Arena Negotiations Proceed
This post follows others on this issue catalogued here.
The private/public Oilers arena project moved ahead today at Council with a multi-point motion seeking more information and further assurances, but most importantly directing senior City staff to ‘enter negotiations on the development of a downtown arena’ referencing the ‘framework’ outlined in today’s report (downloadable here).
I asked that the point directing negotiations with the Katz Group on the development of the arena itself be separated for voting purposes so I could speak and vote against it.
I had a couple of specific reservations about the ‘framework’ (which is more or less the mandate for City staff to negotiate from) that:
- There’s a $100 million hole in the funding framework ($100M from Katz Group; $125 from a user fee Ticket Surcharge which would service city debt; $125 million in a CRL funded by earmarking the taxes from increased assessed value within the boundary; $100 million from ‘other’).
- There’s still an open question about whether this needs to be a $450 million arena, which would run $25,000 per seat. I received an intersting analysis from Engineering Professor Ken Porteus who compared this to other recently-constructed facilities, whose inflation adjusted cost per-seat are all below $20,000.
In terms of a more philosophical concern, the Oilers have argued that they need more revenue to be sustainable in this market, and I’m still a long distance away from understanding why the financial performance of this private business is a city issue, especially when their actual financial performance remains confidential. Nevertheless, this private business (the Oilers), which already receives millions in direct and indirect subsidies from the City is seeking yet more favorable terms. My point is we should just call this a subsidy and be transparent about it. Whether it comes in the form of free rent in a larger facility, or the tax exemption that comes from it being a public building, they’re all subsidies.
I have repeatedly asked how much we would have to pay them to carry on business as usual, but can’t get an answer. That should be the starting point for all of this: if the Oilers need more money to stay, the key questions should be: how much, for how long, and will the enterprise ever be able to stand on its own two feet?
One additional point of hesitation for me: there is a perfectly serviceable NHL hockey arena in the form of the Coliseum, and Council has never properly debated the question of whether to walk away from that asset. Instead, we’ve deferred even discussing what will happen to it when the major tenant relocates to the new arena. My information is that it will cost upwards of $15 million to demolish it when the time comes. It’s sturdy.
Finally, I noted this afternoon that while the Katz Group have never threatened to move the team if they don’t get what they want, this fear is palpable and is now motivating attitudes and thinking about this issue in all quarters. There is a kind of emotional blackmail happening here, as I called it this afternoon, and I fear the stranglehold of it has really undermined the city’s negotiating position.
I’ve never been keen on the city being involved with the financing of this project. It’s quite possible that there’s no feasible all-private solution to the Oilers’ facility requirements, but the most troubling part about how this is unfolding is that I don’t think we’ll ever know whether we’re getting the best deal possible – though I suspect we won’t ever know the answer to that. Only the Katz Group will.
[Update: below is the text of the motions that were passed today, which is a draft pending approval of the minutes from the meeting.]
Henderson (Passed)
That Administration, in regards to the Potential Downtown Arena Development:
A. Prepare a report on potential models for seat licensing/condominium sale of seats in a new area (reference Attachment 2)
B. Prepare a report providing more information on the potential foundation model for the downtown arena development
C. Provide an update summarizing the discussions with Northlands on its potential involvement in a downtown arena and/or its long term financial viability
D. Provide a report to the March 2, 2011 City Council meeting on an Arena District Community Revitalization Levy
E. Provide a report on how Administration has exercised due diligence in responding to Council’s direction for information including but not limited to a list of companies that have been utilized throughout the work that the Administration has undertaken
F. Enter into negotiations with the Katz Group of Companies for the development of a downtown arena as per the January 17, 2011 F&T report 2011FT7366 (voted on separately)
G. Prepare a report on the experience of other cities on a cross section of businesses adjacent to but outside the immediate Arena Districts
H. Arrange a non-statutory public hearing on the financial framework to advance a potential downtown sports and Entertainment Facility
I. Prepare and implement a communication strategy based on Council’s decision at the January 17, 2011 Council meeting
J. Engage an independent financial advisor as needed during negotiations with the Katz group to verify their financial ability to meet commitments under negotiation.
K. Prepare a report on the community benefits component of a potential agreement as outlined in the F&T report
L. That Administration use external resources when necessary to complete the work as outlined above.
SLOAN/Diotte motion
[That Administration obtain written confirmation from the Katz Group of Companies that they will cooperate with a review by a third party firm (determined by Council) to
1. establish the financial readiness to preface any financial negotiations on an arena and arena district.] (the part in square brackets lost)
2. That the City Manager clarify the guarantees/collaterals which the Katz Group of Companies can provide to balance risk (Passed)
BATTY/Gibbons (Passed)
That the City Manager meet with Stadium Capital Financing Group, LLC (“SCFG”) and discuss what information would be required should SCFG wish to prepare a formal written proposal to the City of Edmonton.
28 thoughts on “Arena Negotiations Proceed”
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“My point is we should just call this a subsidy and be transparent about it.”
That’s a really key point IMHO. There hasn’t been much transparency throughout the entire process (so far).
Welcome back!
It’s been increasingly the case in North America that professional sports, instead of looking to locate in the best market for their sport, instead prefer to locate wherever they can get the biggest subsidy. Glendale AZ really upped the ante with their direct subsidy of the Coyotes, and now Katz wants in.
The price that sports teams sell for is inflated by the vanity of their bidders. The salaries of players are inflated by the simple power of celebrity. And without these subsidies, no one would ever make any money at it.
Personally, I’d be just as happy to call their bluff. If they think they can get a better subsidy, and build a fan base from scratch somewhere else…have at it. It worked well for the Nordiques. Not so much for the Jets and the Whalers. But I suspect that when push comes to shove, the majority of Edmontonians will come out clamoring to keep the team here at any cost.
Well said, as always, Don. As exciting as a new downtown arena would be for the city, it needs to make financial sense.
Don, while I agree that there are still some significant issues that need resolving, the key one for me remains the reality that without the new arena downtown revitalization simply will not happen. We obviously have Stephen Harper to “thank” for this after he killed Expo. Were the downtown arena not to proceed I see no real alternative that will lead to a major change. Other proposals are more incremental, but the arena is a game changer.
The real long-term economic consequences of a non-vibrant downtown are very real for the city, and I believe that this should be the focus of the debate.
Fully understand your reservations, which as always you structure very well, but on this issue I think we would have to agree to disagree
I was dumbstruck to see very little analysis of what would happen to Northlands Coliseum in the reports to Council. Does the old Coliseum become a blackhole- and it seems likely, if it were mothballed, or used only occasionally. Then all the money and work put in revitalizing Alberta Avenue to date will be lost. Come’on City Council! Look at the BIG picture!
Has anyone considered the mafia model as surety to the city? A simple % kick back to the City on ALL arena revenues for the life of the lease. This is an inducement to the City as financier and an incentive to the Katz group to maximize revenue streams. Clear and simple…or I am being to simple here?
I agree Don at what cost not only now but in the future. What people forget is that the NHL makes the final decision on any sale transfers and while some suggest Quebec, that is only if the government uses tax dollars which is not going to happen at the Federal level. The oilers are part of Edmonton but not at the cost of everything else. No other business deal would be pushed ahead like this. Rather then focusing on the airport the supporters should be calling for a vote on the arena.
These are the right questions to ask and the right stance to take. I’d like the language of any negotiation to begin with the premise that the team is seeking a subsidy. I’d like Henderson’s proposal to be costed so we know what we are expending simply to investigate whether this subsidy be considered. Once the wheels of commerce start (negotiations and background reports as well) there will be a clamour that we have gone too far to stop now. And yes Mr. Mayor the spectre of Pocklington should be considered – being burned once means we should be circumspect, regardless of how “nonourable” Mr Katz is.
Sometimes you just have to spend the money to see some change. Please support this venture or we will never get Edmonton out of the downtown doldrums. After losing the Expo bid, Edmontonians need something to be excited about now. Yes, older citizens are always quick to say “don’t spend my taxes on…”, but once the arena and surrounding stores are built, new business will come downtown and increase the commercial tax base. Move forward.
If hockey fans want a new arena, they can pay for it.
No taxpayer $ for private business. If Katz doesn’t like it, he can move the team elsewhere. This city will survive and flourish without children’s entertainment.
You don’t have to be a senior citizen to want fiscal responsibility. I’m certainly not. I would rather see tax dollars spent helping those that need it, not those that want it.
If the real issue is “revitalizing” downtown, why not take a close look at the most “vital” part of downtown, and figure out why that works?
I’m talking about “Chinatown”, the ONLY area where you see throngs of people on the sidewalks, many restaurants and shops, and a real sense of “place”. Go there ANY day of the week, and you’ll see what I’m talking about.
When the City continually approves buildings that have only one or two entrances to the street, that have tenants that consume an entire ground floor, it’s not that surprising that people don’t want to hang out downtown.
Look at the BMO building, Scotia Place, or City Centre Mall as an example of what NOT to do. I’m willing to bet that the Epcor building will also have a limited number of ground floor, street accessable tenants.
Just want to say thanks Don for standing by your principles on Monday. I for one truly respect you and Linda Sloan for voting no.
I do not believe that this model is financial viable and I am extremely concerned about the process. City Administration provides very biased information. And in many cases has not completed their due diligence. I hope that the reports requested will be of a better quality.
Furthermore, I feel the treatment of Northlands is unforgivable.
The community members that I speak with are angry and frustration. Statistical polls that ask leading questions are just as irrelevant as surveys that allow for manipulation. If the communities true feelings are not understood through this process, it most certainly will be understood in the next election. It is unfortunate that you are not the Mayor at this time. Perhaps the process would be different.
I am opposed to spending public money for the sake of a hockey team. The Oilers can build it themselves if it is such a great idea.
The man wants to play big time hockey owner? Buy a rink.
There are a couple of points about this whole concept that are troubling:
1) The notion that the arena will provide a net benefit for the local economy.
2) The notion that building an arena in downtown Edmonton will “revitalize” the area.
There is little to really suggest either point will pan out in a substantial way. Increasing the number of seats that can be sold may appear to expand revenues, but it will actually rebalance supply & demand, which may or may not end up in a real increase. Furthermore, it may serve mainly to redirect cash to feed a pent-up demand for seats, that is otherwise deployed elsewhere in the economy (e.g. other sports teams, sports bars, other entertainment, etc.). So will an arena result in a net economic benefit? It’s not clear, therefore an argument with certainty on the subject that does not bear out well-detailed and well-researched data would be misleading.
Regarding revitalization, we need a clear definition of what constitutes successful revitalization. I suspect a sufficient definition would require more than a single venue and certainly more than a one-off event. In fact, it is more likely that successful revitalization in Edmonton generally, and downtown Edmonton specifically, will require a deep and sustained economic expansion from commercial and residential growth where small, medium, and large business can grow organically (and by acquisition) and a net increase in local residents who are employed by (and access) those businesses occurs.
While I admittedly have not seen all the details about this proposal, I suspect I am far from the only one in that situation. The limited information that has circulated so far does not appear to objectively support a proposal that burdens the taxpayer, particularly one that clearly is a matter of private enterprise (in economic-speak, hockey is not a public good). However, before coming to a final opinion, I would like to see a net present value calculation and its underlying assumptions in detail. I think Council should see that too. Much like when a business manager/owner asks for a loan from the bank, the bank (i.e. the people) should ask to see the books and require certain covenants be met before agreeing to the deal.
Don,
You are to be complimented on the clarity and purpose with which you have addressed this discussion. Please keep up the good work.
As an aside, a back-of-the-napkin run-down of the numbers:
-At $700 million (assumed total development cost) and a required return of 7.5%, this entire development would need to be approx. 2 million square feet. This assumes triple-net rents of $25.00 PSF.
This isn’t sustainable in Edmonton. Let me preface my next comment by saying that Katz is extremely generous in our community – however, if Katz is unwilling to share the upside on this development, I would sincerely beware of putting the City on the hook for the downside.
Don,
I am very concerned about this project. Below is an edited copy of the comment I posted on whydowntown.ca, but it addresses the concerns I have about the proposed area and Edmonton’s downtown redevelopment:
I recently moved back to Edmonton from Calgary. I was very disappointed in the lack of good inner-city communities, like Bridgeland where I lived in Calgary. Bridgeland is walking distance to downtown, has bus service come every 8 minutes during the morning and afternoon rush, has LRT service, has fantastic restaurants and amenities, great people who live there, and high property values. I lamented there was no Bridgeland in Edmonton I could move to.
So it got me thinking – why is there no Bridgeland, no Kensington, no Mission, and no other equivalent to the numerous great inner city neighborhoods in Calgary? Then, my job offered me FREE PARKING downtown.
So instead of needing to find a place to live close to downtown to avoid parking and commuting, I’m now free to choose any community I want! As someone with a young family, I now don’t have to compromise my need for a short and inexpensive commute with condo living, I can now move to numerous Edmonton neighborhoods and have a single-family home with a backyard etc at no great cost to me!
Edmonton doesn’t have great inner-city neighborhoods because its disincentivized! Parking cost and commuting time is not so high that most people would be willing to make the necessary lifestyle compromises to live downtown! And no hockey arena is going to change that!
Being an avid traveller, I have been to numerous cities across North America and across the world. One of my favorites so far has been Boston. My wife and I travelled to Boston and were amazed at how vibrant and walkable the city was! From crossing the river from Cambridge, we walked the entire way to Fenway park, stopped and had lunch, shopped, and had drinks at numerous spots along the way! The only true way to revitalize any area, is to have people living there.
So, the city can spend 400 million on a new arena in a vain attempt to revitalize downtown. However, it revitalization was the goal, wouldn’t it make way more sense to spend 400 million building condos and townhouses in East Downtown? Calgary is doing it with the east village!
Now imagine this. I am a developer who wants to buy and redevelop east downtown Edmonton. I propose building 2,000 residential units. However, because the area is totally decrepit and unattractive to potential purchasers, the only way it makes sense for me to do so, is to subsidize my development. Let’s say to the tune of 20,000 per unit. These units will now house taxpayers, paying on average 2000 worth of property taxes per year. So my development will generate (and I know, it won’t be NEW revenue), 4,000,000 in revenue per year. Imagine what happens when I go to council and ask for $40,000,000 in subsidies! Despite the fact that my plan will do more to revitalize downtown Edmonton than any arena ever could, will cut down on infrastructure spending because presumably the purchasers will walk to work, and generate 4,000,000 a year in taxes, I would be laughed off the floor.
Food for thought. Speaking to everyone I know on this issue, he “vocal minority” is far from vocal, and far from a minority.
Why Katz will not move the Oilers…a quote from a blogger on the journals website.
So, all the developers you asked are in favour of development, Mr. Staples?
Gee, that’s hardly shocking, is it?
Edmonton has a long history as an NHL hockey market. If Mr. Katz wants to
move his club – which is his right (assuming the NHL grants permission)
after 2014, don’t think for one minute there won’t be a half dozen money
losing owners from the US wanting in.
Now, where would Mr. Katz move to – Quebec City? Winnipeg? He’d be a fool to
move to a smaller market than the one he was in. In Winnipeg’s case, he’d
have to give up an ownership share too.
Hamilton? Toronto?
Not without the Maple Leafs consent… and that will be an expensive
agreement to make happen.
How about the US?
NHL franchises not exactly in demand there either…
The threat may be implicit. The reality is rather different. There isn’t an
open market Katz could move to that is any better than the one he is in.”
I am so glad some some voices of reason are petitioning for what I believe most Edmontonians do not want – a new arena. Especially with the currant structure. I too beoelieve it will not revitalize downtown. It will just mean there is a mad-house downtown on hockey nights. As one commenter noted – you need people living downtown. As Paula Simons said in her column ‘no gurantee has been made by Katz that he will keep the team here’ That is #1. Also, CBC reports on the Columbus downtown arena raised some real red flags – it killed other areas of town. Not constructive. I am afraid we are going to be lsft with huge debts like Montreal and Vancouver after their olympics. Please represent your constituents and vote against this Mr. Iveson.
I’m stuck at the claim that a new arena will somehow revitalize anything. How has the current Northlands arena revitalized 118 Ave? Sure it converts lawns into parking stalls, but do we really believe an arena would positively improve our City’s downtown area? If anything, I’d think it could do the opposite.
That being said, isn’t the northland’s location completely preferable to an arena downtown? It runs on the LRT and is at the intersection of major freeways. I thought the traffic around the current arena is bad, I couldn’t imagine travelling downtown to see a hockey game. Maybe build the new Arena by the International Airport? (kidding)
I parked at Century Park on Saturday and took the LRT to the Reno Show. The LRT wasn’t busy, but the Saville and Northlands parking lots were. The busiest stop was Belgravia. I can’t imagine a downtown arena when we have slow feeder buses serving fast trains. We build parking garages at the Jubilee, Edmonton Clinic, and the Leg, but don’t provide free parking at LRT stations. I was recently in Vancouver, caught the Canada Line to friends off SW Marine Drive from the airport. Trains and buses come every 8 minutes. Just check Translink Vancouver bus 41, Canada Way to UBC . Great.
Hey Don,
Was just talking with a buddy of mine about the Arena situation, and he said something that made a lot of sense to me. Basically, IF there is going to be a ticket tax to help pay for it , couldn’t that be the mechanism by which the city could guarantee the CRL?
If you leave the tax in place for, say, 6 years and after 6 years, the CRL area has truly been revitalized and is now “paying for itself”, then you can either lift or reduce the ticket tax. If it hasn’t, the city can leave the ticket tax in place. You could then repeat this each year until the city’s investment is repaid, and then lift the tax entirely, or repurpose the money to fund other initiatives (like expanding the LRT, or additional community revitalization projects).
The report by the Chief Financial Officer on March 2nd suggest the city could take in as much as $350M in additional tax revenue but only by taking all municipal and education taxes from the surrounding area for the next 20 years. A new arena is not going to generate new business – it is simply going to move existing businesses to the area. How much is going to be lost from this moving and at what cost to services that presently are covered by those taxes? Edmonton does not need to compete with “world class” cities (the mayor’s desire) in any downtown revitalization program unless the rest of the city is at least looked after adequately. I don’t see that now with our pot-hole filled roads, inadequate snow removal and sidewalk maintenance programs. My directive to our City Councilors and Mayor is to direct your attention to improving existing conditions in all of Edmonton and forget revitalization of the downtown area as it will never benefit the majority of Edmontonians.
Gary Lamphier had a great column on the arena in Saturday’s Journal.
He said according to Forbes the Oilers profited last year ($8 million) so I don’t understand why we would pay 80% or more of the money
and give him all the profits from everything held there. Also Gary talked to 12 developers who all said they weren’t interested in building around the arena and paying the levy. I find this very scary as a taxpayer. I am an Oiler season ticket holder but I don’t want to hand over even more money to Mr. Katz. He would have a hard time with trying to move a financially successful team – the NHL would frown on this. Plus where would he take them? Phoenix and Atlanta probably will be relocating to Canada soon.
Don
I am absolutely against using public funds to support a private business such as Katz’s proposed arena. If he is operating a viable business he should be able to finance the facility and attract other events to maximize use of his facility. Like any other business in the city, it should be paying taxes to support the infrastructure, such as a LRT spur to the venue, to improve facility utilization.
Of interest would be the current level of support provided by the city’s taxpayers to the Oiler’s operation.
Regards
Katz’s proposed arena
The city needs to view this positively as though its investment to lure other investors to the region. Don Iveson is an intelligent individual but with the bullying comment made earlier today I had to question the knee jerk reaction and the I wont be intimidated mentality position. These are business men, they won’t wait forever. They are tired of being strung out. How long has this gone on for? let’s put up or shut up and deal with the consequences either way. Dragging this scenario out really doesn’t help Edmonton’s business image and to suggest this is a bullying tactic is unreasonable. An owner of a sports team and a gazillion drugstores wants the city to develop a facility with him kicking in some money and investing in the neighboring area.
15 years ago we were begging for an owner like this. One who has a vision, who’s not trying to con the community like a previous owner. Don’t get me wrong Katz is in it for the money but the fact he wants to keep it here is great. Make the decision on the land and realize that someone wants to develop that eyesore. If the arena isn’t built there what are they doing with it? It can’t stay like that.