future cash revenues from SACA and SANFL events will form some of the
collateral described in the indicative loan wording “assets and
undertakings”. If the financial outcome is negative, maybe then some
members might demand to see the AOSMA’s 9 October 2018 business case – as well
as SACA’s subsequent additional viability study. Each was provided
‘in-confidence’ to the parliamentary committee. Why not to tens of thousands of
Apart from AOSMA CEO Andrew Daniels, who is on a salary (about $450,000 p.a.), no AOSMA board member claims to be paid. Given the potential for high anxiety about future risk, perhaps they should be. Then again, the actual risk falls to the SANFL and SACA and their members. If the hotel is a business flop, each organisation will have to make up the revenue shortfalls to ensure the AOSMA state loan and oval lease payments continue. It’s a curious business. Two sports organisations’ collateral is the basis for a $42 million taxpayer loan to build a park lands hotel, in a concept plan thought up by an oval board that doesn’t have to take any risk. And if it flops, then footy teams and a cricket association, drawing on members’ “assets and undertakings”, will make up for the negative cash flow and loan commitments.
Are there many SAFNL or SACA members who comprehended this when the loan documents were signed?
Ash Whitefly is Executive Director of the Adelaide Whitefly Institute of Diplomatic Studies.
Get the latest from The Adelaide Review in your inbox
Get the latest from The Adelaide Review in your inbox