The Government says it had no option but to comply with a contract set up by the previous government to give millions of taxpayer dollars to New Zealand's America's Cup team.
Team New Zealand on Thursday confirmed it is launching a campaign to contest the Cup in San Francisco in 2013 and will receive $36 million from the Government to mount the challenge.
The funding was set up by the Labour Government in 2007 after Team New Zealand was beaten at Valencia.
The money is held in a Ministry of Economic Development fund meant for major events with potential economic benefits.
Acting Minister for Economic Development David Carter accepts the timing of the handout in tough economic times is far from perfect, saying the Government did look at getting out of the fund.
"We gave that a brief bit of thought. The advice we got was legally, there was no opportunity to get out of it. We therefore have to make the best of a decision made by the previous Labour Government.
"I will now work with Team New Zealand to make sure that we get the best possible economic benefit to New Zealand from this investment."
Mr Carter says Team New Zealand's 2007 campaign in Valencia generated about $75 million for the New Zealand economy and expects even more could be made this time round.
Trevor Mallard, the Minister for Sport at the time, is standing by the multimillion-dollar fund he created, saying without the money the results could have been disastrous for New Zealand and sailing.
"There's no doubt that without the government funding the team would have collapsed. I don't know the exact budget, but I guess it would be somewhere between $150 and $200 million, and that would be lost to New Zealand - and that would have been terrible."
Mr Mallard says he set up in the fund because it would be an economic benefit to New Zealand, creating at least 100 jobs and bringing other sailing teams to the country to train.
Team New Zealand confirmed on Thursday had secured another major sponsor, Swiss-based coffee maker Nespresso, for the upcoming world series and the 2013 America's Cup.
Team New Zealand had always been expected to be starter for the Cup, but managing director Grant Dalton says it was not a sure thing until Nespresso confirmed its support.
Mr Dalton says completing the line-up of major sponsors will allow it to mount a catamaran challenge that can win against big-budget teams such as Oracle and Artemis.
"We never have their firepower money-wise - never have, never will. They probably spend as much on PR and marketing as we spend in an entire campaign.
"But history says that we're always good enough, just with the way we do it and the kiwi way and if nothing changed from now we'd be seriously tough team to beat. I just want to make us a bit tougher."
Team New Zealand becomes the first sailing team to contest the America's Cup and the Volvo Ocean Race at the same time.