On the Edmonton Arena Deal Kerfuffle

 

 

Although there are no game results to talk about or aniticipate right now, there remains plenty of hockey related business items to discuss. The Oilers arena thing is turning into a bit of a fiasco, but also following a path well worn by other sports owners who have extracted public dollars for private interests in the past.

The Edmonton arena project has become very messy over the last couple of weeks. While an apparent deal was struck in principle awhile ago, the devil, they say, is always in the details. Katz’s demands have escalated recently, even though, as JW points out here, the initial deal was really quite favorable. Beyond all the operating revenue from the arena going into his pockets (including non-hockey related stuff), a demand to handcuff the departed Rexall place (in order to ensure they don’t have a competitive advantage over him whem it comes to major concerts and the like), Katz is also seeking a $6 million per-year operating subsidy. In addition, he wants the government to rent out an office apartment planned near the new arena (built and owned by Katz, of course).

Keep in mind, that is all on top of what the city was going to put towards the rink’s expenses in the first place, including hundreds of millions towards the construction plus an annual $2-million "advertising agreement" (a subsidy by any other name…) which would pay Katz $20M in total over the first 10-years of operation. In addition, an Edmonton City Council member recently revealed that the Katz group is pushing for a property tax exemption. Oh yeah…and a casino license.

So it’s pretty obvious why the City’s representatives are balking at this point. Katz is holding them over a barrel. Rich men have made a habit of foisting the risk and expenses of pricey arena projects on the public for the last few decades and the special position major sports holds in the hearts and minds of the North American public has made it possible.

It makes sense from a pure rational standpoint on the owner’s end – arenas are kind of like cars in that they are depreciating assets. New ones are fun and exciting, but after the novelty has worn off and the shine has dulled, it becomes about the utility of the building; mounting operating and maintenance dollars and the building’s inevitable fall out of fashion. The building cycle for stadiums and arenas is about 30 years, which is sometimes not even enough time to completely service the debt it takes to build them in the first place.

Which is why private interests aren’t terribly enamoured with buying (meaning: paying for) arenas. However, if one can get major costs covered by the public, the possibility of new luxury boxes, private suites and increased seating capacity – plus other, ancillary development around the rink – suddenly starts to make a lot of sense. In addition, it’s a lot easier to sell the public and politicians on fuzzy concepts and overly optimistic scenarios like civic pride and "downtown revitalization" than it is banks or private investors (who typically ask for a higher rate of return on investment or an equity stake in the venture itself).

The one major ace in the hole for team owners is the threat of relocation. It’s an extortion tactic that has been effective in a number of other sports and markets in the past (including Pittsburgh where Mario Lemieux admitted the meetings with other cities like Kansas was a method of upping their leverage in negotiations with the city).

And that’s where the fight went this week. Bob Stauffer’s "Oilers Now" radio program interviewed Bruce Saville on the topic last week and the former EIG member believes the team "is gone" if the arena doesn’t get built. A few days later the Oilers official twitter account re-tweeted (and since deleted thanks to some backlash)  this John MacKinnon article entitled "Downtown Edmonton Arena Deal Can and Should be Made – enough is Enough" which echoed the threat of relocation in the body:

Personally, I am incredibly dubious of the relocation threat. The Oilers were a top-10 revenue team last season and have enjoyed numerous years of sold out rinks and exuberant fan interest despite being one of the very worst outfits in the league in terms of on-ice performance. Edmonton isn’t the biggest or most glamorous town around, but they enjoy some of the strongest, grassroots support of any club in the union. In a league that sports at least a half a dozen financially unstable franchises, Edmonton is way down on the list of "teams to be moved". Meaning – even if Katz can somehow extract an even more favorable deal from another city, there’s little chance he’ll find a market as viable as Edmonton. And as the Coyotes have consistently illustrated in Phoenix, a publicly built rink/arena district is in no way a guarantee of financial success.

That said, the fear of losing a long beloved institution like the Oilers is palpable in Edmonton, however small the chances of it actually occurring. When you can’t win with sugary rhetoric and lavishly drawn building concepts, default to threats and fear I guess.

This is all relevant in Calgary because we’re poised to have a similar issue here in a couple of years. Ken King and the Flames have been very careful not to say anything significant on the topic of a new rink over the last few seasons, perhaps waiting to see how the fight goes for Katz et al up in Edmonton. I suspect that if the Oilers owner succeeds in shunting a vast majority of the expenses on the taxpayers up north, the Flames will  likely run with the same playbook down here (although I assume they’ll be less clumsy and hamfisted about it).