We don’t need another AFL playing field.

We didn’t ask for a new stadium.

Macquarie Point is the wrong location for a structure of this scale.

And the Tasmanian economy can’t afford the additional debt this $1Bn+ precinct will impose on State finances.

Come along on 25 February to hear why the ‘agreement’ signed by the Premier and the AFL was and always will be a dud deal for our State.

Who is Nicholas Gruen?

Nicholas Gruen was born in 1957, the son of prominent Australian economist Fred Gruen (economics academic at Monash and ANU, and adviser to governments from the 70s to the 90s). His brother is the current Australian Statistician, David Gruen.

Nicholas is a prominent Australian economist in his own right; commentator on economic reform, innovation; founder of Lateral Economics; visiting professor at King’s College London’s Policy institute; former chair of the Australian Centre for Social Innovation, the Australian Government’s Innovation Australia. He has been described as “the most brilliant economist you’ve never heard of.” (Martin Wolf, author, journalist London Financial Times)

With degrees from University of Melbourne and Australian National University, including a PhD, Gruen worked as adviser to Federal Industry Minister, Sen. John Button from the early 1980s and was regarded as the architect of the Button car plan that freed up automotive trade, eliminated quotas, reduced tariffs and assisted exports during the transition. From 1990 to 1993 he was economic adviser to Treasurer John Dawkins. He has served on the Productivity Commission and the Business Council of Australia, directing its New Directions project. In 2000 he founded economic consultancy Lateral Economics, and discount finance broker Peach Home Loans. He has advised Federal and State Governments both as a consultant and when appointed as member or chair of various official committees, including the National Library, the board of Innovation Australia as well as chairing the Open Knowledge Foundation (Australia).

Gruen had a regular economic column for the Courier Mail, and later wrote regularly for the Australian Financial Review. He built the Herald/Age Lateral Economics (HALE) Index of Wellbeing, augmenting official national income measures to take account of broader range of parameters including changes in inequality, human capital, natural capital, and major health issues such as life expectancy, mental illness and obesity.

More detail here

Why was the Gruen review commissioned?
In securing support for his minority government after his last State election defeat, the Premier signed a deal with JLN members of Parliament. It was based on a number of conditions, one of which was to have an independent economic review of the State’s Finances, including an investigation of the implications of the Team Funding Agreement, precipitously signed without reference to Parliament, or his Cabinet or Treasury or the Attorney General, by Premier Rockliff and the then AFL CEO Gillon McLachlan in May 2023.

Included in the Team Funding Agreement were several conditions – most importantly for the state itself, the construction of a stadium at Macquarie Point. Nicholas Gruen was engaged by the Government of Tasmania and tasked with assessing the impact of this construction on the Tasmanian economy.

Media release – Tasmanian Government, 4 May 2024

Statement on independent review of state finances:

Macquarie Point Multipurpose Precinct – Terms of Reference

1) The independent review of State’s finances will include financial modelling of the Macquarie Point Multipurpose Precinct.

The independent assessor will review the existing analysis supporting the cost-benefit assessment of the Precinct (including financial modelling and assessments of the social, economic and environmental costs, benefits and impacts of the Precinct) and provide their assessment of the overall costs and benefits of the Precinct. In undertaking their review, the independent assessor may consult both within and outside Government.

2) To facilitate this review, the Government will provide the independent assessor with the following cooperation and assistance:

  1. access to all relevant material held by the Government in relation to the Tasmanian AFL team, the Macquarie Point multipurpose stadium, and the Arts, Entertainment and Sports Precinct at Macquarie Point (including all internal working documents, financial, economic, socio -economic, environmental and planning assessments, models and other relevant analysis; relevant contractual agreements including the Tasmania-AFL agreement; and the findings of prior consultations and independent expert input);
  2. access to previous analysis and reports relating to other proposed developments at Macquarie Point;
  3. c. full cooperation of Government stakeholders including the opportunity to consult and receive input from political stakeholders and from agencies (and, where relevant, their third-party advisors) involved in the development of the above material; and
  4. any other assistance reasonably required by the independent assessor.

Full media release here

How has Our Place’s No New Stadium campaign engaged with the process?

Shortly after the Premier released the Team Agreement/contract in May ’23 (on a Friday afternoon, 2 weeks after signing it, and after any ‘cooling off’ period had expired), members of the Our Place group organised a rally at Parliament House Gardens. Over five thousand of you turned up at very short notice, such was the concern felt for this insult being foisted on our community. Politicians from all corners of the paddock attended or sent letters to be read out by Essie Davis from the podium that day. Concern within Liberal government ranks soon led to a collapse of support for the Premier and forced him to call an early election, in the vain hope that he could secure a new majority.

Prior to the election ‘24, Our Place, through the No New Stadium website and Facebook page, surveyed candidates and publicised their response to the question of whether they supported the public funding of a new AFL stadium in Tasmania. After the votes were counted, overwhelming opposition to the stadium was revealed, with 62% of primary votes going to candidates who answered “no” to our question. With the stadium being one of the main spurs to calling the election and then a significant cause of the Liberal Government’s loss of a majority, it’s safe to say that the election was a referendum on the issue, and the state voted a clear and imperative NO!

Nevertheless, supported in part by some apparent back-pedalling by the ALP and two members of the JLN, the minority Liberal Government has pushed on, razing the Macquarie Point site, calling tenders, and paying expensive consultants (in the order of $65M) to plan and design a “mixed-use” precinct to put before the Tasmanian Planning Commission’s assessment of this Project of State Significance (PoSS).

The MPDC submitted its ‘Summary Report’ to the TPC in September 2024. Cobbled together hastily using cherry-picked data from all the analyses ever conducted into the precinct, plus some more recently commissioned reports, plans and concept drawings, it’s peppered with fudged photographs, errors and omissions, specific exclusions and comprehensive disclaimers, so much so that the TPC issued a 12 page request for further information and corrections.

The TPC has received submissions from HCC and other impacted parties including the TSO and RSL, and now awaits receipt of the MPDC’s amended report before opening up hearings for submissions from the public. These will need to occur by June ‘25 to be in adherence to the TPC’s timeline for completion by the end of 2025.

What does the Gruen Review say?

Dr Gruen presented his review to the government as contracted, on 31 December 2024. The Government waited until Friday afternoon 3 January, to publish it, at the end of a week when the calendar was filled with a load of events and sporting fixtures including the Taste of Summer and the denouement of the Sydney to Hobart Yacht race. This was also the first day of the final India vs Australia Test in Sydney. The cynics among us might question this timing, seeing it as an attempt to bury the findings in the holiday hubbub but, thanks to the many Tasmanians alert to any information regarding stadium stupidity, the news survived the weekend and re-emerged to occupy the airwaves for much of the following week. Despite the Government’s failure to even entertain addressing the review, and arrogantly dismissing it, politicians of many other colours have waded into the debate, calling on the government to renegotiate the AFL ‘deal’ and withdrawing their support for a stadium at Mac Point.

Independent review of the Macquarie Point Stadium

Nicholas Gruen: 1st January, 2025. 

OVERVIEW

Dr Gruen’s review of the proposed Tasmanian AFL stadium project at Macquarie Point raises serious concerns regarding cost overruns, flawed decision-making processes, inadequate community consultation, and a lack of transparency. The Review concludes that the project, as currently structured, is likely to be far more expensive than projected, with any benefits significantly overstated. Dr Gruen strongly recommends a significant re-evaluation of the project, including extending the timeline, more robust consultation, a revised cost-benefit analysis and a more transparent approach to public-private partnerships. The report argues that the current process risks significant cost blowouts, community division and reputational damage to the AFL.

Key Findings:

  1. Understated Costs and Overstated Benefits:

The central conclusion is that the projected costs of the Macquarie Point stadium have been significantly underestimated, likely to exceed $1 billion, and return only 44 cents for every dollar invested by Tasmania, indicating a substantial financial risk for the state.

Hallmarks of mismanagement are already in evidence owing largely to the Tasmanian Government’s self-imposed limit of $375 million on state debt which is unrealistic and already causing corners to be cut.

The benefits of the stadium, particularly in terms of tourism spillover, have been overestimated. The opportunity cost of the site has not been adequately considered.

  1. Flawed Decision-Making Process:

The decision to locate the stadium at Macquarie Point was made hastily by the Tasmanian Government and the AFL, with limited community consultation and a biased site selection process that seemed designed to support a pre-determined outcome.

The process failed to adequately consider alternative sites with potentially lower costs and higher benefits, and neglected important non-economic costs, such as the impact on the Hobart Cenotaph, and the waterfront’s social and environmental value.

The review indicates a lack of integrated planning, with wider frameworks for the city of Hobart being largely ignored.

  1. Inadequate Community Consultation:

The Review describes community consultation as “meagre” and insufficient, failing to  incorporate significant community concerns and values into the decision-making process. This lack of genuine engagement has contributed to community division and created reputational risks for the AFL as well as the Government.

  1. Lack of Transparency and Mismanagement:

The Tasmanian Government has been disguising the true costs of the project by using land sales as a “magic asterisk” with unjustifiably increasing valuations to hide further costs, all while excluding other costs such as the relocation of the Goods Shed and downplaying cost-overrun risks.

Meanwhile, interest payments on additional borrowing have been ignored and elements of the project, like car parks and catering facilities, have been carved out of the capital budget to help it appear to meet the Government’s borrowing cap.

This cost shifting to the private sector, while lowering government upfront costs on paper, ultimately impacts the stadium’s revenue-generating capacity and is described as “penny-wise and pound-foolish”.

  1. Over-specified Agreement with the AFL:

The Team Agreement between the AFL and the Tasmanian Government is “overspecified” and imposes “needless costs and restraints” on the project. In its insistence on specific details, such as location, completion dates within an unrealistic timeline, and the inclusion of a roof, the AFL goes beyond its core interest of ensuring the team’s viability and financial success, adding needless risk to construction costs. The review argues that many of these should be left to the Tasmanian community.

Recommendations:

The report outlines a series of recommendations to correct the course of the stadium project:

  1. Negotiate with the AFL to extend the deadline for stadium completion by approximately four years. The Tasmanian Devils could continue playing at existing grounds (UTAS and Ninja Stadium).
  2. Develop a Broader Plan for Hobart and integrate any stadium project into it to ensure any development contributes to broader social, economic, and cultural benefits, including the possibility of finding a different location for a stadium if necessary.
  3. Conduct a candid re-analysis of costs, co-signed by the Auditor General, and updated by Government annually.
  4. Focus project decisions on value for money, from the perspective of optimising value for the Tasmanian community, rather than adhering to a specific government borrowing cap. All public-private partnerships must align with best-practice policy and guidelines.
  5. Be open to considering alternative, unsolicited proposals for the stadium and encourage competition.

Conclusion:

The review concludes that the proposed Macquarie Point stadium project is currently flawed, and poses significant financial and reputational risks. It calls for a fundamental reset of the project, prioritising transparency, community consultation, sound financial planning, and a more considered approach to project delivery. The report suggests that the desire for a Tasmanian AFL team, while understandable, but must be approached with caution and not “at any cost”. The key focus should be on ensuring the project is in the best interests of the Tasmanian community.

What does it say about the AFL Agreement's fitness for purpose?

In Chapter 1, Dr Gruen analyses the agreement between the Australian Football League (AFL) and the Tasmanian Government for the establishment of a Tasmanian AFL team in terms of its specific directives and inclusions, the legitimate concerns of the parties, the financial metrics, and the historical and cultural context of the game in Tasmania. He finds the Agreement risks failure for the project by unnecessarily constraining Tasmania’s ability to optimise the costs and benefits of the project, resulting in reputational damage to the AFL.

Gruen argues the Team Agreement is too detailed, dictating specifics that are not central to its legitimate interests. This drives up costs and impacts on the cost-benefit ratio. Unrealistic development timeframes, the requirements for the stadium to be located at Macquarie Point, and overly specific design requirements, such as a roof and seating capacities, are especially concerning.

Gruen defines the AFL’s legitimate interests as ensuring the team is competitive, financially sustainable, and has a home ground suitable for broadcast feeds. He argues these interests could be achieved through direct financial metrics and Tasmanian Government subsidies, rather than through the infrastructure mandates contained in the Agreement.

Gruen regards this mismatch between the AFL’s core needs and the Agreement’s terms as problematic in its failure to recognise Tasmania’s demonstrated existing support base and the interest both parties have in investing in an AFL team in a manner which optimises overall community benefits.

Tasmania’s inclusion in the AFL is a high-stakes project, with reputational risks and rewards. The potential reward is solidifying the AFL’s status as a national game, and credit for recognising Tasmania’s status as a foundation Australian rules football state. There is a widely held view, even on the mainland, that Tasmania’s status as a heartland state, means it “deserves” an AFL team.

The potential risk is reputational damage if the project is not a success and if the AFL is perceived as a source of controversy and division through its heavy-handed approach. Although the reputational risks and rewards of the project are high, the strength of Tasmania’s support base dramatically reduces the financial risks. Unlike expansion markets with untested support, a Tasmanian team is expected to attract around 38,000 full-paying members. The Agreement, however, treats Tasmania as an expansion team from a non-traditional market, with prescriptive rules not applicable to the state’s history or context.

Dr Gruen warns that the AFL risks its social license by not behaving as an equal partner with Tasmanians, and by failing to recognise the shared interest of both the AFL and Tasmania in the success of its team. A successful team will mitigate many of the AFL’s perceived risks, including player retention. But rather than fostering community ownership and support by giving Tasmania autonomy over facility planning, the AFL’s approach undermines it.

The Agreement also creates new and unnecessary risks for Tasmanians. Rushed development timeframes, lack of flexibility and minimal community consultation prevent Tasmania from optimising the project within broader urban planning and community consultation frameworks. Decisions on timing, location and specifications should be based on the state’s legitimate interest in optimising the financial, social, economic and environmental benefits for Tasmanians. This requires proper community-consultation and planning.

Gruen points out that rather than risking the AFL’s social license, the AFL’s core interests would be better protected if the Agreement were reset to focus on performance-based viability metrics, allowing Tasmania to decide on the location, design and timing of a stadium. At the very least, and given the risk of disaster as a result of the current timetable, the AFL should grant an extension of time to locate and build the stadium, and it should waive the penalty fees.

Gruen concludes that the current agreement is not fit for purpose, and risks project failure. The AFL should reassess its priorities and recognise Tasmania’s unique position. It should respect the Tasmanian community, and focus on its core objective of financial viability and the long-term success of a Tasmanian AFL team with strong community support.

What does it say about planning, delivery, and stakeholders?

This chapter (Chapter 2) tests how adequate the planning, delivery and stakeholder engagement for the Macquarie Point Stadium project have been, and to what extent this matters. Gruen explains that project definition, especially site selection and full design specification, is the ultimate precondition for minimising the risk of cost-overruns and efficiently delivering the costly construction stage of the project. Yet this is not occurring in relation to the Stadium so far.

Gruen shows that, done well, major stadiums can be transformative for cities, while also providing the best experiences for mass audiences and increasing attendance. A well-sited stadium can become an iconic landmark that fosters community identity and catalyses urban development. But getting it right isn’t easy. Globally, only 8.5% of major infrastructure projects have been delivered on time and on budget. Poor planning, hasty decision-making and inadequate stakeholder consultation can drastically reduce the social, economic and cultural benefits to stakeholders and communities. A poorly integrated facility can unnecessarily divide the community, and burden public infrastructure and the surrounding neighbourhood for decades into the future. Melbourne’s Marvel Stadium (formerly Docklands Stadium) is a case in point. The facility has had so many problems that, at one point, Collingwood president Eddie McGuire pushed for the stadium to be demolished and replaced with investment near the MCG.

Major stadiums are key hubs that can alter the flow of people, goods and capital within a city. Their location must carefully consider accessibility, existing and alternative land uses, patterns of economic activity and the needs of urban communities. For these reasons, their development should occur alongside a comprehensive urban redevelopment strategy. 

The wide range of stakeholders, the complexity of the factors involved, the long-term nature of the project and the substantial impact on the city also make community engagement essential, including on where to site the facility. 

Little of this has occurred in Tasmania, where the planning process has been rushed and politically driven, isolated from any broader urban redevelopment planning, and with limited opportunities for meaningful input before crucial decisions were made. This risks increasing costs, dividing communities, delaying development, missing opportunities for social and economic benefits, and potentially delivering suboptimal outcomes.

What does it say about the site selection process?

In Chapter 3, Dr Gruen describes the site selection process as deeply flawed. It fails to prioritise community consultation, to properly account for opportunity costs, and makes no attempt to address critical urban planning trade-offs. He finds the site selection process and the resulting report were designed to validate a predetermined outcome rather than a genuine exploration of options. 

An unsound methodology, utilising an arbitrary scoring system that oversimplified crucial factors like heritage and economic impact, led to the selection of a site deemed unsuitable by many stakeholders. The methodology failed to consider alternative uses of valuable waterfront land, or to undertake meaningful community consultation. This approach contrasts with Perth’s successful Optus Stadium where extensive community engagement underpinned the site selection process resulting in a strong sense of community ownership and support. 

Gruen describes the 2022 site selection process as “surprisingly cursory”, with a methodology so flawed it should never be the foundation for such a consequential decision. The methodology reduced complex community values and impacts, such as heritage, to simple numerical scores with predetermined linear weightings. This fails to acknowledge the subjective nature of these values, misconstruing how communities value critical aspects of urban life. Impacts cannot simply be traded off against each other through numerical scores but require community input in determining their relative importance. Assigning a numerical score to each assessment criterion in an arbitrary way enabled the outcome to be manipulated. The scoring system positively weighted factors in which the favoured site held an advantage (e.g. limited current users, accessibility), with lower values for factors where it was at a disadvantage, thereby ensuring Macquarie Point received the highest overall score.  Such manipulation seriously challenges the validity of the whole process. 

The scoring system was also heavily skewed against the idea of opportunity cost. There was no analysis of potential alternative uses for the site, no attempt to value the land in terms of its highest and best use, and no consideration of the public or private value of the development potential being foregone. The approach treated vacant or underutilised land as a positive rather than considering the opportunities such scarce waterfront land represents.

Gruen explains that a genuine site selection process involves extensive community consultation to establish values and non-negotiable parameters from the start. This should be followed by deep engagement with existing urban planning frameworks and future city visions, as well as consideration of the best case that might be made for potential rival sites. Rather than applying one-size-fits-all criteria as occurred in the site selection of Macquarie Point, there should be recognition of each potential site’s unique character and acknowledgement that values and impacts cannot be traded off against each other through simple scoring. Critically, any adequate consideration of opportunity costs must use appropriate economic and financial metrics, especially for scarce inner-city land. It should also build community support through genuine engagement rather than justification after the event.

Gruen concludes that the site selection process was so questionable as to suggest Macquarie Point is the wrong location for the stadium, and that this is “evident in the depth and breadth of community opposition to the chosen site.” 

What does it say about the visual impact of the stadium?

This chapter (Chapter 4) focuses on the visual impact of the proposed Macquarie Point Stadium, drawing on a commissioned report by SLR Consulting and a survey of Australian architects. The primary concern is the Stadium’s visual impact on the existing landscape, townscape, and views, particularly in relation to the Cenotaph. The Review notes the extent of community concern and highlights the complex considerations surrounding these issues. It critiques the assessment of visual impact by SLR Consulting, suggesting further steps are required to ensure outcomes acceptable to the local community and relevant professional bodies.

SLR Consulting’s brief was to measure the stadium’s effect on landscape, townscape, spatial use, specific views, and general visual amenity. It also examined the stadium’s bulk, height and scale, assessing the degree of visual change, adverse impacts on the area’s character, and the acceptability of the change for the location. SLR Consulting concluded that while the stadium would be much larger and broader than existing CBD structures, its potential “iconic value” could be compared to that of the Sydney Opera House.

The SLR Consulting report acknowledged that the stadium would obstruct and alter the view of the Cenotaph. However, it dismissed the profound concerns of RSL Tasmania that the stadium will desecrate our “sacred place”, suggesting instead that it will create new views of the Cenotaph and an awareness of the two elements together.

Gruen critiques the SLR report as inconclusive as to “whether the stadium would be consistent with existing planning rubrics and whether it would make a positive or negative impact on visual amenity.”  He is not convinced that comparing the stadium to the Sydney Opera House is reasonable. 

Prompted by SLR’s equivocation, Gruen conducted a survey of 20 Australian landscape and architecture professionals, showing them 9 “before/after” views of the stadium taken from the SLR Consulting report. Most of the respondents had little prior knowledge of the stadium proposal, thereby reducing preconceptions and bias. 

Negative responses predominated and were more strongly felt than those in favour. Responses focussed on size, dominance in the landscape, and the stadium seeming at odds with the scale and character of its surroundings, as well as its impact on the Cenotaph’s views and its reflective space. There was an absence of strong favourable reactions to the design, even for the less significant views.

There is a clear dissonance between the SLR Consulting report’s conclusions and the survey results. While the SLR report seems deliberately inconclusive, the survey findings reveal broadly negative perceptions among professionals regarding the stadium’s visual impact.

Gruen concludes there is a need for an independent assessment of the stadium’s visual impact, which should be commissioned by a party without vested interests. It should include the opinions of both professionals and the general public, through surveys, focus groups, and deliberative polling. He predicted significant public opposition due to the stadium’s perceived negative impact on visual amenity and the Cenotaph.

Dr Gruen’s Review recommends that the stadium’s design and location be re-evaluated, taking into account the strong negative reactions from design professionals and the sensitivity of the surrounding area.

What does it say about transparency in managing projects?

At Chapter 5, the Review’s analysis of transparency and financial management of the stadium project finds the actual cost will significantly exceed the government’s stated figure of $775 million, likely surpassing $1 billion. The government’s insistence on adhering to a $375 million borrowing cap has led to practices that undermine transparency, distort project management, and potentially increase the overall cost of the project in the long term. A significant contributing factor is the pervasive issue of optimism bias, i.e. a tendency to underestimate costs and risks.

Based on his analysis of the current project scope, Gruen attributes the Government’s $321 million underestimation of costs to a number of factors:

  1. Omission of key expenses such as the Goods Shed relocation and underground car park, as well as interest on the $375m borrowing – excluded from the official costings, despite being a direct consequence of the project.
  2. Reliance on projected unrealistic land sales as a ‘magic asterisk’ to cover the cost of the project, with estimated sales increasing from $85m to $145m (>50%) without any clear valuation or plan for the land being sold to absorb the shock.
  3. Moving the financing of revenue-generating facilities (car parks, kitchens, AV systems) off-book to private investors. While this lowers up-front capital costs to Government, it fails to consider the erosion of long-term revenue to the State, lowering the stadium’s capacity to generate future revenue by a greater amount than is saved at the outset when measured in net present value terms.
  4. Optimism bias, whereby those in charge tend to underestimate costs and risks, as in 2019 when Tasmania’s AFL Taskforce talked itself into the idea of a stadium by believing that it might cost just $300 million and serve as a ‘silver bullet’ for Tasmania’s bid for an AFL team. Currently, this optimism is manifest in the Government’s commitment to a cap of $375m thereby hampering transparent cost analysis. The early adoption of a project without thorough assessment can cause a lack of consideration of alternatives and ultimately cost overruns.
  5. Budgeting driven by political expediency rather than technical assessments. A politically acceptable theoretical budget rarely corresponds to reality. The real price comes later.
  6. Inadequate handling of risk assessment. A peer review commissioned by Gruen found that the project should have a contingency of $86.1 million more than that originally proposed – owing to the early stage of design, geotechnical risks, and the ambitious roof design, the dangers of ‘new’ and ‘unique’ tech, and the fact that ‘worst case’ scenarios are frequently far off the mark, so that actual costs far exceed them.
  7. Ignoring the interest on borrowing, potentially a further $36 million over the construction period – even if the $375 million cap were adhered to – has not been recognised. The Government, as a net debtor, will carry an interest charge bringing the total government cost above this figure. This is obscured in the PoSS documents.

The absence of candid reporting and the Government’s use of mechanisms to hide true costs undermine public trust. Inflated land sale values and artificially lowered cost estimates conceal the growing expense to taxpayers, as does ignoring the risks associated with unacknowledged geotechnical issues, untested “one-of-a-kind” building techniques, and optimistically low contingency allowances.

Gruen presents a more detailed cost estimate that includes the 2024 additions accepted by MPDC, precinct related costs currently excluded but needed for a stadium to be built and function in that location, and a realistic contingency amount based on his peer review. This brings the total cost (excluding interest on borrowings) to over a billion dollars. Once contributions from external sources are considered, Tasmanians are left with a debt of $700 million. 

The Review concludes that the imposed $375 million debt cap is distorting project management by creating a drive to keep costs off Government books. It involves enticing private investment which increases the risk of diminishing long term revenue.

Gruen recommends a thorough and independent review of the project’s cost estimates and risk assessment, and full transparency in all financial reporting, including costs currently excluded from the official budget. The proposed reliance on private investment to offload costs needs to be re-evaluated. The impact of optimism bias on project planning needs to be acknowledged and mitigated so that a realistic public narrative about the project’s challenges, cost and schedule can be presented.

What does it say about involving the private sector?

In examining the involvement of the private sector in the Macquarie Point stadium project at Chapter 6, Gruen notes that Public-Private Partnerships (PPPs) have gained prominence for delivering large-scale infrastructure projects, such as major stadiums. He defines PPPs as long-term arrangements between the public and private sectors for the development, financing, implementation and delivery of services including public infrastructure. The private partner typically makes a capital investment in return for a revenue stream from governments or users, thereby entirely or partially replacing the need for governments to invest.

The potential benefits of PPPs to governments include:

  • spreading risk more widely, and to the sector best able to manage them
  • helping governments manage and contain costs by transferring certain risks to the private sector
  • contractual arrangements that require infrastructure to be maintained to agreed performance standards
  • improved innovation and efficiency
  • payment schedules that incentivise contractors to deliver on time and on budget.

The potential downsides and risks include:

  • reduced flexibility for governments due to the long-term nature of the contractual commitments
  • high transaction and financing costs compared to traditional procurement methods
  • higher costs due to the lower capacity of the private sector to raise funds.

In general, PPPs should not proceed unless the benefits to governments and the community are substantial enough to offset the higher cost of capital experienced by the private sector.  Further, governments should be careful that the effort to reduce short-term costs doesn’t risk forgoing long-term financial benefits (as occurred in the development of Sydney’s toll roads).

Australian governments have developed national policy and guidelines to manage these risks. They include the establishment of the Public Sector Comparator (PSC) in which governments undertake a thorough and detailed assessment of project costs if undertaken by the government itself. This provides a benchmark against which the costs and benefits of a PPP project can be evaluated. One feature of this exercise is that judgements should be made based on public interest.

There are concerning signs that  this has not occurred for the Macquarie Point Stadium project. Its approach to PPPs fails to align with national PPP policy and guidelines. For example, the exclusion of certain capital expenditures, such as the kitchen fit-out, are based on the assumption that private sector providers will fund these assets in return for revenue generated from them. However, it is premature to remove these costs without first demonstrating private funding will best serve the public interest. The process to date also raises concerns about the lack of a competitive process in selecting these privately funded elements, potentially leading to less favourable deals for the Tasmanian Government.

There has also been a failure to introduce competitive tension through consideration of alternatives to the project, such as Mac Point 2.0. 

Gruen concludes the involvement of the private sector in the Macquarie Point Stadium project falls well short of satisfactory practice. It lacks transparency and seeks to minimise government outlays even where these compromise getting the best deal for Tasmanians. As part of a process of slowing down and reconsidering the planning stage of the stadium, there should be a general call for other PPPs to be proposed. However, any PPP must be undertaken in compliance with national PPP policy and guidelines, including the use of a realistic Public Sector Comparator. In addition, oversight should be provided by someone independently appointed by, and reporting to, Parliament.

What does it say about costs?

In Chapter 7, the Review provides a detailed analysis of the costs associated with the Macquarie Point Stadium project, highlighting significant discrepancies and concerns compared to the figures presented in the Project of State Significance (PoSS) documentation. The chapter provides a more realistic and comprehensive assessment of the project’s financial implications.

  • Higher Overall Cost Estimates: The Review estimates that the project costs are substantially higher than those presented in the PoSS documentation. This is attributed to:
    • Increased Construction Costs: The Review includes a higher estimate for the stadium’s construction costs based on a peer review by Xmirus that recommended an increase to reflect excluded items and client costs. This found an additional $79 million was required in contingency provision.
    • Inclusion of Opportunity Costs: The government’s financial and budget analyses fail to consider the opportunity cost of the land in their cost-benefit analysis (CBA). Since the land cannot be used for other purposes when used for the stadium, this opportunity cost is significant. This is conservatively valued at $155 million.
    • Inclusion of Previously Excluded Costs: These costs (excluded from the KPMG CWA report) include stadium-related costs such as Goods Shed relocation, kitchen and F&B fit-out, AV services, PA and CCTV systems, and LED ribbon board advertising. The Review also includes precinct-related costs like the event bus plaza, active transport bridge and street redesigns.

 

  • Lifecycle and Operating Costs: Lifecycle costs are calculated at 0.8% of total capital costs. The financial modelling for assessing stadium operating costs differs from KPMG’s approach and includes the costs for running events as well as an offset for costs that would otherwise have been incurred at other venues.

 

  • Marginal Cost of Public Funds (MCPF): The MCPF represents the economic cost of raising public funds. The Review notes the importance of this value and uses a central case value of 15%, while also noting that state tax revenue has a much higher MCPF, particularly for payroll taxes (30-40%).

 

  • Credit Rating Downgrade: In a pessimistic scenario, the Review assumes a 20 basis point increase in borrowing costs due to the stadium project. This is based on the view that a major project can impact the credit rating for a state. Gruen notes that this could add substantially to the costs of borrowing over the life of the project.

 

  • Visual Disamenity: The Review includes a cost for the visual disamenity of the stadium, i.e. the economic impact of negative responses to the visuals of the stadium. A conservative estimate is that, over the next 35 years, this will result in a cost of $9m in the CBA, while a more pessimistic scenario is for a cost of $45.5m.

Dr Gruen’s Review concludes that the most conservative estimate of costs, for the period 2024 to 2058 is $1.4 billion, while the most pessimistic scenario is for the cost to be $1.7 billion.

The actual financial burden of the proposed stadium is therefore far greater than that presented by the Tasmanian Government.

What does it say about any benefits from the stadium?

In this chapter (Chapter 8) Dr Gruen considers the estimated benefits of the Macquarie Point Stadium proposal and finds the projections as presented by KPMG as part of the Project of State Significance (PoSS) process, overly optimistic. The KPMG analysis has methodological flaws and unrealistic assumptions.  Gruen’s analysis provides a more conservative and realistic figure for interstate visitors associated directly with the stadium, and a reduced net economic benefit from every dollar of additional tourism spending.

Key discrepancies with the PoSS work include differences in assumptions about the number of stadium events and the visitors they will attract. Gruen’s analysis largely adopts KPMG’s assumptions regarding event types but modifies the numbers. He assumes the stadium will host three full-stadium concerts and two arena-style concerts annually, which is more optimistic than previous estimates. However, because there is significant uncertainty about whether Tasmania will attract more test matches, Gruen assumes Tasmania will only host a cricket test match once every four years, rather than the annual figure provided in the KPMG analysis. Gruen also incorporates factors such as the offset of interstate travel for away AFL games and adjusts for potential inaccuracies in health and productivity benefits. 

Gruen finds KPMG’s assumptions for increased tourist visitors are overly optimistic. KPMG assumes a net benefit of 35 cents for every dollar of additional tourism spending, but a more realistic figure is 10 cents for every dollar of additional tourism spending. The lower figure considers that very little labour surplus should be included in the calculation, as Tasmania’s unemployment rate is close to the national average. The producer surplus benefit will likely be smaller than KPMG assumes, as resources may be transferred from existing local businesses to new businesses associated with the stadium.

Gruen explains that KPMG’s assumption that 25% of stadium AFL attendees will be from interstate is too high, because it is based on a calculation that the games will involve two interstate teams. However, the proposed stadium arrangement involves only one interstate team. KPMG estimates there will be 5,200 interstate attendees from outside Tasmania at a typical Devils game, but a more accurate figure is 1,700 interstate visitors. KPMG’s interstate visitor assumptions for other event types (e.g. entertainment and other one-off events) are similarly over optimistic with little evidence to support this. Gruen suggests interstate visitation for these activities will be half that of the KPMG estimate (10% rather than KPMG’s figure of 20%).

There is also likely to be some loss of tourism benefit due to the projected loss of four games at Ninja Stadium (formerly Bellerive), which had an average attendance of 12,604. On the other hand, the new stadium should increase demand for cruises to Tasmania, with an estimated additional tourism spending of $2.4 million annually. Other differences include almost halving the health and productivity benefits suggested in the KPMG analysis because it assumes that there are no other healthy sporting activities in the state in which people could participate, and discounting the AFL and Commonwealth contributions as, from a national perspective, these are not benefits but transfers from one group to another which nets to zero. He also excludes any catalytic economic benefits from the stadium (i.e. the broader economic impacts of the stadium) as research in this area shows that generally, professional sports facilities financed by public funds have only limited spillover economic and social benefits.

What does it say about any net benefit to Tasmanians?

At Chapter 9, to assess the net benefit to Tasmanians of the proposed Macquarie Point stadium, Gruen undertakes a cost-benefit analysis of various scenarios and their financial implications.

Drawing on the findings outlined in Chapters 7 and 8, Gruen evaluates the identified costs of the project compared to the predicted benefits. To compare the costs and benefits experienced in different years, the comparison uses an economic technique called discounting.  Discounting allows reliable estimates of the stream of benefits over 30 years to be generated in today’s dollars (the net present value) as well as the equivalent net present value of the costs.  Gruen uses two key metrics:

  • Net present value (NPV) which is the net present value of the benefits minus the net present value of the costs.
  • The benefit cost ratio (BCR) which is the net present value of the benefits divided by the net present value of the costs. If the BCR is greater than 1 the benefits exceed the costs. If the BCR is less than 1, the costs exceed the benefits.

Gruen examines three cases – the most likely or central case, a pessimistic case and an optimistic case – and finds the central case scenario projects a significant net loss for the stadium, with an NPV of -$795 million and a BCR of 0.444, meaning that for every dollar spent, the project is expected to generate only 44¢ in benefits. This indicates that the project, as currently planned, would not be a financially sound investment. Under the pessimistic scenario the NPV is -$1,130 million and the BCR is 0.344. Under the optimistic scenario the NPV is -$495 million and the BCR is 0.603

Under the central case, the net loss per Tasmanian is estimated at -$1,381. In the pessimistic scenario, this increases to -$1,963, while in the optimistic case, it decreases to -$860. These data show that under any of these scenarios the project will result in substantial economic costs to Tasmanians.  

Gruen also provides a cost benefit analysis where the stadium is built without a roof. This results in a slightly improved NPV of -$710 million due to reduced costs, and a BCR of 0.597.

Gruen goes on to test the sensitivity of the project’s financial outcomes to different discount rates. Using a lower discount rate of 4%, the project’s NPV improves to -$778 million and BCR increases to 0.360. Conversely, with a higher discount rate of 10%, the project’s NPV declines to -$710 million and BCR increases to 0.597. This demonstrates that the project’s financial viability is highly sensitive to the discount rate used in the analysis.

To provide a point of comparison, Gruen presents an alternative, hypothetical project, with an assumed BCR of 1.95 and an NPV of $1,386 million. This alternative would yield net benefits equivalent to over $2,400 per Tasmanian, in contrast to the net losses projected for the stadium. This comparison highlights how Tasmanian taxpayers’ funds could be better used than under the Tasmanian Government’s agreement with the AFL. 

Gruen concludes the proposed stadium is likely to result in substantial financial losses under all scenarios, with the central case showing a net loss of $795 million. The Government therefore needs to consider whether there are better uses for the funds they plan to invest, whatever they are and wherever they are located, before proceeding with any investment and avoiding new debt.

What does it say about any financial impacts?

In this chapter (Chapter 10), the Review assesses the financial implications for the Tasmanian Government of building a stadium at Macquarie Point, comparing two funding models:

  1. Full Government funding: Financing the construction and operation of the stadium through land sales with the MPDC borrowing the shortfall
  2. Private sector involvement: Bringing in private investors to fund the revenue-generating aspects of the stadium.

Under financial scenario 1, the Government funded model, the Government would need to borrow $756 million to fund the construction phase of the project, after accounting for external contributions from the AFL and Commonwealth Government, and $85 million from land sales.  Interest payable on borrowings to fund construction is estimated at $74 million. This means the total government debt at the end of the construction period will be $830 million.

Once operational, the stadium will require an ongoing operating subsidy, as well as possible additional operational subsidies. This additional expenditure will need to be funded by borrowings, which means additional public debt interest. Additional interest expenses will also be associated with the debt incurred during the construction process. Because of the significant upfront capital cost of the Macquarie Point stadium project, it is the interest expense which will have the most substantial impact on the state budget. 

The impact on Tasmania’s net debt is substantial. By the end of the construction period (2028), the Tasmanian state government’s non-financial public sector (NFPS) net debt is estimated to be $16.204 billion. The construction of the stadium will increase this to $17.034 billion. This will increase further to $17.635 billion after the first ten years of stadium operations (2038). This is $29,389 per Tasmanian. The additional net debt per Tasmanian will be $1,563 as a consequence of the Stadium after its construction and first ten years of operation. 

Under financial scenario 2, the private sector model, during construction, the state government would need to borrow $700 million, with an additional $68 million for interest, resulting in $768 million in total borrowings at the end of the construction period. This is lower than the estimated additional debt if the private sector did not construct the revenue-generating assets. However, it is clear that the financial analysis to support the assumed private provision of facilities, simply has not been done.

Gruen’s own analysis suggests private investors would need to fund $56.5 million of revenue-generating stadium assets, such as food and beverage fit-outs and technology. Because of the uncertainty around how successful the stadium will be in attracting events,the private sector will be reluctant to invest in the capital cost of stadium facilities and will require a 20% return on their investment, amounting to $11.3 million per annum. This would be made up from reduced stadium revenue or direct government payments. 

Once the stadium’s event calendar becomes established, the rate of return demanded to meet the capital cost of the facilities will probably decline. Nevertheless, net debt is still higher than in scenario 1 (the government funded model). By the end of the construction period (2028), net state debt is estimated to be $16.972 billion. After the first ten years of operations (2038), this increases to $17.676 billion ($29,458 per Tasmanian). The construction of the stadium and first ten years of its operation will therefore create an additional net debt burden of $1,631 per Tasmanian.

In conclusion, both scenarios require significant increases in public debt and ongoing operating subsidies. While private sector investment in revenue-generating aspects of the stadium will reduce initial capital costs, this risks higher long-term operating costs due to poor financial deals required to attract private investors. As a result, the ongoing budgetary impact of private sector involvement is higher than with full government funding.

What does it say about the role of economic impact assessments in public policy?

In the final chapter (Chapter 11), the Review considers the role of economic impact assessments in public policy, noting that these assessments often focus on benefits without adequately considering costs. It also notes that an economic impact assessment should also include a counterfactual scenario, examining alternative projects of similar magnitude. However, the economic impact assessment undertaken by MPDC for Tasmanian Planning Commission approval did not do this. This is a significant omission because the counterfactual scenario helps decision-makers understand the opportunity costs of the stadium, i.e. the benefits foregone from the loss of other projects no longer possible due to the stadium development. The Review therefore includes a summary cost-benefit analysis of a similarly sized alternative project.

Gruen cites the limitations of previous economic impact assessments of the stadium project, including that they:

  • Overestimate the positive economic benefits of the stadium for the state
  • Lack clarity regarding Gross State Product (GSP) uplift accruing to interstate migrants, with insufficient details on the mechanisms of GSP impact, and the proportion of jobs and GSP uplift that will benefit local residents versus temporary construction workers or interstate migrants
  • Fail to compare with alternative projects of equivalent public funding, as is required by the PoSS guidelines.

Gruen notes that economic impact assessments often focus on the positive benefits of a project, while neglecting to fully analyse costs. This is a significant issue in the case of the stadium, where the cost-benefit analysis presented in Chapter 9 shows that the project is likely to result in significant net losses.

Gruen recommends a detailed cost-benefit analysis as a crucial part of any public project proposal, as it provides a more balanced view of both the positive and negative economic impacts.

In summary, his critique of the existing economic impact assessments for Macquarie Point stadium highlights their limitations and lack of focus on costs, and emphasises the importance of considering alternative projects in understanding how benefits are distributed. This chapter underscores that a sound economic assessment should consider both costs and benefits, and a comparison with other options.

What conclusions does it draw?

The Review assesses the proposed Macquarie Point stadium in Tasmania, concluding that its projected costs are significantly underestimated, and will likely exceed $1 billion, while its benefits are overstated, resulting in a poor benefit-cost ratio of 44¢ per dollar. The Tasmanian government’s commitment to limit the stadium project’s impact on state debt to $375 million ‘cannot be met’ (p.1). ‘The project is already displaying the hallmarks of mismanagement’ (p.1).

Dr Gruen identifies flaws in the project’s hasty process, minimal consultation, inadequate cost-benefit analysis, and lack of consolidated planning. It is likely that ‘the wrong site has been selected’ (p.1). ‘The site selection process rejected sites that would have generated lower costs and higher benefits while receiving greater community support’ (p.2).

These issues have led to community division and reputational risk for the AFL. The AFL should not be imposing decisions in areas in which it has no legitimate interest. This includes the site on which the stadium is located, the speed with which it’s completed and whether it has a roof or not. Such decisions should be left to the Tasmanian community (pp.4-5).

The Review recommends extending the timeline, incorporating broader planning for Hobart, providing a transparent cost analysis, and prioritising value for money in all partnerships. ‘Tasmanians, and all who wish to see a Tasmanian AFL team succeed, need to take the time to get the stadium right. This can be done by returning to the original timetable for the stadium proposed in Tasmania’s 2019 AFL Taskforce report, namely that the ‘first 5-7 seasons’ be played at York Park and Bellerive while a proper process is put in place to locate, cost and build a new stadium (p.4).