Photo Credit: Sergei Belski-USA TODAY Sports

Making sense of arena fear-mongering

When the City of Seattle came to an agreement on a Memorandum of Understanding for the renovation of Key Arena, we didn’t really see the need to write anything here because there really wasn’t much in the way of news that impacted the Calgary Flames and their arena saga. Similarly, when the National Hockey League’s Board of Governors met and decided to begin an expansion process for a Seattle franchise – beginning with a season ticket drive – again we didn’t want to do anything here because adding a 32nd NHL franchise doesn’t really impact the Flames.

But a few columns have come out from our friends at Postmedia that demand some thoughtful examination. There’s no actual news to examine – Murray Edwards says the Flames aren’t for sale and our sources at City Hall have confirmed that there are still no arena talks happening right now – but here we are.

Before we dive into this, let me just bluntly state up front my personal stance: a new arena would be super cool as long as it doesn’t make the City unable to fund stuff they should be funding like transit and roads and snow removal and other such things.

Late last week, Calgary Herald columnist Licia Corbella wrote about the Seattle arena deal (and NHL expansion) and how it impacts the Calgary saga. We’ve cherry-picked a couple points of contention:

The Flames’ owners have offered to pay $275 million towards a $500-million arena it won’t own. Calgary is willing to pay just one-third of the arena cost. Additionally, Nenshi has tried to say that a new arena ticket surcharge is a neutral third-party funding source, but it is really just more Flames revenue.

Two quibbles here: the proposal from the City prices the new arena at $555 million – including the land and the price of (eventually) knocking down the Saddledome – but let’s just go with the $500 million for argument’s sake. The City has offered to contribute $130 million – repayable by some vaguely-defined mechanism such as rent or property tax – while the Flames would toss in $185 million directly and $185 million via revenue from a ticket tax.

The ticket tax would involve boosting the ticket price by an undetermined amount to pay for the construction – the airport improvement fee is another version of this – to pay off a loan that either the Flames or the City would take out to cover the cost of the building. It’s only “just more Flames revenue” if the team was the group fronting the money, though Nenshi mentioned in September that the City was open to facilitating the loan because they get better rates than the Flames do.

“I’m interested in the Seattle news because, of course, that’s over $600 million of private funding,” he told reporters in a scrum. “In fact, it’s the first time I’ve seen an arena deal that has the private funder actually paying for the road and infrastructure improvements as well as making a donation to charity just cause,” said Nenshi. “So, it certainly shows there’s a larger universe of options in getting this kind of infrastructure built perhaps than what we’ve been exposed to.”

For years, the thought process was that arenas and stadiums required public money because… well, they just did. Most logical arguments for this public funding have relied upon vaguely-defined discussions of economic benefit – most reputable studies say it’s minimal – or intangible value – which has some merit but is very difficult to capture in studies.

So to have Seattle likely joining the NHL by virtue of having a privately-funded building is a feather in the cap of Nenshi’s “public money for public benefit” song and dance. Does the mayor snark about private money in a “golly-gee, this can actually happen?” kind of way? Sure. But when teams like Seattle and Vegas join the growing legion of buildings in the NHL primarily fuelled by private moolah, it’s proving his point.

Her main thesis statement, in a nutshell, is that the mayor isn’t doing enough to keep the Flames in Calgary. The Flames’ best argument for a new building is that their current business plan, predicated on operating within an aging building with rising operating and maintenance costs, isn’t economical. Ignoring that they didn’t really pay for that aging building in the first place – aside from partially funding the 1990s renovations – the argument begs a question: Is it City Hall’s job do that? If you focus instead on the value of having a common gathering place for Calgarians and a wider variety of available entertainment options for a growing and maturing populace, the arguments for the City to invest in this kind of infrastructure gets a bit better.

Postmedia sports columnist Eric Francis also weighed in on things, focusing on the $650 million expansion fee that the NHL is charging Seattle for joining the league.

As if the arena impasse with the mayor isn’t enough of an impetus to prompt Flames ownership to look into selling the team, Gary Bettman just gave the group 150 million more reasons to package the team up for Houston billionaire Tilman Fertitta.

That’s how much the NHL commissioner added to the value of every NHL team last week when he bumped the price tag of a possible expansion team in Seattle to $650 million, from the $500 million Vegas paid.

Two things here. First, the impasse is between the Flames and (a) City Council and (b) the City’s negotiators, who take their marching orders from Council. The mayor may be the most vocal member of council, but he’s still just one vote of 15 who have all been publicly critical of the Flames’ arena asks.

Second, the $650 million expansion fee doesn’t matter until somebody pays it. If I’m selling my house for $500,000, it’s only worth that if somebody pays that. The new majority owner in Carolina bought a share of that team in a way that valuates the Hurricanes franchise – the second-worst in the league for average attendance (and therefore revenue generation) – in the vicinity of $500 million. If Carolina is worth $500 million, the Flames are probably worth around $600 million… if somebody’s willing to pay that.

While profitable, the Flames lose ground on all 30 NHL rivals every day they stay in the 34-year-old Saddledome where the team has maxed out the revenue it can generate.

Yes, they’re profitable, despite receiving revenue-sharing after falling out of the top tier of NHL franchises in revenue generation. It’s also worth noting that other than the annual contributions from the Saddledome Foundation, which are around $1.6 million these days and tied to the team’s lease, the Flames keep all of the revenues from the operation of the Saddledome.

Mayor Naheed Nenshi, whose attitude has proven to be the biggest impediment to having meaningful negotiations on the possibility of a much-needed new venue, is here for at least another four years.

I may be remembering this wrong, but Nenshi (and the City) wasn’t the side that publicly walked away from negotiations and trotted Gary Bettman out to vaguely talk about “consequences” of not building a new arena.

Edwards and his four partners who own the Flames will simply cash out, taking with them the Flames Foundation that donates $3 million for charities annually.

The Flames Foundation deserves every bit of credit for the work they do in the local community. They provide a ton of support for local charities and causes, and unlike the Saddledome Foundation contributions they’re not required by the terms of the team’s lease to do any of it. But they do a ton of fundraising, as well. The five owners aren’t personally shelling out the $2.1 million that the Foundation gave out in 2016-17 – though, to be fair, they almost definitely contributed some funds to the cause.

Seeing $240 million spent on a downtown library and exorbitant amounts spent on controversial roadside art isn’t helping the mayor, who only got 51% of the vote in October.

The Calgary Public Library had 6.7 million visitors in 2016, per their annual report. Presuming that the system was open 365 days a year – which they weren’t – that’s over 18,000 visitors per day for a completely free public service. The aging downtown Central Library is the system’s busiest location. But yeah, libraries are dumb and nobody likes them.

The critical mass simply isn’t there to fill the building often enough, which is why a public/private partnership works best for a venue to be used to host so many world-class events Calgarians would benefit from.

This is exactly what the City is proposing, with the City helping a private entity build valuable infrastructure that private enterprise is unable (or unwilling) to fund on its own.

While Francis closes his piece with a bet that the team’s moved out of town within three years, I’m going to bet the other way. Why? A few reasons.

An analysis by FiveThirtyEight’s Nate Silver in 2013 estimated that the Calgary area was the eighth-best media market in North America for “NHL avidity,” (this was when the team was really bad, too) and with the NHL hellbent on revenue and the prominence of the Rogers contract in cementing their annual revenue, leaving Calgary and removing a Canadian market doesn’t make much sense in the near future. (For the curious, the Rogers/NHL deal in Canada ends following the 2025-26 season.)

The other reason is pretty simple: the Flames have a pretty sweet arena deal right now and despite all the bluster from both sides, it’s seemingly likely that they’ll get a sweet deal when the new building eventually gets built. They’ll be asked to pay rent or property tax so the City can point to their investment costs being eventually recaptured over a period of several decades, but the Flames are probably still the group best suited to operate the building – which was the argument made when they took the building over following the 1990s renovations – and most likely they’ll be in a situation where they have the keys to a brand new building with increased revenue-generating abilities and be able to do as they please with it.

Where will they get a better deal and a market with such an affinity for the product they sell? Certainly not Houston or Seattle.

  • BendingCorners

    It would be cheaper and less risky for the City to tell the Flames to build and operate their own arena, and provide them a subsidy (10MM-20MM per year) for as long as they remain in the new building. Works out to between 2 and 4 dollars per month per household in Calgary. Then the entire exercise is on the Flames to manage, successfully or not. The City can handle the roads and sewers and train service – since they would normally have to anyway), and can lease the land to the Flames for a dollar. Of course, the whole thing should be submitted to a referendum, to make sure the taxpayers are on board.

    • The Flames don’t want to own the building. First, because they’d be subject to property taxes and secondly because they’ll be tied to an asset that depreciates in value rapidly over time. If the public builds it, there’s no property tax and the Flames can walk away from the building when the lease is up.

      • BendingCorners

        True, but I don’t particularly want a deal. Any referendum would make it clear most Calgarians don’t want to pay for the Flames’ new building either. Twenty-five years of mediocrity interspersed with the occasional good year and maybe one or two appearances in the Finals are not not worth imposing extra taxes on my neighbours, no matter how modest the amount.

  • Fan the Flames

    Three things need to happen to get a deal done People need to ignore Eric Francis and the Flames need to take him off broadcasts cause he is hurting the Flames. Nenchi and King need to remove themselves from the negotiations they are polar opposites with the win at all cost mentality . This is detrimental to a negotiation . Council and the Owners need to sit down and work it out the city of Calgary and Flames fans everywhere need this resolved.

    • Parallex

      … you know that Nenshi and King aren’t negotiating right? Not directly, they wern’t sitting across a table from one another. City Council provides direction to professional negotiators who discuss with CSEC’s representatives.

  • WillyWonka

    i was never was critical of Eric Francis as some, but this has changed my mind. he shamelessly prostituted himself this time around by being a shill for Ken King and Bettman

    • Greg

      Sun and Herald both owned by same company, both have close ties to and need for local sports teams, pushed pretty hard on an election poll that was flawed and wrong about Smith vs Nenshi, and now publishing very slanted columns that don’t even pretend to be objective… anyone else seeing a pattern?

      Honestly, the flames and NHLs negotiating tactics are equivalent to a toddler throwing a public tantrum for not getting the candy they want. I don’t blame them for trying to get as much as possible, but really wish they’d go about it in a respectable way. The shenanigans are so cliche and transparent.

      I still assume it’ll be all worked out, and I don’t won’t the flames to leave, but I won’t cry if they do, because if it comes to that it’s due to sheer posturing and greed. As a tax paying citizen and Calgary resident, I’ll miss what they add to the community and the $3M a year in donations, but not as much as I’ll be happy to keep the $10m+ / year they seem to want from us.

  • WillyWonka

    there is no doubt the city will pay an amount, and an arena will be built, but this childish posturing by Murray and his mouth pieces is really annoying. if the deal doesn’t go through, it wont be because the city took its time, it will be because the flames and league make so many threats that they cant help but follow through.
    they are really polluting the process and while many would disagree, i think this toxic environment is having an effect on the play at home, with calgary not playing near as well when they are home vs on the road

  • McRib

    I’m currently finishing a masters degree online, therefore for the first time in my adult life am spending a lot of time in the public libraries in this city. I cannot get over how jammed the libraries are in this city from sunrise to sunset. Go to your closest library even an hour before close on a Sunday (we’re talking 9-10pm on a freaking Sunday) and then come to me and say building libraries are stupid.

    I’m all for debating this rink, but saying libraries are a waste of money is nonsensical (am not talking as much about people on this blog, but on sun media comments sections, rednecks in bars my father frequents, etc).

    • class1div1

      Big Deal.I got my Masters in 84 and have never felt the need to brag about it on here.I am also a book person who believes in libraries as well as a “redneck” beer guy who ‘frequents bars”Your remark is arrogant,plain and simple.You should go for a beer with your Dad,you might learn something.

      • WillyWonka

        well then why are you bragging about it? mentioning your degree to make a point is no diff that the other guy mentioning his to make a point, then you brag about being a redneck, and then you brag about being a bar fly…
        why you gotta brag so much?

      • Captain Ron

        McRib only told us he is working on a Masters degree to give us the reason why he is spending so much time in Libraries lately. Then went on to talk about the merits of the City Libraries. That’s what I got out of it. How is that bragging?

    • Flames fan since 83

      McRib, The comparison between Libraries and Arenas is idiotic. Libraries are not only used by many more citizens than the Arena. Libraries are a pillar of our Education System. And this Library cost less than half of the projected new Arena.
      Not to mention the Library will last 100 plus years! The Arena lifespan will only be 30 years, and then we start this all over again!

  • Seattle_Flames

    Eric Francis, the most trusted voice in Calgary sports. This is exactly the bed you Calgarians made when you cast your votes in October. While I would have preferred the Flames building CalgaryNEXT first and a move to Seattle second, I could probably make the trip down to Texas a few times a year and it would probably be easier to get playoff tickets down their too. Send me a postcard from the library February 2022 Mr.Pike, I’ll be wearing shorts and a T shirts in H-Town.

  • Craigster

    After reading Eric Francis’ article, I can actually see the possibility of the Flames moving. Murray Edwards is a pretty shrewd business man, and doesn’t have the ties to the city any more. The other owners are getting pretty old, and may be interested in getting out. We can all complain about the rich getting richer, but the rich also have the option to move the team or sell it.
    Like many, I don’t want a new arena coming out of my pocket, but I’m not even sure how much that would actually be. Would taxes end up increasing to compensate for what would be lost to the governments if the team left?
    I would love it if someone smarter than myself could tell us approximately what the city/province/country would lose (i.e. charity, taxes lost to the Prov./Fed. Government if $ 72m US in payroll goes south lost revenues to local businesses) if the Flames actually moved.

    • Greg

      They would lose less than it would cost them to keep the flames, if paying for 50%+ of the arena is what it takes.

      There’s tons of studies that show there is not enough economic benefit to justify the public funding of an arena.

      I don’t think they’ll leave, nor do I want them to go, but if they decide to go I’ll help them pack, because if it comes to that, it’ll mean they weren’t willing to negotiate a fair deal with the city and just kept up this childish tantrum until another city caved in instead.

      • Craigster

        ..then you might want to put your moving gloves on. Murray Edwards doesn’t lose deals. If some group out of Houston or Seattle offer $ 650m for the team (which is what an expansion team is supposedly going for in the future), and they can’t get an arena deal done here, why wouldn’t they move? It’s not a childish tantrum; It’s business.