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Photo Credit: Sergei Belski-USA TODAY Sports

Flames release their arena funding proposal (and the City responds)

The Calgary Flames, in the form of an advertisement bought in both major daily newspapers and a 5 a.m. MT press release, finally released their funding model for the Victoria Park Arena on Thursday morning.

According to the release, the Flames were willing to contribute $275 million up-front – it’s unclear from the release where that money would come from – while the City of Calgary would contribute $225 million from a Community Revitalization Levy. Again, it’s unclear from the release whether that would be a brand new CRL or the existing Rivers District CRL. Given that it’s really unlikely that the province would give the green light to a second CRL for the same geographical area, it’s probably the existing one. (The $275 million figure is the team’s estimate for pre-payment of $275 million of rent; presumably they would pay zero property tax during that period.)

The Flames provide a curious rationale for justifying the City’s contribution, noting (a) they provide $481 million in annual economic impact and (b) the new building would generate $243 million incremental property tax impacts. The economic impact figure comes from a study they commissioned regarding the CalgaryNEXT proposal, while it’s unclear where the $243 million figure comes from on the property tax impact.

The presentation also includes a weirdly granular look at the Edmonton arena deal, noting the sources of the various Rogers Place revenues without really getting into where the Flames will get their money. Its placement seems to suggest we compare the two “upfront” contributions: only $20 million from the Oilers, while the Flames are offering $275 million. (Of course, the Oilers ended up shelling out $258 million through various means, so without knowing where the Flames would be getting their contributions it’s very difficult to compare the two.)

And then there’s the problem of the CRL. The entire point of a CRL is to cover the underlying, indirect costs of development in order to entice developers. It’s not meant to cover capital costs of development. Remember the big City presentation last week? The $150 million for various indirect costs, plus the indirect costs they haven’t costed out yet, would be covered by the Rivers District CRL. Not only is paying for a new arena precisely what CRL funding isn’t meant for, but it’d also potentially cannibalize the remaining CRL funding and prevent the City from covering the indirect costs for any subsequent development in the area. (It’s also really weird that the Flames glossed over where their money would come from, but got weirdly specific about where the City would get theirs.)

The entire proposal adds up to $500 million, $50 million less than the City’s proposal. It’s unclear specifically why that is, though the City included $30 million for the value of the land the building would be on as well as $25 million for the demolition of the Saddledome. Presumably those costs are excluded here.

Here’s a comparison of the three cost structures we’ve seen released to the public since this saga began in August 2015:

City’s
proposal
Flames’
proposal
Calgary
NEXT
Total Cost $555 million $500 million $890 million
From City $185 million $225 million $200 million
From Flames $185 million $275 million $200 million
Ticket Tax $185 million $250 million
CRL $240 million

Note: The City’s proposal included their contribution being paid back via rent or property tax over the life of the building, while CalgaryNEXT included the construction of a fieldhouse/football stadium as well as an arena. It’s also entirely possible that the Flames would raise some of their $275 million via a ticket tax.

UPDATE: The City put out a Q&A in response to the Flames’ release.

Of note? There’s roughly $150 million left in the Rivers District CRL, not enough to fund the arena (even if that was what it’s for), and $150 million of the Flames contribution would be via a ticket tax – which the City would finance. Even if you presume that the “Flames unknown” chunk would be figured out by ownership (and they’d pay $125 million of the $555 million that the City says the arena will cost, they’re covering 22.5% of the costs of the building based on the City’s accounting).

Long story short: both sides seem to have fundamental disagreements with what the other side’s proposal contains. It shouldn’t be shocking to learn that they’re this far apart in coming to an agreement if they can’t agree on what they’re discussing.

  • Stajanforadirtyboot

    Perhaps Stajan could pitch in some money…after all the flames have given him $26.5 million and He’s given nothing in return for it thus far. I think it would be a nice gesture on his part.

  • de Animoe

    Why is no one talking about seat licenses? One of the main sticking points is the Flames looking at a Ticket Tax as coming out of thier revenue while the city looks at that as “user pay.” Well a seat license is definity “user pay” and the Flames can then charge what they want for tickets and not be able to aregue that it just comes out of their revenue. For a 20,000 seat arena your charge a one time seat license fee of on average $10,000 (lower bowl $15,000, midlevel $10,000, upper deck $15,000). The license gives your the right to buy Flames tix plus tix for other teams or events. That would truly raise $200 million not contributed by the team or the fans. City chips in $150 million and the Flames $150million. Seat licenses would be offered first to existing season ticket holders and they would have value that can be sold or passed down to your kids. Seems much better than a ticket tax the Flames see as limiting their revenue and no one has to finance it, you collect it up front. See thr ACC or the Dallas Cowboys for examples.

  • BendingCorners

    Let’s play make believe. Pretend the breakdown is permanent and no new arena is built. The city saves money by not extending 17th Ave (which means they don’t spend money tearing down the Saddledome either, two things that probably shouldn’t be included in their arena cost analysis since neither is strictly necessary). Instead the city partners with developers and builds up the neighbourhood and starts collecting taxes. The Flames continue to turn a profit in the Saddledome but make less off food and other services because a revitalized East End gives people so many options that they don’t need to enter the arena until puck-drop. Ticket prices go up, the Flames win a Cup or two, then the team gets old and starts to suck, then a rebuild begins. Meantime Calgary continues to grow and the Saddledome gets older and the whole Stampede Grounds becomes a subject of debate – maybe it’s time to redevelop the whole thing? Assuming the NHL still exists and the Flames are still in Calgary, will the owners have quietly set aside money each year in a fund (or will the league collect a fund because all 31 cities have done a Seattle?) and let the power of market growth defray the cost? Or will they be foolish enough to try again?
    I just don’t see a downside to saying no. The team isn’t going anywhere, the city saves on some borrowing costs (or the Green line gets built sooner, or they blow it on something else), and we all keep cheering for the Flames.
    Thinking about it, if both parties set aside some money in a fund (invested in an ETF that tracks the S&P 500) then by the time the next rebuild was underway there would be money to build a new arena. I could live with $1/month per household (5MM per year) if the Flames matched it.
    But no more make believe. Once the election is over there will be some kind of deal and five years from now there will be a new building. I’m curious to see how much the city ends up forking out – hopefully not too much.
    Of course there will also be another lockout in 2020-2021 which will screw up everybody’s calculations. Maybe waiting till that’s over and done with would be more sensible but I expect a deal by February.
    If you’ve made it this far, thank you for your patience. The mad ramblings of a bent-round-the-corner Bluenoser have hopefully entertained you a bit.

  • buts

    Newbie 2 you hit the nail on the head. Bring the fire just look at the Mcgaig tower at the foothills hospital…a flames owners so cut your crap about starving children. Bottom line the flames owners do a lot for Calgary beyond your thoughts. They made there money on personal business not sports. Nenshi is looking for votes he doesn’t care about any arena.

  • Howedy

    I’m not sure where the sentiment of “screw these rich guys” keeps bleeding into the facts of the situation at hand. The ownership is not going to get hosed by Nenshi and his BS semantics, the fact of the matter is the city presented a breakdown which essentially has labelled contributions that are directly from the bottom line of the Flames as “paid for by user”. I’m not sure if any of these politicians understand the concept of attempting to turn a profit and why people operate businesses in the first place. I guess the way Alberta, Ontario and Canada are headed with governments running enormous deficits and the common person becoming de-sensitized to incurring astronomical debt and the consequences thereof, causing an extremely remedial understanding of what an efficient business (or government for that matter) should look like. That’s why all these poor misled individuals can only offer an opinion that equates to some version of “let the rich guy build it himself” (assuming Ken King is sole owner-operator of Flames I guess)

    If you are a Flames fan and can’t see through the city and Nenshi’s BS, you are the biggest part of this problem. You are going to pay a bunch of tax anyways (if you are doing ok in life), and if you can’t see that it may as well be towards something that benefits an interest of yours then I think you may be a bit misguided about just how many tax dollars are spent on things that are useless to you, or might even anger you.

    For those that aren’t interested in sports, music or anything that takes place in a large event centre, it should be reasonable that some public funds go that way after decades of neglect. I think arts etc has been taken care of well in that stretch.

    To expect the Flames to willingly enter a situation where they lose money operating year to year with the burden of the new arena squarely on their shoulders is delusional. Don’t fool yourselves, Nenshi and city council don’t consider the Flames an important part of Calgary. If they did they wouldn’t be floating insulting offers like they did. I would do the same thing the Flames are doing and if you wouldn’t I guess enjoy being in massive debt the rest of your life because that’s where entering foolish arrangements like that will land you.

    • Neddd

      @Howedy
      You said, “I guess the way Alberta, Ontario and Canada are headed with governments running enormous deficits and the common person becoming de-sensitized to incurring astronomical debt and the consequences thereof, causing an extremely remedial understanding of what an efficient business (or government for that matter) should look like.”

      You do realize that you completely contradicted the point that you’re trying to make with the above statement don’t you? The city expecting the Flames to pay for part of the new building from future revenues (as you point out) just proves that the Flames organization can in fact pay for the building from their profits.

      The Flames push back is simply greed, the owners want to keep as much of their profits as they can. The city (i.e. tax payers) on the other hand will undoubtedly be taking on debt for whatever contribution it ends up making.

      You’ve contradicted yourself repeatedly in this post and actually supported why the city should not be using tax payers dollars (i.e. debt).

      • Newbietwo

        If an investment of $225 million from the city provides a return of $13.5 billion and you see that as debt then it speaks to your miss guided perspective here.. and newwwws flash it takes debt to make money ie: your mortgage

        • Neddd

          @Newbietwo
          You know, I always wonder who are the people who actually get taken by on-line and phone scams (e.g. “if you give me $10k to help me get back into the country I’ll pay you $50k, etc.). Now I know….

          If you really believe that the city will make $13.5Bln from that investment then I have some swamp land to sell you in northern AB.

      • Howedy

        No the city and any commentors thinking a franchise is going to put itself at an inevitable yearly deficit is delusional.

        My point is just because most forms of Canadian government think running a massive deficit is acceptable, doesn’t mean a private business entity is going to do it and it’s ironic many people who probably vote for massive spending parties (Lib, NDP) are up in arms due to the optics of “rich guy wants arena”, when in actuality any public money spent falls right in line with their political beliefs. See it works both ways and this issue is far too complex to explain with the usual left vs right drool.

        Flames ownership is dealing with an idiot contrived attention seeking mayor and city council with a lengthy hidden agenda. The owners of the Flames don’t need to posture to win elections and promise people the world, they need to ensure they don’t agree to stupid deals like what Nenshi has presented to them. I would do the same thing the Flames are doing, and if all the “Flames Fans” who are on team Nenshi/Screw evil KK end up without a hockey team to watch in the near future I hope they take a second to reflect on all the absolutely ridiculous crap the city spends money on no problem when they don’t have the option of trying to exploit the Flames clear need for an arena to their advantage with an unreasonable offer. When you factor in the city is trying to hang the Flames out to dry with the deal and then also dictate the developments around the proposed venue which the Flames will pay full freight and then some for, it makes zero sense for the Flames to continue negotiating.

        Maybe Calgary isn’t an NHL city anymore? If the city wants an NHL team for the long haul it’s going to have to walk down the public funding road, and offering to lend money up front for the ability to gouge the Flames for much more than the initial investment down the road is just an insulting offer that shows how much they value a partnership between Calgary and the Flames in the future.

        • Neddd

          @Howedy

          You’re seeming to base your opinion on allot of assumptions, the biggest of which is that the Flames are losing money. The fact is that are not currently losing money. Nor would they lose money if they paid “full freight” for a new arena as you claim. So your argument around a private business not willing to “run a deficit” doesn’t hold water.

          The Flames want the best deal possible to protect as much of their profits as possible. Fair enough, as you point out that is their right (and likely why/how they became successful in the first place).

          However, turnabout is fair play, why shouldn’t the city also pursue the best deal possible as well? If it’s fair for the Flames to do it, why isn’t also the city’s right to do the same?

          As in any negotiation, its all about leverage, who has the most leverage. The Flames are playing the “we’re leaving Calgary” trump card if we don’t get what we want. That may have worked 20’sh years ago before the salary cap and league expansion to 31 teams. But it doesn’t work any longer. The reality is that the Flames do not have another viable or more attractive market/city to move to. So the city, just like any smart business person, should hold its ground and use the leverage that it has to negotiate the best deal possible. If the Flames don’t like it, tough, who cares? They’re not moving regardless, and if if they don’t like the deal being offered that can simply continue to play in the current arena (oh the horror, that’s so unthinkable).

          You make me laugh. You talk about how the city needs to be more business savvy, to think more like private business. Yet you’re the one caving in to the Flames idle threats and bullying tactics.

          • Howedy

            Just can’t wait to see your face when the Flames leave. They will. Calgary is on the decline and it was a small market to begin with. Factor in that the “fans” of the Flames can’t see past their own self-righteous BS, and rally behind some public funding for an arena, and it actually looks good on all you half assed local fans. Their is a reason Flames tickets can be had for $20 an hour before puck drop. Wake up idiots, you’re not Toronto and you need public money for an arena… Like Edmonton. Cheers… Go Seattle Flames!

  • madjam

    For interest to some who might be interested in how complex things become here is a large article you can research by Staples of Edmonton Journal April 6/016 . The heading : The Rise and Fall of the Edmonton Coliseum . 3 notes in article are key . Location agreement clause and do you have one ? Without it the Oilers would have been in Houston . Northlands , a non profit group was able to get free money to build Coliseum from Federal and Provincial funds to cover entire cost of arena because of it’s status of being non profit , thus no civic money was required . Does Calgary have anything like that in existence ? Third , comment in article and some relevancy to Calgary : C.Nichols saying to Katz and media by the sounds of it -“he doubted the Calgary billionaires who own the Flames could pull it off “. A little on why that might be so . I realize it is a long history on Oilers history to remain in NHL , but gives one a realization how complex things become now and in future .