Mr. Seamus McCarthy:

Bord na gCon was established to provide a statutory basis for the control, regulation and development of the greyhound industry in Ireland. It operates its own racing activities through 11 subsidiary companies, and licenses greyhound racing at other privately owned tracks. In recent years, it has received annual State funding of around €11 million from the Horse and Greyhound Racing Fund. The level of State funding is anticipated to increase in 2015.

The main project undertaken by Bord na gCon under its 2007-10 capital programme was the development of a new racing stadium and administration headquarters building in Limerick. The project was completed in October 2010. Subsequently, concerns were raised publicly about certain aspects of the project, resulting in media reports and correspondence to this committee. In the course of the audit of the 2011 financial statements, we sought to examine the evolution of the project, and its impact on Bord na gCon’s financial position. Because the issues were complex, we were unable to conclude that the project had been delivered in a satisfactory way, and continued the examination in parallel with the audit of the 2012 financial statements. Members will recall the discussion about the stadium last November with the representatives of Bord na gCon in the context of examination of those financial statements. I felt it was necessary to present a report to allow finalisation of the matter by the committee and to address the public's concerns.

Redevelopment or replacement of the existing Markets Field stadium in Limerick had been contemplated since around 2000. Although public bodies are required to assess the business case for capital projects, we did not find evidence of any formal appraisal underpinning the decision to construct a new stadium on a greenfield site rather than to redevelop the existing stadium. At a public auction in April 2005, Bord na gCon bought a 16-acre site in Meelick, on the outskirts of the city. The purchase price was just over €1 million, and further expenditure totalling €935,000 was incurred on stamp duty, site investigations and development, and project planning and design fees. Prior to the auction, a firm of consultants hired by Bord na gCon identified a potential problem in relation to site access, and the fact that the Meelick site fronted a national road. There is no evidence that the consultants’ report was presented to or discussed by the board in advance of the site purchase. Subsequently, Bord na gCon dropped its planning application to develop the new stadium at Meelick, due to anticipated planning difficulties over access. The site at Meelick is still held by the board, and was valued at end 2012 at €150,000. A total of €1.6 million spent on site purchase and subsequent development and planning costs has been written off.

In June 2008, the board purchased an alternative site of 11.5 acres at Greenpark at a cost of €3.4 million or €304,900 per acre. Bord na gCon had commissioned a valuation of those lands in 2003. This indicated a value of €160,000 per acre would be reasonable at that time. Despite a 91% increase in price per acre and a number of major changes in the site characteristics between 2003 and 2008, a fresh valuation was not sought at the time of the purchase.

When the board approved the purchase of the Greenpark lands, it was informed that the vendor would construct the car park for use by members of the public attending racing or other events, on the basis that it would also be available for use as an overflow car park for a nearby commercial development. The board was also told that the developer would provide necessary fill for the site at no cost to the board, subject to a landfill licence being granted. These features of the deal on offer could have reduced the overall cost of the development. In the event, these aspects of the deal did not work out as planned and Bord na gCon incurred additional costs and risks.

Department of Public Expenditure and Reform rules for capital projects require the preparation of a formal appraisal in advance of substantial commitments being made to a capital project. An initial capital project evaluation was presented to the board in June 2008. An updated evaluation was presented to the board in April 2009. This projected an excess of net project revenues of €1.4 million, in net present value terms, based on a capital investment of €19.8 million. My examination found that there was a lack of thoroughness in the manner in which this appraisal was undertaken by Bord na gCon. In particular, despite available evidence that revenues from greyhound racing activity were falling in 2008-09, high racing revenue was forecast for Limerick. As a result the projected net revenues from the operation of the Limerick track appear to have been overstated by an estimated €2.9 million in net present value terms. This was in contrast to the expenditure side of the analysis, which took account of the fall in construction prices being experienced in 2008-2009. In addition, cash from property disposals accounted for over one third of the total projected project revenues, and these were not backed up by current valuations, despite falling property prices. Finally, sensitivity analysis of the results did not appear to have been carried out. This would have allowed the board to identify that the commercial viability of the project was heavily dependent on the assumptions around increases in tote betting contribution and track profit at Limerick.

The outturn on the project has been that profits from the track operation and the Tote at Limerick have been well below the levels projected and are forecast to remain so in the period to 2015. For example, the evaluation projected profits in Limerick of €800,000 in 2011, increasing to €1 million by 2015. In fact, Limerick generated a surplus of €208,000 in 2011, and recorded a loss of €107,000 in 2012. The stadium was at break-even in 2013.

My main conclusion is that had better analysis been done and more soundly-based assumptions used, it is likely that the analysis would have indicated that the Limerick stadium development was marginal in commercial terms. There might nevertheless have been strategic arguments in the interests of the greyhound industry in favour of proceeding with the project, or a scaled-back development, but in pursuing such a course, the board should have recognised that the project might adversely affect its financial position. In the end, Bord na gCon spent a total of €21 million on the development at Greenpark, including the site purchase at Greenpark, stamp duty and irrecoverable VAT. As indicated in the figure displayed on the screen to the committee, its borrowings increased from under €10 million in 2007 to around €22 million in 2012. Over the same period, its operating profits have declined from about €6 million a year to about €3 million a year. The chief executive officer will be able to brief the committee on the steps being taken to reduce the borrowing level and address the longer-term sustainability of Bord na gCon’s operations.