The new arena deal is more expansive and expensive than prior deals (and probably should be)
By Ryan Pike
11 months agoIn July 2019, the City of Calgary, Calgary Sports and Entertainment Corporation (CSEC) and the Calgary Stampede agreed to a $550 million arena deal. In December 2021, for sundry budget-related reasons, that deal went kaput. This past week, a new deal was announced – with the Province of Alberta joining the previous three parties – for a new arena with a project price tag of $1.223 billion.
Why is the number so much more than the previous deal’s? Well, it’s based on two factors: inflation, and things being included that weren’t costed out in the previous one.
The 2019 original deal
Way, way back in July 2019, the original arena deal called for a $550 million total construction cost – an educated guess based on how much five comparable buildings cost: Little Caesars Arena in Detroit, T-Mobile Arena in Las Vegas, Rogers Place in Edmonton, Nationwide Arena in Columbus, and Xcel Energy Center in St. Paul.
The City’s contribution was the only public money involved, and was broken down like this:
- $275 million for direct construction costs (with an additional $12.5 million made available to deal with overruns) for an arena, on-site parking, and, if funds were available, a smaller attached community rink
- $10 million in “additional contributions” (flood mitigation, off-site levies and site remediation)
- $12.4 million for Saddledome demolition costs
- $3 million in “related transaction costs” (to facilitate the land swaps needed)
- The Calgary Municipal Land Corporation (CMLC) was set to manage the project
There were also land options made available to CSEC, where they would get right of first offer for a handful of plots of land in the surrounding area.
The deal passed in an 11-4 city council vote, with council members George Chahal, Evan Woolley, Druh Farrell and Jeromy Farkas voting against the deal.
The 2021 revised deal
After the 2019 vote, the City conducted some public engagement, went out and found a designer, and essentially went forth to conduct the groundwork for the project in tandem with CSEC.
As things developed, it became apparent that some things weren’t included in the original project scope that probably should’ve been, and some things that were already included turned out to be more expensive than anticipated as they proceeded through the design and costing process.
So four key changes were made in the prior deal as the estimated base building costs reached $608.5 million by July 2021:
- The City’s “optional” $12.5 million of additional overrun funding was enacted, pushing the City’s direct construction cost funding to $287.5 million
- CMLC was swapped out as project manager in favour of a CSEC subsidiary body, the CSE Development Management Corporation
- CSEC was made responsible for all eligible cost overruns beyond the City’s contribution
- The City committed to building a mobility and event management plan, splitting operating costs of that plan with CSEC, but being responsible for all the road infrastructure upgrades needed to enact that plan
The good news was that the direct construction expenses for the City were capped, with CSEC taking responsibility for all overruns but taking the reins as project manager – a pretty good trade-off for both sides, all things considered, as they shared the project risks.
The potential infrastructure costs of the mobility and event management plan were, on the other hand, a potential challenge for the City.
Here’s what the City agreed to:
The City was on the hook for getting all vehicles out of the area from event centre events by 30 minutes after an event ended, regardless of what else was happening in the district, and were on the hook for the road infrastructure improvements needed to do that. (Two additional access points referenced in this plan were the 17th Avenue access point and a new 6th Street underpass below the CP Rail right-of-way connecting 11th Avenue to 9th Avenue.)
The mobility and event management plan was a completely necessary component given the limitations of the area’s infrastructure and the City’s plans for the area. If you’re trying to get people downtown to spend additional time and money in a Culture and Entertainment District, they won’t want to do that if it involves getting caught in constant traffic headaches before and after events. But the risky thing was this: the infrastructure upgrades were estimated at $10 million, but there was the potential that the costs could be more than that.
The revised July 2021 deal passed by a 9-5 vote of council – voting against were Chahal, Woolley, Farrell, Farkas and then-councillor Jyoti Gondek – and a vote for allocating $10 million for potential road infrastructure upgrade costs passed 8-6 – voting against were Chahal, Woolley, Farrell, Farkas, Gondek and Sean Chu.
This revised deal ended up being dissolved when CSEC declined to approve the project budget by a Dec. 31, 2021 deadline – they informed the City in advance that they weren’t going to approve – due to cost escalations related to the base building. (A final budget wasn’t yet cemented at that point, but there was informed speculation that the direct construction costs of the building had surpassed $700 million. CSEC cited a cost estimate of $634 million in a media release, but it wasn’t clear if that was a final number or an interim estimate.)
The 2023 new deal
Compared to the previous deal in 2019 (and the revision in 2021), here’s what’s included in the current deal:
- The main arena, an attached parkade and a community arena
- Interior and exterior plazas included on the main arena block, rather than requiring road closures to utilize Stampede Trail as a festival street
- A larger lot to build on – 10 acres, compared to eight in the prior deal – facilitated by land swaps with the Stampede
- Road infrastructure updates in the area
Here’s the estimated cost and contributions breakdown, via the City:
Looking at the cost estimate for the components, the first two seem fairly logical: $873.6 million for an arena, parking and public realm updates, given the cost escalations and supply chain challenges in the construction sphere over the past three years, seems appropriate. $52.8 million for what could be a basic community arena also seems close to what it should cost. And while HOK created a gorgeous, modern arena design for the smaller lot in the original deal, they had to cram a lot of stuff onto a small space. A bigger plot means they can add the community rink and plazas while allowing the elements to breathe.
Now, the big X-factor with the last version of the prior deal was the mobility and event management plan, and the needed road infrastructure upgrades – those will be funded by the provincial government. While we haven’t seen a detailed rundown, the public realm improvements that have been mentioned in the literature are 15th Avenue, 17th Avenue, 25th Avenue and 5th Street
- 15th Avenue would probably refer to whatever road replaces Saddledome Rise once the Saddledome is demolished
- 17th Avenue refers to the currently ongoing work to bring 17th Avenue into Stampede Park on the west end of the district
- 25th Avenue refers to unspecified upgrades to the area around the south entrance into Stampede Park
- 5th Street is the most well-defined, as it would be a four-lane underpass connecting 11th Avenue with 9th Avenue under the CP Rail right-of-way.
A CBC column on the arena deal suggested the underpass could be the priciest part of the province’s contribution:
There’s also an unsung star of the provincial largesse: a new underpass at Sixth Street S.E. to link the East Village with the arena district, beneath CPR train tracks. The price tag is unreported in this new deal, but likely above $100 million, said one source familiar with the project.
The road infrastructure upgrades aren’t necessarily arena-specific, but considering the ongoing BMO Centre expansion and anticipated construction of both the arena and a hotel, the upgrades seem logical given the anticipated (or hoped for) increase in utilization in the area.
Combined with the increase in the cost estimate for the arena, this seems much closer to how much it might actually cost to build a new arena and build out the Stampede Park area and do it properly – without creating unnecessary operational or financial headaches down the line. For lack of a better term, all the financial pain and potential risks seem fairly appropriately laid out for everybody involved up front.
The City’s contribution ($537.3 million) comes from previously-approved funding for the project, supplemented by added funding from the Fiscal Stability Reserve and Budget Savings Account Merged Reserve – functionally the City’s rainy day funds. CSEC’s contribution ($356 million) is a mix of funds laid out up front ($40 million) and funds contributed over a 35-year period ($316 million present value, based on the City’s lending rate) and paid back to the City. The provincial funds ($330 million) haven’t had a source specified, as they would be included in future budgeting cycles if approved by Cabinet and the Treasury Board. All 15 members of council voted to approve this deal.
All of this being said, it’s hard to really determine the goodness or badness of the deal without having the full slate of contracts or agreements in-hand – the lease agreement between the City and CSEC for the new building, for example, should be subject to a lot of scrutiny. But in terms of mitigating potential risks, or at least making them fairly explicit, the 2023 edition of the arena deal does a much better job than its predecessors.
Recent articles from Ryan Pike
