Presentation on theme: "Toronto Sky Dome. Introduction This is prepared by Mosharraf Introduction, back ground & History Discussion about the issues Conclusion & Recommendation."— Presentation transcript:
Introduction This is prepared by Mosharraf Introduction, back ground & History Discussion about the issues Conclusion & Recommendation
Introduction Purpose of This Report: identify the issues involved in Toronto Sky Dome and analyze them provide appropriate recommendations
Introduction Back Ground: In November 1982 The Grey Cup game was plagued by terrible weather held at the outdoor Exhibition Stadium The crowd was drenched, and the washrooms were overflowing, which was on the whole a bad experience for the fans The following day, at a rally about ten thousands of people who were there to see the Grey Cup winners began to chant, "We want a Dome! We want a dome!“ began to discuss the possibility of an all-purpose, all- weather stadium and built Toronto Sky Dome
Introduction Description: Situated next to the CN Tower Toronto, Ontario, Canada The first fully retractable motorized roof stadium in the world The roof consists of four panels one panel is fixed in place and the other three are moved by electrically driven 'train' engines that run on standard railway rails which takes 20 minutes to open
Introduction Back Ground Originally opened in 1989 Home to the Toronto Blue Jays and the Toronto Argonauts Site of annual International Bowl America, conventions, trade fairs, concerts, funfairs & monster truck shows
Introduction Opening: The stadium officially opened on June 3, 1989 by the Premier of the Province, David Peterson It was broadcast on CBC television with a crowd of over 50,000 in attendance The roof opened, exposing the crowd to a downpour of rain
Introduction One of the first instances of public/private ownership Mismanaged from the outset Highlights agency issues Recruited partners appointed to Board to oversee construction & running of SkyDome Insufficient public representation Veto power not exercised resulting in further mismanagement & agency costs
Introduction Auditor deficiencies Majority of stakeholders lacking ability to properly interpret financial statements Stadium debt skyrockets Province slipping into recession Air Canada Centre under construction & selling highly desired boxes Mismanagement leads to increases in financing costs SkyDome headed for public bailout $321m of debt written off to enable SkyDome to become profitable
Introduction Tentative arrangements made for sale of SkyDome to private sector corporations Government giving benefit worth millions to country’s richest corporations
Discussion Mismanagement Original financial arrangements arguably a ‘good deal’ for various stakeholders Wide range of benefits for stakeholders - New infrastructure & enhancements to existing infrastructure - Preferred rights to advertise & sell products - Interest Payments - Tourism, jobs & taxes
Discussion $60m capital from public sector $70m from private sector, consisting of capital & preferred rights to sell & advertise products Deficit of approx $22m to be borrowed from bank Paul Godfrey recruits Trevor Eyton to enlist private sector companies Each contributes $5m and appoints their CEO to Consortium Board of Directors
Discussion Enlistment process mismanaged & unethical Conflict of interest Golden handshakes in the form of lucrative selling & advertising rights Accountability should have played a role Incestuous, complicated arrangements McDonalds deal negotiated with self-interest
Discussion The province of Ontario -agents, but principals as well Responsibility -held absolute veto power, but never exercised. -agents purporting to look after their interests clearly failed in their responsibilities -acting in their own interests and allowing the project costs to escalate to a point where the stadium as a business was no longer viable Had the expected cost over runs being made known to the public then the Board could have been held accountable and project additions dropped or other changes made to bring the spending under control The information was not reported to the public.
Discussion Lines between principals & agents becomes blurred Arguably the Consortium Board responsible to public investors Consortium Board members had vested interest & took care of that interest at expense of public investors Consortium Board failed in their responsibility to principal investors Lack of monitoring
Discussion Incorrect & misleading profit forecasts Operating deficit of $21.7m! Excluding non-cash expenses still an operating deficit of $3.6m Unable to pay principal on loans Unable to cover depreciation expense & no funds available to replace assets
Discussion No auditor opinion on ability to operate as a going concern Stadium in trouble with retained earnings deficit steadily increasing Ability of general public to interpret financial statements Too late once stadium is built and debt incurred No alignment of interests of Board with that of principal investors Capitalisation of interest & promotions income Income tax avoidance? Presentation?
Discussion Sale arrangement a sour deal? Giving a benefit worth millions to country’s richest corporations? The same corporations who contributed to the SkyDome projects downfall Public out of pocket by estimated $280m
Conclusion& Recommendation SkyDome- The “world’s greatest entertainment centre” The unique financing arrangement -Public-private partnership Good deal originally Three main problems -Mismanagement -Agents -Audit Consequences- The project costs to escalate to almost three times the amount that it was initially estimated to cost and caused the completed SkyDome to continuously incur huge losses.
Mismanagement & Agency Trevor Eyton- Mismanagement, acted in his own interest -Recruited to enlist investors without contracts or guidelines. Solution- To require Eyton to take tenders from the business community, rather than letting him select partners himself.
Mismanagement & Agency The Consortium Board of Directors- Allowed to add commercial facilities to the project purely for their own interest. This increased the debt from the original $22m to $288m and caused annual deficits that increased steadily making the SkyDome unviable as a business which resulted in a public bailout. Solution- To offer the private sector ownership rights rather than lucrative concessions. Accounting information would have played a significant role in such an arrangement by providing a measurement of the total value of the project and using this as a basis for awarding anything from bonuses to share options, either way, the goals of the principals and agents would be much more in line with each other.
Mismanagement & Agency The Province of Ontario- Held absolute veto power on any decision, but they never exercised this power. keep the information and did not report to the public. Caused debt to skyrocket which prevented the SkyDome from being a viable business. Solution- There should have been controls put in place to ensure that once the original plans were agreed upon, no changes could be made without some extenuating circumstances. Before the additions were approved there should have been some sort of forecasts to ensure that the additional revenue from the commercial facilities covered the additional finance costs incurred due to the increase in debt.
Auditing Some questions- Regarding the accounting treatment of income from interest and promotions during the construction phase of the project and the presentation of this information. Lack of an evaluation of the SkyDome’s ability to operate as a going concern. Solution- This information should have been clearly communicated to the public.
Sale Arrangement A “sour” deal- The public would be out of pocket by around $280m. Especially when the SkyDome expected profits of $20-$25m after the public bailout. The Province would be giving a benefit worth millions to corporations that contributed to the project failure in the first place by acting in their own interests. Solution- It would have been a better option for the Province to retain their ownership for at least a few years to try and recoup some of the money that was used to bail out the SkyDome or try and negotiate a better deal with a different buyer.
Recommendation Overall- To prevent all of the problems discussed To prevent the huge budget blowout in the first place Recommendation- To establish a Board to oversee the project that was independent from the project itself with no vested interest. This Board would have acted in the interests of all principals and concentrated on maximising the share value. The establishment of such a Board could have saved the main principal, the public of Ontario, millions of dollars and the lack of an evaluation by the auditors as to whether the SkyDome could continue to operate as a going concern would have been irrelevant as it would have been a viable business from the start.