Toronto Sky Dome

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

IntroductionBack 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,

CanadaThe first fully retractable motorized roof stadium in

the worldThe 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 GroundOriginally opened in 1989Home to the Toronto Blue Jays and the

Toronto ArgonautsSite 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 PetersonIt was broadcast on CBC television with a

crowd of over 50,000 in attendanceThe roof opened, exposing the crowd to a

downpour of rain

IntroductionOne of the first instances of public/private

ownershipMismanaged from the outset Highlights agency issuesRecruited partners appointed to Board to oversee

construction & running of SkyDome Insufficient public representationVeto 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

DiscussionMismanagementOriginal financial arrangements arguably a ‘good deal’ for various stakeholdersWide 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 productsDeficit of approx $22m to be borrowed from bankPaul Godfrey recruits Trevor Eyton to enlist

private sector companiesEach contributes $5m and appoints their CEO to

Consortium Board of Directors

DiscussionEnlistment process mismanaged & unethicalConflict of interestGolden handshakes in the form of lucrative selling

& advertising rightsAccountability 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.

DiscussionLines between principals & agents becomes blurredArguably the Consortium Board responsible to

public investorsConsortium 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 forecastsOperating deficit of $21.7m!Excluding non-cash expenses still an operating

deficit of $3.6mUnable to pay principal on loansUnable 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 downfallPublic out of pocket by estimated $280m

Conclusion & RecommendationSkyDome-The “world’s greatest entertainment centre” The unique financing arrangement

-Public-private partnershipGood deal originallyThree main problems -Mismanagement -Agents -AuditConsequences-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 & AgencyThe 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.

AuditingSome 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.