Making sense of arena fear-mongering
By Ryan Pike
6 years agoWhen 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.
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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.
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