Dire picture painted by Auckland Trotting Club Auditor

Claims of broken contracts and secrecy over land sales by the debt-laden harness racing Auckland Trotting Club have surfaced as former MP Gilbert Myles attempts to oust sitting president Rod Croon.

Myles and his supporters are railing against the ATC’s moves to sell off the Franklin Park training centre and a parcel of land fronting Green Lane Rd to help reduce the now $100 million loss it incurred building its 246 apartments at Alexandra Park.

The club’s plans are detailed in its long overdue annual report sent to members in which the 2021 accounts auditor reveals that as at July 31 the club’s liabilities exceeded its assets by $76.2 million.

The BDO Auckland auditor noted “a material uncertainty exists that may cast significant doubt on the club’s ability to continue as a going concern.”

But the ATC has put the statement down to a “technicality” of timing and a new method of presenting the figures, and says it is confident in its recovery plan.

At the end of the financial year the club had total borrowings of $243.5 million, albeit offset in the following few months by income from the apartment sales.

$32 million paid in interest

In servicing its debts it incurred interest payments of $7.62 million, paying an average of 2.93% on its loans. That brought to more than $24 million the amount paid in interest in the last three years and more than $32 million since 2015 when building began.

The club incurred a net yearly deficit of $28.2 million from significant litigation expenses against dismissed builders Canam and prolonged development costs.

Legal fees of $6 million in two years

The club’s legal fees in the last two years alone have amounted to more than $6 million.

Myles believes the ATC’s directors overstepped their authority under an Incorporated Society by taking out mortgages on all its properties without consulting club members, including the Alexandra Park track and all the titles surrounding it, along with the Pukekohe training centre.

The land at Alexandra Park is currently valued at $118 million and the 39ha at Pukekohe at $29 million.

The key land sale which the club says will halve its $100 million debt is that of 1.6ha of Green Lane Rd frontage to Australian company Gleneagles Securities.

In its report, the club states it entered into a conditional agreement in August to sell for more than $50 million, with February, 2022 as the settlement date.

Veil of secrecy

But Myles says a veil of secrecy surrounded the deal from the outset and a three-man committee appointed at last year’s AGM in October, 2020 to enter into negotiations on sale of the land had been continually frustrated in its attempts.

Despite frequent requests to the ATC board it had refused to offer the land for sale on the open market and since late last year appeared to have an exclusive arrangement with Gleneagles, a financial services company.

With land values having soared in the last 12 months Myles believes the board, as trustees of the club, an incorporated society, has clearly breached its fiduciary duty to strike the best possible deal for the members.

The club maintains it engaged a registered valuer to provide an independent assessment.

But the assessment, which put the land value at $50,250,000, was done by CBRE Limited on July 31, 2020, well before Auckland’s rocket-fuelled rise in property prices.

Even more critically, in the annual report the club says it plans to rezone, sell and lease back the Pukekohe training property as a means to further reduce debt.

Betrayal

Myles sees this as a betrayal of the Franklin Trotting Club members who voted eight years ago to merge with the ATC and hand over its assets on the promise $4 million would be spent upgrading the centre to a state-of-the-art facility.

In a July, 2014 letter to members then CEO Dominique Dowding said the development would be a core strategic pillar for protecting harness racing in the north, attracting young trainers who could not afford land. The vision included providing affordable accommodation, education and any other support to make a successful career in harness racing.

To date no new stables have been built, there are no swimming facilities nor any other of the planned improvements, only a lick of paint on the existing barns.

Myles sees this as a breach of contract and says any attempt to sell the land to service Auckland’s debt is abhorrent.

Pukekohe is a vital cog in the ATC’s operation, with about 200 horses trained on the course, and competing regularly in workouts and trials.

In an August letter to members, Croon said once the Green Lane Rd property is settled early next year, the club’s residual bank debt would be at a level that could be fully paid after the sale and relocation of the Pukekohe training track.

Four to five years until move

But ATC vice president Jamie MacKinnon says the club doesn’t need to sell Pukekohe to repay its debts and trainers won’t have to move for four to five years anyway.

“It could take years to get all the consents and when a deal is done we’ll lease back the track.”

MacKinnon says the land there will be worth far more than its present $29 million when rezoned.

“We’re not in any hurry and the longer we leave it, the more valuable the property will become.”

That wasn’t the opinion of the club’s previous auditor back in 2020, RSM Hayes stating “the club’s ability to continue operations into the foreseeable future depends on selling exisiting property in a reasonable time frame and for sufficient value to reduce and service residual debt.”

MacKinnon, who sits on the Franklin committee, says he is making it his personal project to find the right property on which to establish a new training centre, along with help from the locals.

Trainers he had talked to were not so much against the move but wanted some certainty about where they’ll have to go.

“It wasn’t our intention to move from there but the goal posts have shifted and trainers have already sold land around us because it has become so valuable.”

How did the club lose so much money?

MacKinnon knows when people read about the club’s financial position they will say: ‘How did you lose so much money?’

“Poor decisions were made along the way but we’ve worked hard to save the club in the last 12 months. We don’t just pick up our honorarium and have a few beers.” (Myles has tallied up Croon’s director’s fees as more than $400,000 since 2002 and says he will forego any payment if elected because the club cannot afford it.)

MacKinnon says without its substantial land assets to mortgage, the club would have been sold up long ago in a fire sale.

“There was no alternative. If we hadn’t had that asset backing there’s no way we’d have ridden through this. If it’s too big a risk, bankers just pull the pin.

“But we need to look forward now. We run a profitable business with $40K a week from gaming and the retail sites (under the apartments) will eventually return us $2 million a year.”

Currently 65% of the space is locked in, four are trading, the latest a supermarket which opened in November, and four are fitting out.

Paying off debt while still increasing stakes

In future, MacKinnon says some of the club’s income will go to paying off its debt and some will go to increasing stakes. “We can’t rely on the code looking after us. We have to build our own future, that’s why we started the developments in the first place.

“We’ve got to lift stakes as soon as we can, but they won’t go up in big jumps like we anticipated.

“The club has been dealt some bad cards and to have got through this is a miracle.”

Myles says members are entitled to some straight answers at Wednesday week’s annual general meeting on the actual losses of each of the apartment buildings and the present state of debt.

Even those he had consulted who were skilled in reading financial reports struggled to unravel the sleight of hand used in the reporting.

What is clear is the club took out three loans totalling $89 million on October 31, after settlement of the apartment sales, with maturity dates of March 31.

It has also drawn down $31 million of a $37.7 million loan from 2020, interest from which is due on December 10, with full repayment due “on settlement of future property sales.”

• Property held by the ATC gained in value by $45 million in the latest year, reflecting the gain back from Covid write-downs and increased activity in the Auckland property market. The club’s overall net asset position recovered to $129 million in 2021, compared with $111 million in 2020.

By Barry Lichter