Making sense of the many, many Calgary arena deal contracts

5 months ago

Pals, the City of Calgary finally published the many, many legal agreements related to the new Calgary event centre on Thursday. There are 16 agreements, which interact and build upon each other in some unique ways.

We spent a few days combing through the agreements so we can wrap our heads around the arena deal to construct the new home of the Calgary Flames.

Project Framework Agreement

Parties: City of Calgary (The City) and Calgary Sports and Entertainment Corporation (CSEC*) (* – For simplicity’s sake, I’m referring to CSEC’s subsidiaries all as CSEC because otherwise the acronyms would get out of control.)

Purpose: This is the broad umbrella agreement that defines roles and responsibilities very broadly and provides the framework for the rest of the agreements. It proclaims “Hey, we’re going to build a new event centre, subject to the provisions of a bunch of other agreements.”

The event centre is defined as between 18,000 and 19,000 seats, and notes the arenas in Detroit, Las Vegas, Edmonton, Columbus and Minnesota as comparable facilities. The budget is set at $873.6 million. The City and CSEC split the first $54 million of costs, then the remaining $819.6 million are the City’s responsibility.

The community rink is set for 1,000 seats, and is conceived as a community resource that the Flames (and their other teams) use for practices and training camps. The budget is set at $52.8 million. The City pays $39.6 million, CSEC pays $13.2 million.

Obviously the big concern is about costs and potential overruns. The agreement looks at two different things: eligible cost overruns and additional costs.

Eligible cost overruns would be costs within the initial scope that cost more than originally intended. The framework instructs the development manager to find savings, value engineering or scope reduction.
- If those don’t solve the problem, event centre overruns would be split 50/50 while the first $7.2 million in overruns for the community rink would be split 75% City and 25% CSEC, and 50/50 thereafter. (And these would be subject to approvals from both City Council and CSEC’s board to chip in extra money.)
Additional costs would be out-of-scope things that are requested to be added by either the City or CSEC. The side that requests an additional cost is responsible for paying for it at their additional expense.
The Development Management Agreement includes a lot of language that boils down to “Come up with a budget that includes contingencies and does its best to avoid overruns.”

The language regarding scope reductions and value engineering is broad enough that aspects of the project could be reworked to fit within available budget. (The language doesn’t explicitly say what would be cut, but the community rink seems like it would be the obvious thing to look at.)

Demolition of the Saddledome is out-of-scope of the event centre project itself, but the intention is it would be covered by the provincial funds (defined elsewhere in these agreements), just like the infrastructure improvements in the surrounding area.

The “scheduled substantial completion date” in this agreement is targeted as Aug. 31, 2026. (Amending the project schedule to change that date is labelled as a “Major Decision.”)

Development Management Agreement

Parties: The City, CSEC and CAA ICON

Purpose: Defines roles, responsibilities and obligations of all parties during construction of event centre.

This agreement says who’s responsible for what, but since they’re still hammering out timelines and construction schedules, it’s pretty light on specifics and what’s not included is arguably the most notable thing about this agreement. Case in point: it defines “turnover date” as when they expect to have the building done, and other agreements feed off that date, but since the construction schedule isn’t nailed down quite yet… we don’t have a date.

The 2021 arena deal hit the ditch immediately prior to what was termed the “Construction Phase Commencement Date” within those agreements, which was the last date for both sides to give their thumbs-up to the budget. That date isn’t defined in this agreement because a lot of the nitty-gritty logistics are still being finalized.

But they should be mostly hashed out before the end of February.

The agreement does all-but-confirm that the new arena design is essentially updating the old design, making adjustments to the larger lot, larger parking structure, and addition of the community rink, indoor gathering plaza, and LEED certification.

Management and Lease Agreement

Parties: The City and CSEC

Purpose: It’s the lease.

Once the building exists, the City will own it and CSEC will lease the building and operate it for 35 years starting on the turnover date. The lease can be extended in two different ways: CSEC can just opt to extend for an additional five years, and they can also opt to make “material capital improvements” to the building during the span of the initial lease (or the extension) and the lease would be extended by 10 years or whatever lifespan their improvements added to the building, whatever’s less.

CSEC pays their lease to the City in two ways: rent and the City’s share of the facility fee.

Rent starts at $7 million a year and increases at 1% per year for the initial term. It’s set at a flat $1.96 million for an extension term. There’s no rent under a “material capital improvement” extension.
The City’s share of the facility fee starts at $10 million and increases at 1% per year for the initial term. It’s set at a flat $2.8 million for an extension term. The City receives no facility fee share under a “material capital improvement extension.” (There’s a whole other agreement discussing the facility fee.)
If you’re thinking to yourself “Hey, the rent and facility fee are much lower under a regular extension and non-existent if CSEC gets an extension if they make a “material capital improvement,” those are pretty interesting incentives to both maintain the building’s anchor teaent and lifespan.

Maintenance expenditures are meant to be paid for through a maintenance fund that CSEC contributes to. Their required contributions start at $500,000 per year and end up at $1.5 million for the final 15 years of the lease. (The payments would remain at $1.5 million annually over any type of lease extension.)

The City has to approve the naming rights partner for the building. (They’ve previously approved one, and that approval remains in effect.)

There are a bunch of things that are not allowed to happen in the event centre or community rink, including permanent themed dinner theatre, the sales of firecrackers or fireworks, or running a casino.

The community rink is to be made available to the public and community organizations between 4:30 p.m. and midnight on weeknights and 6 a.m. and midnight on weekends, with the rental rate to be 15% less than the average rate given to local sports organizations in the City of Calgary. The City gets use of the event centre and community rink for events five times a year (for each).

Facility Fee Agreement

Parties: The City and CSEC

Purpose: To define and (somewhat) restrict the facility fee surcharge.

If you’re a cynical type you probably figured that the Flames would pay for their part of the arena funding by raising ticket prices by large amounts. Well, this agreement – and structuring the payments to the City in the previous agreement as rent and a share of a facility fee – aims to mitigate that.

The City’s authorized the charging of a facility fee, set at 9.5% of a ticket price. Also, the agreement includes language that specifies that ticket prices in the arena for events should be similar to the face value of similar seat in a similar facility, exclusive of the facility fee. (It’s unclear how that would be checked or enforced, but the language exists in the contracts.)

The facility fee revenue will be used to pay the $10 million per year (escalating at 1% per year) that the City gets from CSEC. Any residual facility fee revenues are to be used to reimburse CSEC for any capital expenditures they’ve incurred, then to contribute to the operations, repair or improvements of the building. They explicitly cannot be used to subsidize operations of CSEC’s teams.

Tax Agreement

Parties: The City, Calgary Municipal Land Corporation and CSEC

Purpose: Essentially says that CSEC, as leaser of the new building, will pay an unspecified fee to the City instead of paying a share of property taxes under the Community Revitalization Levy within the Rivers District.

The fee amount is redacted within the agreement, and you’d need to be fluent in tax code in Alberta to figure out how much the share of the taxes they would have paid would be. It’s basically impossible to determine if the fee is different than their share of taxes.

Master Agreement re: Options to Purchase and Right of First Offer to Purchase Agreement

Parties: The City and CSEC

Purposes: These are somewhat similar documents, so we’ll tackle them at the same time. The Options to Purchase Agreement says that as long as Project Framework Agreement obligations are met, CSEC has option to purchase four parcels in the nearby area. (They’ll be able to exercise that option within two years of turnover date of building.) The Right of First Offer to Purchase Agreement specifically refers to the bus barns land, and says that within a 10-year term (starting with turnover of the new building), as parcels become available for development CSEC would have the ability to make the first offer for those parcels. For both agreements, they would need to make an offer of fair market value (as determined by an agreed-upon assessor). For the land options, they have dibs and can avoid a competitive bid process, for the right of first offer they’d be putting in the first bid but wouldn’t have dibs, if that makes sense.

Land Exchange Agreement

Parties: The City and the Stampede

Purposes: It’s a slight amendment of their 2019 land swap agreement, with the Stampede getting the the Saddledome and Weadickville land in exchange for the lots that the event centre will go on. The vast majority of this agreement is redacted.

Non-Relocation Agreement

Parties: The City the CSEC

Purpose: “Hey, we partnered with you on this new arena, please don’t leave for 35 years, okay?”

Starting with the arena turnover date, CSEC pledges not to move the Flames for 35 years.

The agreement has a bunch of weird specifics included:

The team has to keep Calgary in its name.
The Flames have to host all their home games in the new building, but are allowed to be the home team in up to six neutral site games a season.
The team has to engage in “reasonable commercial efforts” to attract the NHL Draft and/or the All-Star Game to the new building within the first three years after the turnover date. (The NHL Draft will start being decentralized in 2025 so it’s unclear if there’s anything to host, and the All-Star Game’s frequency may be disrupted by the NHL participating in the Olympics and also hosting World Cups again. We’ll see how that impacts things the new arena can host.)
The team can be sold, but has to agree to remain in Calgary. (Selling the team wouldn’t void the agreement, the restriction on relocating would transfer to the new ownership.)

Community Rink Grant Agreement and Grant Agreement

Parties: The City and the Government of Alberta

Purpose: “Here’s up to $30 million to build the community rink!” (Community Rink Grant Agreement) “Here’s up to $300 million for eligible project expenditures!” (Grant Agreement) The schedules of the Grant Agreement that define eligible expenditures are redacted, but they’re land expenditures, including demolition of the Saddledome, and construction of the 6th Street SE underpass, district benefits and off-site infrastructure.

For logistical purposes, the province is cutting the City two cheques – one for the community rink and one for the stuff in and around the district for improvements – and letting the City handle things from there.

Event Management and Road Usage Agreement

Parties: The City, CSEC and the Stampede

Purpose: Setting up how the parties will try to get traffic flow down to a baseline level within 30 minutes after the conclusion of an event at the event centre.

Things specifically mentioned as district benefits and off-site infrastructure to be tackled:

A four-lane 6th Street SE underpass.
The relocation of 5th Street SE and improvements to include lane reversal (3 lane capacity).
Improvements to 14th Avenue SE to accommodate four lanes.
Improvements to 17th Avenue SE and 4th Street SE to add lane reversal (3 lane capacity).
Lighting and way-finding improvements between Agricultural Trail and 25th Avenue SE in Stampede Park.

Community Grant Agreement

Parties: The City and the Flames Foundation

Purpose: The Flames Foundation pledges to contribute $1.5 million to community recipient organizations per year.

This functionally replaces the funds that are currently donated under the operations of the Saddledome Foundation. Starting the year after the last Saddledome Foundation donation, for the first five years $500,00 apiece will be donated to three initial recipients: KidSport Canada, Winsport and Parks Foundation Calgary. After that the recipients and amounts can change for subsequent terms, but they have to total $1.5 million. Recipients and amounts are determined used guidelines the City and the Foundation hashed out.

(Under the current Saddledome Foundation agreement, an indexed amount of funds – around $500,000 apiece – are donated annually to Hockey Canada, Winsport and Parks Foundation Calgary, so it appears that KidSport Canada is swapping in for Hockey Canada.)

We’re ignoring a handful of minor documents that define aspects of the project, or are commitments or guarantees of things included within other documents. They’re primarily included in the big swath of contracts for procedural and legal reasons, but they’re not all that interesting for the purposes of analysis.

So… that’s about it. The agreements are all pretty straight-forward, and there doesn’t seem to be anything too contentious hidden in the fine print. It would be better if we had the specific internal deadlines and potential agreement exit dates included, as we had in the 2021 revised versions of the previous arena deals, but aside from that everything seems pretty tidy.

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