A property auction isn't like some ebay bullshit. They don't just take your word for you having $1.3 million. You have to prove it. They don't just take the word of some slobbering, drooling gimp-faced ratty pervert who looks homeless and acts insane.
He's just lying. They were an anti-prostitution group so they obviously weren't going to do that. If anything, they overpaid just to be able to permanently shut down a criminal blight on the community, the sort of vile hole that a rat like Russell Greer would patronize.
While you can make a property sale with a restrictive covenant, it's generally something like a covenant not to create a nuisance on the property, not to block an easement used to drive to an adjoining property, etc. I'm not sure a court would enforce a restrictive covenant to actually MAINTAIN a public nuisance.