Thinking about the proposed lease, building usage, and ticket tax revenue

Let’s presume that Calgary’s City Council votes to approve the proposed arena deal next Monday. Once the building is built and operational, is the scheme under which the arena will be operated and the revenues flowing one that’s good for everybody?

Presently, the Scotiabank Saddledome is operated by the Calgary Flames via the Saddledome Foundation. The Foundation leases the building from its owner, the city, for $1 per year. That’s all the direct revenue the city gets from its asset. As part of their operational agreement, the Flames funnel a portion of their revenues to the Saddledome Foundation for the purposes of donating it to three local charities: the Parks Foundation, Winsport and Hockey Canada. The three groups receive an equal share of an indexed contribution – the donation was $1.678 million in 2016-17 and didn’t exceed $1.8 million in 2017-18.

Since the current lease isn’t publicly available, it’s unclear who is responsible for operations, maintenance and repairs to the building – the Flames led the remediation efforts after the 2013 flood, but that may have been more due to their status as operators trying to get the building ready for the season rather than any explicit contractual responsibility.

Bad news, folks: the city won’t be getting their dollar from the new lease.

The Flames will still be contributing to charities, with the amount starting at $1.5 million in the new building’s first year of operation and increasing at 2% per year. It’s a lower amount than they’re currently contributing, but it maintains their funding commitments to community sports. (I was a bit concerned that this wouldn’t be part of the deal, which would potentially remove a big chunk of revenue from the three charities the team currently contributes to.)

The Flames are slated to be solely responsible for the operations, maintenance and repairs for the building, though the city is responsible for “uninsured major structural repairs.” The Flames will also be responsible for the provincial portion of property tax once the Rivers District Community Revitalization Levy expires in 2047.

The city’s sales pitch for the arena deal includes a projected $155.1 million in ticket tax (“facility fee”) revenue over the 35 year initial lease period. How feasible is this?

The city will get 2% of all revenue generated by events at the arena. It’s capped at $3 million for the first five years of operation, which would only happen if the building meets or exceeds $150 million in revenue in any of those years. Presuming that the building is half-full all the time (8,500 seats in a 19,000 seat arena and ignoring suites for simplicity), the arena would need an average $126.05 ticket price per event in years 1-5 for this to work. (A previous version of this article incorrectly listed revenues as capped for first three years rather than five.)

Some assumptions necessary to make that math work: The new arena would host 140 events per year, like the Saddledome had in 2016-17. Forbes listed the average Flames ticket at $65 last year. Hitmen and Roughnecks tickets cost less, but concerts and other events would drag the average up a bit. It’s also assumed that we’ll see a ticket price jump because of the newness of the building boosting ticket demand and drawing in more high-demand acts. In the simplest, most generous scenario, arena revenues are $150 million (and the city gets $3 million) for years 1-5.

So how do we get to $155.1 million in revenue over 35 years? At 2.72% ticket price inflation and 140 events per year, on average, from years 6-35. If we presume full seasons for the Flames, Hitmen and Roughnecks, that only requires four other events per month. Through the first six months of 2019, Rogers Place averaged 5.5 events per month so the assumption doesn’t seem too outlandish. (The Saddledome averaged three events per month during that span.)

How can the city potentially exceed that revenue target? A few ways:

(Shout out to GullFloss on CalgaryPuck for showing his work for his calculations, which made it much easier for me to wrap my head around this.)

The proposed lease for the new building is basically the existing Saddledome lease, aside from a slight tweak to the charitable contribution formula. But the really tantalizing thing is the ticket tax. If the Flames run the building as well as they run the Saddledome, in terms of drawing in events, it’s likely that the city’s projections for revenue are pretty feasible. If the Flames can use their shiny new bauble to lure in more events or bigger ticket events, it’s not outlandish to think that the city could actually get more revenue out of this than they’re saying.

Not enough revenue to make up for their initial $275 million contribution, either nominally or via net present value, but potentially enough to turn a palatable deal into a pretty good one.