The island of Bermuda, a British territory in the north Atlantic, has been chosen to host the 2017 America's Cup.
It will be the first time a US-based defender has held the regatta outside the country.
But Economic Development Minister Steven Joyce said the choice of Bermuda made it harder for the Government to justify sponsorship.
He said Bermuda is less exciting and of less benefit to New Zealand than the second-choice venue of San Diego, as the Government preferred to boost the country's profile on the west coast of America.
Head of Team New Zealand Grant Dalton said the selection of Bermuda was not a serious setback for the team.
Dalton said sponsors, for whom both the United States and Europe were important markets, were confident they could make the venue work for them.