In its final report on government industry assistance (i.e. corporate welfare) released in August, the Queensland Competition Authority recommended an end to the lack of transparency that still, alas, characterises Queensland Government industry attraction measures. This lack of transparency was obvious on Friday when the Government announced the attraction of the Thor: Ragnarok film production to Queensland. As reported in the Gold Coast Bulletin:
The Premier declined to reveal whether the State Government had provided any financial incentives to secure the Marvel production, to be filmed exclusively in Queensland.
The State Government is rumoured to be contributing $3 million to the production while the Federal Government will reportedly kick in a total of $47.25 million towards Thor and Ridley Scott’s untitled Alien film, to be shot in Sydney.
This is regrettable, because it means the public is not given the opportunity to make a fully informed judgment about whether the assistance provided is in the best interests of the State. And it goes against clear recommendations made by the QCA that the Government should:
(a) cease providing attraction incentives for major film productions that deliver benefits largely appropriated by international production companies
(b) focus assistance for film and television production on activities that deliver net cultural benefits to the state
(c) ensure that any incentives, where government chooses to provide them, are provided transparently. (Recommendation 10.4, p. x of the report, which is available on the QCA website)
I have previously been highly critical of government assistance to the film industry, including in my 2013 article in the CIS’s Policy magazine Moochers making movies: Government assistance to the film industry. And, on ABC News in August, I expressed my disappointment that the Queensland Government had so quickly dismissed the QCA report’s recommendation (see my post ABC News interview on industry assistance).
Transparency is definitely the key here … if there are demonstrable benefits (over costs) for the local economy then it’s worthwhile considering such financial support … of course a lack of transparency simply makes people think the opposite might be the case.
Yes, I agree. Thanks for the comment, Stephen.
Agree with you completely on this one. What is really happening here is that a whole bunch of private downside investment risk for the film is being socialised across all Queenslanders via a grant. The approach ensures that the return to the taxpayer is a loss of 100% of the investment (guaranteed).
The losses are socialised, while the gains (if the film is a success) are privatised. This is pretty bad policy (being very polite here).
Surely the Government should be able to negotiate that the assistance is actually a contingent loan at the very least. If the film is a dud, the money is lost (no change from existing policy). If the film is a success, the loan is repaid (along with a hefty risk-adjusted return). This approach would appear to be slightly less dumb than the current one.
Yes, great point, Jim. Thanks for the comment.
Gene, I know yourself and others have questioned the spending of money on a new stadium in Townsville and on a pure economic view, some points have merit. But when governments can waste $50m subsidising a couple of movies for short term employment opportunities it makes the $200m for an infrastructure project with a 30 – 40 year lifespan look like a real bargain.
Thanks for the comment, Glen. Good point about the problem of wasting money for short-term gains while money could be better spent on projects delivering longer-term benefits (even though as you note I’m concerned about the economics of that particular project).
The fact that questionable economic investments are being made in one area (i.e. subsidising movies) does not make questionable economic investment in another area (the Townsville stadium) OK. Public investment is not warranted for either.
I agree that investment in north Queensland is warranted, but lets make sure it is on something that makes a real difference and is not a waste of taxpayers’ money.
I’m bored this morning, so I took your advice and did a quick and dirty benefit cost analysis for the new stadium over 30 years. I’ve assumed a capital cost of $300 million, a discount rate of 5%, patronage of 250,000 persons per year (about 10% higher than current levels), an average risked price of $35, and the same operational costs per visitor as the portfolio of stadiums run by stadium Queensland (see link below for financials).
The bottom line is that the stadium has a net present value over the thirty years of -$218 million. That is society is worse off by $218 million if we invest in the stadium. So the stadium fails the basic investment appraisal test and shouldn’t be developed.
The expected return on each dollar invested is 38c. To put the investment in perspective, the expected return from putting $1 on “black” on a roulette wheel is 95c.
For the stadium to break even, average ticket process would have to be in excess of $135 (a lot higher than current levels!).
Jim, great back-of-the-envelope calculation! I’m tempted to hoist it from comments and feature it in a post. Thanks so much for this.
Jim, your numbers are flawed from the start. The stadium cost is only $190m, $20m for an indigenous sport excellence centre for a total cost of $210m, the extra money is for the convention centre component which would need to be calculated separately. Importantly any cost benefit analysis should also include the $100m cost involved with upgrading the existing stadium should the new one not be constructed. This is the point of the new stadium that everyone is missing. Stadiums Qld identified it will need to spend $100m demolishing the existing grandstand that still remains from when it was a pacing track and build a new one, with facilities expected of a modern stadium, covered seating, onsite catering, handicapped access, corporate facilities etc etc. Consider these facts into a cost benefit analysis and the numbers look a lot different to the ones you have calculated, and still a long way in front of $50m for a couple of movies. Anyway glad we managed to relieve your boredom for a few minutes
Thanks for the clarification Glen
So it seems like the options are:
1) Build the new stadium. $190M for the new stadium + $100M to decommission the existing stand (if I understand you post correctly)? So the net cost of the new stadium is still close to $300M and it is still a poor investment. Even if the State doesn’t decommission the existing stand (avoiding the direct cost of $100), the decommissioning cost should still be incorporated in the BCA (unless Townsville somehow needs two stadiums). Numbers end up being similar to what I said in the first place. Bottom line is a return of around 40c for each $1 invested.
2) Spend $100M refurbishing and upgrading existing facilities only. I reworked my numbers, but adjusted capex down to $100M and still assumed the increase in patronage. Expected return on each $1 invested improves to about 85c, but the roulette wheel still provides a better return.
3) Put the money on “black” for a return of 95c in the dollar.
4) Do nothing. Expected return on each $1 is……err……$1. The point is that Stadiums Queensland doesn’t actually “need” to do anything.
So doing nothing is the best option, which is slightly better than a trip to the casino, and way ahead of the stadium.
Sorry Jim, I should have explained better, the $100m is to replace the western stand at the current stadium which has been there since the 1980,s and is failing, and will need to be replaced in the next 5 – 10 years anyway. So the equation is spend $100m on a new grandstand at the old stadium site in the middle of the suburbs with poor access, or $200m on a complete new stadium in a much better location and much better facilities, access etc. Some funds would be recouped with the sale of the land from the old stadium site as it sits on approx 70000 sq metres but cost associated with dismantling existing stands etc would eat most of that. The Townsville Council will purchase the land from Lend Lease for the new stadium as part of their contibution to the project.
Is TCC actually doing a BCA of the options? Seems pretty necessary to me.
Jim, I doubt it, the TCC and a BCA aren’t something that get mentioned in the same sentence very often. It actually adds a level of complication to the project. Lend Lease own the land that is the preferred site of council and Qld Govt but they have owned the land for many years and have priced it above what the council sees as good value. So the council have gone down the path of compulsory acquisition so who knows where it goes from here. I like many are generally against this type of public funding of developement without a considerable amount of private investment in the project and have been disappointed by the lack of a firm commitment by the NRL, however I believe the stadium will be a catalyst for a substantial lift in private investment in the Townsville CBD which will finally slow the endless suburban sprawl and create a defined city centre.