Flames arena deal passes council vote (again)

2 years ago

It’s a done deal. (Again.)

The deal to construct a new arena to house the Calgary Flames (and Calgary Hitmen, Calgary Roughnecks and other, non-sports, events) has been successfully amended and ratified by Calgary’s city council. The vote passed through city council following roughly four hours of discussion and debate on Wednesday afternoon.

What public funds are involved now (and what’s changed)?

As noted earlier this week, the fundamental change was taking $12.5 million of public funds that were available for “eligible cost overruns” (e.g., something that was in the project scope going slightly over budget) and making it explicitly part of the budget. This bumps the city’s cash contribution for construction to $287.5 million (from $275 million). Other City expenses include $15.4 million in demolition and land acquisition costs, and up to $10 million in flood mitigation and soil remediation costs. All-told, the City’s on the hook for $312.9 million in cash contributions.

The other key point is the City contribution is now explicitly capped. The construction expenses for the building have gone up to $608.5 million, with the Flames now contributing $321 million – about 53% of total costs. If costs escalate, the Flames are on the hook (and not the City). Because the Flames are putting up more than half of the funds, and carry the risk going forward, they’re being allowed to take over as project managers going forward.

What is the city getting out of this?

The cash-flows back to the city include:

$2.5 million from the naming rights to the building over the first 10 years
An estimated $155.1 million from a 2% facility fee over the 35-year span of the team’s lease

The present value of the cash-flows in and out remain negative, though, at somewhere around negative $45 million, give or take a few hundred thousand. If you assume that all of the City’s lofty hopes and dreams for economic development attracted to the area around the arena are nothing but unicorns and pixie dust, this is financially the equivalent of setting $45 million (or so) on fire in exchange for getting an arena.

The City will own the facility but the Flames will manage it. But if nothing else, the City gets a cool new facility for the east end of downtown – adding to the National Music Centre, Central Library and revamped BMO Centre in terms of cool stuff – and they won’t need to publicly joust with the Flames over a building for another 35 years (if not longer).

Is it a good deal?

Let’s take a stroll around the Pacific Division, folks.

Honda Center (Anaheim) and SAP Center (San Jose) were built entirely with public funds.
Rogers Arena (Vancouver), Staples Center (Los Angeles) and T-Mobile Arena (Vegas) were built almost entirely without public funds.
Climate Pledge Arena (Seattle) was originally built privately in the 1960s, purchased by the City of Seattle and renovated extensively, then they developed a partnership with Kraken ownership where the most recent extensively renovations were primarily privately funded. The modern KeyArena, pre-Kraken, was basically a publicly-funded building, but Kraken ownership pumped a ton of money in to revamp it.
Rogers Place (Edmonton) was funded with a combination of public and private funds. (Primarily public funds, with the Oilers putting in about $17 million of the cash outlay for the $480 million arena and then paying $112 million to the City over 35 years; even in the most generous interpretation of the Edmonton deal, the Oilers still paid for just over a quarter of the building’s costs.)

By the standard of similarly-sized markets – Anaheim, San Jose and Edmonton – the fact that the Flames are paying for more than half of the facility is pretty remarkable. By that standard, the deal is pretty fair. For context, public funds paid for all Saddledome construction costs.

It’s not a perfect deal, but it’s decent by stadium and arena standards.

So what happens now?

A lot, but mostly behind the scenes. The agreements will be finalized this week and work will begin on the development permit, which is being targeted for the Nov. 18 committee meeting. The goal is to get all the administrative legwork done in time for a ground-breaking sometime in December so that construction work can begin in earnest in the New Year.

The goal is to have the facility ready for an August 2024 opening (and to have it ready for the 2024-25 NHL season).

When can we see plans?

Preliminary renderings were released as part of the council meeting, but more detailed plans will likely be ready in the fall.

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