waikato velodrome project – project development - final r… · focus of our work was not to...

Waikato Velodrome Project – Project Development - Final Report to Waikato Regional Council

Patrick Harnett, David Moore and Eli Hefter September 2011

Waikato Velodrome Project – Final Report to Waikato Regional Council 1

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Executive Summary

The Home of Cycling Charitable Trust (HoCT) has been selected as the preferred bidder

by Sport and Recreation New Zealand (SPARC) to establish a national centre of

excellence including the construction of an International Cycling Union (UCI) category

1 velodrome facility in the Waikato region. SPARC is offering $7 million in funding, with

the balance of the $28.5 million project required from other sources. Waikato Regional

Council (WRC) has been asked to provide $6 million of the $21.5 million balance.

In assessing this request for funding, WRC has sought additional information on the key

success factors that might apply to the indoor velodrome aspect of the project. Sapere

Research Group Limited (Sapere) has been engaged to assess these factors based on

the available research for comparable facilities domestically and internationally. The

focus of our work was not to assess whether the development of a cycling centre of

excellence is a good idea per se, as the addition of major infrastructure can be

expected to have a range of benefits; but to assess whether the proposal is aligned to

the key success factors that could be induced from other projects. Some of the

information has not been available and we have relied on verbal assertion to establish

the full extent of the written and unwritten proposal.

Appraisal against critical factors

The analysis has focused on the construction of the velodrome because of the

relatively high cost when considered alongside the other elements of the proposal.

Cycling facilities already exist that are complementary and part of the overall facilities

for cycling in the region. These include Cambridge for BMX, Rotorua for mountain

biking, local outdoor velodromes such as Te Awamutu, the Te Awa cycleway, and the

existing road infrastructure for road cycling.

The main success factor that we consistently come back to is likely utilisation and

underlying demand - does the proposal demonstrate that it can both evidence and

achieve the assumed levels of utilisation? Support for assumptions of utilisation or for

underlying demand is not well documented in the proposal and we have been through

a process of document discovery and clarification of assumptions. Further discussions

with the HoCT, and investigation and direct communication with best practice

examples indicated by HoCT reinforce rather than relieve concerns about level of rider

and programme demand. For instance, HoCT’s current revenue expectation for club

riders assumes that the number of riders in the greater Waikato region, Auckland, Bay

of Plenty (within two hours) will double to 1,300. Similar growth increases are needed

in the Waikato region closer to the Cambridge velodrome.

Thus, the proposal is seeking to induce considerable demand rather than meet existing

demand. These forecasts are more at the level of “proof of concept” (that is, that


there is general or specific interest) rather than at the level of a “business case” (that

the proposal is bankable).

The likely level of utilisation has been a discussion point between Sapere and HoCT.

HoCT are of the view that the level of demand is achievable and that, even at 50% of

the levels that it projects, that its revenue will exceed operating costs revenue.

Evidence from other comparable facilities is that they operate at an operating loss and

require on-going funding support and additional injections for upkeep. Some on a cash

basis like DISC in Melbourne,1 others making a loss taking into account depreciation like

Adelaide.

A high level trade-off

From the available evidence, there does not appear to be a large demand

(demonstrated or suppressed) for an additional velodrome in the Waikato region.

Acknowledging that a covered site provides some additional advantages, the

incremental cost would then need to be weighed against any incremental demand and

benefit.

• The existing spread of SPARC-carded cyclists and cyclists more generally

indicates that there are existing facilities that already meet the needs of the

majority of cyclists, but not an aggregation of talent that has been achieved in

a sport such as rowing. HoCT and BikeNZ see the combination of the facility,

the centre of excellence and planned programmes as greatly supportive of

suppressed and new demand.

• On the cost side, the majority of the project cost is related to the covered

velodrome requirement which is in addition to the UCI category 1 specification.

A covered venue is considered vital for year-round use and a key element of

the Centre of Excellence concept.

Bankability

Overall, we consider the Home of Cycling proposal may be self-sustaining once the high

capital cost for the indoor track facility is secured and the velodrome is constructed. On

the basis of the cash flow projections presented to us, our view is as follows:

1 Figures provided indicate Adelaide revenue AUD780,000 and expenses AUD815,000 inclusive

of AUD500,000 of depreciation. DISC indicates AUD149,000 of revenue and a cash break-even

position.


• The facility will not be able to carry the burden of debt on commercial terms.

All capital needs to be granted in an unencumbered manner.

• It is likely that the facility will be able to cover its day-to-day operating costs.

• Further, it is likely that the facility will be able to cover minor capital

replacement.

• It is possible that the facility will be able to generate enough cash to be self-

sustaining, but this is dependent on full achievement of HoCT’s assumptions.

The challenge will be to attract the high number of riders and programme sponsors

needed to cover a large proportion of the velodrome costs. This will not be easy and

we believe that there is a risk that the facility will continue to need subsidy for capital

replacement items to support its on-going use over the years. If the letters of intent for

tenancy become contracts then operating costs will be covered. But, more likely, the

issue will be whether there are sufficient funds for asset renewal.

HoCT has confirmed a sponsor for naming rights ($250,000 per annum), and has letters

of intent for tenancy.

It is fair to say that HoCT is very committed to the proposal, and that commitment may

see it through, but that does not appear to be the experience overseas (we note that

HoCT believes that it has learnt from lessons overseas and has a business model that

resolves the issues it has identified, for instance by developing a programme of services

with BikeNZ).

Contrary view from HoCT and BikeNZ

We recognise that HoCT and BikeNZ have a very different stance on the proposal. In

particular, they feel:

1. Disadvantaged by the process of review in particular as it is in addition to the

process run by SPARC – they feel that the review does not give full justice to

the depth of work and effort undertaken by a committed group of

professionals and volunteers.

2. The numbers of cyclists needed to support the velodrome are achievable; thus,

the facility is likely to cover operating costs at worst and could, potentially,

exceed expectations.

3. The evaluation does not recognise the full extent of the package including that

aspect that relates to the extensive programmes planned by BikeNZ.

We understand that HoCT has agreed to incorporate all the current information it has,

from all relevant sources, into a business plan.


1 Introduction

This report provides an independent assessment of the success factors for covered

velodromes developments, and presents an assessment of the HoCT’s proposal to build

a UCI category 1 velodrome in Cambridge, New Zealand against these success factors.

1.1 Background

In June 2010, the New Zealand Prime Minister and the Minister for Sport and

Recreation jointly announced new policy measures designed to reshape and expand

high performance sport in New Zealand.2 A central tenet of this policy package was

increased government funding for investment in high performance sports

infrastructure, including a “centre of cycling excellence”:

A cycling centre of excellence is required to build on the success of Bike NZ’s high

performance programme. A number of regions have already lodged an interest and

have secured regional support. SPARC will run an Expressions of Interest process to

manage applications for cornerstone Government funding for a cycling high

performance satellite.3

The central government funding contribution towards the cycling centre’s

development costs are to be up to a maximum of $7 million (which cannot be used for

operational expenses).4 SPARC initiated the process of allocating the funding in July

2010 by issuing an expression of interest, seeking information from interested parties.

Eleven expressions of interest were received. In October 2010, SPARC issued a request

for proposal, seeking appropriate service providers to submit a proposal for the

delivery and operation of a cycling centre of excellence in New Zealand. SPARC

announced that the Waikato was the preferred tenderer in April 2011.5

2 Minister for Sport and Recreation, June 2010, Media Statement – Major boost for high

performance sport, 11 June 2010

3 Ibid, p. 2

4 SPARC, 22 October 2010, Request for Proposal – Cycling Centre of Excellence, p. 5

5 Waikato Regional Council, August 2011, Statement of proposal – National cycling centre of

excellence (velodrome), p. 4


The total construction (development) costs are approximately $28.5 million. The HoCT

has secured $7 million from SPARC conditional on securing additional funding, and is

seeking $6m from the WRC as part of the $21.5 million balance.

In response to this request the WRC has initiated a public consultation process to

establish the level of community support for the expenditure and engaged an

economic consultant to undertake an economic impact assessment of the cycling

centre of excellence to complement the analysis done by Sapere.

1.2 Focus on the velodrome proposal

We acknowledge that much of our focus in the analysis has been on the velodrome

track rather than the BMX, mountain bike, or road cycling aspects of the proposal and

site. This focus is driven by the relative costs of these different components; the

velodrome is by far the greatest expense.

We have also noted that other cycle facilities already exist. Certainly the facilities that

are available in Cambridge for BMX and Rotorua for mountain bike complement a new

track facility. The velodrome at Te Awamutu, as an example, is already used by the

local cycling club, the Te Awa cycleway is also being constructed separately from the

Home of Cycling, and the existing road infrastructure for road cycling is in place.

Therefore, the significant increment in cost or user availability is the indoor cycle track

and its associated costs.

1.3 Method and approach

In order to complete the analysis of the HoCT proposal, Sapere has undertaken the

following steps:

• There was a review of the domestic and international literature that helps to

place the development of a velodrome into appropriate context. It informs

and guides the likely best practice for the development of the velodrome

project and identifies issues that have been encountered in similar situations,

drawing on the lessons learnt in other jurisdictions.

• Second was an analysis of the practices adopted by different facilities, with

particular emphasis on those that contributed to the success of the

velodromes. This allows the HoCT proposal to be contrasted against prior

experience and help highlight the strengths and weaknesses of the HoCT

proposal. The WRC has assisted with this stage by providing relevant

information from SPARC and HoCT.

• Third was an exchange of drafts and provision of further information by HoCT.

• Fourth were further interviews to verify key aspects of the HoCT proposal

including interviews with representatives from all key sites indicated by HoCT.


1.4 Reliance on verbal assurances

The review of the proposal has been difficult as there is no consolidated business plan.

Our review has included a number of additional documents such as a utilisation

analysis, notes of an overseas trip to visit venues, etc – but there is no consolidated

business plan in the manner that we would expect. Therefore, it has taken

considerable work to identify what appear to be key assumptions (for example, on

utilisation and pricing), as they are not explicitly stated. We would have expected that

a funding proposal would have been based on a business plan and that the business

plan would have been signed off by project governance. The proposal would set out

key assumptions and those assumptions would be certified by the Directors of the

Trust that they were both prudent and achievable. We would liken this process to the

development of a prospectus – the proposers are seeking funding and the investors

(the WRC) needs to know what the major assumptions are, what the major risks are

and would expect those major assumptions to have been reflected on in detail.

1.5 Structure of the report

This report is structured as follows:

• Section 2 discusses the rationale and reasons underlying the HoCT proposal;

• Section 3 details the critical success factors used in the assessment of the HoCT

proposal and provides an assessment of the HoCT against each of these

factors;

• Section 4 looks for examples and evidence of potential impacts, both economic

and social;

• Section 5 addresses the meta question based on the available information if

the HoCT proposal is likely to be a success or not.


2 Funding request to Waikato Regional Council

In this section, we set out a brief summary of the proposal, some of the history around

it and some context to the review.

2.1 Summary of the proposal

The Waikato bid was prepared by the HoCT, and is for a UCI category 1 covered

velodrome and associated buildings to be built on land forming part of the St Peter’s

School in Cambridge, NZ. It is major event capable, enabling it to be used for Elite

World Championships. It provides for:

• An indoor velodrome, including cycle track and supporting spectator area;

• Service Course;

• Spaces for cycling support services, including a gym;

• BikeNZ national office; and

• External facilities including extensive car parking, space for outdoor broadcast

trucks and other elements.

The HoCT intends to link closely with existing facilities and clubs:

• For mountain biking the Home of Cycling intends to form a relationship with

Waiariki Institute of Technology in Rotorua and access the Whakarewarewa

Forest tracks;

• The Cambridge BMX Club and Te Awamutu BMX have facilities that will be

available for use; and

• The Te Awa Cycleway will be linked to the Home of Cycling.

Bike NZ will co-locate on the premises and will develop a series of programmes over a

five year period with the intention of co-ordinating the cycling communities of interest

and, also, generating sufficient demand from track cyclists for the velodrome. For the

cycling community, the velodrome is seen as a core infrastructure for the sport.

2.2 Rationale for the proposal

Before addressing the success factors that apply to an indoor velodrome it is useful to

consider the rationale for the proposal and the steps that led to the request for funding

from the WRC.


The genesis of the proposal can be found in WRC documents6:

• The council received a request in April 2011 to provide $6.0m funding towards

the development of the centre. The council did not consult on the proposal in

the 2011/12 Draft Annual Plan but received approximately 1026 submissions

on the proposal.

• On 11 June 2010, Prime Minister John Key and Sport and Recreation Minister

Murray McCully announced a major re-shaping and expansion of high

performance sport in New Zealand, which included the development of a

national cycling centre of excellence to build on the success of BikeNZ’s high

performance programme. Prior to the announcement, a number of regions

had been seeking Government funding to support regional velodrome projects.

Prior to the issuance of the SPARC RFP in 2010, the HoCT did not exist. There were no

plans for a $28.5 million indoor velodrome facility at Cambridge, the WRC had not been

asked to assist with a cycling centre of excellence, and within New Zealand elite cyclists

could train at the Invercargill facility. Some elite track riders also make use of overseas

facilities with high quality venues in Australia and Europe, often coincident with

overseas travelling and racing.7

The SPARC RFP lists 18 objectives for a Cycling Centre of Excellence.8 Minimum

requirements also specify a covered velodrome and construction to UCI category 1

standards. The HoCT have responded to the RFP and been selected as the preferred

bidder for the funding on the basis of its Cambridge proposal. However, in order to

achieve the RFP requirements and the indoor track in particular, the HoCT proposal

requires an additional $21.5 million capital to be raised in addition to the $7 million of

SPARC funding.

2.3 Context of this review

WRC began its review in June 2011 with a request for full disclosure of information

from HoCT, BikeNZ and SPARC. Sapere initiated its independent review against

6 Refer: http://www.waikatoregion.govt.nz/PageFiles/19529/1984635l.pdf

7 European-based riders train at World Cycling Centre 30 June 2011:

http://www.uci.ch/Modules/ENews/ENewsDetails.asp?id=NzQxMQ&MenuId=MTI1ODk&LangId

=1&BackLink=%2Ftemplates%2FUCI%2FUCI5%2Flayout%2Easp%3FMenuId%3DMTI1ODk%26La

ngId%3D1

8 SPARC, 22 October 2010, Request for Proposal – Cycling Centre of Excellence, p. 8


international best practice in August with a view to a comparison of business cases and

proposals against criteria.

There is no business case underpinning the funding request. Rather, there has been a

process of progressive discovery that revealed that there are further aspects to the

proposal that are not apparent in the document presented to SPARC.

There has been some analysis of usage, there is a financial model and there is an

intention to turn the facility into a centre of excellence with links to other clubs and

other cycling activities in the region. These documents are not brought together in one

place and therefore the process of review has been more difficult than anticipated.

These aspects which are additional to the proposal render the funding request more

interesting from the perspective of the council than the HoCT proposal to SPARC would

initially indicate. Clearly, a great deal of voluntary work and effort has gone into

generating the proposal and the programme of activity proposed by BikeNZ in the

region is interesting although not written down. We have taken account of interview

data and statements by Trustees in coming to its view albeit recognising that this is a

weaker level of evidence than is desirable.

There is, on the part of BikeNZ and HoCT, a sense of unfairness that Sapere has asked

for information having conditionally been awarded the tender for the velodrome

against stiff competition and after a thorough SPARC review.


3 Evidence of impacts from international experience

3.1 Economic impact

Quality information regarding the economic impact of indoor velodrome developments

is limited due to the small number of facilities (around 50 worldwide), limited

investigation and documentation of their benefits, and, in several cases, the fact that

they are built as part of a suite of facilities for a major event. We have sought

international experience of benefits and in short, the evidence base is very thin; there

is little factual evidence of benefit. Determining local economic impacts is outside of

scope of this report and is addressed more fully in the report9 provided by Covec to

WRC.

3.1.1 Proposed velodrome - Hamilton Ontario

The Hamilton Ontario velodrome business plan looks at economic impacts (section 8).

These include direct, indirect and induced benefits from the capital construction and

operation. Additionally they have looked at impacts from visitor spending, events,

social and intangible benefits.

• Construction impacts are considered as a one-off impact for locally sourced

materials and labour.

• The view on operating costs focuses on opportunities for specialist facility staff.

Utility costs are listed as a potential spin-off although it is not clear why this

would be so.

• Employment impacts are considered in relation to 71 FTEs during construction.

Direct operating impacts are estimated at 8-10 FTE and indirect and induced

impact at 4-5 FTEs. The benefit from 12-15 FTEs being in the order of CAD1

million (NZD1.2 million) in salary/benefits.

• Event benefits are questionable with widely varying opinions about the real

versus claimed benefits. An example cited is for the World Junior Track

Championships in Glasgow with an estimated GBP2.2 million (NZD4.2 million)

benefit from the 220 riders across five days.

• For Hamilton Ontario events, estimated event impacts of CAD1 million (NZD

1.2 million) for a major two-day event and CAD275,000 (NZD330,000) for an

evening/full-day event are listed.

9 Economic Impact of the Proposed Cycling Centre of Excellence, Covec, September 2011


The Hamilton Ontario Case study research (not referenced in the report) claimed

operating benefits for proposed velodromes in North America between NZ$500,000

and NZ$5 million per year, although evidence was not provided for the higher values.10

The range of benefits tends to imply that impacts of these projects are uncertain and

cover a wide range of possible outcomes. The report also noted benefits could be ten

times the annual operating deficits, although we note that there is no relationship

between the two metrics.11

3.1.2 Large scale events and facilities

Large scale events and associated infrastructure have, because of their costs, been

subject to greater documentation and review. This includes assessments of ex ante

estimates and ex post review.12, 13, 14. While the Cambridge velodrome proposal does

not fall into a large-scale event category, the lessons learnt from the literature

regarding benefit assessment are relevant.

The important lesson is that ex ante economic impacts are often overstated and vary

widely, sometimes by a factor of ten times for essentially equivalent events.

Displacement or crowding-out effects can contribute to variation, for example the

460,000 foreign visitors to South Korea during the World Cup was the same as the total

visitor numbers for the previous year.

3.1.3 Dubious value identified in the literature

It is a common error in cost benefit analysis for the costs of infrastructure

improvements to be counted as a benefit and not a cost. . . . At best public

10 Business Plan for the Development of a Velodrome for the 2015 Pan American Games in the

City of Hamilton, section 8, page 84.

11 As a counter example, the Los Angeles velodrome achieved a profit after five years of

operation. It is a multi-use facility, relies heavily on volunteer staffing and hosts the USA track

team.

12 The Economic Impact of Major Sports Events – A review of Ten Events in the UK. C Gratton, S

Shibli, R Coleman, Sociological Review, 2006.

13 Mega-Events: The effect of the world’s biggest sporting events on local, regional and national

economies. V A Matheson, College of the Holy Cross, 2006.

14 The Sydney Olympics, seven years on: an ex-post dynamic CGE Assessment. J A Giesecke and J

R Madden, Centre of Policy Studies, Monash University, 2007.


expenditures on sports-related construction or operation have zero net impact on

the economy. (Matheson)

This is not to say that events do not have an impact, for example Gratton et al describe

impacts for ten quite distinct sporting codes. As the examples cover events from fewer

than 1,000 participants/spectators to over 40,000, this article provides useful

information at this smaller scale. However, Matheson’s sentiment is echoed by Gratton

et al when referencing facilities benefits that:

American sports economists (eg, Baade, 1996; Noll & Zimbalist, 1997; Coates &

Humphreys, 1999) now consistently agree that studies show no significant direct

economic impact on the host cities from the recent stadium developments.

For events, the observed trend was that studies prior to major Games were generally

commissioned by proponents and impacts were likely to be inflated. The research ex

post found “the ex ante routinely exaggerate the benefit of mega-events often by up to

a factor of 10.”

Closer to home, when discussing the benefits of the Rugby World Cup, the observation

was made that:

Most international studies done before big sports events tended to be optimistic,

typically suggesting a 0.8 per cent boost to the economy, but studies done after the

event tend to show the impact at more like 0.1 per cent. In Britain, government

ministers were already backing away from saying there would be an economic

benefit from next year's Olympic Games.15

For the World Rowing Championship, the economic benefit for the region estimated by

Covec was $14 million.16 This benefit calculation included 2,650 international visitors

and 19,000 visitors in total.17 As an event, however, the rowing championship did not

deliver the expected $500,000 surplus, but lost $2.2 million 18 requiring a Government

loan for Rowing New Zealand to prevent it becoming insolvent. A post-event review

15 Refer: http://www.stuff.co.nz/dominion-post/news/5471776/Bank-overstates-RWC-payoff

16 Economic Impact of the 2010 World Rowing Championships, Covec, December 2010

17 For comparison, this is substantially larger than the scale of events planned for the Cambridge

velodrome.

18 Refer: http://www.stuff.co.nz/sport/other-sports/5347748/Rowing-New-Zealand-slammed


found that strong governance, financial management and commercial skills were

required.

3.2 Social, health and well-being benefits

Cycling is promoted as being an accessible option for people to improve their fitness,

engage in recreation and participate in a social context. For use of an indoor

velodrome barriers are presented due to cost of participation for equipment and

entrance fees, and any locational barriers as proximity is found to be a determinant for

participation.

We have not been presented with direct evidence for Cambridge velodrome of the

social, health and well-being benefits but would speculate that:

• The proposal may encourage those inclined to exercise, to exercise more; and

• There may be some spill-over effect into a general higher level of exercise and

well-being in the community.

But those effects are likely to be muted unless they are seen as a key part of the

region’s social, health and well-being benefits.

We note that BikeNZ and HoCT disagree with our findings on social, health and well-

being benefits. Their view is that there will be considerable benefit through a greatly

enhanced presence of cycling, through the extra programmes that will be run by

BikeNZ and through the catalyst effect of the velodrome. They see the social effects

including an increase in exercise, in having another site for rehabilitation and possible

reductions in cars on roads (through greater cycling) as significant positives.

3.2.1 British Columbia Cycling Coalition – Benefits of Accelerated Investment in Cycling

From a general context of cycling, we have noted the submission to the Province of

British Columbia from the British Columbia Cycling Coalition.19 This submission

discusses cycling in general, rather than track cycling or other organised activity that

might take place at the Cambridge velodrome site. Therefore, it is only partially

relevant to the HoCT proposal.

19 Refer: http://bccc.bc.ca/Documents/BCCC-Cycling_Investment_Recommendations.pdf


Among the benefits of increased investment in cycling are reduced health care costs,

healthier communities through reduced traffic congestion, cycling tourism and

construction employment.

While the submission suggests CAD700 million of investment in cycling, this is

concentrated on providing high quality cycle routes to provide a viable alternative to

automobile use. At a cost between CAD1 million and CAD4 million per km (NZD1.2

million to NZD5 million per km), several hundred km could be constructed. As the

investment target is road cycling and access, it does not cover competition facilities or

tracks.

3.2.2 New Zealand evidence and benefits for the Waikato

The level of participation in sporting and recreation activities was estimated by SPARC

in a series of activity profile surveys. This provides information for the country as a

whole and separately for the Waikato region.20 The report identifies that 46% of all

Waikato residents meet the physical activity guidelines and 8% of residents are

classified as inactive.

Additional research is available on the value of walking and cycling as an active

transport activity.21 While this is distinct from a purely recreational activity, it

contributes to both meeting the physical activity guideline and provides information on

the value of cycling as an activity. In particular, the research notes that benefits do not

continue to accrue beyond a certain level of activity. The estimate for this set at $1000

and recommends a valuation of 40 cents per kilometre.

While the addition of a new velodrome will provide greater opportunities to actively

participate in cycling, the information available suggests that the population already

achieves a high proportion of the total available benefit. The incremental effect may

therefore be limited to the half of the population that are not physically active; and

may participate in the rehabilitation and fitness programmes.

20 Sport and Recreation New Zealand. (2009). Sport, Recreation and Physical Activity Profile:

Waikato Region 2007/08. Wellington: SPARC.

21 Valuing the health benefits of active transport modes. NZ Transport Agency Research Report

359, 2008.


3.3 Comment

There is little in the literature on economic impacts and benefits of other velodrome

projects that is supportive of the investment. Some benefits could be argued but

generally those benefits are argued in the context of a much larger event, such as an

Olympic Games assessment. There is very little about standalone proposals of the

nature proposed here.

An issue that should be considered in evaluating benefits is the opportunity cost of that

investment. A $28.5 million investment in a specialised piece of sporting infrastructure

will likely have some positive impact. However, we understand that WRC needs to

consider funding this proposal outside of its long-term planning cycle. Clearly, if this

proposal is funded, then other proposals will not be funded. The WRC needs to

consider the greatest economic impact given competing funding priorities. Given that

this proposal is out of step, we are not able to give comment on relative priorities; we

can only highlight that they need to be considered.


4 Success factors for indoor velodrome development

4.1 Assessment framework

From the literature, review of the HoCT proposal, and other sources including working

notes prepared by HoCT and interviews, we have a wide variety of information to draw

on. This information traverses the physical disposition and planned nature of the

facilities, and issues faced in both the establishment phase and operation of the

velodromes. This information, however, does not include some items that would be

available in an ideal world. In particular, evidence of demand for, and impact studies of,

indoor velodromes are typically absent before the facility is built. Much of the

information requires some degree of assessment and inference to determine what the

outcomes are compared to what might be best practice.

Drawing on the body of information available, Sapere has used the following factors,

against which the HoCT proposal may be assessed:

• Planning, including vision, objective and scope;

• Involvement and role of key organisations;

• Infrastructure;

• Integration of the indoor velodrome (including location);

• Integration as part of sporting excellence strategy (added after discussions with

HoCT);

• Optimal mix of usage of the velodrome;

• Programme-based or event-based velodromes;

• On-going funding requirements and sources; and

• Governance, leadership and management arrangements.

We describe each success factor, look at international experience, and then compare

each success factor with the HoCT proposal.

4.2 Planning

Fundamental to the velodrome development is adequate and appropriate planning.

This includes a clear vision, objective and scope for the project. Criteria for the location

of the velodrome are likely to be constrained by a mixture of pragmatic and subjective

considerations due to the size of the building footprint.

As a large infrastructure undertaking there will be a wide variety of stakeholders.

Stakeholders including funding partners need to be identified. Their requirements

need to be clearly understood, including if project underwriting is required.


Demand and usage should be determined, including prospective tenants. This includes

understanding where the demand will arise.

4.2.1 International experience

Construction of velodrome facilities is based on an identification of need or demand.

In the case of Manchester or London, the associated need was to fulfil the

requirements of hosting the Commonwealth or Olympic games.

An alternative approach can be seen from Geelong, Victoria, where the provision of

facilities and a cycling strategy examined the range of resources and the demand for

those or additional resources.22 Similarly, for Hamilton, Ontario, the prospective

demand post-Pan American Games is an important component of their assessment.23

Beyond assessed demand, important considerations are also made for aggregation

with other sporting facilities, shared site infrastructure, access to transport, co-location

with commercial precincts and population areas. Because of overlap between track

and road training, consideration may also be given to access to suitable road networks.

The Dunc Gray velodrome in Sydney is still criticised for being a poor location by local

cycling clubs, despite being set within a large population area. Other facilities are

associated with or located in major cities such as Melbourne and Los Angeles. We are

not aware of a comparable facility being located in smaller communities with limited

supporting infrastructure. In the case of research performed in Geelong Victoria they

found potential use of facilities would fall if travel times were high. 80% of survey

respondents prepared to travel less than 30 minutes for cyclists and with similar results

for people involved in swimming.

4.2.2 HoCT proposal

The HoCT proposal and associated material is comprehensive. The HoCT bid document

seeks to address all of the points raised in the SPARC RFP; the document therefore

provides sufficient detail to satisfy the requirements of that RFP. Supplementary

material includes letters of support, construction estimates, high level financial model

22 Greater Geelong: Cycle Strategy Volume 2 – Feasibility Investigation for a Home of Cycling in

Geelong March 2008.

23 Business Plan for the Development of a Velodrome for the 2015 Pan-American Games in the

City of Hamilton, draft report prepared by Sierra Planning and Management.


and other collateral information. The planning effort has been clearly demonstrated in

the areas of:

• Trust establishment;

• Lease or purchase arrangements with St Peter’s School for use of the site;

• Building design and costs;

• Determining support and potential funding sources including economic

justifications; and

• Estimating potential usage, revenues and expenses.

The above list is certainly not exhaustive; rather it identifies that considerable effort

has gone into the planning of the proposal.

However, the SPARC RFP proposal is not a business plan: while it provides guidance on

how different aspects of the HoCT will operate, it has been prepared to meet external

criteria rather than as an internal planning document for the Trust. Therefore, we have

also incorporated supplementary information that has been prepared and supplied by

HoCT.

The vision and objective for the HoCT velodrome project appeared initially set by the

SPARC criteria and its high performance strategy. HoCT believes it has developed and

expanded these criteria, tailoring the proposal to the needs of the Waikato region and

enhancing the value proposition for BikeNZ. The value to the Waikato region has been

covered via an economic assessment impact, but the wider benefits are not well

documented in the proposal.

Included in the HoCT planning are assumptions around use of the facility. This falls into

three main categories:

• Elite or SPARC sponsored cyclists. There are 67 “carded” cyclists listed as at 29

July 201124 covering all cycling disciplines. These athletes and other high

performance riders have wide geographic diversity across the country with 59

of the carded riders living outside of the Waikato region. Commencing 2013,

cyclists that wish to be supported by SPARC will be required to relocate to the

Waikato Home of Cycling. On current values, this indicates a movement of

approximately $800,000 of SPARC cyclist funding to the Waikato out of the $1

million total.

24 Refer: http://www.sparc.org.nz/en-nz/high-performance/Athletes/Carding/


• Similarly for recreational and club level cyclists the available regional resources

appear sufficient. The planning appears to assume that local riders will make

extensive use of the Cambridge facilities. Some riders will not want to incur

both the costs of their current club membership and the additional fees for use

of the Cambridge facility, while some other riders will be willing to incur the

additional costs to use the velodrome.

• The programmes and school usage contribute a large number of potential

riders. While preliminary timetables indicate available hours, these

programmes are expected to fit around the high-performance usage during the

middle part of the day, with school groups timetabled around BikeNZ usage

and during the April to September period when most elite cyclists are absent.

Overall, the HoCT velodrome proposal has needed to bring together a number of

aspects, from a high level of local involvement with the SPARC requirements including

the indoor velodrome, and a desire for a cycling centre of excellence.

4.3 Involvement and role of key organisations

Principles of good project governance will see cross involvement between sports,

recreation organisations, education, businesses, local government and other

institutions. Without broad agreement between these involved parties, the

establishment and success of a velodrome will be more difficult.

Our review generally identifies two groups of velodrome projects with the difference

between the groups potentially resulting in an order of magnitude difference in cost:

• The first group is the major indoor developments seeking classification for

international events.

• The second group is more modest projects in conjunction within a local

community or local government strategy, or as part of the efforts of a

particular cycling club.

The HoCT indoor velodrome proposal falls into a third category. The proposal is being

developed with core focus on rider training across all levels, acting as a centre of

excellence for cycling across multiple disciplines. The key difference between the HoCT

and a more training programme oriented velodrome is the availability of additional

support services encompassing coaching, sports science, sports medicine and research

activity.

The involvement of local clubs appears vital to the success of an indoor velodrome.

Comments from the Invercargill Licensing Trust velodrome (ILT Invercargill) are that it

benefitted from the amalgamation of the three local clubs to provide the initial base of

130 riders. Similarly, Manchester states it needed to carefully manage its relationship


with clubs to prevent being seen as a rival and taking away from the local support and

relationship it currently has with clubs.

4.3.1 HoCT Proposal:

The HoCT development is not being built or funded for a specific event such as a

Commonwealth Games. Therefore, having the additional cost associated with an

indoor velodrome on a standalone basis has introduced a high hurdle for its

establishment; the capital grants need to be sourced from central government, local

authorities and various charitable trusts.

Beyond initial establishment, the major organisations indicated as providers of

establishment capital will not, and do not want to be long-term partners. SPARC is

providing a one-off grant, funding from the WRC is similarly predicated on the basis of

a one-off contribution, and the bulk of grants from charitable organisations are

similarly limited to the establishment stage. SPARC will also fund the $100,000 per

annum rental for BikeNZ and an anticipated $50,000 in track fees.

St Peter’s School is providing land, and in return has a considerable asset available for

use on its campus and additional custom for its hostels. The indication is that St Peter’s

School will use up to 400 hours per year, made available at no charge. Otherwise its

involvement is limited.

If the HoCT becomes insolvent then we understand that the surplus assets of the Trust

shall be given to another charitable organisation of a similar nature, exclusively for

charitable purposes, and that the WRC may seek modification of the deed.

BikeNZ is an anchor tenant, and will co-locate. We have note verbal representations

from Bike NZ that the co-location with the Cambridge velodrome will provide the

ability to deliver an additional array of programmes, using the range of cycling facilities

at and around the Home of Cycling, and that there is a five year plan. We have not

seen the plan and the plan is possibly more a vision and aspiration albeit founded on

solid knowledge of this sector. We anticipate that this fits into the wider strategic

objective of centralising cycling in a single location. This aspect is definitely part of the

package as seen by the proposers but is not fully documented in the proposal or in

supporting documents.

A major factor in the on-going usage and success of the Cambridge velodrome will be

generating additional demand for the indoor velodrome. This requires support from

the existing cycling clubs in the Waikato and neighbouring regions. Revenue

projections and utilisation anticipates local club riders within 20 minutes travel time

will triple and will use the velodrome twice per week. Riders in the wider Waikato and

neighbouring regions of Auckland and the Bay of Plenty (within two hours) may double

in number and will each need to travel to Cambridge on average once every two weeks

during the year.


While the indications of support are positive, the reality of both paying for use and the

impact on the existing cycling demographic is less clear. A HoCT survey of local clubs

indicated 205 riders would be prepared to pay to access the track on a regular basis,

and a further 50 on a more intermittent basis.

4.4 Infrastructure

Similar to most other major velodrome developments, the HoCT development revolves

around the construction of a high quality track and the associated building.

For Olympic or World Championship standard a track length of 250m is required.

Other specific lengths between 133m and 500m are permitted as set out in the UCI

regulations “Part 3 Track Races”. The regulations also set out requirements for:

• Lighting (for example, at 1400 lux at category 1); and

• Track features such as width, markings, access and other elements.

There is not a strict requirement for the track to be covered to achieve UCI category 1

classification, but that is a requirement from the SPARC RFP and reflects the trend for

top class velodromes. Capital expenditure is around $28.5 million, including additional

facilities. These additional facilities help to provide sources of revenue and improve

the overall utilisation of velodromes. This additional usage can include multiple uses

for the track infield for other sports, gymnasium, and commercial office space. These

activities should be complementary to the hosting of cycling rather than a simple cross-

subsidy between a commercial activity and the facility as a whole.

Proximity to population centres has been identified in other indoor velodrome cases as

being an important factor. Some population catchments are particularly large, as

evidenced by the velodrome in Los Angeles, but the Hamilton Ontario case looked

specifically at a number of locations and the catchment able to both participate and

spectate. Even the ILT velodrome, in a smaller population centre has been able to

maximise its opportunities within Invercargill’s boundaries.

Proximity to transport infrastructure and other sporting facilities is a feature of

velodromes such as Melbourne, Los Angeles, Manchester25 and a high priority when

considering location and access for both users and spectators. This can be achieved by

constructing the velodrome as part of a sporting precinct in an accessible location.

25 Melbourne has extensive road and rail links to Hisense Arena, Los Angeles is served by their

network of freeways and metro network, Manchester is to be adjacent to metro-rail link station.


Similarly, coincident location with a population centre provides access to professional

skills, research institutions, employment opportunities and a base of potential cyclists.

An example of a sporting precinct can be taken from the Melbourne Olympic Park Trust.

The Olympic Park has suite of facilities including the velodrome at Hisense Arena which

hosted 225,904 patrons across a range of events.26 For 2010 the Trust posted an

AUD7.862 million (NZD9.8 million) profit inclusive of AUD16 million (NZD20 million) of

depreciation. The focus on events at Olympic Park and limited training opportunities

encouraged the development of a second velodrome (Darebin International Sports

Centre) and a different usage profile.

The velodrome in Los Angeles is located at the Home Depot Center, a 125-acre, US$150

million development in Carson, with stadia and facilities for soccer, tennis, track & field,

cycling, lacrosse, rugby, volleyball, baseball, softball, basketball and other sports.

Designated as an "Official U.S. Olympic Training Site"27 it is also located adjacent to the

California State University – Dominguez Hills campus.

4.4.1 HoCT Proposal:

The supporting infrastructure for the St Peter’s site has positive and negative features.

Availability and access to several school facilities combines well with the need for

adequate land for other cycling disciplines and the large footprint of the velodrome

building. However, as a negative the location is not directly co-located with the major

population centre of Hamilton. The impact on usage because of this additional

distance may be more of a barrier to potential casual users rather than registered

riders.

Public transport to the site is limited with the current level of bus services at seven

Hamilton-Cambridge buses daily (three at weekends). It is unclear if there will be

sufficiently regular demand for additional services from cyclists or centre staff to

support stronger transport links.

St Peter’s has on-site, short-term accommodation in single rooms, “cubes” and

dormitory configurations. On site catering is available and a café within the building is

anticipated; however, cyclists and spectators will need to travel off-site for access to

restaurants, motel/hotel style accommodation or shopping within Cambridge town-

26 Refer: http://www.mopt.com.au/PortalData/1/Resources/annualreports/MOPT_AR_2010.pdf.

27Refer: http://www.homedepotcenter.com/contentright.php?section=aboutus&page=thehdc.


ship. They will need to drive (or ride) as these other facilities are not within a

convenient walking distance.

4.5 Integration of the indoor velodrome

Major sporting facilities need an appropriate location in order for users to access and

utilise those facilities on a regular basis. Some types of event are particularly

dependent on geography or the need for space such as alpine sports, outdoor water

sports or motor racing where activity within an urban environment is not appropriate.

For stadia or arenas these tend to be located within city boundaries to capitalise on the

proximate infrastructure and concentration of potential users.

Specialist facilities like indoor velodromes may have a wider catchment due to their

scarcity. This is demonstrated in the case of the Manchester velodrome. As the first

major indoor facility in the United Kingdom, their available catchment for track cyclists

is national in scope. Their commentary on changes due to the establishment of

Newport, Glasgow and London is that these extra velodromes will help spread demand,

but the local concentration of population in greater Manchester means they are not

reliant on riders travelling across country to Manchester.

A second aspect of major facilities is the capacity of the community and region to

absorb the incremental impact associated with the establishment and running of major

events. The burden of hosting an Olympic Games, for instance, is an undertaking for

large cities with events being awarded to cities with more than three million people.

As several indoor velodromes have been and are being built in conjunction with major

events, it is useful to consider the relative size of the host population for legacy use.

The following examples provide some context for both event and training/programme

based models:

• Hamilton Ontario: population 504,000 with 693,000 including metro area –

event initiated.

• London Ontario (Forest City Velodrome): population 457,000 – training based.

• Sydney (Dunc Gray): population 4.6 million – event initiated.

• Melbourne: population 4.1 million – Hisense as multi-purpose events based

and Darebin as training based.

• Manchester: population 2.6 million – training based.

• Los Angeles: population 15 million (urban area) – training based.

• Hamilton, New Zealand: population 143,000 with 203,000 including urban

areas of Hamilton, Cambridge and Te Awamutu – training based.

For indoor cycling facilities that are not constructed for major events, they tend to be

more modest in scale and function. The ILT Velodrome in Invercargill, a UCI category 2


facility, was constructed for around $10 million and the Los Angeles indoor track had a

construction costs closer to USD15 million (NZD18 million).

4.5.1 HoCT Proposal

The HoCT proposal locates the velodrome at St Peter’s School. The school is located

approximately 1km from Cambridge on State Highway 1. For nearby facilities the

following examples are given by the HoCT:

• The Rowing New Zealand High Performance Centre: 13 km;

• Waikato Institute of Technology: 25km;

• University of Waikato: 15km;

• Mountain biking in Rotorua: 80km;

• Swimming pools and gymnasiums: Cambridge has a 50m pool 3.5km, other

facilities 15km to 25km at Hamilton and Te Awamutu; and

• Claudelands Event Centre: 16km.

These other facilities are generally located in different population centres rather than

in conjunction with the St Peter’s site. This spread means that no one location would

result in a velodrome that is close to all of the above. A Hamilton location would

provide closer links to the University, WinTech, Claudelands and the largest regional

population centre. However, the St Peter’s School site appears to be a viable

compromise due to the availability of land for the site at minimal cost. The site also

provides proximity to the Te Awa cycleway and BMX facilities in Cambridge and in Te

Awamutu, and complimentary facilities including suitability for large-scale training

camps

4.6 Integration as part of a sporting Centre of Excellence

For the international velodromes from which we have drawn examples we have noted

that some have a primary use as part of a major event, while others operate on the

delivery of track access with events being either complementary or even secondary

uses.

For the event-focused velodromes at Hamilton Ontario, London or Glasgow, the legacy

usage profile is yet to be determined.

Access to track time across a wide range of rider ability is important for the National

Cycling Centre Manchester, ILT Invercargill, Los Angeles and Darebin in Melbourne.

Using these four tracks as examples, they each host elite squad training, provide

programmes for community riders and provide for club cycling. However, the range of

additional support and services available generally to non-elite riders across the full

range of ability appears to be a secondary consideration.


The inclusion of extra support and services in conjunction with an indoor velodrome

moves away from the simple utilisation of an asset. Rather, it contributes to a more

complete offering to users, and depending on implementation can be referred to as a

centre of excellence.

As a domestic example, Rowing New Zealand focuses on high performance for elite

athletes. The Karapiro facility is the training base for approximately 40 elite and 30

under 23 rowers, supported by a range of coaches, nutritionists and support personnel.

The high motivation from these participants contributes to their willingness to locate

closely to facilities; not withstanding that SPARC will require that they relocate.

4.6.1 HoCT Proposal

HoCT have taken a direction of creating a centre of cycling excellence around the

Cambridge velodrome incorporating factors including:

• High performance sport as the base for SPARC carded athletes;

• Co-location of BikeNZ and its support of different cycling disciplines;

• Access to a mix of facilities including BMX, mountain bike and road training;

• Facilities for sport science on site and with links to Waikato tertiary institutions;

• Venue allowing co-location of cycling related activities within the velodrome

complex; and

• Emphasis on access, programmes and participation, rather than events.

The above resources complement the physical infrastructure. They help support the

development of athletes and the delivery of combined training opportunities.

We note that the rowing high performance centre and the Home of Cycling are likely to

jointly benefit from the establishment of the Cambridge velodrome. Firstly though the

proximity to the rowing athletes as potential users of the ancillary velodrome services,

and secondly from increasing the utilisation of the specialist sport support staff.

4.7 Mix of high performance and community use

The development of recreational and club riders, however, is critical for high utilisation

of velodrome facilities. These are the main income generating participants while the

elite riders tend to contribute less due to smaller numbers. The preferential and more

exclusive usage could be expected to command a higher revenue premium, particularly

if lighting or air conditioning facilities are used to replicate competition environments

not required by lower categories of usage.

It is also important to distinguish the proportion of high-performance use from use of

the facilities by the community for cycling and non-cycling activities. Overseas venues

find competition for non-cycling activities can limit the cycling activity, not simply the


displacement between high performance use and community use. However, non-

cycling activities are often undertaken because they can have higher income

opportunities.

Non-cycling activities can include exhibitions, concerts, or other indoor court sports

including volleyball, basketball or badminton. Ensuring the interior section of the track

is suitable for these other uses concurrently or exclusively needs to be included in the

initial plans to help prevent conflict between competing uses.

The Hisense Arena in Melbourne has been given as an example where non-cycling

events crowd out general cycling, but it is still active hosting cycling events such as the

2012 UCI World Championships. In contrast, participation numbers from Manchester

indicate a mix of high performance, community, events and non-cycling activities.

4.7.1 HoCT Proposal

While the Cambridge velodrome proposal anticipates catering for a wide range of users,

it needs a higher specification and higher capital costs to meet the needs of elite riders.

This higher specification is linked to the SPARC funding conditions and is actioned via

the guaranteed priority access for BikeNZ.

High performance usage is anticipated to use an average of five of the 16 available

hours each weekday, and two hours of the 14 available hours each weekend day. Total

hours are calculated at 725 hours out of a potential 5,500 hours per year (13%).

BikeNZ will have a contractual priority for track bookings and anticipated revenue is set

a rate of $65/hour. This fee appears to be a considerable discount given the priority

track access and one-off nature of the SPARC contribution. A similar pricing structure

for Waikato users given the planned Waikato, Bay of Plenty and Waipa local authority

grants of $11 million is not offered.

The breakdown for other categories is dependent on the treatment of utilisation and

the mix of either the number of riders, or number of hours used. Indicative timetabling

allows 660 hours development, 1,000 hours for schools, 1,200 hours racing and 1,175

hours for programmes. Actual hours will depend on additional factors such as timing

of events, programmes and school terms. Utilisation is calculated commencing at 50%

and increasing 5% per year until it reaches 75%. Track revenue varies depending on

use and the number of riders with annual track passes, but it based around 20 riders

paying $15 per hour. The next section includes additional information about likely

rider metrics needed to support the above revenue figures.

As the BikeNZ usage is scheduled based around an October to March season, the use of

the velodrome by St Peter’s School will not detract from the utilisation or revenue.


4.8 Training and event based velodromes

The event initiated velodromes justify themselves as part of a wider event. Therefore,

the facilities including the facilities in London, Glasgow and Hamilton Ontario occupy a

separate category from those more fundamentally based on a training or programme

delivery facility. A key differentiator between the event-based and the training-based

is the need for the training based to operate in a financially sustainable manner.

Possibly the best example of a training based velodrome is the Home Centre

velodrome in Carson California, referred to as Los Angeles, because of its location in

the greater metropolitan area. The facility was funded by private enterprise without

public funding. This helped concentrate efforts on:

• Cost minimisation (both capital and operating); and

• Revenue maximisation through facility and private programme offerings,

commercial opportunities and opportunities for multiple uses.

Even with this commercial focus, the first four years appears to have resulted in

operating losses before posting a profit in its fifth year.

The ILT velodrome in Invercargill also exhibits high utilisation during planned operating

hours covering 2,500 hours across the year. Generally different programmes and

events take up a small proportion of the track time across a year with the local club

being the main user at 20%.

We note from our discussions with ILT Invercargill that it has taken five years to reach

the current level of utilisation. Local club numbers have increased gradually year on

year from the initial 130 riders to the current 600, and there are some, but a limited

number of riders who travel from out of Invercargill to use the facility. This is next to a

multi-use stadium that attracts upwards of 10,000 users per week.

In the case of the National Cycling Centre (NCC) in Manchester in England, its local

population of 2.6 million people is cited as a significant contributor to its near 100%

utilisation. The regular timetabling of the British national team for 1,500 hours per

year assists with scheduling of other programmes. NCC has built demand over a period

of 15 years; it has the luxury of accepting or turning down non-cycling events based on

the relative revenues and disruption to the cycling usage. Club demand is high with

forward scheduling and booking required, especially for those in the wider national

rider catchment where travel is required.

To help address constraints, the NCC has expanded, adding additional commercial

space for British Cycling (200 staff), building a GBP25 million (NZD48 million) indoor

BMX track, adding co-located cyclo-cross course and building a mountain bike course in

an adjacent park.


Another factors contributing to the high level of NCC utilisation is the proximity of

other sporting venues, high performance support and the recent investments of

between GBP500 million (NZD955 million) and GBP1,000 million (NZD1,910 million) in

Manchester around the Manchester City football club and velodrome site, including

nearby hotels and leisure facilities.

4.8.1 HoCT Proposal

The Cambridge-based Home of Cycling is intended to provide a centre of excellence for

the elite riders of New Zealand. Beyond the carded athletes that will be required to re-

locate to the Waikato region, the velodrome will offer a range of programmes and

opportunities for development and club usage.

Based on the material provided, including the planned revenues, a possible programme

structure and discussions with HoCT, we have provided a spread sheet tool to assist

HoCT to make clear to us what its revenue assumptions are and what lies behind them.

By way of explanation, HoCT have identified the current population of riders, the

forecast population of riders, has applied the current conversion rate from riders to

track riders, and then has applied revenue assumptions. The estimates below are from

HoCT.

Club riders needed in year 528

• Licensed adult riders within 20 minutes: currently 285, growing to 750, giving 250 track

riders.

o With 75% regular riders at $350/year and 25% at $15/session twice/week and

possible revenue $160,000, this implies 455 distinct club riders.

• Licensed youth riders within 20 minutes: currently 285, growing to 750, giving 375

track riders.

o With 75% regular riders at $250/year and 25% at $15/session twice/week and

possible revenue $211,000, this implies 844 distinct club riders.

• Licensed adult riders within 2 hours: currently 650, growing to 1,300 giving 100 track

riders.

o With 75% regular riders at $350/year and 25% at $15/session one each two

weeks and indicated revenue of $36,000, this implies 105 distinct club riders.

• Licensed youth riders within 2 hours: currently 650, growing to 1,300 giving 325 track

riders.

o With 75% regular riders at $250/year and 25% at $15/session one each two

weeks and indicated revenue of $112,000, this implies at least 447 distinct

club riders.

28 Sourced from HoCT.


Two particular aspects of assumed club rider demand is the high growth from current

levels for track riders and, also, the required proportion of casual fee paying riders.

This second category of riders is outside of the box above and is a different category of

user – one which is more occasional where the cost of paying per session is lower than

paying for unlimited annual access.

There needs to be a driver for the level of change indicated by the revenue forecast -

for club rider numbers to double or triple. Certainly the existence of a quality indoor

velodrome facility will have some impact, but club membership will be driven by the

local clubs rather than the Home of Cycling itself. Attracting an additional 2,000 riders

will take time (HoCT expects five years).

We note that HoCT and BikeNZ are confident of the forecast demand increases. HoCT

references the experience in Invercargill where there was a fourfold increase (to

around 600 track cyclists). We are less sure; the establishment of the velodrome in

Invercargill coincided with centralisation of clubs on site.29

Also, there is a strong financial incentive to move to an annual payment for any semi-

regular riders. At $350 per adult this occurs after 23 sessions and for youths after 17

sessions. On this basis, either rider numbers would have to be higher than assumed, or

revenues would be lower than forecast.

Programmes (HoCT forecast)

• Schools programme for year eight and nine: 5,000 students.

• BikeNZ elite riders: 67 for fixed track time fees. That is, if rider numbers change, hourly

track revenue remains static.

• Learn to ride and rider accreditation: 750 riders.

• Corporate challenge competition and/or team building: estimate 820 riders.

• Rehabilitation, fitness and casual sessions: 200 riders.

• Development camps: 75 riders.

29 Cycling Southland was formed in 1996 following the amalgamation of the three "Clubs" in

Southland, the Invercargill, Glengarry and Murihiku Novice Wheelers Club. Strategic planning

meetings held shortly after the formation of Cycling Southland, put together some visionary

concepts, including New Zealand's first indoor cycling facility - the ILT Velodrome. Former clubs

Waikiwi and Mataura had gone into receivership and may have provided some of the growth for

Cycling Southland. Refer: http://www.cyclingsouth.org.nz/index.php?pageLoad=105.


The school riding programmes encompass the largest number of riders with 5,000

people. This appears achievable given the available student population.

The two programmes Accreditation and learn to ride with 750 riders might suffer from

saturation. The number of new people needed these programmes over the long-term

may decline as people achieve the necessary qualification. Corporate usage and

rehabilitation programmes, on the other hand, have a greater likely repeatability.

Development camps may draw on riders already covered elsewhere in the club or

programme matrix, but represent a relatively small number (75 out of 3,500).

Overall, the revenue and potential schedule suggests 3,500 different riders (excluding

the schools programme) would need to use the velodrome each year to achieve

revenue targets. While the actual breakdown may differ, this level of use requires a

large increase over existing demand. We have seen growth in cyclist numbers at other

velodromes, with ILT Invercargill seeing a four-fold increase over the past five years.

The Waikato would need to see a similar participation rate climbing to 1 rider per 100

people.

4.9 On-going funding

The capital cost of an indoor velodrome imposes a large up-front hurdle for projects.

These costs might be covered in a variety of ways, but once established the legacy of

the capital investment needs to be considered. Funding the on-going needs of a

velodrome or other major sporting infrastructure naturally falls into the distinct

categories of:

• Day-to-day operational expenses; and

• Long-term facility refurbishment.

On a cash basis it is easier to meet operating costs from operating revenues; however,

it is more difficult to meet the overall costs of maintaining the facility indefinitely when

considering capital replacement and refurbishment costs. The issue of capital

replacement is least obvious shortly after completion when maintenance costs are at

their lowest and major refurbishment is not required:

• Replacement of mechanical air conditioning, lighting and fittings would be

expected to have a life around ten years using simple depreciation rates. Some

planned installed equipment will be warranted for 15 or 20 years.

• Structural elements of the building, the track itself and outdoor features such

as roads have a longer replacement timetable, and require substantial funds to

be available.


For recent, modern indoor velodromes, substantial structural refurbishment has not

been a significant issue, because of their age. Despite this, evidence of dis-repair of

sites around the world illustrates the problems in maintaining these facilities over the

long term.

The Dunc Gray velodrome in Sydney provides a useful example of the financial

difficulties faced by some operators. With a 1999 construction cost of AUD$42 million

(NZD52.5 million) the Bankstown Sports Club underwrites the operating loss of

AUD$500,000 (NZD600,000) per year and an accumulated AUD$8 million (NZD10

million) since 2000; this is despite successfully bidding for and hosting UCI Cycling

World Cup events, and having these events run at a loss.

Management of the Dunc Gray Velodrome may revert to Bankstown City Council

leaving ratepayers with the burden of propping up a venue many consider is a State

Government white elephant and financial black hole. Bankstown Sports is looking

to sever its ties with the Bass Hill velodrome just 10 years into a 21-year sub-lease

agreement with the council. 30

To help limit the financial burden, extra revenue has been generated from housing

NSW Cycling, Cycling Australia and from operating a tavern with gaming machines.

Grants from NSW State Government and Bankstown City Council have also

supplemented income. Despite this, and the location within a city of over four million

people, the velodrome remains significantly unprofitable.

The Dunc Gray track is in contrast with the Hisense Arena in Melbourne. Co-located in

a sports precinct surrounded by solid transport infrastructure and a wide range of

events/multiuse, collectively the facilities return a profit. We do not have the specific

break-out of the profitability of the velodrome, but the strong non-cycling event focus

detracts from the velodrome as a cycling venue.

Hamilton Ontario, in its planning for the Pan-American Games has considered the on-

going costs of the velodrome and other sporting infrastructure. Anticipating the

operating revenue shortfall, the city proposes to establish a CAD70 million (NZD84

million) legacy fund to support the running costs of an aquatic centre, athletics stadium

and the velodrome.

The major facilities we have reviewed are not financially self-sufficient and this is in line

with the evidence found in the Hamilton Ontario research. Additional funding for

maintenance and to cover operating short-falls is the norm; and the shortfalls can be

30 http://www.torchpublishing.com.au/news/news_detail.php?ID=75511


significant. The Flemish Cycling Centre operates at a loss of EUR230,000 per year

(NZD386,000) and the Manchester Velodrome receives grants of GBP250,000 per year

(NZD477,000) to bolster revenues. The ADT Events Centre in Los Angles is cited as an

exception, achieving a break-even/profit position with the highest concentration of

cyclists in the United States combined with reasonably priced, unlimited track use

memberships.

The establishment of a major facility may also introduce some displacement of activity.

This question is not restricted to the level of transfer of activities to a velodrome at

Cambridge by cycling clubs, to the potential detriment of existing organisations and

facilities. For context, the ILT Velodrome arose in conjunction with the combination of

three existing Southland clubs and had a membership base to draw on. The resulting

core club and facility enjoys a lease arrangement where they pay based on hours of

track-use and can therefore concentrate on making utilised hours profitable, rather

than needing to fill every available hour.

4.9.1 HoCT Proposal

We have based our comments on the latest version of the financial model that has

been supplied.31 Based on this financial model, the HoCT proposal appears to operate

at a cash operating surplus provided the revenue assumptions hold. However, the

projected level of surplus relies on a high level of revenue from users that has not been

supported with evidence that those users will actually pay the rates set out in the

model. At a high level, the sources of revenue are similar to many other velodromes,

including a mix of rider fees, programmes, commercial activity including team

accommodation and café, and sponsorship. This is not dissimilar to Dunc Gray and

their efforts to supplement their income from their on-site tavern.

We discuss the costs, revenue and cash flow projections below:

1. Costs: Governance fees are set at zero with an allowance of $10,000 per year

to reimburse minor or travel expenses.

The facility is to operate 6 a.m. to 10 p.m. weekdays and 8 a.m. to 10 p.m.

weekends. .A swipe card system will allow specific time and area access for

pass holders rather than casual users. However, only four staff positions are

indicated (CEO, coach, assistant facility manager and administration). This

raises questions about responsibilities for operations and security when riders

are within the velodrome building at times when the staff are not present.

31 Home of Cycling Operational Model version 10.xlsx received 16 August 2011


The cost for coaching or contracting staff and for running some programmes

has not been included – similarly the supporting revenue has not been included

other than the track revenue.

Total operating costs are listed as approximately $1,700,000 per year inclusive

of $1,018,000 per year of depreciation (average year 5 to year 10)

2. Revenue: Includes assumption of $50,000 per year of grants. Annual

sponsorship of $100,000 per year is also assumed. Naming rights of $250,000

per year has been included based on commitment received, covering the first

ten years.

Usage fees are based on $15/hour, and with the set utilisation rates and

memberships given in the model supplied this gives $800,000 per year of rider-

derived income. This is from individuals directly, organisations and externally

funded programmes. Allowing for some variation in usage across the year

would be practical, for instance reductions through summer for reduced school

use.

The assertion that sufficient numbers of cyclists will value the use of an indoor

velodrome at this level is covered in the document “potential usage.pdf.”32 This

includes additional information on potential usage, and fee structures. Their

online survey of local cyclists suggested riders would be prepared to pay

$350/year to access the track on a regular basis. We have clarified the possible

fee structures and rider numbers with HoCT to support the revenue

assumptions in the financial model.

In the Report to Council June 201133 it states that there are six road cycling

clubs in Waikato and a further five mountain bike clubs, with a combined total

of approximately 1,060 members. This is registered riders only, and does not

include any unregistered cyclists. A similar number of riders may be targeted as

regular users of the velodrome.

Commercial rentals of $408,000 are included across 2,042m2. $100,000 per

year is assumed from BikeNZ, with other tenants assumed covering sport

science ($60,000 per year) and a range of other organisations that are likely to

receive a benefit through co-location ($250,000). HoCT notes that in addition to

BikeNZ there are currently letters of intent from six other organisations, or

32 Supplied by Geoff Balme, 29 August 2011

33 http://www.waikatoregion.govt.nz/PageFiles/19529/1984635l.pdf


groups of organisations, to take up a significant part of the space, and

continuing discussions with other prospective tenants.

In year 5, inclusive of all sources, income is projected to grow to approximately

$1,500,000 per year. $800,000 per year comes from grants, sponsorship and

potential commercial tenants.

3. Cash flow Projection: The simple cash flow projection focuses on the operating

cash surplus without an explicit allowance for any equipment replacement.

Across the ten years shown the HVAC, lighting and fittings might need

replacement ($4,000,000 capital cost with 10% per year depreciation), but as

noted above, the design life for some of these components is greater than ten

years.

On the basis of the model as presented, the profit is achieved from a mixture of

interest on cash reserves, commercial rental income, and rider fees. On a cash

basis the Home of Cycling should easily post a surplus until the first capital

refurbishments are required. However, including depreciation costs, the centre

might operate on a breakeven basis if everything runs according to plan.

A simple sensitivity analysis looking at a 50% lower uptake in rider fees and

commercial rents indicates that the Home of Cycling should still operate a cash

surplus in its establishment phase, secured by a mix of sponsorship and a

modest level of track fees.

The Home of Cycling is reliant on a several large revenue items and successful

implementation of its rider programmes across a large number of users. Naturally a

shortfall in rental income or occupancy, grants or utilisation by cyclists will result in a

reduction of revenue and would result in a corresponding reduction in cash-surplus.

On the basis of the cash flow projections presented to us, our view is as follows:

• The facility will not be able to carry the burden of debt on commercial terms.

All capital needs to be granted in an unencumbered manner.

• It is likely that the facility will be able to cover its day-to-day operating costs.

• Further, it is likely that the facility will be able to cover minor capital

replacement.

• It is possible that the facility will be able to generate enough cash to be self-

sustaining, but this is dependent on full achievement of HoCT’s assumptions.


4.10 Governance, leadership and management

4.10.1 Governance

Internationally many different governance structures have been used. Facilities built as

part of a major event tend to initially be administered via a government organisation

such as a sports ministry, local government authority or special purpose entity. The

event may itself have an autonomous organisation responsible for a collection of

sporting facilities for the duration of the event before ceding control to a more locally

representative or legacy organisation.

The Los Angeles velodrome is an example of a privately conceived, funded and run

facility that differs from the largely government funded and oriented projects. Rather

than being linked to an event or national cycling organisation it is focused on providing

a velodrome with tight cost control in an area of high potential patronage. Possibly

because of the private enterprise focus it is one of the few financially self-sufficient and

profitable velodromes.

The general observation, internationally, is that the specific governance structure may

not have a notable influence on the success of a velodrome if the key stakeholder

engagement and relationships are well implemented. This includes aspects of

accountability and the incentives for success versus the consequences of failures.

• If there is someone (government or other community body) to pick-up any

short-fall, the incentive to achieve sustainable operations and consequences of

insufficient revenue is significantly muted.

• If there is a financial failure, understanding the likelihood and magnitude of the

consequences needs to be understood ahead of time.

At a Board or Trustee level, simply being a custodian or lending a name to an

organisation is not sufficient. Certainly in New Zealand law, organisations are not

allowed to operate when insolvent, recklessly or to the likely detriment of creditors

otherwise the liabilities can accrue to the individuals involved. Therefore, knowingly

embarking on a venture with a high degree of financial risk is unacceptable and is

factored into the legacy planning of major developments overseas.

4.10.2 Leadership

Because use of the velodrome is quite specific, the Directors or Trustees over time are

likely to have less of a leadership and more of a stewardship role. This is due to the

distinct phases between establishment and operations.

For establishment, “making it happen” requires strong advocacy to ensure the correct

stakeholders are correctly aligned. This would include sources of funding, the cycling

community and relevant national and international organisations like the UCI for


homologation purposes. If public funds are being used, the public also needs a degree

of buy-in as it is their money being used. Planning and resource consents for the

facility, transport links and ensuring links to infrastructure will also influence the

location and influence likely success. These activities need a particular set of skills to

secure funding and construction.

Once established, the velodrome changes to an operational mode. The big items such

as securing support and construction funding change to getting cyclists on the track,

dollars in the door, and minimising costs. Maintaining donation funding also presents a

different proposition to sponsors. These activities require a different mix of skills and

can, in many instances, be more difficult than the establishment phase.

4.10.3 Management

The management and running of velodromes is characterised by minimal staff to keep

operating costs as low as possible. In the context of a velodrome facility, a substantial

driver is the need for revenues, which are largely determined by accessibility,

availability and affordability for as many users as practical. Therefore the skills

required are in administration and promotion of the velodrome and its associated

facilities.

A second aspect that assists in maintaining revenues is major events. These require

additional skills to bid for and win hosting rights, along with the actual hosting of the

event and logistics of ancillary activities like organising schedules, accommodation,

travel and event support. It is important to note that while there is additional revenue

derived from major events, they will interrupt the normal schedules resulting in some

lost revenue, and the hosting will also incur extra costs.

As seen from other events within New Zealand and cycling events held overseas,

events are not necessarily profitable, as noted above with respect to the Dunc Gray

velodrome in Sydney or the Rowing World Championship. That is not to say all events

are unprofitable as Hamilton Ontario expect their smaller scale events to be profitable.

European six-day events were historically built on a profitable commercial basis, and

alternative formats provide different scope without some of the overheads associated

with larger events.

4.10.4 HoCT Proposal

At this stage the HoCT has formed a Trust with strong project champions and working

groups that cover, amongst other things, addressing the detailed requirements of the


velodrome and potential users. The Trust has investigated the failings of other

velodromes and has visited some. These are summarised as follows34:

“From an operating point of view, drawing together what I have seen at the

velodromes I have visited, as a general comment I can say that other velodromes

run at a loss for a number of reasons including they:

• don’t have a ‘commercial’ operating model

• aren’t sufficiently utilised, i.e. lack a cycling for all philosophy

• don’t have their national team as a tenant

• don’t have tenanted space

• aren’t set up as a centre of excellence, i.e. providing a wide range of other

services

• don’t have sponsorship for operating funding

• cater primarily for events

• don’t run an extensive range of programmes.”

The HoCT is largely guided by the prospect and requirements of funding for the

Cambridge velodrome and has built its goals around the facility and its purpose:

promote cycling at all levels and provide cycling and related facilities for public

recreation. BikeNZ is firmly in support. The trustees of HoCT believe that they have a

breakthrough recipe for success with a different business model from other

velodromes.

34 Geoff Balme, Visit to European Velodromes, August 2011


5 Conclusion - likelihood of success?

The HoCT proposal was submitted to SPARC in February 2011 and since then provides

the opportunity to examine both the strong and weak points for establishing a cycling

centre of excellence. We would expect that a major infrastructure investment like the

Home of Cycling velodrome will have benefits for a section of the community, cyclists

that will make use of the velodrome and co-located services, but this simple

assessment does not take into account the costs of provision.

During the course of the literature review, analysis of international practice and

examination of the HoCT proposal, we have considered the more fundamental

question regarding the likely success of the Cambridge velodrome proposal.

The HoCT proposal covers a large quantity of background material, planning and has

garnered base support in principle for the construction of an indoor velodrome facility.

This has been linked to the key factors that have influenced the design and operation

of velodrome facilities elsewhere. In terms of the proposal prepared for SPARC, this

body of work represents the significant effort and time that has gone into the

preparation of the proposal submitted to SPARC. However, the material that would be

covered in a detailed business plan would cover many of the gaps in information that

would help inform decisions around the Home of Cycling proposal. By way of example,

we have relied on discussions with BikeNZ for linkages from some of the planned

programmes to track usage.

Despite this preparatory work, the development is weakened in several key areas.

Some of these assessments are based on the material that has been sourced or made

available to us and include some subjective elements; and the proposal makes similar

subjective assessments in estimating future usage or benefits. The issues that we have

identified are as follows (we note that this is Sapere’s view and not that of the project

advocates):

• Lack of evidence of future participation rates and demand at the levels

required;

• The assumptions regarding growth in rider numbers from the existing base and

the utilisation rates appear high;

• To achieve the needed utilisation assumes the velodrome will be open almost

2/3rds of all hours across the year, but anticipates a minimum of facility staff as

low as four positions;

• A heavy reliance on grantsand sponsorship along with commercial rentals for

income increases risks and long-term viability; and

• Location is a compromise; the site is not integrated with the Hamilton

population centre, facilities and infrastructure but links facilities at St Peter’s

School and across the region.


From our analysis, set out in the previous sections of this report, there are a number of

factors that should be taken into account, drawing from the experience of other

velodrome developments. Some of the identified factors may only have a minor

impact of the ultimate success of the Home of Cycling, while others will be more critical.

For instance, the location will require most users to have to travel to use the

velodrome and this will present a barrier to uptake and usage. We note that HoCT and

BikeNZ feel differently about this barrier; they note that cyclists are used to travelling

to different locations for their sport and that, in terms of relative locations in New

Zealand, this location is a very good one.

The main success factor that we consistently come back to – and that is lacking in the

proposal and for which we need to rely on working papers and verbal comment - is the

ability of the proposal to achieve the assumed levels of utilisation. The underlying

demand is not sufficiently evidenced. The development of the proposal does not come

from either an event basis, or a need promoted by the local cycling community. While

both events and local cyclists would be likely to use the velodrome once built, such use

is not the core driver for the proposal, but is incidental to the main purpose. In our

view, the demand will have to be “induced”. We note, however, that BikeNZ and HoCT

have a different view – that the demand is suppressed because of lack of a facility. This

is a key assumption for consideration by WRC in taking its decision.

5.1 Relative investment

SPARC has funded the programme a substantial $7 million in addition to supporting the

BikeNZ tenancy. Presumably this is SPARC’s valuation of the benefit to it of the

velodrome’s role as a home for elite cyclists and for the development pathways that

support that.

The $11 million being asked of regional authorities is essentially a request for the

economic, social health and wellbeing benefits that accrue to the region. We have

engaged the council briefly on the subject of relative investments but understand that

this decision needs to be taken outside of the planning cycle and therefore the

executive of the council does not have relative investments.

We expect that there will be displacement effects from other sports activities (that is,

economic benefits are likely to be transferred between activities). Similarly, the

majority of usage fees would be coming from the regional population rather than being

spent on some other activity.

5.2 Final view

The Home of Cycling proposal faces does face a barrier in obtaining capital grants to

achieve HoCT’s $11 million target from three local authorities and then sufficient

revenues for sustainable operation. Evidence listed earlier in this report for other


indoor velodromes is that even with high utilisation, a range of cycling programmes

and subsidies from commercial activities, indoor velodromes may still operate at a loss

and require on-going funding support.

Overall, we consider the Home of Cycling proposal may be self-sustaining once the high

capital cost for the indoor track facility is secured and the velodrome is constructed.

The challenge will be to attract the high number of riders and programme sponsors

needed to deliver successfully on the potential of the velodrome and also to cover a

significant proportion of long term costs.


6 References

Hamilton, Ontario Canada – Velodrome business plan, 10 August 2010

SUBJECT/REPORT NO: International Event Opportunities – 2015 Pan Am Games

Velodrome Business Plan, (CM10005) (City Wide)

Business Plan for the Development of a Velodrome for the 2015 Pan American Games

in the City of Hamilton, draft report prepared by Sierra Planning and Management

Geelong, Victoria, Australia

G21 Regional Sport and Recreation Infrastructure Strategy Report prepared by

Stratcorp Consulting Pty Ltd, June 2006

Greater Geelong: Cycle Strategy Volume 1 – March 2008

Greater Geelong: Cycle Strategy Volume 2 – Feasibility Investigation for a Home of

Cycling in Geelong March 2008

Bankstown Sports, Sydney, Australia

Submission to the Productivity Commission Inquiry into Australia’s Gambling Industry

2008

March 2010 media statement by the Bankstown Sports Club

http://www.bankstownsports.com/article/handle-bar-tavern-to-close

Database of velodromes

http://www.fixedgearfever.com/modules.php?name=Velodromes

http://www.torchpublishing.com.au/news/news_detail.php?ID=75511

http://rlb.com/index.php/uk/article/velodrome-costs/

http://www.downnews.co.uk/latest-news/down-velodrome-dream-comes-closer

http://hamilton.openfile.ca/hamilton/file/2011/02/recreational-riders-and-youth-key-

velodrome-sustainability

http://uk.eurosport.yahoo.com/22022011/58/london-2012-gb-ignore-new-

velodrome.html


http://www.cyclingireland.ie/Home/News/Downpatrick-Velodrome-Update.aspx

http://findarticles.com/p/articles/mi_go1582/is_20101101/ai_n56391495/

http://drysidevelodrome.wordpress.com/

http://autobus.cyclingnews.com/features/?id=2004/adt

http://www.downnews.co.uk/latest-news/council-to-investigate-velodrome-funding-

failure

http://en.wikipedia.org/wiki/List_of_velodromes

http://villedehyeres.com/-le-velodrome

http://infrastructureontario.net/en/panam/velodrome%20and%20stadium/profile.asp

http://www.insights.org.uk/articleitem.aspx?title=Brand+Extension+in+Tourist+Attracti

ons+-+Success+Factors

http://www.stuff.co.nz/sport/other-sports/5347748/Rowing-New-Zealand-slammed