James Farmer

Legal Commentary

America's Cup Part 3A

Monday, December 11, 2017

Last week, I expressed my concerns about the damage being done to Team New Zealand’s hard won reputation because of the coincidental request by it of the Government and/or the Auckland Council for a “hosting fee” for the holding of the next America’s Cup Event in Auckland and the revelation (by TNZ) that it had been offered over $100 million by Abu Dhabi and by Sochi in Russia (neither being noted for premium yacht racing) to shift the Event to their location.  The Mayor of Auckland was reported as saying that the request for a fee (over and above the funding of the infrastructure costs of holding the Event expected to be between $140 million and $190 million) “came out of left field” and was mentioned by Grant Dalton for the first time on 19 November.

The public reaction was swift and adverse with suggestions that if TNZ took the Cup offshore this would be a betrayal of the New Zealand public which had given huge support to the efforts to “bring the Cup home” and, through their taxes, very substantial sums over the past 14 years totalling more than $50 million.

Knowing as I do many of the TNZ people and having worked with them for 10 years from 2004 to 2013, I refused to believe that this would occur but suggested that TNZ should come out promptly with a denial of any intention to hold the Cup anywhere but in Auckland.  (I ignore the somewhat bizarre visit by TNZ management to Tauranga and choose to view it as a courtesy call only rather than as an ill-judged attempt to persuade Auckland City to loosen its purse strings.)

Rare media attention to my blog was followed by an uncanny silence from TNZ, which only served to add some credibility to the view of an increasing number of people that there was truth in the prospect of the Cup going to the highest bidder or, if not, that TNZ was following a strategy of disseminating misinformation with a view to putting pressure on the Government or the Council to pay the requested hosting fee.  The Herald on Sunday reported that TNZ declined to comment because the “damage was already done” by the reporting of my column.   Odd to say the least, given that it was the damage that TNZ was doing to its own reputation (and of its directors) by demanding a hosting fee, while revealing that it was receiving these offers from foreign cities, that motivated me to plead with them to issue an immediate public denial.

However, there has now been a happy ending, albeit one that took 6 days to achieve.  The Sunday Star Times has published an interview with Grant Dalton under the heading “Dalton hits back, vows to keep the Cup in NZ”.  That is truly great and hopefully faith in TNZ will quickly be restored.

What remains unclear is what a hosting fee (if paid) would be used for.  Its origin was said to be moneys paid to the Defender (Alinghi) by the City of Valencia (over and above the huge infrastructure costs incurred by the City to establish the bases and related facilities).  Just what those moneys were applied to is not entirely clear but what is clear is that the operating costs of the Event in Valencia were principally met by commercial sponsors such as Louis Vuitton.

The Sunday Star Times Dalton interview focuses on the costs of staging the Event.  Dalton says in that interview that the fee was never sought for TNZ but was to cover the costs of the Event.  If that is right, then what needs to be addressed is the question of commercial sponsorship.  Louis Vuitton, which complained through an arbitration process of its treatment by Oracle, on past history may be keen to play a major sponsorship role in the funding of the Event. If not, Prada itself or other major manufacturers can be expected to take the lead Event sponsorship role.  There will, again on past history, be others who will not be willing to sponsor a team but who will want their names associated with the Event.  That makes the request now for a fee to be paid by central and/or local government for those costs to be premature until a serious effort has been made to obtain commercial Event sponsorship.

TNZ will of course have its own sponsorship exercise to undertake to fund itself.  Against the background of past strong criticisms by it of the costs of previous events, particularly in the Alinghi/Oracle era, the costs of a 2 boat programme of a new, concept, foiling monohull is something that will obviously be of interest to all potential entrants but should also be of interest to stakeholders in New Zealand if those costs have the effect of reducing the number of entrants and limiting therefore the expected financial gains arising to New Zealand for the staging of the Event.

One would expect that the Protocol confers on TNZ the right to change the boat to something more conventional if the projected costs of developing what at the moment is not a reality should prove to be prohibitive.  Much is made of the estimated speed of a foiling 75 foot monohull but most of the excitement that the previous AC monohulls (now regarded as dinosaurs) generated came from the closeness of the racing and the accompanying tactics.

The Herald on Sunday makes the cryptic point that “the America’s Cup runneth over with challenges”.  Yes it does.  Whatever decisions TNZ makes will generate critics.  Accountability is the inevitable burden of any entity that is the recipient of public moneys.  But one thing that TNZ does have going for it is the outstanding effort that its designers, sailors and shore crew achieved in bringing the Cup back to New Zealand.  If it plays with a straight bat the public support will assuredly be there.

Jim Farmer

11 December 2017

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