The proposed new Calgary Flames arena lease is really similar to their current deal

A deal to construct a brand-new home for the Calgary Flames was revealed in late April. At this point, we’ve all litigated the costs and benefits of that deal – yes, there’s a substantial amount of public money involved in the construction of the new arena, which everyone is allowed to like or loathe for their own reasons.

Something we haven’t really discussed, or put into its proper context: the proposed deal for the Flames to operate and manage the facility. With that in mind, let’s dive into the state of affairs at the Saddledome and the proposed deal for the new facility.

Ownership: The Saddledome is owned by the City of Calgary.

Operations Lease: The City of Calgary leased the Saddledome to the non-profit Saddledome Foundation when the building opened for $1 per year. The lease began in 1983 and is slated to run for 50 years, through 2033. (There is reportedly an option for renewal.)

Management Lease: Okay, this is where it gets a bit sticky, so stay with us here.

Originally, the Saddledome Foundation hired the Calgary Exhibition and Stampede to run the Saddledome – the building was on the Stampede grounds, the Stampede already ran the Big Four, the Round-Up Centre and the Corral, so it made logical sense to give the reins to them. The Flames had a lease with the Stampede as a tenant for a 20-year period (1983-2003) for NHL games, with an option to extend for an additional 10 years (through 2013). Details on the Flames’ lease with the Stampede are spotty, but a Calgary Herald report estimated their rent as of 1990-91 was about $2 million per season. The terms of the deal were primarily based on revenue-sharing, with the Flames getting the bulk of the revenue for the games they played. (But they didn’t get concessions or parking revenue, which became a point of contention as NHL salaries began to rise in the early ’90s, along with the Canadian dollar crashing, and the Flames started really feeling the pinch.)

Since the Flames got ticket and suite revenue from their agreement with the Stampede, they started making noise in 1992 (or so) about renovating the building to add more premium seating options. The Stampede, who merely managed the facility, were ambivalent and directed the Flames to the Saddledome Foundation and the City, and that began a multi-year saga that began with discussions about renovations and morphed into a new lease arrangement.

In 1994, the Flames bought out the final nine years of Stampede’s management lease with the Saddledome Foundation for $20 million and struck their own 20-year deal with the Foundation. (The transaction also included an application for federal infrastructure funds, with the Flames covering the city’s share and them and the Saddledome Foundation also covering a big chunk of the other renovation expenses.) Under the terms of the deal, the Flames would pay the Saddledome Foundation $600,000 for the first five years of the deal (1994-99) and then $750,000 thereafter, scaled to the building’s revenues (as a proxy for both inflation and growth of the building’s business). The payments to the Saddledome Foundation would be cut into thirds and sent to the Parks Foundation, Winsport and Hockey Canada, respectively. Aside from the payments to the Saddledome Foundation, the Flames get all of the building’s revenue (but are on the hook for upkeep and maintenance).

Based on recent annual reports from Winsport (and extrapolating), the payments to the Saddledome Foundation were about $1.56 million in 2019-20, $940,000 in 2020-21, and $1.66 million in 2021-22. The Flames’ agreement with the Saddledome Foundation was quietly extended in 2014 and now expires when the Foundation’s operating agreement ends in 2033.

(The Flames Foundation fund-raises donations from the community, through the 50/50 draws and other mechanisms, and engages in a lot of charitable work throughout the Calgary area, but this is not connected to any requirements in the team’s lease. The Saddledome Foundation activities are a lease condition, the Flames Foundation activities are them being good citizens.)

Ownership: The new building would be owned by the City of Calgary.

Operations & Management Lease: The City of Calgary would lease the new building to Calgary Sports and Entertainment Corporation when the building opens for a 35-year term (likely with some options for renewal).

The original 2019 deal saw two revenue streams coming back to the City: a portion of the naming rights and a portion of the building’s revenue (based on a set formula). That’s been consolidated into an annual payment to the City over 35 years: starting at $17 million and escalating by 1% per year, ending at around $23.8 million in year 35. The total value of these payments over time are $708.3 million*, and their purpose is to pay back the City after they front the initial funds for the building’s construction out of working capital funding sources.

The deal also calls for a $1.5 million annual payment to community sports funding. The documents we’ve seen don’t specify if this payment is indexed in any way, or which community sports agencies would receive the funding.

Before the salary cap, the Saddledome lease seemed to work really well for everyone’s needs. The Flames’ contribution to the Saddledome Foundation was indexed, which covered some of their downside risks, but giving them responsibility for building upkeep gave them some incentive to grow their business and sock away revenues to cover the ‘Dome’s escalating maintenance costs over time.

But an argument can be made that the introduction of the NHL’s salary cap, while creating cost certainty for teams on a salary perspective, also introduced some unintended challenges due to the introduction of a salary floor. Mandating a minimum salary spend, combined with operating in an aging building (that was increasingly expensive to maintain) likely made it challenging to bank funds to cover future maintenance expenses.

In the new deal, the City gets the repayment of their up-front contribution of the Flames’ capital payments. For the Flames, their contribution to community sports funding appears to be flat, not scaled, which gives them some cost certainty, while their lease payments escalate at 1% per year, but that’s less than inflation and in theory the anticipated growth of their revenues should well out-pace it. Because of the cost certainty, this gives the Flames a pretty big incentive to grow their revenues quickly in the new barn.

We’ll need to see what incentives the Flames are given within the finalized lease documents in terms of maintaining the new facility, but based on the details we’ve been given so far, the new lease seems really similar to the previous lease.