Thoughts on the new arena deal

Jonathan Willis
January 24 2013 10:28AM

On Wednesday, Edmonton City Council voted 10-3 in favour of an amended framework to construct a new downtown arena. Mayor Stephen Mandel said the words that many an Oilers fan with arena fatigue wanted to hear:

It’s 100 per cent. A deal is done.

With all due respect to the mayor, the deal actually isn’t done and it won't be unless everything goes as hoped by the parties on March 7. That and some other comments about the revised agreement after the jump.

The city’s update on the revised arena deal is available from the city’s website and serves as the primary source for the points made below.

The deal is not done, because there’s still $114 million in funding that needs to be secured. The city hopes to pick up $7 million each from the federal and provincial governments to fund a related community rink and $100 million from the provincial government to pay for the arena construction. Mandel sounded optimistic that the March 7 provincial budget would make it clear that the money was coming and also exactly where it was coming from, but until it’s actually announced this isn’t a done deal.

With that said, that extra $100 million seems more likely now, given finance minister Doug Horner’s comments in the piece linked in the last paragraph:

It would be fair to say we’re looking at something all municipalities would have access to. We’re not funding directly corporations to build facilities.

Putting those comments another way: ‘We can’t be seen to be directly funding corporations, so instead of just cutting a check for Katz we might put together a new program that will sprinkle money all over the place and allow the City of Edmonton to cut that check.’

As for the complete funding breakdown, here’s the chart from the city’s report:

All told, $333 million of the $601 million total budget for the project is currently expected to come from public coffers. The ticket tax will be levied by the city both on the new arena and at Rexall; the rate for that tax will be determined by Katz’s people. Katz’s contribution will be “paid as rent over 35 years” – meaning that for the next 35 years, the money the Oilers pay to play in the new arena will be used to pay off Katz’s portion of the arena’s construction costs.

One interesting change: the ticket tax is being expanded to include an additional annual contribution of $1.5 million to pay for “major capital rehabilitation and replacement.” In other words, Katz will still pay for major repairs and renovations, but he’s now doing it out of the ticket tax, ensuring there’s money available for those costs. This is beneficial for the Katz group because it also raises the taxes on events at Rexall, heightening the difficulty for the latter facility to remain competitive.

What happens if costs rise again? Katz Group will be responsible for any increases in the price of the Winter Garden; the city’s contribution is capped at $25 million. On the arena, presumably the 50/50 rule would apply for most items, but not for all. As one example, if changes to the east wall are required because Katz Group’s plans for development around the arena change, “the City will be responsible for the cost.” The city will also pay for the community rink, including picking up that extra $14 million if the provincial and federal governments don’t contribute $7 million each.

In exchange for $333 million in public dollars, as well as taking out the loans to cover the initial construction (which will be paid off by “rent”) taxpayers get:

  • A 35-year location agreement with the Oilers
  • A guaranteed $100 million in development around the arena (the Journal article quoted above says the Katz Group currently plans $2 billion in development around the arena, but the deal only guarantees $100 million)
  • Municipal property tax payments which are capped at $250,000 annually (assuming they reach the cap every year for the next 35 years, this comes out to a little less than $9 million).
  • Access to the arena for four weeks a year, for community purposes only (i.e. the City can’t use it commercially) and with “food, beverage and other revenues” going to the Katz group for those four weeks.
  • An obligation to pay $2 million/year for advertising for the next decade

Put it all together and essentially this deal sees a huge amount of financial risk falling on the city. The only way this deal makes any kind of sense is if the development around the arena explodes; there have been all kinds of rosy projections on that front but the reality is that the future is uncertain, and that no matter what happens with that development, the city will still need to pay for the arena. It’s a dangerous gamble because of the stakes involved – if all goes as hoped, the city is a better place for it, but if things go poorly than one-third of a billion dollars will have been sunk with no hope of recouping a portion of that money.

The other benefit for the city is that the Oilers are going to be around for a long time – both because of the location agreement and because this new deal is going to make the team even more profitable than it already is.

Recently by Jonathan Willis

NATIONDRAFTS

All week long the Alberta Nation Network will be pumping our first ever NationDrafts online draft. With over $10,000 in prizes to win and a portion of the proceeds going to local charities - it is the most fun you can legally have on the internet. Only $20 per team - Click here to enter.

74b7cedc5d8bfbe88cf071309e98d2c3
Jonathan Willis is a freelance writer. He currently works for Oilers Nation, Sportsnet, the Edmonton Journal and Bleacher Report. He's co-written three books and worked for myriad websites, including Grantland, ESPN, The Score, and Hockey Prospectus. He was previously the founder and managing editor of Copper & Blue.
Avatar
#1 DaveChamp
January 24 2013, 10:30AM
Trash it!
0
trashes
Props
4
props

No fist. The Oilers need a regulation win tonight. Then, we fist.

Avatar
#2 TigerUnderGlass
January 24 2013, 10:56AM
Trash it!
0
trashes
Props
4
props

@ Willis

You may as well change the title to "I hate this deal so I'm going to reinterpret everything in the worst possible light".

The general problem I have with the position taken by you and others on this is that you completely disregard any and all intangible benefits and you write off any public good based on nothing more than the fact that a rich guy will do well from it.

I don't have a problem, in general, with disliking the deal, but the automatic slanting and refusing to consider any benefit without a tangible dollar figure attached based on nothing more than the fact that Katz will make money takes away a lot of credibility from the good points available to be made against this deal.

I also think the dollars involved are being overvalued when considered in the total context.

Avatar
#3 Dave #3
January 24 2013, 10:53AM
Trash it!
0
trashes
Props
2
props

The city /Alberta etc are proposing to spend 90 million dollars on the river valley including a 30 million dollar funicular . Do we need a funicular ? Obviously the risk for the city is that the revitalized river valley will not generate taxes. But wait, we use the river valley . Just like we will use the arena. In fact, way more people will use the arena than the art gallery or new proposed museum . The arena is not a millstone or a big risk. It is needed infrastructure. If the arena does not get built now can anyone see Rexall lasting 35 more years in it's current state ? It is when interest rates are low that you want to build.

The new arena's are now built with wide concourses and steep seating and are user friendly.

Avatar
#4 Peter
January 24 2013, 12:22PM
Trash it!
0
trashes
Props
2
props

So another person who doesn't live in Edmonton or pay taxes, Willis, is whining about our arena.

Your opinion and insight carries ZERO weight with me. You don't live here, you have no vested interest in our city, so whether you like the risk or not means nothing.

Why do you care? It doesn't impact you, and your negative suggestions that the downtown won't explode are based on what exactly?

Edmonton has spend $9 billion dollars in other communities in Edmonton the past ten years, and the downtown has gotten very little. So now it gets some help and it will jump start lots of downtown development.

You are so far out of your league in understanding this deal it is laughable. You can whine and moan, and throw out the inaccurate assessment that this is corporate wellfare, when in fact it is how business gets down to build cities and communities.

No offence, but you don't live here so why do you care. Get off your high horse. You don't know everything.

Avatar
#5 The Soup Fascist
January 24 2013, 11:20AM
Trash it!
0
trashes
Props
1
props
Not really wrote:

You pay a ticket tax at Rexall. When you go to a concert, the ticket tax will apply. The promoter & Oilers charges what they will charge regardless of the tax. Katz will operate the arena and charge a fee to the promoter. Katz will charge for hockey tickets what he feels the market will pay regardless of the ticket tax.

So no ... it is the event goer that pays the ticket tax.

I am with David S on this. There is a tipping point at which people will decide "I cannot justify paying that amount of money" for a commodity.

The tax is part of the total price and cuts into the margin of the seller. For example, if people decide that at $1.25 / litre they are going to take the bus vs. driving to work, it is ESSO who stops selling the litre of gas to the consumer. The consumer does not care that 40% of the price is tax. They just stop buying the gas.

So while the tax portion is foregone by the government, to suggest ESSO does not lose out by selling less gas (or taking less margin to keep the price down enough to maintain the customer) is at best, misleading.

Avatar
#6 james_dean
January 24 2013, 11:20AM
Trash it!
0
trashes
Props
1
props
DieHard wrote:

Just in time for Stanley.

i second that notion.

all you bellyaching mouthbreathers can get over it. the rich get richer, and history repeats itself.

as i have attended inner city schools in my adolescence, my only gripe is to have a free breakfast for underprivileged elementary childern in the area.

wont happen tho, unfortunately

Avatar
#7 The Soup Fascist
January 24 2013, 02:01PM
Trash it!
0
trashes
Props
1
props
Morgie wrote:

i suppose the truth hurts?

if the shoe fits...

you are a blatant cheerleader and have much company, accept it and get over it!

Thanks for making my point. Rather than logic or facts, trot out aged euphamisms and name calling.

At the end of the day progress is happening.

The city will benefit with a revitalized downtown core (IMO), Mr. Katz is going to make money (gasp), and I will have two spanky new seats to sit in come 2016 and watch some exciting hockey, wonderful concerts and maybe another thrilling lecture from Oprah (I think I am busy that day).

Perhaps that will help me "get over it". Yes. I believe it will.

Avatar
#8 Dave #2
January 24 2013, 10:38AM
Trash it!
0
trashes
Props
0
props

Are you not leaving out a rather big detail. The deal calls for the city to put up $219 million for the Arena portion to be raised through a community revitalization levy.

So in a way, the ticket tax and CRL are mainly borne by consumers not the taxpayer. The CRL is a risk if the additional taxes that would be raised are insufficient.

Avatar
#9 OilerLand
January 24 2013, 10:39AM
Trash it!
0
trashes
Props
0
props
DaveChamp wrote:

No fist. The Oilers need a regulation win tonight. Then, we fist.

TWSS

Avatar
#10 Spurzey
January 24 2013, 10:41AM
Trash it!
0
trashes
Props
0
props

thirst

Avatar
#11 David S
January 24 2013, 10:50AM
Trash it!
0
trashes
Props
0
props
DaveChamp wrote:

No fist. The Oilers need a regulation win tonight. Then, we fist.

As a member of the No-F!ST! camp, even I have to give props to this one.

Avatar
#12 David S
January 24 2013, 10:53AM
Trash it!
0
trashes
Props
0
props

Uhhh...the ticket tax is foregone revenue by Katz. Effectively he's paying $268M.

Avatar
#13 DieHard
January 24 2013, 10:59AM
Trash it!
0
trashes
Props
0
props

Just in time for Stanley.

Avatar
#15 Not really
January 24 2013, 11:03AM
Trash it!
0
trashes
Props
0
props
David S wrote:

Uhhh...the ticket tax is foregone revenue by Katz. Effectively he's paying $268M.

You pay a ticket tax at Rexall. When you go to a concert, the ticket tax will apply. The promoter & Oilers charges what they will charge regardless of the tax. Katz will operate the arena and charge a fee to the promoter. Katz will charge for hockey tickets what he feels the market will pay regardless of the ticket tax.

So no ... it is the event goer that pays the ticket tax.

Avatar
#17 The Soup Fascist
January 24 2013, 11:09AM
Trash it!
0
trashes
Props
0
props
Dave #3 wrote:

The city /Alberta etc are proposing to spend 90 million dollars on the river valley including a 30 million dollar funicular . Do we need a funicular ? Obviously the risk for the city is that the revitalized river valley will not generate taxes. But wait, we use the river valley . Just like we will use the arena. In fact, way more people will use the arena than the art gallery or new proposed museum . The arena is not a millstone or a big risk. It is needed infrastructure. If the arena does not get built now can anyone see Rexall lasting 35 more years in it's current state ? It is when interest rates are low that you want to build.

The new arena's are now built with wide concourses and steep seating and are user friendly.

Thanks Dave #3. I consider myself somewhat educated but I did not know what a "funicular" was - now thanks to you and google I do. Count it a day lost you do not learn something.

And you are right, we do not need one. I would rather spend the money on a beer dispensing system for the new rink that ensures each seat has a beer tap within reach. A fanicular ..... Pfffft, what a waste of money.

Now if we can just get Art Vandelay on board as chief architect .......

Avatar
#18 Smokey
January 24 2013, 11:12AM
Trash it!
0
trashes
Props
0
props

I don't see any done deal till someone figures out the where the missing funds come from. The deal with Katz still stinks, its just still the same ugly pig re-wrapped with a new bow.

Once the taxpayers cough up the missing 114 million plus the other 200 plus million I'm wondering what services we are we the taxpayer going to live without, or have we accepted that a raise in our taxes, or have we decided to pass this off to our children. As Alberta's we drank the Klein Koolaid, and said Oh YEAH! to the blue bumbleberry punch and we believe in this time of economic downturn that its time to spend rather the tightening up our belts. I'm not trying to be a pessimist but a realist. No one wants the arena more then I, but this comes at a cost to our future.

Because this generation has accepted the buy now pay later mentality our government in Alberta as well as our municipal will have choice. I'm not willing to have higher taxes, ballooning deficits, crap health care, poor snow removal because people said I want a rink more then I want the other. Katz is a master manipulator, and Mandel is his 2nd rate politician who with any sense could of made this deal work without our money. Private money built rinks in Toronto, Montreal, Vancouver, why has the people here been duped into believing we have to pay for a billionaires dream.

Billionaires are made on the backs of others, using other people's money. Its the key mantra to any real estate decision. Make money with someone else's money. We've been played.

Avatar
#20 -30-
January 24 2013, 11:18AM
Trash it!
0
trashes
Props
0
props

The upside to at least saying that it is a done deal is that now maybe Stauffer can stop being a Katz mouthpiece and actually talk about Oilers hockey?

Gawd how I hate it when he goes on and on about that. Talk about NOT biting the hand that feeds you.

Avatar
#21 Dave #2
January 24 2013, 11:21AM
Trash it!
0
trashes
Props
0
props

On the CRL - If you assume that a finite amount of entertainment dollar will be spent regardless of the new arena and that tax gains are offset by tax losses in other parts of the city then you are correct. The city is hoping that their tax boat will float higher in a rising tide. Really a question for the economist's.

Avatar
#24 yawto
January 24 2013, 11:41AM
Trash it!
0
trashes
Props
0
props

If you want to argue how much impact an NHL team has on the economy of a city ask any sports bar/lounge owner how the sales have been the last few months with no hockey. I understand that they do not need a new arena to make their money off of hockey but they do need a team in Edmonton to keep the fans coming to their establishments as well.

The reality of it is that the economic benefits will go mostly to Edmonton companies bidding on the building. Edmonton people working on the building. That 600 million is spent in the community supporting community businesses. I live in Calgary and support the Oilers. On the same note, when my taxes slightly increase to do the same for the flames new building in a few years you will hear no complaints from me. I will happily pay and happily enjoy the new facility.

Avatar
#25 Morgie
January 24 2013, 11:45AM
Trash it!
0
trashes
Props
0
props
David S wrote:

Uhhh...the ticket tax is foregone revenue by Katz. Effectively he's paying $268M.

Even if you accept that FALS premise it sure isn't at the rate of a dollar for doallr, meaning 1 dollar of ticket tax DOES NOT MEAN Katz can't charge a dollar more for a ticket..

Tha t saturation level has not been reached and will not be reached for some time

so essentially this is just another form of public dollars not Katz dollars

nice try david

Avatar
#27 TigerUnderGlass
January 24 2013, 11:57AM
Trash it!
0
trashes
Props
0
props

@Jonathan Willis

Basically what I'm getting at is that I'm not ignoring these issues - they're simply too complex to get into in any detail in what is a general overview of the new deal.

Yet they are integral to the deal. You can't present your opinion with only the information you like and then set aside potentially contradictory information because it's complex and inconvenient.

If you want to do a short overview - do a short overview and leave your opinion out of it, or you risk credibility.

Of course there is financial risk. Of course there is a chance this doesn't go how the city hopes it will go. There is no path to redeveloping downtown that doesn't include risk, expense, or the potential for failure. You just don't like this one because it benefits Katz too. Why does it matter? Public money benefits anyone who ever got a grant. Screw those guys too right?

Here is the type of comment I take the most issue with:

Putting those comments another way: ‘We can’t be seen to be directly funding corporations, so instead of just cutting a check for Katz we might put together a new program that will sprinkle money all over the place and allow the City of Edmonton to cut that check.

This is wildly unfair and heavily slanted towards your bias. Why not say:

Putting those comments another way: We need to make sure money indirectly funding corporations provides a benefit to the public and the city, not just the corporation.

This is just as plausible as your interpretation.

I just don't see "we can't give public money if it benefits Katz" as a reasonable argument. The only thing that matters is whether or not it provides enough benefit to the city to justify the cost and the risk. In my mind this is the only thing up for debate. It may or it may not, I haven't honestly spent enough time to make up my mind, but this whole "subsidizing the rich" position every wants to take irks me.

Avatar
#28 David S
January 24 2013, 12:05PM
Trash it!
0
trashes
Props
0
props
Smokey wrote:

I don't see any done deal till someone figures out the where the missing funds come from. The deal with Katz still stinks, its just still the same ugly pig re-wrapped with a new bow.

Once the taxpayers cough up the missing 114 million plus the other 200 plus million I'm wondering what services we are we the taxpayer going to live without, or have we accepted that a raise in our taxes, or have we decided to pass this off to our children. As Alberta's we drank the Klein Koolaid, and said Oh YEAH! to the blue bumbleberry punch and we believe in this time of economic downturn that its time to spend rather the tightening up our belts. I'm not trying to be a pessimist but a realist. No one wants the arena more then I, but this comes at a cost to our future.

Because this generation has accepted the buy now pay later mentality our government in Alberta as well as our municipal will have choice. I'm not willing to have higher taxes, ballooning deficits, crap health care, poor snow removal because people said I want a rink more then I want the other. Katz is a master manipulator, and Mandel is his 2nd rate politician who with any sense could of made this deal work without our money. Private money built rinks in Toronto, Montreal, Vancouver, why has the people here been duped into believing we have to pay for a billionaires dream.

Billionaires are made on the backs of others, using other people's money. Its the key mantra to any real estate decision. Make money with someone else's money. We've been played.

So we can assume you bought your house by paying in cash, right?

Avatar
#29 David S
January 24 2013, 12:13PM
Trash it!
0
trashes
Props
0
props
TigerUnderGlass wrote:
Basically what I'm getting at is that I'm not ignoring these issues - they're simply too complex to get into in any detail in what is a general overview of the new deal.

Yet they are integral to the deal. You can't present your opinion with only the information you like and then set aside potentially contradictory information because it's complex and inconvenient.

If you want to do a short overview - do a short overview and leave your opinion out of it, or you risk credibility.

Of course there is financial risk. Of course there is a chance this doesn't go how the city hopes it will go. There is no path to redeveloping downtown that doesn't include risk, expense, or the potential for failure. You just don't like this one because it benefits Katz too. Why does it matter? Public money benefits anyone who ever got a grant. Screw those guys too right?

Here is the type of comment I take the most issue with:

Putting those comments another way: ‘We can’t be seen to be directly funding corporations, so instead of just cutting a check for Katz we might put together a new program that will sprinkle money all over the place and allow the City of Edmonton to cut that check.

This is wildly unfair and heavily slanted towards your bias. Why not say:

Putting those comments another way: We need to make sure money indirectly funding corporations provides a benefit to the public and the city, not just the corporation.

This is just as plausible as your interpretation.

I just don't see "we can't give public money if it benefits Katz" as a reasonable argument. The only thing that matters is whether or not it provides enough benefit to the city to justify the cost and the risk. In my mind this is the only thing up for debate. It may or it may not, I haven't honestly spent enough time to make up my mind, but this whole "subsidizing the rich" position every wants to take irks me.

The "Subsidizing the rich" mantra reeks of jealousy. Fact is, we should HOPE Katz makes money (a ton of it according to city council).

Katz isn't a non-profit. If he can't make a fair return on his investment he'll walk away from the project. This may be fine to some but the city would be on the hook for the entire amount and be thrust into the position of developer.

This is a private-public partnership. Like it or not we need to structure deals so that the private entity realizes profit. Any sane person would be OK with that as long as the public partner realizes realizes some sort of return as well.

The issue at hand is arena naysayers refuse to/can't admit the city might realize any return in order to validate their position. In fact, it's pretty obvious to those with any business background the city will in fact see quite a substantial return.

Avatar
#30 Truth
January 24 2013, 12:16PM
Trash it!
0
trashes
Props
0
props

About time. For a while there I thought I was living in the future Yellowknife V 2.0.

Avatar
#31 David S
January 24 2013, 12:17PM
Trash it!
0
trashes
Props
0
props
The Soup Fascist wrote:

I am with David S on this. There is a tipping point at which people will decide "I cannot justify paying that amount of money" for a commodity.

The tax is part of the total price and cuts into the margin of the seller. For example, if people decide that at $1.25 / litre they are going to take the bus vs. driving to work, it is ESSO who stops selling the litre of gas to the consumer. The consumer does not care that 40% of the price is tax. They just stop buying the gas.

So while the tax portion is foregone by the government, to suggest ESSO does not lose out by selling less gas (or taking less margin to keep the price down enough to maintain the customer) is at best, misleading.

Correct. A consumer doesn't base his buying decision on anything other than the all-in price. Value is defined as "what you get for what you give up". A ticket tax is foregone revenue the vendor could otherwise charge if the consumer is willing to pay the tax-plus price.

Avatar
#32 Clyde Frog
January 24 2013, 12:18PM
Trash it!
0
trashes
Props
0
props

The danger with this sort of questioning is it takes an economics degree and a full study to understand.

There are some misconceptions in that:

A. To a large degree the city would spend this money regardless; so the question becomes would the cost-benefit of the secondary options outweigh the arena?

B. what is the expected rate of return on the capital/when is it being spent? A dollar valued at today's value yet spent in 5 years is not actually a dollar finance wise. If that dollar is invested before being spent, it earns a return during that period. Ie it may only work out to 85 cents in terms of what is actually booked today.

I could go on but typing on my phone is annoying; although I will say this is why you have to trust the civic planners who do have the degrees and studies as without them we are making some terribly baseless assumptions.

Even weighting the expected benefits is difficult; as the financial accounting and economic value has to be modelled and Cannot function in a one to one analysis.

Avatar
#33 Dave #2
January 24 2013, 12:19PM
Trash it!
0
trashes
Props
0
props

@The Soup Fascist

At the point that Rexall doesn't sell out because the ticket prices are too high is the time that the ticket tax cuts into Katz's profits. You must remember too that the goal is to maximize profits. Katz will want to charge as much as the market will bear while keeping a full building he wants a full building to make money from concessions etc.

I think there is too much emphasis put on the fact Katz is rich and could afford to build the arena on his own ( questionable ). To me , the first question should be do we need an a new arena ( that is an easy yes) .

Next question is whether we build it on our own and operate the building ( Northlands) or bring in an operator who will put in cash in return for potential profits from it's operation.

Would Edmonton rather spend more and operate the arena as a profit centre or spend less and potentially mitigate the risk of operating the facility.

Getting back to Northlands , if they would have come up with a plan to build and operate a new Arena uptown using our tax dollars the deal would have gone ahead and we would have a new arena today ( not as fancy mind you) . But they were short sighted and thought they could just do what they have always done - build it on the exhibition site.

Avatar
#34 David S
January 24 2013, 12:20PM
Trash it!
0
trashes
Props
0
props
Jonathan Willis wrote:

With regard to your first point, there is a substitution effect that needs to be taken into account.

Take this article, for example, about the most recent lockout. Two quotes:

The report shows an overall decrease of 11.23 per cent in dollars spent at food and beverage businesses near NHL arenas in Canada. Drinking establishments close to hockey arenas saw spending plunge 34.7 per cent, according to the report. Fast-food outlets and restaurants have seen dollars spent drop by nearly seven per cent and 10.5 per cent respectively. In Edmonton alone, fast-food restaurants near the arena have suffered a 27-per-cent drop in spending.

and...

The Moneris report says not all merchants are suffering, especially those outside arena vicinities. Overall spending at bars outside arena areas is up nearly 19 per cent compared to a game day in 2011. Fast-food and restaurant spending away from NHL rinks is also up 11.5 per cent and 4.9 per cent, respectively.

Needless to say, there are a lot more bars/restaraunts outside the immediate arena area than in it, so the smaller percentages don't necessarily mean fewer dollars. Media coverage in general spent a lot of time talking about the negative effects of the lockout - understandably so, since the lockout was a bad thing - but for businesses outside the immediate area of the arena the economic impact of the lockout was probably positive.

Next time you're in Edmonton Jonathan you should drop into a few bars and ask the managers how much business went through the floor with no hockey. Even those not in the immediate proximity of RX1. Alot were getting killed.

Closer to home, you might want to ask Wanye how much advertising revenue was adversely affected during the lockout. Nation Radio was a prime victim.

Avatar
#35 David S
January 24 2013, 12:24PM
Trash it!
0
trashes
Props
0
props
Dave #2 wrote:

At the point that Rexall doesn't sell out because the ticket prices are too high is the time that the ticket tax cuts into Katz's profits. You must remember too that the goal is to maximize profits. Katz will want to charge as much as the market will bear while keeping a full building he wants a full building to make money from concessions etc.

I think there is too much emphasis put on the fact Katz is rich and could afford to build the arena on his own ( questionable ). To me , the first question should be do we need an a new arena ( that is an easy yes) .

Next question is whether we build it on our own and operate the building ( Northlands) or bring in an operator who will put in cash in return for potential profits from it's operation.

Would Edmonton rather spend more and operate the arena as a profit centre or spend less and potentially mitigate the risk of operating the facility.

Getting back to Northlands , if they would have come up with a plan to build and operate a new Arena uptown using our tax dollars the deal would have gone ahead and we would have a new arena today ( not as fancy mind you) . But they were short sighted and thought they could just do what they have always done - build it on the exhibition site.

Doesn't matter what Northlands would have proposed. The city wanted the project downtown because of the greater economic benefits that would be realized. And the city would have had to pony up for the Northlands rebuild. No way they were going to do that.

Fact is, the money is best spent downtown.

Avatar
#37 Ducey
January 24 2013, 12:32PM
Trash it!
0
trashes
Props
0
props

Willis,

I take your point regarding the CRL. There is some risk. But the alternative was the $200M they were going to have to spend to upgrade Rexall.

Would you rather:

1) have a 100% chance of paying $200 M to maintain an aging building, in the wrong part of town (ie in the middle of nowhere), that the major tenant does not want; or

2)have a 85% chance of collecting your $219 M CRL back for an arena that could spur tremendous growth in downtown?

I think that its 100% that a good portion of the CRL will in fact materialize, so the 85 %risk is really on no more than $50 to $100 million.

I guess some will suggest that the City should have just ground Katz over every nickel, but that would result in the kind of crisis the NYI are currently experiencing. The uncertainty would do the City a lot more harm than the possible CRL shortfall.

I am really hoping the community rink gets built. There is a tremendous shortage of indoor ice in the City, and this will be important.

Avatar
#38 Captain Obvious
January 24 2013, 12:33PM
Trash it!
0
trashes
Props
0
props

@David S

This has been studied to death by economists. The reason the "naysayers" think this is bad idea is that there is no public benefit to be had.

This is a simple fact The city is not going to get a substantial return because these schemes never, ever, work. This is as close to a settled question as there is in academic circles. Arguing in favour of the economic benefits of publicly funded stadiums is akin to arguing in favour of creationism. It is magical thinking.

This is a direct transfer of wealth from taxpayers to the Edmonton Oilers in order to head off the threat they will leave. There is no economic justification for the deal. Teh only justification is the worry that without the deal there will be no Oilers. It isn't any more complicated than this.

No one has a problem with a private business making a profit. Everyone should have a problem with a private business making its profits at public expense without providing a public good.

And for the last time the arena is not a public good and cannot be defined as a public good so long as there is a prohibitive entry free. The public does not and will never get to enjoy the arena. Paying customers get to enjoy the arena and it is paying customers that should pay for it. That way Katz would still get his profits but they'd be commensurate to the demand for his product and no one who was not interested in the product would be coerced into paying.

Avatar
#40 Captain Obvious
January 24 2013, 12:37PM
Trash it!
0
trashes
Props
0
props

@Peter

I live here. Putting Katz aside, why should the citizens of Edmonton subsidize the entertainment of people who live in Sherwood Park?

Avatar
#41 Dave #2
January 24 2013, 12:38PM
Trash it!
0
trashes
Props
0
props

@David S

The ticket tax is a tax. It is like a selective sales tax. You do not think of GST as a contribution made by Katz so I am not sure why the ticket tax is any different.

Avatar
#42 Oiler Al
January 24 2013, 12:42PM
Trash it!
0
trashes
Props
0
props

If I read in between the lines, what your saying J.W. is that the Oilers would be better off in Seattle, than have the city being involved in the development of the arena,because thats the only way it gets done. Katz is not about to throw $400 million into a small market city for an arena, which would benefit the city as much as Katz.If you want a nice downtown, thats the price you have to pay, even if comes from taxation. Better a new arena , than a funicular, whatever that is, or more museums etc.There is a price pay for progress. Otherwise move the team, because 10 years from now the Rexall Place will really be ugly, and will cost $1 billion dollars to build.PS I have not seen anyone else step up with an offer to buy the Oilers and build their own new arena in Edmonton. 30 years ago, Edmontons, small minded aspiration made Calgary the Hub of Alberta.Check the skylines of Tor, Vanc, or Cal., there is a lot of tax revenue in those developments that the home owners do not have to cover.

Avatar
#43 Captain Obvious
January 24 2013, 12:43PM
Trash it!
0
trashes
Props
0
props

@Ducey

The city is paying interest on the money so they have to make more than $219 million on the deal to break even. Moreover, you both understating the risk and overstating the contribution the arena makes to development.

Whatever amounts the CRL ends up being you can't give the arena 100% credit for that money for two reasons. First, as Jonathan noted there is the substitution effect. Second, over the course of 35 years development would have occurred anyway. You can't know whether and to what extent this development is caused by the arena. Consequently even if the CRL yields $1 billion dollars over x years this isn't necessarily new money.

Taking these factors into account the amount of development that would have to occur for this to be a break even project is very large which only compounds the question whether the arena was necessary for the revitalization in the first place.

Any way you look at it there is no way to turn this into a good economic deal for the city.

Avatar
#45 David S
January 24 2013, 12:45PM
Trash it!
0
trashes
Props
0
props
Jonathan Willis wrote:

David S. wrote:

The issue at hand is arena naysayers refuse to/can't admit the city might realize any return in order to validate their position. In fact, it's pretty obvious to those with any business background the city will in fact see quite a substantial return.

This might be a general comment, but if it's directed at me I'd argue it's unfair. Obviously, the city might realize a return - there's a possibility they make all their money back and then some. All I'm saying is that they're taking on a lot of risk - $219 million of it, with another $114 million expected to be picked up by other governments - and that despite how things have been portrayed there's no guarantee that they will get there money back. They're going to get $9 million in taxes over the next 35 years from the arena - they need to generate 25x that in incremental gains from the arena district simply to cover the cost of building the arena, assuming that the feds and the province pitch in and before we factor in the increased services costs of the TIF district.

It's a risk. That's the only sensible way to look at it, in my view.

Jonathan, I have no axe to grind and you seem like a pretty decent guy. But you're focussing on the arena when in fact this is a far larger project with far greater impact.

Yes. The arena itself might only generate $9M in taxes over the lifespan of the project. But the DISTRICT has been estimated generate in the hundreds of millions. And we're not even talking about the ancillary development the core project will catalyze. Then think of the increased city profile that'll help attract the sort of tax paying resident who not only wants a good job, but a lifestyle with decent ammenities. They certainly won't consider Edmonton for the crazy good climate. Here we're in competition with Vancouver, Toronto and (god forbid) Calgary. Been to Calgary's downtown lately?

If this were just about an arena neither city council nor the populace at large would have let this thing get past first base. But it's about so much more. Why can't you and others consider the possibility of a bigger picture?

Avatar
#46 Smokey
January 24 2013, 12:46PM
Trash it!
0
trashes
Props
0
props
David S wrote:

So we can assume you bought your house by paying in cash, right?

I did by my house with cash, why do you ask?

Never said I was against debt if that is reasonable and will not effect taxpayers in the long-run, I said I'm not a fan of a deal being made with a good portion of the financing coming from the public coffers. The money comes from increased taxes or money being allocated to the the arena being taken away from something else. I hope eventually that some of this revenue is generated from a larger tax base created by the project, however I don't know how one can determine the financial impact.

My point is that I believe in free enterprise and the government should govern. I have to invest in a 4x4 now cause my street has not been plowed in a month and half. The missing 114 million suppose to come from the provincial government. Redford's suppose to be on TV soon to tell us we are 3.5 billion in debt this year alone cause her governement runs their affairs like well, a government and not like a business.

Are you telling me we should mortgage this arena, and the arena Calgary wants to build? I'll be very happy if the Wildrose idea to come up with the shortfall through revenue generated by lottery. Where the heck was this outta the box thinking for the last 3 years. Why can't Katz sell naming rights for 35 years. Three million times 35 years equals shortfall, and that's not factoring in any increase in money that will happen. Heck naming rights alone could pay for 150 million dollars of the project. The taxpayers should of funded this whole thing and sold those rights to Katz or to the highest bidder. If Katz was actually forced to negotiate with taxpayers rather then Mandel we could of gotten a damn good deal, not this second rate arena project. Once Mandel and Katz contrived their scheme to weasel tax dollars there was no room for discussions on why can't this arena be funded through private enterprise.

Avatar
#47 David S
January 24 2013, 12:48PM
Trash it!
0
trashes
Props
0
props
Jonathan Willis wrote:

David S. wrote:

Next time you're in Edmonton Jonathan you should drop into a few bars and ask the managers how much business went through the floor with no hockey. Even those not in the immediate proximity of RX1. Alot were getting killed. Closer to home, you might want to ask Wanye how much advertising revenue was adversely affected during the lockout. Nation Radion was a prime victim

So what you're saying is that I should ignore the Moneris report in favour of anecdotal evidence?

As for closer to home, you may recall that everybody here took at least a 30% pay cut. I know I did. I'm one of these people directly impacted when there's no hockey around. But I also know this: if I own a business and I need to advertise, I don't predicate my advertising budget on the presence of hockey. If hockey's around I may prefer to advertise there, but if it isn't I still need to advertise. I fully expect that my loss was somebody else's gain.

I'm sorry Jonathan but you are mistaken in this case. Advertising and marketing is the first thing to get chopped when revenues decrease. Take it from a guy who's been in the business for decent amount of time.

Avatar
#49 yawto
January 24 2013, 12:52PM
Trash it!
0
trashes
Props
0
props

I also disagree with the moneris report JW. Here is my arguement. I work weekends at a BP's. We are located over 20km from the saddledome in a well to do area of Cowtown. Our sales have been BRUTAL for the last three months outside of Sunday and MNF. Moneris can spew all the numbers it wants, the fact is that sales were way down the past three months at our location and have spiked the last week.

I also argue that they say that these businesses had a 19% spike due to no hockey. I am more inclined to think they had a 19% spike due to inflation and a still strengthing economy. M-F I am in retail management and we expect year over year growth to be in the area of 6-9%. That really means only a 10% jump in sales. If they really want credibility in this area, they need to poll these same businesses over the next three months. Because by what they are saying they should have a 19% decrease in sales becuase the NHL is back. I believe you may actually find that these numbers will be more like a 3-4% increase on that 19% they already have seen.

Again, I can not confirm this with a big company name like moneris, I can just tell you that we were getting killed on sales the last three months sans NHL. Not so much anymore.

Avatar
#50 Smokey
January 24 2013, 12:58PM
Trash it!
0
trashes
Props
0
props

David, was any study or ever any proposals made up where private money could of been used to generate income to pay for this rink?

Comments are closed for this article.