Arena deal changes go before city council this week

On Monday, during the first chunk of what’s going to be a multi-day city council meeting, the proposed changes to the arena deal between the Calgary Flames’ parent, the Calgary Sports and Entertainment Corporation, and the City of Calgary were revealed.

They are, all in all, fairly minor.

There are three main proposed changes to the project framework.

The original project framework included a provision that up to $25 million of “eligible cost overruns” – things in the original scope that cost slightly more than expected – would be covered 50/50 by the City and CSEC, for an extra $12.5 million apiece.

Well, that “possible” funding is now being used, and the City is adding a provision that says that’s all they’re chipping in for the arena. Any additional cost overruns would be entirely up to CSEC to fund.

All-in-all, the City will be chipping in the following:

The total City contribution is now capped at $312.9 million, and it’s mentioned multiple times in the City’s literature that none of these are new contributions from the 2019 agreements, the only difference is the $12.5 million is being enacted now rather than later – it was already in the agreements.

The current estimated cost of the building is $608.5 million.

Here’s the logic: CSEC is on the hook for any possible cost overruns now. So rather than have to work with a City entity, existing project manager CMLC, to build the project, they’re being allowed to install an affiliate company, the CSE Development Management Corporation, to work with consultants to manage the project. CSEC is taking on the risk of future cost overruns and a larger overall share of project expenses, so in this sense it makes sense to let them drive the project. This way, if overruns occur they won’t be the City’s fault.

It’s worth noting, though, that CMLC is still managing the entirety of the development of the Rivers District, including the development of the Stampede Park area. It’s also worth noting that HOK is the primary architect and they’re designed some gorgeous facilities, so functionally-speaking CSEC’s spin-off company will be managing procurement and a lot of logistics, as much of the detailed design work has already been completed with CMLC’s participation. Any fears of “Oh no, they’re going to ruin the new district!” are probably overblown, because the arena is just a two block portion of a much larger development that’s still being overseen by CMLC. (And HOK has designed some gorgeous facilities.)

Ever been to a hockey game or concert at the Saddledome and notice that police are directing traffic after the game? That’s part of an operational plan that the City and CSEC put together for events at the Saddledome. With the new facility, and other developments, in the Stampede Park area, the existing plan will need to be changed and there may be some capital expenses needed to deliver on it.

The City and CSEC are each on the hook for 50% of any additional operating costs for the new plan (e.g., they’re splitting the increased operating costs caused by the new building replacing the Saddledome) and the City will fund 100% of capital improvements needed to deliver on the plan, an estimated $10 million.

While not explicitly part of the capital portion of the project budget, this part could have the potential to sprawl out a bit in costs due to the nature of the cost estimates, but it seems likely to be covered by already-announced City developments in the area. They’re already working on the 17th Avenue extension into Stampede Park, as well a new underpass under the CP Rail line on the north end of the area.

Overall, the changes aren’t really that substantial: $12.5 million of optional City funds that were already part of the agreement are being made more explicitly part of the funding deal, and the City contribution capped. The removal of CMLC isn’t ideal, but it makes sense given the increased financial stake CSEC is taking on. If you expected a complex and dastardly plan to be revealed, you’ll probably be disappointed.

There are no changes proposed to the two revenue sources to the City from the new arena: the $2.5 million cut of the naming rights and the estimated $155.1 million of revenue from the facility fee (ticket tax). The present value of the deal was about negative $45 million before the extra money was made explicitly part of the package, so it’s likely nudged into the vicinity of negative $47 million.

If this gets through council, here’s what the council submission indicates for next steps:

If this gets approved, things will get going in a hurry. (The August 2024 hand-over seems ambitious, though, and there appears to be the potential for impacts on the building’s availability for the 2024-25 Flames season.)

The arena deal revisions are expected to be voted on by council sometime on Tuesday or Wednesday, depending how long a very full agenda of land use amendments takes them to get through.