CHAPTER 15
OCTOBER 1998 TO AUGUST 2000

From October 1998, the Soccer Federation ceased imposing, collecting and banking any levies into the Levy Bank Accounts established under the Funding and Fit Out Deeds for Stage 1. Mr Evans as the Minister for Recreation, Sport and Racing was not informed of the agreement between the Soccer Federation and the NSL Clubs to cap match costs at $13,000 and allocating $5,000 per match for the levies until 5 November 1998.

8 OCTOBER 1998 - MINISTERIAL APPOINTMENTS OF MRS HALL AND MR EVANS

On 8 October 1998, Mr Olsen resigned as the Minister for Industry, Trade and Tourism.244

On 8 October 1998, Mrs Hall resigned as Minister for Youth and Minister for Employment and was appointed Minister for Tourism. Mr Evans resigned as Minister for Police, Correctional Services and Emergency Services, Minister for Recreation and Sport and Minister for Racing and was appointed Minister for Industry and Trade and Minister for Recreation, Sport and Racing.

On 8 October 1998, Minister Evans assumed responsibility for Hindmarsh Stadium as the Minister for Industry and Trade. In September 2001, responsibility for resolving ownership and management issues was transferred to Deputy Premier Kerin.

28 OCTOBER 1998 - MINISTER EVANS REQUEST FOR MEETING TO CONSIDER INCREASING LEVIES

On 28 October 1998, Mr Evans as Minister for Recreation, Sport and Racing wrote to the Soccer Federation. His letter stated:

"I note that, to date, the Grandstand Levy has contributed less than one quarter of the loan repayments. Before considering exercising my right pursuant to clause 8.2.4 of the Deed to increase the Levy with the Federation I wish to meet to discuss the issue.

Please contact my Executive Assistant…to arrange a convenient time."

Minister Evans was unaware of the agreement between the Soccer Federation and the NSL Clubs to vary the Levy System or of their intention to seek suspension of the levies. Mrs Hall had not informed him about the draft submission sent to her on 29 September 1998.

The Auditor-General’s Annual Report for the year ended 30 June 1998, makes comment on the management of a number of sporting stadia, including the Hindmarsh Stadium. The report included the following:

"Soccer and Netball Stadiums

In relation to the Hindmarsh Soccer Stadium and the Mile End Netball Stadium the respective Funding Deeds include similar key accountability provisions, notably:

• the operations of the stadiums must be accounted for as separate profit centres;
• a separate management committee with Ministerial representation must be formed to oversee the operations of the stadiums. Key responsibilities of the committees include the establishment and maintenance of accounts and accounting records for the stadium profit centres, preparation of annual budgets and to seek to maximise use, and therefore revenue, of the stadiums;
• a five year business plan must be prepared and maintained for the stadium profit centre operations;
• separate financial statements must be prepared for the stadium profit centres;
• the accounts, accounting records or accounting systems or procedures, including those in relation to the stadium profit centre must be audited each financial year by an auditor approved by the Minister;
• the Treasurer, the Minister, or any duly authorised employee, agent or contractor may inspect the books, accounts or other documentation relating to the management, administration or affairs of the sporting associations, including those in relation to the stadium profit centres;
• for each financial year an annual report concerning the affairs of the stadium profit centres must be prepared and forwarded to the Minister;
• Ministerial or Treasurer’s representatives can attend meetings of the sporting associations where issues relating to the management of the stadium are to be discussed.
• The parties including, the Minister, the Treasurer, the Minister’s nominees to the management committees, the sporting associations and the Department of Industry and Trade (Office for Recreation and Sport) all play important roles in ensuring compliance with the overall accountability provisions of the Funding Deeds.

The Audit review identified that the Office for Recreation and Sport had prepared summaries of the respective Deed provisions and the status reports covering the key accountability provisions contained in the Deeds. The status reports reflected correspondence forwarded by the Office for Recreation and Sport to the sporting associations and the responding information provided by the associations.

The status reports indicated that a number of key provisions in both Deeds had not been sufficiently addressed by all parties since the Deeds were put in place. The following provides further information with respect to some of the matters noted by Audit and reported to the Department of Industry and Trade (Office for Recreation and Sport) on 27 August 1998 for advice of action proposed in relation to the matters.

Management Committees

At the time of the audit the soccer committee was yet to be formed and there was a vacancy for a Ministerial representative to the netball committee. In addition to representatives on the management committees the Deeds also provide for attendance of nominees of the Treasurer or Minister as observers at meetings of the sporting associations.

Audit raised with the Department the matters regarding the unsatisfactory position concerning the committees and sought advice of formal arrangements planned or implemented between the Minister, Minister’s representative, Department and sporting associations with respect to communication of issues associated with the management of the stadium profit centres.

Preparation of Business Plans for Stadium Profit Centres

In the case of netball, a report prepared in August 1996, prior to approval for the construction of the stadium, has been used as the initial business plan. The Department wrote to SANA in January 1998 indicating the need to update the plan. SANA responded in April 1998 advising that updating of the plan could commence towards the end of the 1998 calendar year.

With respect to soccer, several documents have been provided but none satisfy the requirements set out in the Deed.

Inspection of Operations, Books and Records

At the time of the Audit review the provisions in each Deed for review of the operations and record keeping in relation to the stadiums had not been exercised. This was despite the fact that both stadiums had not been able to fully fund the sporting associations’ loan repayments during the year thereby requiring the Government to meet the shortfall.

The repayment of the sporting association loans is limited by the Deeds to funds arising from defined activities. In both cases the quantum of these funds is dependant upon the operating performance of the stadium profit centres. The Deeds both contain requirements for the sporting association to promote the profitable use of the facilities.

Audit enquired of the Department as to whether an independent review of operations, accounting records and procedures was planned to ascertain compliance with the accountability arrangements set out in the Funding Deeds, including the integrity of attendance recording mechanisms (spectators for soccer and spectators and players for netball).

Approval of Auditor

Both Deeds include a provision for the approval of the auditor of the sporting association and a requirement that the audit include the accounts, accounting records and systems or procedures maintained in relation to the respective facilities.

In both cases the nominated auditor has been approved without consideration of the scope of the audit to be performed. Audit suggested that the Department obtain a copy of the engagement letter to ensure that the scope of the audit includes the operations of the independent profit centre for the respective stadium. It was further suggested that the Department seek to have a clause inserted in the engagement letter that provides for copies of any findings by the auditor in relation to the operation of the stadiums to be provided to the Department.

Other Issues

In addition to the common issues, the Audit review noted a number of unresolved matters specific to each Deed. For example, the Netball Deed has specific provisions requiring the collection of a levy for each player playing on the Edward Park courts. Correspondence sighted by Audit between the Department and SANA indicated that the levy was not being collected.

5 NOVEMBER 1998 - SOCCER FEDERATION SUBMISSION SEEKING RELIEF FROM LEVIES

On 5 November 1998 Mr Avory, Mr Scarsella and Mr Farrugia of Soccer Federation met Mr Evans as Minister for Recreation, Sport and Racing to discuss the Soccer Federation’s submission for suspension of the levies.

At that meeting, Minister Evans was given the submission prepared by the Soccer Federation with Mrs Hall’s assistance.

On 10 November 1998, the Soccer Federation wrote to the Minister for Recreation, Sport and Racing and informed him that a Fit Out Loan repayment of $48,801.28 was due on 13 November 1998, there was only $601.51 in the Fit Out Levy Bank Account and only $15,000 has been collected instead of the Levies. The letter asked the Minister what action he wished the Soccer Federation to take.

Mr Simon Forrest, the Executive Director of the Office for Recreation and Sport responded by letter also dated 10 November 1998. His letter stated that the Soccer Federation was in breach of the Fit Out Guarantee Deed for not collecting the Fit Out $2 Levy. He advised that the Soccer Federation should meet its obligations under the various agreements and deposit an amount equal to the Fit Out Levy into the Fit Out Levy Bank Account. If there was still a shortfall between the amount of the next repayment and the balance of the Fit Out Levy Bank Account, then the Soccer Federation should send the necessary reconciliations and notices to the Minister for Recreation, Sport and Racing to enable payment of the shortfall.

On 12 November 1998, the Soccer Federation replied to the 10 November 1998 letter from Mr Forrest. The letter stated that:

"We are well aware of our obligations under the funding deed and note that should the Minister reject any of our options or submissions made to him, we will be liable to make the payment due as if the levies were being collected."

The Soccer Federation advised the amount of levies that should have been collected (Grandstand Levies of $14,199; Fit Out Levies of $23,242) and stated that $20,000 that had been collected from the NSL Clubs had been paid into the Fit Out Levy Bank Account that day.

Mr Forrest wrote back that same day. On the basis that the Fit Out Levies that should have been collected were $23,242 and as there was $600 already in the Fit Out Levy Bank Account, he would arrange for a cheque for $25,000 to be deposited into the Fit Out Levy Bank Account for the shortfall between the loan repayment and the Fit Out Levies. The Soccer Federation would need to meet the difference between the $20,000 collected from the NSL Clubs and the Fit Out Levies it should have collected and deposit those monies into the Fit Out Levy Bank Account by close of business the next day.

The Soccer Federation deposited a further $3,201 into the Fit Out Levy Bank Account on 12 November 1998. The Minister for Recreation, Sport and Racing paid $25,000 of the Fit Out Loan repayment made on 13 November 1998.245

27 NOVEMBER 1998 - RECOGNITION THAT GOVERNMENT NOT ABLE TO ASSESS SOCCER’S CAPACITY TO PAY

On 27 November 1998, Mr Forrest, Executive Director of the Office for Recreation and Sport in the Department of Industry and Trade, sent Mr Evans as Minister for Recreation, Sport and Racing a minute commenting on the issues raised at the 5 November 1998 meeting with the Soccer Federation. His minute stated:246

"Essentially the issue is that the Clubs claim to be in financial difficulty because of the levy.

Capacity to pay

This is probably the major issue. The Clubs maintain that they are in financial difficulty and that the need to fund the Levies aggravates this. However, I would suggest that the real issue is lack of attendances at national league games in Adelaide – ie poor off field and on field performance on the part of the Clubs. It is by no means evident that acceding to their request will solve the problem. Indeed, to do so might simply be to defer the inevitable.

However, we are also not in a position to form a proper judgement about the capacity of the Clubs to pay the levies. The only information provided by the Federation relates to gate takings and its cost to open the stadium. Before acceding to this request on its own terms we would need to have additional information about the full operations of the Clubs. In particular, we have no information about:

Operations of the Corporate Suites Sponsorship Catering operations
Other operating revenue and expense streams.

In addition, there are other issues that should be addressed that relate to the payment of the levy:

• No increase in ticket price was imposed in relation to the Grandstand Levy. Ticket prices are controlled by Soccer Australia and the Federation should be required seek [sic] approval to increase ticket prices.
• The deeds require the levies to be charged for all matches played under the auspices of the Clubs and the Federation. To date we have seen only evidence that levies are being charged for National League games, international soccer matches and Rugby matches. In particular there is no evidence that levies are being paid into the accounts for Premier League or State League games. For instance, the Ernst and Young report referred to the Homestart Top 4 Premiership play-off (two rounds plus final), Fairmont Challenge Cup (three rounds plus final) and the Johnnie Walker Cup (three games). The Funding Deed requires that at least fifteen Premier League games are played at the stadium each calendar year.

The Federation needs to provide advice on what is occurring in relation to these games."[emphasis supplied]

The Crown Solicitor’s Office drafted the charge over the Levy monies in December 1997, 14 months after execution of the Funding Deed. Execution copies of the document were not prepared until November 1998, a year after the first levies had been collected and paid into the Levy Bank Accounts.

On 22 December 1998, the Soccer Federation wrote to the Office for Recreation and Sport about the repayment of the Grandstand Loan of $105,763.82 due on 31 December 1998. The Soccer Federation asked if the Minister for Recreation, Sport and Racing would accept $26,794, (being the balance of the $50,000 collected from the NSL Clubs after payment of an amount equal to the Fit Out Levies on 12 November 1998) in lieu of the $37,854 of Grandstand Levies due to 22 December 1998.

Mr Forrest, the Executive Director of the Office for Recreation and Sport responded by return letter requiring the Soccer Federation to deposit into the Grandstand Levy Account the total amount of the Grandstand Levies due. The Soccer Federation deposited $37,896 into the Grandstand Levy Account on 28 December 1998. The Minister for Recreation, Sport and Racing paid $67,910 of the Grandstand Loan repayment made on 31 December 1998.247

In his letter to the Soccer Federation dated 22 December 1998, Mr Forrest directed the Soccer Federation to ensure that the Grandstand Levy on matches to be held before 31 December 1998 were banked in accordance with the Funding Deed. Grandstand Levies of $13,071 for the match held on 27 December 1998 were not imposed, collected or deposited as required. Fit Out Levies of $51,472 for matches held between 15 November and 27 December 1998 were not imposed, collected or deposited as required either.248

On 18 January 1999, Mr Andrew Scott as Director, Project Coordination in the Department of Industry and Trade wrote to Ms Susan Law, Chief Executive of the Council. His letter informed the Council that Minister Evans had approved the Department of Industry and Trade entering into negotiations with the Council for the Government to take over the proprietary rights of the stadium. It asked that the full Council agree in principle to the transfer before any further negotiations occur.

22 JANUARY 1999 - MINISTER EVANS’ AGREEMENT TO SUSPEND LOAN REPAYMENTS PENDING ARTHUR ANDERSEN REPORT

On 20 January 1999, Mr Forrest sent a letter to the Soccer Federation informing it that before Minister Evans determined his response to the Soccer Federation’s proposal for relief from the levies, the Minister proposed to retain independent consultants to review the finances and operations of the Soccer Federation, the stadium and the NSL Clubs. In the meantime, the Minister required that the "terms of the deeds should be fully complied with."

After a telephone discussion between Mr Farrugia and Mr Forrest and further discussions between Mr Forrest and Minister Evans, a letter dated 22 January 1999, was sent by Mr Forrest to the Soccer Federation. It confirmed Evans’ agreement as Minister for Recreation, Sport and Racing to suspend the need for the Soccer Federation to meet future repayments of the Grandstand and Fit Out Loans pending receipt and consideration of a report by Arthur Andersen. That letter expressly stated that after consideration of the Arthur Andersen Report, the Soccer Federation may be required to pay the amounts that would have been due as levies.

On 25 March 1999, Mr Bruce Mulvaney was appointed voluntary administrator of West Adelaide.  According to the report prepared by Mr Mulvaney in his capacity as voluntary administrator, West Adelaide had a long history of being in financial difficulties. The operations and management of the club were characterised by internal disputes between the club committee and a private sponsor of the club.

Until the Arthur Andersen Report dated 31 March 1999 was delivered, the Government had no substantiated information about the financial position of the NSL Clubs. A minute dated 11 September 1998 from Mr Andrew Scott, Director Project Coordination in the Department of Industry and Trade to Mr Dixon records:

"You mentioned that you had received a confidential query late last month concerning the financial status of the two NSL clubs viz, Adelaide City and West Adelaide soccer clubs.

Our investigations revealed there are two areas, the fit out of the western grandstand and the lease for the Thebarton oval which raise a question over the solvency of the West Adelaide Club. There was no evidence to suggest there is a problem with the solvency of Adelaide City.

…

It is well known that the West Adelaide soccer club is not in a strong financial position and therefore it was suggested that it was this club that was unable to make its payment to SASF. This information is only hearsay and cannot be substantiated with any documentation…"

On 31 March 1999, Arthur Andersen delivered their report entitled "Financial Review of Soccer in South Australia" to the Office for Recreation and Sport.

One of the reasons given for commissioning the report was that the Minister for Recreation and Sport wished to have the finances and operations of the Soccer Federation and the stadium reviewed before responding to the Soccer Federation’s request for relief from the payment of levies.249

In January 1999 Arthur Andersen had submitted to Office for Recreation and Sport a proposal to provide professional services. The Office for Recreation and Sport treated that proposal as the project definition for the work. The essence of that definition was:250

"We understand the consultancy is to assess the current financial position of SASF and the Clubs, advise the Office of Recreation and Sport ("OR&S") on the extent of the financial difficulties facing SASF and the Clubs and, present suitable options for potential restructure of the existing arrangements."

The work would include "a review of … operations of the Hindmarsh Stadium and the corporate facilities as separate cost/profit centres".251

• Introduction;
• Review of the "external environment" for South Australian soccer encompassing internationalsoccer and national soccer;
• Hindmarsh Stadium encompassing the redevelopment, the financing arrangements, attendances and levy collection;
• Review of the "internal environment" for South Australian soccer encompassing the Soccer Federation and the two NSL Clubs;
• Hindmarsh Stadium management structure including a comparison with other sporting bodies;
• Alternative re-financing options.

A review of any feasibility studies or capital works submissions in relation to Stage 2 was specifically excluded from the scope of Arthur Andersen’s review.

• The projected attendance levels upon which the Government based its assessment of the feasibility of the levies to fund the Soccer Federation’s contribution to the Stage 1 and Fit Out Loans were too aggressive.252 They should have considered the possibility that attendances might decrease.
• In the 1998/1999 season, the average attendance for each NSL team was 5,819. Perth Glory’s average attendance was 14,965. South Australia NSL teams’ average was 3,411.253
• The Federation had capped the expenses for the Clubs at $13,000 per game without notifying the Minister in the first instance.254 That cap was significantly lower than the actual expenses (including the levy expense) incurred by the Soccer Federation in operating the stadium during the 1997/98 season.255 By comparison, the cost of playing a match at Norwood or Thebarton Ovals was between $5,500 and $6,500, excluding levies.256
• The Soccer Federation had not collected levies for the Premier and State League Grand Finals, J-League exhibition matches nor any for the Women’s soccer games.257
• Due to insufficient attendance levels at matches the levies collected by the NSL Clubs and the Soccer Federation were insufficient to service the Soccer Federation’s loans for Stage 1 and the fit out. The Government had met the difference. At the date of the report the shortfall in required repayments for 1998/99 on the total bank bill facilities was $247,829. The Soccer Federation had paid only $61,060.
• The Hindmarsh Stadium Management Committee had only held one meeting at the time the Report was commissioned.258
• The Soccer Federation’s Financial Report reported Hindmarsh Stadium’s operations in a note to the Soccer Federation’s accounts, not as a separate reporting entity with its own separate financial report.259
• The Soccer Federation had conducted a television and radio campaign in 1997/98 in partial compliance with its marketing obligations under the Funding Deed. The advertisements did not mention the NSL Clubs or when their matches were to be played.260

• The Government should obtain through the Treasurer a mortgage over the Soccer Federation’s lease from the Council, as it was entitled to do under the Stage 1 Funding Deed.261
• The stadium should be managed by an independent third party because of the lack of beneficial interdependence between the principal users of the stadium, the NSL Clubs, and the current manager, the Soccer Federation.262
• The Government should seek to acquire the stadium from the Council.263
• As guarantor of the Soccer Federation’s debts, the Government should consider re-financing the Soccer Federation’s debt to a level that it could service. This would involve forgiving part of the debt.264
• Consideration should be given to reducing the levies, that reduction to be reflected in a reduction in ticket prices.265

In June 1999, Adelaide City alleged that the Soccer Federation was in breach of the 1997 Licence Agreement, entitling Adelaide City to damages and to renegotiate its terms. During the course of negotiations in the following four months a formal Variation Agreement was prepared by Reynolds Prescott, the solicitors for the Soccer Federation. Adelaide City refused to sign it.

On 21 April 1999, Mr Dixon as Chief Executive of the Department of Industry and Trade sent a letter to the Public Works Committee reporting on progress of the Stage 2 redevelopment. He reported that Baulderstone Hornibrook had been the successful tenderer and that work had progressed well.  40 percent of the budget of $17 million had been spent. He reported on the relocation of the Byelorussian Church, Meals on Wheels and the Hindmarsh Bowling Club.

The Public Works Committee reconvened on 2 June 1999 to clarify specifically the status of the financial arrangements for the project, the security of the Government’s investment and responsibility for future maintenance costs. The Public Works Committee expressed major concern over these issues during its questioning of Mr Forrest and Mr Fletcher from the Office for Recreation and Sport, Mr Bollen from the Department of Industry and Trade, Mr Scarsella of Soccer Australia and Mr Farrugia of the Soccer Federation.

By letter dated 17 June 1999 to the Soccer Federation, the Council put the Soccer Federation on notice that the naming rights of the stadium vested in the Council as owner and any attempt by the Soccer Federation to deal with those rights would be seen as an interference with the Council’s proprietary rights. If necessary, the Council would protect its position by taking legal action if required to protect its rights.

On 19 August 1999, Minister Evans reconvened the Hindmarsh Soccer Stadium Cabinet Committee for its first meeting in over a year.  The Cabinet Committee comprised Minister Evans as the Chair, the Attorney-General and the Hon. Robert Lawson QC MLC as Minister for Administrative Services.  However, the Attorney-General did not attend the meeting. The Treasurer, the Hon. Robert Lucas MLC attended by invitation.

The meeting considered the March 1999 Arthur Andersen’s report. Minister Evans has informed this Examination that he reconvened the Committee to inform it of, and to seek its guidance as to the appropriateness of recommendations made in a briefing paper on the Arthur Andersen’s report placed before the Committee by Minister Evans.

The Committee decided to support a number of Minister Evans’ recommendations. The key recommendations were:

• The Arthur Andersen Report should be treated as confidential. A summary of it should be prepared for public release.
• The Treasurer should acquire a mortgage over the Soccer Federation lease from the Council in accordance with the Funding Deed as Arthur Andersen had recommended.
• Mr Andrew Scott should continue negotiations with Council to establish a price for acquisition of the stadium. A final decision on whether the Government should prefer acquisition should await a report from Treasury and Finance and the Office for Recreation and Sport on the risks associated with ownership and operational control.
• A Sports Facility Management Trust should be established to manage the Hindmarsh Stadium and other major sports facilities.
• The amount to be paid by the Soccer Federation for the 1998/99 season should be fixed. For the period up to 31 December 1998 the Soccer Federation should pay the full levies required by the Funding Deed and Fit Out Guarantee Deed. From 1 January 1999 the amount should be fixed at a flat $5,000 per game.

A Cabinet submission reflecting these decisions was to be prepared for the Cabinet meeting on 23 August 1999.

The Committee also deferred decision on the following recommendations pending presentation of reports from Treasury and Finance and the Crown Solicitor's Office:

• The recommendation that future loan repayments (ie the shortfall after collection of levies) be repaid from consolidated revenue rather than the Office for Recreation and Sport State Facility Fund.
• The recommendation that negotiations with the Soccer Federation to fix a flat amount for the levies be overseen by the Minister for Recreation and Sport.
• The recommendation that the Stage 1 and Fit Out Loans be paid out.
• The recommendation that the Government’s preference be to own the stadium.

On 20 August 1999, Mr Evans as Minister for Industry and Trade and Minister for Recreation, Sport and Racing signed a Cabinet submission entitled "Hindmarsh Stadium – Ownership and Management".

The submission recommended that three issues identified by Arthur Andersen in its 31 March 1999 report be addressed urgently:

• Exercise by the Treasurer of his right for a mortgage over the lease between the Soccer Federation and the Council.
• Identification of an alternative basis for the NSL Clubs using the stadium as "it is unlikely that there is capacity within the sport to meet about half of the debt-servicing requirement".
• Putting in place an independent management arrangement for the stadium because the Soccer Federation was not considered to have the capacity to manage the stadium effectively.

• That the Department of Treasury and Finance and the Office for Recreation and Sport would prepare a statement of the risks and benefits of Government ownership or management of the stadium.
• To note ongoing negotiations with the Council over ownership of the site.
• That the Minister for Recreation, Sport and Racing would prepare a Cabinet submission on the establishment of a Sport Facilities Trust to manage a range of sporting stadia.
• That the Department of Treasury and Finance would prepare an advice on options for termination of the Soccer Federation’s loans with the National Australia Bank Limited.
• That the Committee recommended that the Soccer Federation be required to pay:
• levies as required under the Funding and Fit Out Deeds to 31 December 1998; and
• $5,000 per NSL match from 1 January 1999.

On 23 August 1999, Cabinet approved the recommendations of the Hindmarsh Soccer Stadium Cabinet Committee without any amendment.

3 SEPTEMBER 1999 - HINDMARSH SOCCER STADIUM CABINET COMMITTEE MEETING

On 3 September 1999, the Hindmarsh Soccer Stadium Cabinet Committee convened again with Minister Evans as Chair. The minutes record that the Committee considered papers from the Crown Solicitor's Office on:

• Discussions with the Soccer Federation about varying the levy structure to a flat fee of $5,000.
• Consideration of ownership and management options.

• A mortgage over the Soccer Federation’s lease. The Committee reconsidered whether it was appropriate to seek a mortgage over the Soccer Federation’s lease. The Committee decided that it needed to have a clear outcome in mind before pursuing the mortgage over the lease because it considered that course of action might result in obligations which might limit the Government’s ability to resolve other issues concerning the ownership and management of the stadium.
• A joint management structure with other stadia. The Committee noted that the different ownership of different portions of land upon which the stadium was sited made this difficult.
• Outsourcing of management of various sports stadia. Hindmarsh Stadium could be included in this proposal if the issue of ownership could be resolved.

Ultimately the Committee resolved that the Office for Recreation and Sport, the Department of Treasury and Finance and the Crown Solicitor's Office should:

On 7 September 1999, the Department of Treasury and Finance instructed the Crown Solicitor’s Office to "commence action to register a first mortgage on the Federation’s lease of Hindmarsh Stadium on behalf of the Treasurer as soon as possible."

In mid October 1999, Minister Evans requested that the Soccer Federation execute a mortgage over the 1996 Lease at the Treasurer’s request under Clause 23 of the Funding Deed. This was the first time the Soccer Federation had been requested to execute the mortgage, although the Funding Deed had been signed in October 1996.

By letter dated 22 October 1999, the Soccer Federation responded to the request for a mortgage over the lease, stating that before the Soccer Federation signed a mortgage it required an undertaking from the Government that any existing or potential breach of the lease would not prejudice its position with regard to management of the stadium or the lease.

On 5 November 1999, Reynolds Prescott, the Soccer Federation’s solicitors, wrote to the Department of Treasury and Finance about the Soccer Federation’s concerns with the terms of the proposed mortgage.

10 SEPTEMBER 1999 - TRANSFER OF RESPONSIBILITY FOR STAGING OLYMPIC SOCCER

On 10 September 1999, the Chief Executive of the Department of Industry and Trade sent a minute to the Premier seeking his approval for the transfer of responsibility for staging the Olympic Soccer Tournament from the Department of Industry and Trade to the SA Tourism Commission. The justification given was that the SA Tourism Commission had both the expertise and experience through its Major Events group to ensure that the hosting of an Olympic event was flawless. The minute stated that the proposed change had been agreed by Mr Evans as Minister for Recreation, Sport and Racing and Mrs Hall as Minister for Tourism.

The Premier approved the transfer.

1 OCTOBER 1999 - MRS HALL’S RESIGNATION AS AMBASSADOR FOR SOCCER

Mrs Hall’s letter of resignation to the Chairman of the Soccer Federation stated the reasons for her resignation as follows:

"As my political responsibilities continue to grow, my personal time continues to decrease. As you know, the Soccer Olympics in Adelaide will be a very significant major event and I have now been given the ministerial responsibility for the Olympic tournament to be held just over 12 months from now.

This has significantly changed my non-political position with soccer. Therefore, to remove any possible credibility to the allegation of ‘conflict of interest’, whether mischievous or unintended, I have most regretfully decided to relinquish the position as Soccer Ambassador."

• West Adelaide had been placed in liquidation.
• Soccer Australia would not allow time for a consortium to put forward a proposal for a replacement second South Australian team.
• Adelaide City had announced its intention to play its next game at Norwood Oval.

The minutes noted that the effect of those events was that the Soccer Federation was in breach of its obligations to the Government under the Funding Deed.

The Committee resolved that before that submission should be put to Cabinet. The Department for Industry and Trade, the Department of Treasury and Finance and the Crown Solicitor's Office should prepare a report that:

"• Reviews legal documents to determine the rights and obligations of the SA Government and the best way forward for the Government in pursuing ownership assignment of the lease and management control.

• Options for minimising costs associated with achieving these objectives.

The Committee noted that the SA Government’s commitments to SOCOG should be considered as part of the review of legal obligations."

On 8 October 1999, Minister Evans wrote to the Soccer Federation informing it that he would accept in lieu of levy payments due between 1 January and 30 September 1999, $5,000 per NSL match plus the amount of the levies payable on other events held at the stadium.

"Nothing in this letter is to be construed as relieving the Federation of its obligations to collect and bank the levies under the Documents before and after the period 1 January 1999 to 30 September 1999."

"We respectfully request that you reconsider your position regarding the payment of levies and consider a relief from levy payment for a defined period. Relief in this regard is a critical factor in preventing a complete breakdown of the situation, to where Lawyers and Courts determine formal outcomes,

  We advise that if the levies are re-imposed the Club has confirmed that it will play its home matches elsewhere (see attached correspondence)."

"I’m writing to express my thanks for all the time and effort you gave to the game over many years. Those of us involved in soccer have greatly appreciated your dedication, support and forthright approach. Having dealt with all sorts of people I can instantly recognise someone who is genuinely and honestly trying to help the situation rather than merely looking for electoral support. I think the game will truly miss it’s [sic] Ambassador and we will miss your bright personality around the club.

…

As I see it the current ruckus should focus more on soccer’s inability to meet it’s [sic] financial commitments than on the government. It seems to me that if the ABC news reporter knew the full background he would have been directing his questions to Basil Scarcella [sic] and the SA Soccer Federation. From my involvement as Patron of Adelaide City it is clear to me that the Government has been misled as to the financial ability of soccer to repay it’s [sic] debts and that information came from those people. In my view their mishandling of the financial aspect of the project has caused difficulties that could have been avoided. It would be sad to think the flack surrounds you when the people who are genuinely responsible are in hiding.

In hindsight my previous letters to you regarding the grandstand were too harsh and I would like to apologise for their accusing tone. I know now that you were doing your best for soccer and for South Australia. Knowing what I know now I shouldn’t have written to you at all. I only wrote to you because I was advised to by Les Avory and Tony Ferrugia [sic] who said that the SASF couldn’t help the two NSL clubs – it was a government matter.

You may not be aware that Basil Scarcella [sic] told the clubs that, wink, wink, nudge, nudge, there was a ‘good chance’ the Government would pay out the SASF Hindmarsh loans when money was granted for the second stage of Hindmarsh. Scarcella [sic], who led the negotiating between the SASF and the clubs, said that while he couldn’t promise it, if the money came through the club’s [sic] would only have to pay the levies for one to two years. Scarcella {sic] effectively put the Sharks and Adelaide City in a position where they were crazy if they didn’t sign the contract. We have people who will sign statutory declarations that this became a major factor in the clubs deciding to agree to such a difficult financial commitment. Later, when the money didn’t come through Scarcella [sic] was nowhere to be seen.

At a subsequent meeting in 1998 Scarcella [sic] and Tony Ferrugia [sic] stated that the SASF had performed a feasibility study that showed the SASF and clubs could meet the repayments to the government. They promised to send me a copy but have not done so despite repeated requests. I believe it was either seriously flawed or did not exist. I expect you had relied on similar advice from these people. Incredibly, as Vice Chairman of Soccer Australia Scarcella [sic] knew how much financial trouble the Sharks were in yet he still tied the Government, the SASF and the two NSL clubs together in a fragile deal.

I believe the SASF people, who are responsible for the game, should be made accountable for a situation that has been unfairly blamed on the government.

In many ways you may be better off away from soccer. Unfortunately the game hasn’t quite got it’s [sic] act together, can’t attract high calibre administrators and it’s [sic] people always seem to end up fighting amongst themselves. This will change in time but first soccer needs to attract good young people. This will only happen when Australia consistently qualifies for the World Cup finals. Only then will we truly appreciate our great new soccer stadium." [original emphasis]

An informal interim agreement was reached for Adelaide City to continue playing at Hindmarsh for the 1999/2000 season at a reduced fixed fee of $11,000 per match for all costs and levies.  Since then, Adelaide City have claimed that the Soccer Federation has breached some of the terms of that interim agreement and that the 1997 Licence Agreement is null and void. The Soccer Federation has claimed that levies are payable by Adelaide City if the Minister later seeks reimbursement.

On 18 October 1999, Thompson Tregear delivered a report to the Soccer Federation about the management of the redeveloped stadium. Thompson Tregear recorded their engagement as follows:269

"In August 1999, the SASF engaged Thompson Tregear Pty Ltd, a firm of management consultants specialising in the leisure industry, to 

• provide advice on the future management of the stadium;
• prepare a financial operating forecast and business plan; and
• develop an implementation strategy to ensure a smooth transition from existing arrangements to any recommended arrangements."

In preparing their report Thompson Tregear spoke to representatives of the Government, the two NSL Clubs, the Soccer Federation and the Council. The Government expressed concern that:270

"… the SASF has not set up the management of the stadium as an independent cost centre and has not prepared a business plan as required under the deed arrangement. It has also had to exercise its guarantee on the SASF loans on the western grandstand due to insufficient funds being available through the collection of levies."

In relation to the levy arrangement Thompson Tregear found that:271

"Having analysed the financial performance of the stadium, it is clearly apparent that the levies placed on admission fees have a negative effect on the current and recommended arrangements.

In simple terms, the levies have been introduced in order to ensure that some of the capital cost of the stadium (ie, the western grandstand) is repaid by the SASF. The fact is that the SASF cannot afford to repay the loan which is evidenced by the past and current financial performance of the stadium and also by the fact that the State Government has had to fund the shortfall in quarterly loan repayments under its guarantee arrangement, due to insufficient levies being collected."

In relation to the Soccer Federation’s obligation under the Fit Out Guarantee Deed to spend $100,000 per year marketing Hindmarsh Stadium, Thompson Tregear found that:272

"Whilst there will be a budget line within the stadium accounts for the promotion of the stadium, the stadium will also be promoted indirectly by the NSL Clubs and the SASF as regular users. It may not be necessary to spend $100,000 on promoting the stadium in any one year in which case it places an unrealistic cost burden on the stadium operation."

The report showed in diagram form the management structure for the stadium. Thompson Tregear identified a problem with that structure:273

"The problems arising from the existing arrangements surrounding the operation of the stadium can be summarised as follows:

• the revenue and expenses streams associated with the stadium are confused with the revenue and expense streams of soccer;
• the real financial operating position of the stadium is not clearly or readily apparent;
• the ‘stadium’ is not in control of the revenue flows that logically relate to it;
• the SASF is both user and manager of the stadium;
• the users in the form of the SASF and the two NSL Clubs, are all represented on the stadium Management Committee and as a consequence have a conflict of interest; and
• the complex arrangements that have evolved in relation to the management and operation of the stadium contribute to the animosity between the various stakeholders."

• It should be "a completely separate entity from the SASF".274
• The entity "would be owned and ultimately controlled by the SASF".275
• The members of the board of the new entity "should not also be members of the SASF Commission".276
• The new entity should have control of revenues from catering and ticket sales (then controlled by the NSL Clubs).277

Thompson Tregear recognised that the stadium was unlikely to generate net revenue flows in the foreseeable future.

Minister Evans meet with representatives of the Soccer Federation at Parliament House briefly on 20 October 1999 to discuss the Soccer Federation’s request for some relief from the Levy System.  It was agreed that these issues needed to be discussed further.

The Cabinet Committee reconvened on 25 October 1999 for 40 minutes. Minister Evans reported on his recent dealings with the Soccer Federation. After discussion of the legal and financial issues arising, the Committee resolved that a draft Cabinet submission be prepared including three options:

• Do nothing.
• Pay the Soccer Federation debt and the Government take over management of the stadium by vesting it in the Adelaide Entertainment Corporation.
• Forgive the debt and allow the Soccer Federation to manage the stadium on the basis that an independently audited amount be put aside each year for stadium maintenance.

The Cabinet submission should also consider the Soccer Federation’s offer to restructure the Levy System.

The Committee resolved that the Soccer Federation should be pressed to sign the mortgage over the lease. The Crown Solicitor was to provide Minister Evans with advice on how the mortgage can be enforced by the Government.

31 OCTOBER 1999 – AUDITOR-GENERAL’S 1998/99 ANNUAL REPORT

"In regard to the Hindmarsh Soccer Stadium, in response to problems being experienced by the SASF to meet loan repayment commitments, an external accounting firm was commissioned to undertake an independent review of the position. The review report was submitted to Cabinet in late August 1999. Cabinet approved, among other recommendations, a proposal to receive a comprehensive submission dealing with issues of the Hindmarsh Soccer Stadium debt and management of the stadium and other sports facilities.

The outcome of last year’s audit review of stadium management arrangements revealed deficiencies with respect to meeting adequate standards of accountability. The Department has implemented actions to address the issues, however, the nature and extent of some issues will require some long term resolution strategy. The Hindmarsh Soccer Stadium is a case in point."

4 NOVEMBER 1999 - MINISTER EVANS’ MEETING WITH THE SOCCER FEDERATION

The Soccer Federation requested an urgent meeting with Minister Evans on 4 November 1999.  Minister Evans raised the possibility of removing the Levy System provided the stadium was maintained by the Soccer Federation adequately. The Soccer Federation was opposed to the Government taking over management of the stadium. The Soccer Federation had still not signed the mortgage over the lease.

The Cabinet Committee reconvened on 5 November 1999 for just over an hour. The Committee considered a draft Cabinet submission proposing the ownership and management options resolved at its meeting of 25 October 1999. It was resolved that a further Cabinet submission would be prepared for Cabinet’s meeting on 8 November 1999. Specific direction was given as to the issues that the submission needed to address, but not how those issues would be resolved.

8 NOVEMBER 1999 - CABINET AUTHORITY TO ACQUIRE OWNERSHIP OF THE STADIUM

On 8 November 1999, Cabinet authorised Minister Evans to take all steps necessary to acquire ownership of Hindmarsh Stadium. Cabinet noted:

• It may be necessary for Minister Evans to purchase part of the site for up to $865,000 but only as a last resort.
• Minister Evans may need to assume responsibility for the Grandstand and Fit Out Loans at debt servicing costs of $620,000 per annum or a $6 million pay out.
• The stadium may require an annual operating subsidy of $150-200,000.

Minister Evans was authorised to pursue legal action or to appoint a receiver or liquidator to the Soccer Federation to achieve the outcome sought.

Cabinet agreed that for the period 1 January to 30 September 1999, the Soccer Federation be required to pay $5,000 for each NSL game played at Hindmarsh and the lesser of $5,000 or the levies for each other event.

"After a four year involvement in this exciting State investment in our Sport and tremendous working relationship with your Government, it is with great disappointment that I now find myself writing to you for the first time with regard to issues surrounding the future management and leaseholding of the Hindmarsh Soccer Stadium. Following a meeting attended by my General Manager with your Minister for Recreation and Sport, I believe it imperative to bring these issues to your notice in an effort to maintain the good relationship you have with the soccer fraternity."

By letter dated 10 November 1999 to the Soccer Federation, Minister Evans confirmed that he agreed to vary his earlier agreement for payment of levies during the period 1 January to 30 September 1999 to:

• $5,000 per NSL match; and
• the lesser of $5,000 or the equivalent of the levies payable for other events.

The letter also offered to suspend (not waive) payment of the levies until further notice if the Soccer Federation was prepared to enter into negotiations in good faith "with the object of the Government acquiring the lease of the stadium from the Federation."

A further letter offering to pay out the Stage 1 loans in return for a transfer of the lease was sent by Minister Evans to the Soccer Federation on 16 December 1999. The Soccer Federation refused to comply. Further discussions occurred between the Minister’s office and the Soccer Federation. No resolution was reached.

On 24 January 2000, DAIS certified that the Stage 2 project works had reached the stage of Practical Completion (as defined by the Construction Management Contract) on 3 December 1999.

On 13 December 1999, Minister Evans wrote to Ms Law of the Council and offered $865,000 for the Council’s interest in Hindmarsh Stadium, based on the Valuer-General’s January 1999 valuation.

Ms Law responded by letter dated 16 December 1999. She wrote that while the Council welcomed the opportunity to negotiate sale of the site, the sale needed to be at market price and site would be rateable on transfer of ownership. The offer was not considered to be market value.

16 DECEMBER 1999 - MINISTER EVANS’ OFFER TO THE SOCCER FEDERATION

On 16 December 1999, Minister Evans wrote to the Chairman of the Soccer Federation, Mr Avory enclosing a document outlining what he described as the Government’s "Best and Final Offer" for transfer of the leasehold interest in the stadium to the Government in consideration of the Government taking over the Soccer Federation’s liabilities for the Grandstand and Fit Out Loans and the operating and maintenance costs of the stadium. Minister Evans offered that the stadium be managed by a controlling body that would sub-contract management for an annual service fee of $48,000. The Soccer Federation would be invited to tender for the management contract. The controlling body would own all revenue rights to the stadium such as catering, broadcasting, advertising, product endorsement etc. The Soccer Federation would be offered a sub-lease of its office area at no cost.

In the absence of a response from the Soccer Federation to his offer of 16 December, Minister Evans wrote to Mr Avory on 4 January 2000. Minister Evans reiterated that it was the Government’s "Best and Final Offer" and he would revoke the offer by 12 January if not accepted or not recommended to the Council of Clubs for acceptance.

On the same day Mr Avory wrote to Minister Evans confirming the Soccer Federation’s willingness to continue with fair and equitable negotiations to transfer the lease. While he considered agreement on most issues was in sight, the Soccer Federation required compensation for its goodwill in the stadium and the value of its lease. He proposed the Government transfer to the Soccer Federation the fee simple in the site of the Heritage buildings south of the stadium.

On 5 January 2000, Minister Evans wrote back stating that he would not improve the Government’s offer by transferring the property requested.

On 14 February 2000, the Office for Recreation and Sport was transferred from the Department of Industry and Trade to the Department for Environment and Heritage.

Minister Evans reconvened the Cabinet Committee on 13 April 2000. It has not met since 5 November 1999.

Minister Evans updated the Committee on the stalemate reached in negotiations with the Soccer Federation. The Soccer Federation asked for ownership of $560,000 of property for goodwill for transferring the stadium lease to the Government. The Soccer Federation also wanted the term of the management contract from the controlling body for the stadium to run for the balance of the lease term – 37 years.

Minister Evans updated the Committee on the status of negotiations with the Council for the sale of the site. The Council had valued the site at $3 million, whereas the Valuer-General’s valuation was $865,000. The Council had rejected the Government’s offer of $2.1 million.

The Committee resolved that another paper exploring options to purchase the site and to ensure the mortgage over the lease was signed would be prepared for the next meeting in consultation with officers from the Attorney-General’s Department and Treasury. A meeting with the Council was to be held to discuss the lease of the land which was not subject to the Soccer Federation’s lease.

The Committee considered a paper prepared by Minister Evans that explored options for renegotiating the Government’s existing arrangements with the Soccer Federation. The paper did not explore options to purchase the stadium as had been agreed at the last meeting. Minister Evans proposed a new arrangement be negotiated with the following key features:

• The Government would take over responsibility for the Grandstand and Fit Out Loans.
• The Government would forgive a range of the Soccer Federation’s debts to it.
• The Soccer Federation would be required to establish the stadium as a separate profit centre on a basis acceptable to Government.
• The Soccer Federation would alter its constitution to establish a Board of Management for the stadium.
• The Government would provide an operating subsidy for the stadium for 5 years.
• The Soccer Federation would immediately enter into negotiations with the Council to extend its lease to the whole of the site.
• The Crown Solicitor would advise on whether the Government should hold a mortgage over the lease.
• A business plan would be developed for the stadium.

I note that none of these proposals were new. Terms requiring the stadium to operate as separate profit centre, a management board, a business plan and a mortgage over the lease were all included in the Stage 1 Funding Deed as terms intended to protect the Government’s interests.

The Committee accepted Minister Evans recommendations and resolved that Cabinet be updated on the current status and the proposed course of action. Any negotiations would be subject to Cabinet approval.

By letter dated 24 May 2000 to the Soccer Federation, Adelaide City proposed new conditions for it to play at Hindmarsh for the 2000/01 season. That letter stated that it was at Minister Evans’ request that Adelaide City was seeking to work out its arrangements for the up coming season and proposed a further reduction in the fixed fee to $8,000 per match.

By June 2000, Adelaide City continued to assert that its licence agreement with the Soccer Federation in relation to occupation of Hindmarsh Stadium was null and void.

With the Olympic soccer matches due to start in September 2000, the SOCOG Memorandum of Understanding required the Government to ensure delivery up of the vacant stadium by 3 July 2000.

Under its licence agreement with the Soccer Federation, Adelaide City was obliged to vacate Hindmarsh Stadium to allow the Olympic soccer to proceed.

Government was concerned that Adelaide City might rely on its allegation that the licence agreement was void to create difficulties in its vacating the stadium. By this time, Adelaide City was the only full-time occupant of any part of the stadium.

On 3 July 2000, Cabinet approved the Chief Executive of the Department of Premier and Cabinet entering into discussions with Adelaide City to ensure that it vacated the stadium during the staging of the Olympic Soccer Tournament.

On 23 June 2000, the Cabinet Committee considered a further paper prepared by Minister Evans proposing a process for meeting with the Soccer Federation representatives and a draft letter of offer on the terms discussed at the 10 May 2000 Cabinet Committee meeting. After discussion of the paper and the draft offer, the Committee resolved that both be revised and written with greater precision and detail and that they include:

• Options for the management committee and its structure; and
• The exact amount and terms under which the Grandstand and Fit Out loans are to be forgiven.

It was resolved that the Department of Treasury and Finance would undertake further analysis of how best to forgive the loans.

On 27 June 2000, the Committee reconvened to consider a revised options paper and letter of offer to the Soccer Federation. It was resolved to send the Soccer Federation an interim offer that match payments not be greater than last year for the 2000/2001 NSL season. The more detailed offer would be sent in about six weeks time.

On 30 June 2000, the Council wrote to the Soccer Federation about issues relating to the lease. The Council required further information in order to consider the Soccer Federation’s request for the Council’s consent to the assignment of the Soccer Federation’s lease to the Government. The Council requested that the Soccer Federation inform the Council of its intentions with regard to the substantial area of the site not covered by the existing lease.

The Soccer Federation was sent a notice of default dated 1 August 2000 by the Council demanding payment of unpaid water charges of $9,211.90. Those charges were then paid.

The Cabinet Committee met on 10 August 2000 to consider a revised offer to the Soccer Federation. The proposal differed from the last offer considered. Minister Evans now proposed that the management of the stadium be assigned to Government rather than be undertaken by a committee within the Soccer Federation’s constitutional structure. A Ministerial advisory body would have oversight of the management. The day to day operations would be contracted out to an organisation with facility management experience.

It was noted that agreement still needed to be secured with Adelaide City to play its NSL matches at Hindmarsh Stadium.

The Committee suggested changes to the letter and resolved that it be sent to the Soccer Federation and a reply sought within 7 days.

11 AUGUST 2000 - MINISTER EVANS’ FINAL OFFER TO THE SOCCER FEDERATION

On 11 August 2000, Minister Evans sent Mr Avory, Chairman of the Soccer Federation the letter of offer approved by the Cabinet Committee. Broadly, the proposal was for the Soccer Federation to grant all rights to manage the stadium to the Government, during which period the Government would suspend operation of the Soccer Federation’s obligations under the Funding and Fit Out Guarantee Deeds.

Acceptance was sought by 18 August 2000, failing which Minister Evans would take steps to enforce the Funding Deed.

The Soccer Federation made a counter-offer by letter dated 18 August 2000. The Soccer Federation proposed a number of variations as well as seeking $1 million as compensation for goodwill and loss of commercial opportunities from transferring management of the stadium to the Government.

Minister Evans responded by letter dated 21 August 2000. He rejected the claim for $1 million compensation and gave the Soccer Federation a further deadline of 23 August 2000 before he would take steps to enforce the Funding Deed.

Mr Avory responded by another lengthy letter on 22 August 2000. He sought a time to negotiate the outstanding issues to the satisfaction of all concerned. In response to the Minister’s statement that he would enforce the Funding Deed, he said that then the Soccer Federation would reinstate the levy and insist that Adelaide City comply with the Licence Agreement.

25 AUGUST 2000 - CAVEAT OVER 1996 LEASE

On 25 August 2000, the Treasurer lodged a caveat over the Soccer Federation’s lease from the Council claiming an estate or interest as mortgagee pursuant to the clause in the Funding Deed containing the Soccer Federation’s promise to grant a mortgage to the Treasurer, if requested.

31 AUGUST 2000 - MINISTER EVANS’ MEETING WITH THE SOCCER FEDERATION

Minister Evans met with the Board of Commissioners of the Soccer Federation on Sunday 27 August 2000 in an effort to resolve the outstanding issues for the transfer of management of the stadium to the Government. No agreement was reached on outstanding issues including the Soccer Federation’s demand for compensation.

On 31 August 2000, Mr Avory wrote to the Minister again seeking the Minister’s urgent attention. He complained that the Soccer Federation was frustrated by the lack of progress made due to the bureaucratic and indecisive approach by the Minister’s office. He also pointed out that the unresolved issue with Adelaide City’s tenancy was becoming pressing given the forthcoming NSL season.

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