Breaking down Calgary’s arena saga with Field of Schemes author Neil deMause

It’s probably safe to say that things are getting a bit tense in the Calgary marketplace as the saga regarding the potential new home for the Calgary Flames drags on. A couple times in the past few months, we’ve had a Flames executive ponder relocation only to walk the claim back immediately afterwards. As we’ve detailed around here, the whole process has been quite exhausting.

Endless arena and stadium skirmishes between teams and governments is old hat to Neil deMause. Since 1998, deMause has examined public subsidies to large sporting facilities at his website, Field of Schemes. He and colleague Joanna Cagan also produced an extensive book on the subject, an updated edition being published in 2008.

We chatted with deMause earlier this week via phone to discuss the never-ending story that is the Flames’ arena project.

Calgary’s situation is fairly typical in some ways, in that you have a team with an arena that the owners decided is obsolete or not state of the art or whatever else, and they would like a new one (like a lot of their competitors have) and would like not to pay for it (like a lot of their competitors don’t). And have gone through the typical several cycles of going back to the public to try to say, “Okay, how about we get money this way, how about we get money that way?”

It’s typical in that realm. I think what’s been atypical is that Mayor Nenshi has been an atypical kind of opponent across the bargaining table in that most city mayors will be somewhere on the spectrum of, “I don’t want to break the bank but what can we do for you?” Whereas Mayor Nenshi is one of a few mayors, not unique by any means, but a few mayors around the U.S. and Canada who are coming back with, “Well, show how this benefits me and my city in any way and sure we can talk.”

I think you’re seeing more and more of this, a little bit. Tom Tait in Anaheim did that when the Angels said, “We want a whole lot of money for renovations of our stadium.” I think it was development rights to their parking lot that they were going to be able to sell.  The city council initially said sure, fine, whatever; Mayor Tait said, “Well, I don’t know, how much are development rights worth? Let’s do an assessment.” And [Angels owner] Arte Moreno kind of flipped out a little bit. And the assessment came back and it was going into the value of the development rights was I think around 50% more than the renovations he wanted to do. And so that died and now I think they’ve backed off. There was some brief talk of, “Oh, we’ll move to another town somewhere else in Southern California,” and then that didn’t happen. Now I think everybody’s sort of dropped the idea of doing substantial renovations there.

A couple others. I think Seattle City Council has done a pretty good job of that since the Mariners and Seahawks stadiums happened there. All of the negotiations around the Sonics, all of the negotiations around building a new arena to try to and maybe bring back a basketball or hockey team. There’s been more of a, “Well, the public may have a role but it has to be something that works from the public’s perspective, not just helping you with what you want.” Again, it’s still not the main way that public officials tend to respond to these things and there’s lots of wiggle room within that in how you define “working for the public” and getting a public benefit, but that said it’s a lot healthier than just going in with “well, our team is demanding a new building, how do we help them and how much?”

The Flames execs don’t seem to have a master plan in the way that you might expect, but again that’s fairly typical. In Chapter Four of our book, we go over the different items in the playbook that owners use and it kinda usually does end up being throwing things against the wall and seeing what sticks. First you say, “Oh, this would be a wonderful economic benefit to the city!” and if that works, great. If people say, “Well actually economists say that it won’t…” then you circle back around and say, “But you don’t want to see the team move or you don’t want to see the team not have the money it needs to compete in games.”

When did they start pushing for the new Flames arena?

That’s pretty early in the life of typical stadium or arena demands. Again, some of them go really quickly, but if you look at something like the Sacramento Kings or Minnesota with the Vikings and the Twins, or the Florida Marlins, they can easily drag on for a decade.

Obviously you’d rather do that in the first year than the 10th year, but if you’ve got a long enough game-plan then that’s fine because you get your cash. It’s better to get $400 million in subsidies 10 years down the road than to pay for it all yourself the first year.

What we’re seeing in terms of inconsistency and not staying on message, some of that may just be incompetence – and I never want to assume that anybody in any kind of position of corporate or political power is incompetent and doesn’t know what they’re doing anymore than the rest of us do – but that said, some of it is strategic. Some of it is just like, “Okay, that didn’t work, what’s next?”

Absolutely, and I think that’s a lot of what’s going on, you get a couple months of silence and then you’ll get a couple months of agitation again from the Flames. Like any negotiation people are trying to jockey for position in terms of how much they can demand. There’s a price point at which the Flames could go to the mayor right now and say, “Give us X amount of dollars, but it’s not very much,” and everybody would say okay fine, great and shake hands and do it. There are probably a lot of price points in between there and what the Flames would like, so the idea is how long do you hold out and how badly do you want the new place? How badly do you want, are you just out to get the public cash to subsidize it?

I don’t think anyone’s done an economic analysis on how this would pencil out for the Flames in terms of how much more they would get in revenues, because that’s always the issue; yeah, a new place would be nice, but is it going to pay for itself if you’re trying to earn it back in revenues. It’s rare, which is one of the reasons you see so few stadiums and arenas built with totally private money. The other is the public money is there to be had, so why not ask for it? But I think it’s undeniable that if governments were not funding these things, a lot fewer new stadiums would be built (or arenas). Not none by any means, but it would be more like one every couple of years instead of several new ones opening a year like it is now.

I think you really have to look closely at the financial details and make sure that everything, not just in terms of the construction split but also how the lease works out, is worked out in advance, because we’re seeing more and more cases where the headline number (in terms of they get this much money in public subsidies) is dwarfed by the amount of hidden costs. Judith Grant Long, who’s a researcher at the University of Michigan, did a book a few years ago where she broke down the full costs and found that the average hidden cost, things in terms of tax kickbacks and maintenance and operations expenses that are on the public and things like that, all of that came to about 40% over and above what the actual public cost was of construction, and that number’s going up.

So you have things like the Atlanta Falcons, where originally the governor (I believe it was) proposed $300 million in subsidies towards (nobody knew it would be at the time) a $1-plus billion stadium. And then there was criticism of that, so they went, “Okay, okay, why don’t we do $200 million?” $200 million of a place that cost a billion and a half? That doesn’t seem so bad, until somebody looked at the fine print and realized okay, this tax they created is going to generate $200 million towards construction costs, but then it’s going to keep generating money and that money is going to go into this waterfall fund and that’s going to create this huge slush fund for them to spend on whatever they want for upgrades to the stadium. The ultimate public cost towards the stadium and upgrades for it later is going to be like $600 million.

That’s the kind of thing that you really want to avoid, is huge, huge costs on the back end. You want to make sure that maintenance/operations are paid for, at least substantially, by the team. You want to make sure that there’s an iron-clad lease that does not allow them to use one of these state-of-the-art clauses 15-20 years down the road and go, “Oh, this place isn’t shiny anymore, you have to build us a new one or we’re going to leave,” like what happened with the St. Louis Rams. There are a lot of dangers there, and again, I think anybody who’s been following this and has read some leases should be able to watch out for the pitfalls.

Hopefully, if this deal happens, whoever Calgary has on their side negotiating will either research it themselves or hire some people who have worked with other cities or whatever, so that they’re not getting their heads handed to them when they’re negotiating a lease. Again, that’s just stuff you want to watch out for.

But a lot of that is going to come down to what the Flames owners decided, because it clearly won’t be whatever they’re proposing right now. I don’t think it’ll be resolved anytime soon is my bet. Clearly, both sides have gone to their corners and have their own positions on this and I don’t necessarily see them coming together quickly. I could be wrong, I would hope they would, but it doesn’t seem like it’s progressing that way when you see the most recent statements where they say, “Calgary NEXT isn’t dead, even though nobody’s interested in it other than us.”

The other thing you didn’t ask me, but I don’t see the Flames moving because I don’t think there are any good markets that are better than Calgary.

And in any case, there just aren’t any better markets. Quebec’s an okay market, but Quebec is not necessarily a better market and you’d have to sell the team to Quebecor, at least part of it, in order to do that. What else, Seattle? It’s an okay market, but it’s not like the Rams moving to Los Angeles where you’re thinking, “Okay, geez, we’re not risking anything because we know we’re going into a market where we’re supposed at least as well as St. Louis did.” I think that the city in Calgary’s case has a fair amount of leverage here because it’s not like there’s other options. The same sort of thing Tom Tait took advantage in Anaheim knowing they were in a really good situation, and I wish New York City had taken advantage of when the Yankees were demanding a new stadium. What are you gonna do, go to Charlotte? The entire value of your franchise is wrapped up in the fact that you’re in a city of eight million people and a metro area of 20 million people and you can sell cable rights based on that. No possible way you’re going to leave, “Take whatever we’re offering to you and get out of my office.” But that isn’t what happened, unfortunately.

I think it’ll be very interesting to watch. I don’t know if every mayor in North American will be looking to it as an example, but I think a couple will be here and there, so I hope whatever gets worked out is a good model for the future.

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