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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.

    • Danomitee

      Can someone try and rationalize the library to me though please? I mean honestly $240 million for a library, where the old one is just across the street? No one was up and arms about that issue, when frankly that $240 million would have funded the half the flames were looking for.

      • Derzie

        Access to books and the internet makes people much more valuable to society. If you don’t need that, you are lucky. Arenas are ways to take money from already prosperous people for the privilege to swill beer and be entertained.

        • cberg

          Not to forget the Saddledome hosts events at the Stampede every year, plus multiple concerts as well as NHL hockey, Junior hockey and a professional Lacrosse team.

      • Lets Get Something Clear

        A good example of the value of a new library is the central branch in Halifax. They built an expensive flagship project in the downtown core. It cost $60 million (yes, that’s a lot less than Calgary’s does, but, Halifax, of course, is smaller and has less money) and was met with a lot of the same backlash by some of the community members as the Calgary one has.

        But guess what? The building is packed. It quickly became the central hub for the area, a community space that hosts well-attended events, a place for kids to go after school. Since it’s opened, library usage has increased.

        The most important thing about that project, and the one in Calgary, is that it’s not just about books and internet. The building itself matters. Large and modern libraries are more than just warehouses for literature — they’re community centers (and the success of the library naturally increased the usage and impact of the traditional books etc.).

          • Lets Get Something Clear

            I said the same thing to Kevin, but I’ll repeat the gist of it here. If you want to measure everything in terms of economic impact (and for the record, I don’t think this is a good approach to public policy) then you’ll have to do the same thing you do for the stadium with a library.

            For instance: What are the economic benefits of having a population that is better educated? How does that increase individuals earnings? How do the books, movies, music and so on available at the library entertain people? How does that access to free entertainment allow them to spend their money at other businesses? How many people does the construction of the library employ? What kind of long-term jobs does it directly and indirectly create?

            The point being, the library doesn’t necessarily generate revenue itself. But it does have a substantial economic impact in ways that are less obvious and more difficult to quantify (but have been the subject of impact studies elsewhere).

      • The one

        The old library was built in 1964 for a city of 400,000. The growing technology infrastructure needs that are demanded by libraries today can’t be met in that building. And to be blunt – the library system as a whole sees more citizens in its’ building than a single Flames game. I would ask you to rationalize to me why an arena that was built in the 80s’, renovated in the 90s’ and had work done on it post-flood needs to be replaced. I don’t think it is going to be much bigger – but it will have more luxury boxes and more expensive seating to serve the same number of people. And that won’t be the average citizen.
        Final point? The library costs are $245 million all in – and it is on time and under budget. Library card holders are over 600,000 and the library system hosts , on average 18,000 visitors a day across the entire system. Personally speaking, I think that’s a good bang for our bucks.

      • cberg

        There are actually 18 branches of the the Calgary Public Library all across the city. There are less than 400,000 card-holders supposedly serving 2/3 of all Calgarians. The new location was needed to stay up to date with new technology and too small to meet the needs of a growing city. Sound familiar?

        • Lets Get Something Clear

          It’s pretty much guaranteed that those 400,000 cardholders out number the ticket-buyers for the Saddledome. And while this point has be belaboured, anyone can go to the library but not everyone can afford to go to a hockey game or a concert. At $240 million, the library, while expensive, still costs substantially less than the arena would. Not to mention, the books can’t decide to pack-up and leave because Seattle or Houston made them a sweet new shelf.

        • Lets Get Something Clear

          And because I’m sure someone will question the claim about ticket buyers and library card holders, let’s do some envelope math. Last season the Flames’ attendance was 767,000 (for the curious, that’s ¬97% capacity). But most seats are bought by season ticket holders. The Flames don’t publish that data but the Oilers have 15,000 of 18,500 seats available to holders and has a wait list to buy tickets. Since we’re doing this on an envelope and not a policy report, let’s just assume that Flames sell a similar proportion (81%). That means 621,000 of the 767,000 are season ticket holders (roughly 15,000 people a game). That leaves 146,000 people who bought tickets individually, add the 15,000 and we’ve got 161,000 people going to the games. Now not everyone uses all of their season tickets personally, but a lot of the other purchasers probably went more than once–we don’t have the data, but lets just call it a wash (again, envelope math).

          So, we’re looking 161,000 people versus the 400,000 cardholders (of course not all of them go to the library every year, and some people go without having a card too. Call it a wash again). Even if you were factor in all of the concert goers and so on, that’s a big gap in the numbers.

          Too long; didn’t read? Some quick math suggests that the library does indeed service more people than the stadium.

          • Primo

            Suggest you flush your piece of toilet paper as it lacks substance. Care to mention the restaurant and bar owners, how about the Hotel owners, chambermaids, taxi drivers, additional entertainment events that would generate revenue for the tax payers?. What about the thousands of Calgarians that drive up to Edmonton and spend our money in that gawd awful City…Did you want to mention that Calgary is the only major City in North America without an amateur field hose…how about the impacts on amateur athletes….need more?

          • cberg

            We don’t need to get into a numbers contest, but just for fun…

            Library
            Cardholders = ~400,000 (households) x 2 persons/household
            = ~800,000 annual users

            Stadium
            NHL hockey = ~15,000 seasons tix x 2(sharing seats) = ~30,000, individual ticket estimate = ~372,000 ((97% capacity -15,000)*90)
            CHL hockey = ~5,000 season tix x2(sharing seats) = ~10,000,
            Individual ticket estimate = ~270,000 ((40% capacity – 5000]*90)
            Lacrosse = ~50,000 total
            Concerts = ~720,000 (15,000 *48 events)
            Stampede = non-concert events ~1,000,000
            TOTAL: 2,452,000

            In other words, about 4 times the annual users versus the 18 branches of the library. That would definitely include all walks of life and financial status, same as the library.

            Two other differences are the library users are likely multiple repeat users every year, maybe monthly, so the actual “uses would be way higher. For the stadium, since it supports teams that otherwise would not be here, there are additional tens of millions of tv watchers and radio listeners that are, shall we say, “remote users”.

            In total way more users/uses for the stadium, for the total population, than the library. Not to say the library isn’t important too. It is.

          • Kevin R

            Pretty lame argument, just quit while you can. You cannot even come close to the economic impact a professional team & building has versus a friggin library. There is nothing clear about your posts. Sorry.

          • Lets Get Something Clear

            Cberg, you’re double counting a lot of users (something I tried to avoid, hence season tickets etc.).

            But let’s just say that we can’t figure out any kind of accurate way to separate that out and the real question is how many total visits there are. Your total roughly reflects that, but let’s just subtitute out the season tickets and individual purchases for the reported attendance (767,000). That’s about 2.75 million annual visitors taking the rest of the math to be the same.

            The library system gets an average of 18,000 visitors a day (that’s the number that is frequently cited and it, for some reason, is always calculated as total visitors divided by 365 for whatever reason). Based on that there’s about 6.5 million visits made to libraries in Calgary each year. Still not even close.

          • Lets Get Something Clear

            Kevin R, let’s consider two things. One, libraries aren’t meant to generate revenue–they’re not bookstores after all. Two, if you did want to calculate the economic impact of a library, though, you’d probably have to find a way to account for the benefit of having a more educated and entertained population (and yes, some people enjoy reading, if you don’t you should try it!). That amount would be substantial.

  • The GREAT WW

    After a decade of:
    4 first overall picks.
    A 3rd, a 4th, a 6th and a 7th overall pick and the Oilers are STILL a lottery team?!

    All that with a “generational talent”?!

    Have a McDavid day everyone!!!!

    WW

    • Primo

      The league should immediately invoke a rule change not allowing the inept Oiler organization another lottery pick….I sadly sense it’s going to happen again….the formula works in their favour given all the losses during the past 12 years….

  • Atomic Clown

    I’d smack Eric Francis if I ever saw him in person. Not only is he a very biased journalist, he’s an awful journalist, and an even worse sportscaster

  • Zalapski

    For some reason I love Eric Francis the personality, he reminds me of a pro wrestler and he can be nicely forthright when a player sucks. Eric Francis the journalist is so bad. soooooo bad.

  • Searsy

    Nenshi and the City have to get serious before the Flames come back to the table. Their offer of Flames pay a third, Flames pay another third out of their ticket revenue and Flames pay back the final third over time (rent, profit share, property tax etc.) equalled $0 public money. What the hell is the point of negotiating with someone whose offer is $0.

    I think Francis’ prediction of the Flames being sold and leaving within three years will turn out to be wrong. I feel that there will eventually be a deal. But it will take Nenshi and the City first getting serious about making an actual deal.

    • Orrwasbest

      I agree Searsy I really don’t see where the City is contributing anything in the end. The 1/3 directly by the Flames is a no brainer, the ticket tax is really Flames revenue lost (you can only charge so much for a ticket). The city is really only offering a loan for its share. I would suggest the value to the city would be at least a third, the city needs to actually contribute a portion that is not paid back!

      • Parallex

        Why? CSEC isn’t going to be contributing a portion that is not paid back… why should the city? Really when you think about it the rational funding arrangement should be the city paying 100% of the construction cost and then simply renting it to the flames at an annual rate equal to the construction cost divided by 30.

        Now having said that I take a major exception to this part “The city is really only offering a loan for its share”. That’s entirely false. Property tax is property tax… not a loan. I guarantee you that if I were to walk into my bank and tell them that they forgot to deduct my property tax from the amount outstanding on my mortgage they’d look at me like I had a turnip for a head.

        Also… claiming the City’s proposal is a 0% public payment is completely wrong, It’s entirely just CSEC propaganda CSEC claiming that the ticket surcharge is part of their contribution… ok, that’s not a completely insane argument since it will come out of the market rate ticket price but there are some caveats there. Firstly, by the collective agreement 50% of HRR belongs to the players so in effect half of the revenue generated by the ticket tax would otherwise be going to the players not the owners. Secondly, ticket prices will increase in a new arena (IIRC it was an average increase of 25% in Edmonton) the second it opens (by a bigger margin than the ticket surcharge). This extra ticket revenue only exists because of the new arena, So in effect CSEC is trying to claim that of the additional revenue from increased ticket prices is only attributable to their portion of the investment (and therefor that the city’s investment on the same piece of infrastructure does nothing to generate that surplus revenue). I hope you can appreciate what a crazy claim that is.

      • Danomitee

        If the plan is to reinvigorate Victoria Park, then that plan will happen whether the Flames are there or not. That means the city will pump millions into the are anyways, so it may as well be partially used to build a new stadium rather then more empty condos.

        • class1div1

          So,if the Flames aren’t the centerpiece for the new Vic Park what will be? Not sure why anyone would want to go there.If the Stampede Board has a plan ,surely they would have done something by now.

          • Danomitee

            What’s the centerpiece of East Village? I don’t think that matters, its a dumpy part of town that needs new life so money will be pumped in to boost its value.

  • Nighteyes

    The tone of Francis’s article is so blatantly biased that it almost feels like King, Edwards and Buttman paid him to write it. I understand both side have some level of blame in the hold-up, but he’s basically making it sound like its all Nenshi’s personal fault and the Flames ownership are some sort of benevolent victims. Blegh–garbage article by him.

    • class1div1

      The rhetoric coming from Francis does not help the owners whatsoever.I doubt they support it.

      This situation is a bloody mess.Not sure how anyone can see a path to resolution.The city can’t afford to help and the owners will only risk so much money in a small market.Complicate all that with another entity called the stampede board who have their own agenda.It is dumbfounding how city council is pursuing an Olympic bid knowing they can’t afford it.Seems very dishonest.

  • 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!

  • class1div1

    Nenshi has better things to do ,partying with the Olympic crooks.You forgot to mention how he held out an olive branch after winning the election.OH wait ,that may be cause he didn’t, instead rubbed it in there face.Your support of Nenshi is clear.I think he took himself out of the picture with his caustic personality,yet he has all kinds of time for the cheats and crooks of the Olympic bunch.Calgary is a hockeytown ,but how can you think it can compete with large American cities when filling the seats on non hockey nights?To me.that’s the big issue here.Not enough people or events.

      • class1div1

        I sure do .I also realize that security back than was a drop in the bucket compared to today’s security costs.Those costs are what stop sensible city councils from competing,as well as the corporate greed.Do you honestly believe The Fed’s will pay?

  • 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.

  • buts

    Francis is first of all a columnist which the last I looked allowed him to give his personal view. This article creates discussion which is needed and is good. I don’t believe the owners would want a re-location fee of 200 mill which is what Friedman said on Saturday versus 650 mill in an expansion fee. I do know an executive at CNR and he says that Murray Edwards is a shrewd business man who operates a very lean company…..ie. every staff member there produces or your gone. If he’s the majority owner which I believe he is, than don’t think for one minute that he won’t sell, maybe the other owners might buy him out or not. Again I’d like to know where the stampede board is in all of this. Seems to me that they benefit a lot by having a new building near or at the grounds as well. Wasn’t the SB not undertaking a 500 mill expansion in vic park? They definitely have money to contribute. If I was a flames owners maybe talk to the Tsu tina people at grey eagle who have land, money and are also planning a billion dollar expansion near there casino. Finally the flames have to get a better communicator to represent them then the I can talk forever and say nothing BSer in KK.

  • buts

    There’s a deal to be done and hopefully us fans don’t get screwed by an egotistical mayor and owners who missed the boat by waiting for edmontons deal then wanting the same and knowing that they won’t get it.

    • slapshot444

      Buts
      Totally agree the KK is not helping anyones cause. The BS performance at the Chamber of Commerce turned most every one off, Calgary business community is way too smart not to see thru that. Secondly, M. Edwards no longer lives in Calgary and seems pretty happy in his new diggs in London with his new relationship. No one knows for sure if he intends to return to Calgary but he is not the type of owner who intends to sink .5 billion of his own dough in to a team in a city where he no longer lives if there is no direct ROI.