Thinking about the proposed lease, building usage, and ticket tax revenue

Let’s presume that Calgary’s City Council votes to approve the proposed arena deal next Monday. Once the building is built and operational, is the scheme under which the arena will be operated and the revenues flowing one that’s good for everybody?

The current lease

Presently, the Scotiabank Saddledome is operated by the Calgary Flames via the Saddledome Foundation. The Foundation leases the building from its owner, the city, for $1 per year. That’s all the direct revenue the city gets from its asset. As part of their operational agreement, the Flames funnel a portion of their revenues to the Saddledome Foundation for the purposes of donating it to three local charities: the Parks Foundation, Winsport and Hockey Canada. The three groups receive an equal share of an indexed contribution – the donation was $1.678 million in 2016-17 and didn’t exceed $1.8 million in 2017-18.

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Since the current lease isn’t publicly available, it’s unclear who is responsible for operations, maintenance and repairs to the building – the Flames led the remediation efforts after the 2013 flood, but that may have been more due to their status as operators trying to get the building ready for the season rather than any explicit contractual responsibility.

The new lease

Bad news, folks: the city won’t be getting their dollar from the new lease.

The Flames will still be contributing to charities, with the amount starting at $1.5 million in the new building’s first year of operation and increasing at 2% per year. It’s a lower amount than they’re currently contributing, but it maintains their funding commitments to community sports. (I was a bit concerned that this wouldn’t be part of the deal, which would potentially remove a big chunk of revenue from the three charities the team currently contributes to.)

The Flames are slated to be solely responsible for the operations, maintenance and repairs for the building, though the city is responsible for “uninsured major structural repairs.” The Flames will also be responsible for the provincial portion of property tax once the Rivers District Community Revitalization Levy expires in 2047.

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The ticket tax revenue

The city’s sales pitch for the arena deal includes a projected $155.1 million in ticket tax (“facility fee”) revenue over the 35 year initial lease period. How feasible is this?

The city will get 2% of all revenue generated by events at the arena. It’s capped at $3 million for the first five years of operation, which would only happen if the building meets or exceeds $150 million in revenue in any of those years. Presuming that the building is half-full all the time (8,500 seats in a 19,000 seat arena and ignoring suites for simplicity), the arena would need an average $126.05 ticket price per event in years 1-5 for this to work. (A previous version of this article incorrectly listed revenues as capped for first three years rather than five.)

Some assumptions necessary to make that math work: The new arena would host 140 events per year, like the Saddledome had in 2016-17. Forbes listed the average Flames ticket at $65 last year. Hitmen and Roughnecks tickets cost less, but concerts and other events would drag the average up a bit. It’s also assumed that we’ll see a ticket price jump because of the newness of the building boosting ticket demand and drawing in more high-demand acts. In the simplest, most generous scenario, arena revenues are $150 million (and the city gets $3 million) for years 1-5.

So how do we get to $155.1 million in revenue over 35 years? At 2.72% ticket price inflation and 140 events per year, on average, from years 6-35. If we presume full seasons for the Flames, Hitmen and Roughnecks, that only requires four other events per month. Through the first six months of 2019, Rogers Place averaged 5.5 events per month so the assumption doesn’t seem too outlandish. (The Saddledome averaged three events per month during that span.)

How can the city potentially exceed that revenue target? A few ways:

  • More events: The Flames go on a long playoff run, or the arena operators get good at luring in cool events.
  • Higher ticket prices: Either the prices get increased as part of the usual inflationary process we see at arenas, or enough promoters want to book events that they can jack up their rates a bit.

(Shout out to GullFloss on CalgaryPuck for showing his work for his calculations, which made it much easier for me to wrap my head around this.)

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The rundown

The proposed lease for the new building is basically the existing Saddledome lease, aside from a slight tweak to the charitable contribution formula. But the really tantalizing thing is the ticket tax. If the Flames run the building as well as they run the Saddledome, in terms of drawing in events, it’s likely that the city’s projections for revenue are pretty feasible. If the Flames can use their shiny new bauble to lure in more events or bigger ticket events, it’s not outlandish to think that the city could actually get more revenue out of this than they’re saying.

Not enough revenue to make up for their initial $275 million contribution, either nominally or via net present value, but potentially enough to turn a palatable deal into a pretty good one.

  • Off the wall

    Let me be the first to say this.
    Pike, you’re doing an amazing job at keeping us up to date with everything! I don’t know how you do it ( long hours) but it’s greatly appreciated!!

  • buts

    Thanks Ryan as well for the great writing……to re-coup some revenue to offset building costs for the city and CSEC what are your thought’s on keeping the dome open after the flames move into the event center and hold the memorial cup or world championship or world junior?

  • Budgie

    19,000 seats? They will be building another new building in ten years-up the seating, make it multi-purpose-a covered arena for the Stamps is needed too-build two arenas-The SaddleDome was supposed to last longer, they didn’t have enough seats so they expanded to over 20,000 at a cost of 2 million-and they are going to build a new 19,000 seat? I bet its bigger

      • Budgie

        Yes, Box seats, I’ve been in them, Boring! A buffet yadayada Better off down in the bowl anywhere.
        -I meant to say that the Stamps need a building too-I know you can’t build a Football/Hockey Arena, the schedules overlap. My point is, build bigger and make it last longer

        • Albertabeef

          Agreed, for the 12-15 football games a year and most of them are in Flames off season it should be a multi purpose arena. Even if it only seats 25,000 for football games but seats 30-40,000 for hockey and concerts. Then build a secondary 8-10k seat practice/whl/inferno/curling facility

          NHL VS CHL scheduling can be manipulated. 1 pm CFL game with a 8pm NHL game.

          • Albertabeef

            Sorry I didn’t expand enough. So on top of my last comment I would like to add as well Tear down McMahon Stadium and the ball park and build a new BB park and a new indoor track and field complex. I know myself I always avoided those places because I get sun/heat stroke any time I went to any of the 3 places. Track Day in Jr High always sucked but it was better than being in school lol. I just assume things haven’t changed too much in 30 years since I was in Jr High and at foothills park(I think that was what the T&F field is called), cause everything looked at least 30 years old then lol.

  • oddclod

    Ryan is grinding it out like Looch finna find his inner Rick Tocchet and role play his way into our hearts and the score sheet. In Boston he was expected to do little surrounded by great players. Hopefully that formula, that with Pike’s board play will equate to a 20g year and a James Neal jersey burning ceremony.

    Puck you Neal you lazy egotistical jerk off. I can’t imagine the room after game 4 knowing he only cared about his paycheck.

    I look forward to Looch breaking him in half. Looch like Wario from nintendo. Top heavy finna wreck shift up.

  • RealMcHockeyReturns

    Time for hockey talk, arena deal done! Vegas needs more D-men and cap relief and to move Gusev…so Brodie, Quine, and Mangi go there (estimated $6,285,400 total cap hit if Mangi gets $900K). Meanwhile Flames who need cap space will put him on LTIR to start season, then flip Michael Stone to someone for 5th rounder (save $3,500,000), and in above Vegas trade take 2.2M Holden (left pay who plays Right D) and RW Gusev and sign for $4M for net money in $6,200,000 less 3,500,000 = 2,700,000. So actually gain cap room as 6,285,000 our less $2,700,000 = 3,585,000 to add money to help sign Tkachuk and Bennett.