Arena Decision Logic
[What follows below are my remarks from today’s vote on the revised negotiated framework to design and build a downtown arena.]
I’m sold on what a new arena could do for our downtown and our city. But I also believe there’s a better deal to be had than the one before us. I think the responsible thing to do is continue to work toward improving the funding and financing terms.
Make no mistake: I believe in Edmonton and I believe in Downtown.
I believe in it so much that I spend a good portion of my time and disposable income here. And I do this because our Downtown is making great strides today.
The arena could well be a bonus, but I do worry that — after the rhetoric of this debate — history will one day be written as if the arena district single-handedly transformed downtown, rather than giving due to the many businesses, the patrons, and the residents of downtown, who are already here, building a better downtown today.
As I said, I do agree that an arena development could be positive for downtown: it’s why I had no objection to the zoning, and why I think a CRL to fund some of the connective infrastructure, and other catalyst projects, is appropriate.
I don’t think we’re that far from a deal I could support, but I have not yet seen a compelling argument specifically justifying the particular funding formula before us.
Normally, a deal negotiated in a competitive environment is constrained by each party knowing that they can walk away and do business with someone else. That’s more or less the functional definition of competition, and that would be a good footing for negotiation. This deal, in contrast, flows from our weak negotiating position, weakened by the fear of losing the team – a fear I think is irrational, and a bluff I might call – but it is a fear which nonetheless powerfully grips many Edmontonians.
Many of the arguments supporting the funding and financing are framed as if this deal were negotiated in a competitive context, but this isn’t the case. When there is no competition — and there is only one hockey team, and only one league —we really need a different kind of negotiation, with more transparent justifications.
Instead, most of the arguments offered yesterday, and throughout the debate, boil down to a leap of faith. All these arguments speak, often elegantly, to why a downtown arena might be a good idea, but not one of them provides sufficient justification for the funding and financing deal.
So what would a better justification look like?
One method of justifying this funding and financing deal would be to open up the Oilers’ business model and explain for all to see what exactly is required for the team to be sustainable in Edmonton. In other words, offer a real and transparent business case as justification. Instead we’ve simply been told, over and over again, that the Oilers won’t be sustainable without this deal. This remains an unsubstantiated claim, without hard evidence to support it.
Another, and I suspect more practical, course would be to offer justification by way of comparison.
Let’s start with the oft-mentioned Columbus, OH, which had no public money up front, just relief from property tax. Meanwhile, LA’s Staples Centre, the other revitalization case, had 17.6% public funding. Winnipeg’s MTS Centre has about 30% public funding in it. Even Glendale, AZ was only 42% up front public funding (at least to begin with).
The Pittsburg deal has also been invoked, and my understanding is it’s largely publicly financed, but not necessarily publicly funded. The Sports and Entertainment Authority (a State and City joint venture) is doing the borrowing through a bond issue — that’s the financing. The main sources of funding are an amusement tax, which is something like a 5% ticket tax, so let’s call it a user fee, [NB: it’s applied to all amusement across the city, but mainly from Sports and Entertainment events — here are the details of the tax], payments from an associated casino license, and rent payments from the Penguins make up the balance. Other cost overruns were split among the parties.
In contrast – at this point our deal is 57% public funding if you include the land and infrastructure on top of the building, and 81% public financing. That will go to 100% public financing if we have to borrow against future provincial dollars to close the $100 million gap. So I will argue that this deal is out of line with the comparators. We should be working to bring it in line winch the comparators at the very least before approving it.
So what might a supportable deal look like?
It would require less public funding, perhaps offset by a higher city-administered ticket tax, and ideally we would see a return to the upfront $100 million payment from the Katz Group to reduce the public financing required. That could at least bring us in line with some of the comparators.
I’m also not wild about this $2 million/ marketing and sponsorship deal and don’t think we should commit to this as part of the deal without seeing exactly what we are supposed to get for it.
I want to thank Cllr. Caterina for the shrewd changes proposed today. Let’s continue to work toward the better deal that I still have to assume is out there. That doesn’t need to take years, I think it could be worked out pretty quickly in fact – it would be in everyone’s interest to do so.
However, if this is going ahead anyway, and if $450 million is going to buy us a ‘damn good arena’, then we should make sure to build a 100 year building because nothing will anger me more in my old age than to see this debate play out again in my lifetime.
30 thoughts on “Arena Decision Logic”
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I’m just glad it’s over.
PS-I’m stealing your idea
I appreciate your thoughtful approach to this whole issue and to your support, in general, for a downtown arena and downtown revitalization. I agree that this is not the “best deal” for the City, but then it is not the “best deal” for the Katz Group either. No matter what deal is negotiated there will always be a “better deal” in the minds of many. I think the most important question here is is this a “good deal” for the City. And while I certainly think it could be better, I think it could also be a lot worse…for example the City financing the whole thing on our own. By all means continue to work to see if we can get something better but at soem stage we have to stop and say OK…this is not bad and go with it. We may be at that stage now.
You’ve just given yourself my vote.
Well said, the only ones running around here were city of Edm. What’s the hurry other than Katz’s pressure with his end of the deal. Where’s more of his money. If the Prov is going to put 100 mill into this deal, it will be all the taxpayers of Ab footing the bill. I applaud Sloan (my area) yourself and Caterina who had the guts to vote for the city of Edm. Cheers
Thank you for your wise and thoughtful rhetoric today. I only wish all of the Councillors could look at the issue from a sound development standpoint rather than being ruled by emotion. You are a tremendous asset to the City, and I hope that your influence and leadership role continues to grow.
You should be proud of your vote. You expressed the view of many Edmontonians– pro-arena, anti-this-deal. It seemed most of Council was willing to accept any agreement at all. One was no better than the other. They drew no distinction between financing models. They didn’t care about (or didn’t understand) the real value of our security, the costs of servicing the loans, inspecting the finances of our borrower, responsibility for overruns, or options if the CRL doesn’t meet projections. They were moved more by inertia than analysis. You weren’t. I’m sorry you couldn’t change their minds.
Wise words and you are much more diplomatic inthis than I have been.
You will not be getting my vote because you are in a different ward, but thank you for standing up for what I believe is the majority of Edmontites (thank you Don King). I am sold on a new DT arena as well, but am strongly opposed to public money going into it, of any amount. Why are we not trying to compare funding models with Ottawa, Trawna, Montreal and Vancouver? Those were all privately owned and financed facilities. I believe a comparison with American cities is misplaced, as they have much different values from us especially regarding publicly funded sports venues.
Good analysis Don and I agree a better deal could have been negotiated involving both the Katz Group and Northlands in a one arena solution.
Here’s my take on the deal City Council voted for today.
$450m for the building, $20+m for land, $17m for LRT link, $25m for pedway equals $512m+ of borrowing on which taxpayers will start paying some interest immediately and which will count against the City’s rapidly approaching tax supported MGA debt ceiling. Maybe the borrowing gets reduced to $412m+ if the province kicks in $100 million.
Meanwhile, this $512m+ of borrowing by 2015 may be repaid (mostly without interest) over 20 to 35 years after 2015 if the City’s revenue projections from Katz vendor financing, the CRL and the ticket tax pan out. Any shortfalls in these future revenue streams will also have to be paid from the property tax base.
Interest costs on tax supported debt come from the existing property tax base. To say that none of the arena costs will come from the property tax base (as some members of Council did today) is not being truthful.
Iveson for mayor. That’s all I have to say
Don, I appreciate greatly your thoughts and basic presence on council, and I think except for the arena issue, where you do state we may not be that far apart, I have always agreed with you. I live in Clareview, and I do not now or ever possess any affiliation with the City, other levels of government, Northlands, Katz Group, nor any conceivably related firm or organisation. I occasionally write letters like this to councillors, less frequently outside my own ward, but including one to your predecessor.
I just have a few thoughts to add here:
1. Waiting for a perfect deal is unrealistic and could even suggest worse. A city is an aggregate of many individuals and many other concerns and the decisions (such as whether to remain in or come to Edmonton) they aggregately make, and perfect simply does not exist. One decision passed, the time now is to focus on how to design it and how to cover the $100 million so that it can best (if not perfectly) fit/complement/rebuild our urban core, and hopefully as you suggest, suffice us for a century.
2. There is a tinge of irony in the way you voted, even if you say you could have been close to agreeing with the deal. Rather than ammending the deal as Caterina surprisingly did, voting against the deal is voting in favour of the status quo. The status quo being to continue to divert the largest and perhaps most frequent entertainment crowds in the city away from downtown to what is essentially a massive surface parking lot. I believe in my heart that you don’t want to perpetuate that kind of development, and cannot believe you wouldn’t have considered it a mistake to commence that with the Edmonton Gardens, coinciding with the inflection of downtown’s decline in the first place. Northlands was ahead of its time in pioneering the big box form whether we like it or not. Far rather than an agricultural society, with its 95% blank-ground-level-wall architecture and gargantuan parking lot, Northlands resembles nothing so much as an even larger Wal-Mart sandwiched between an unused relic and a round Costco.
3. On the topic of Oiler finances, as you do say that is important to you, I don’t have any inside financial information but I don’t believe I need it. Amply evidenced by Ottawa’s double-near-bankruptcies (Ottawa being nearly exactly the same size as us in the CMA sense), Vancouver and Montréal’s team+arena clearance sales, and the funding required after the fact to retain franchises in Columbus and Phoenix, as well as finally the $200 million public money the Jets received in returning to Winnipeg which was not calculated in your figures for the MTS Centre construction, arenas are simply not something which teams can build on their own. Expecting otherwise is essentially banking on charity.
3.1 Further to the point of finances, while yes it is possible the Oilers are near break-even today, and possible that they would be profitable given the arrangement which passed council yesterday, there are financial events which we do not have control over at the civic or Katz Group level. At the present, most NHL costs (player salaries) are negotiated in USD, and basically in the present era, the CAD is at the strongest it has been in either your or my lifetimes. But can we not remember a Canadian Dollar at $0.60 USD? Rather than expect the American Dollar to languish relatively forever, I think it is fair to imply these things are cyclical, and at some point the CAD will decline, again relatively. Should hypothetically the Canadian Dollar revert to $0.60 USD, the Oilers’ salary expense would jump over 65%. With nearly every other major city on the Continent now possessing a more revenue-capable arena than ours (note I did not say “profitable”), the struggle to retain a franchise in Northlands’ arena would be far greater than it was in 1996. I’m not going to repeat myself by discussing the price of oil, although I would hope it is obvious that virtually the same implications would apply with regards to keeping arena class events (including NHL) anywhere in Alberta. It would be again naive for anyone to doubt that either oil or the CAD or both could again fall.
Ultimately the arena question boils down to whether we as a city value the _total_ of both the entertained crowds _and_ having a downtown with such crowds and architecture within it. In my view, I believe such a venue is better justified in such a ticket buying populace as Edmonton than in few other cities our size; and much more importantly, that much human life regularly coming downtown so many evenings would absolutely be putting life where we continue to need it most. Yes downtown residential is critical; yes mass transit linkage between our outliers and our core is critical; yes addressing homelessness, mental health, and crime is critical; I will emphatically agree to my mortal conclusion. But if our goal is a downtown which can hold its own against the likes of Canada’s Big Three and thus to compete for retention and attraction of human beings with a choice of where they live, a burgeoning entertainment scene is also undoubtedly critical.
So if we do see value in a downtown arena to a significant number of people who would or already do live here, and someone wanted my opinion of how to calculate the fair cost to a city, I would suggest we first calculate the amount which the three Ottawa owners have to date lost. Again, Ottawa (along with Calgary) in nearly every way is probably the most similar market to Edmonton – hockey-mad, one-point-something-million people, same federal/monetary jurisdiction. The amount that was lost, plus the cost of downtown Edmonton real estate vis à vis Kanata Ontario countryside would appear to be the amount fairly needed to provide not-only-NHL hockey, but also concerts and other events.
Only with the greatest respect, I urge you to consider what I have said, and thank you for your role on council.
Regards,
Jon
One additional note:
I believe it could be possible to form an “NHL Cities Association” and in such association with your peers from other cities bring your voices to the boardroom regarding the price we all bear.
However I still do _not_ believe that could usurp our need for an exciting downtown entertainment scene, nor usurp an arena’s potential to feed such a scene.
The greatest things accomplished where those of faith – accounting perfection – well that took the world down in 2008. While I can appreciate your effort and your well chosen words we need leaders less driven by $$$$
Jn
I don’t get those who are saying that this deal isn’t “the best deal for the Katz group”. First of all, the only way it could get any better is if the city paid for the arena in it’s entirety and simply gave it over to the Katz group.
The other problem is that the city shouldn’t be concerned with how good the deal is for the Katz group if it’s not a good deal for the city.
And this certainly isn’t a good deal for the city. The city assumes all the risk in this deal (it’s mostly their funding and it’s almost all of their financing), and it’s going to take them forever to make anything out of this.
I can appreciate wanting to improve downtown, but I don’t think an arena is what’s going to be the catalyst for that. In order to have a downtown that is comparable to that of other big Canadian cities, it requires people wanting to be down there 24/7/365. That means not just entertainment, but living and working.
The big question is this:
Does this deal impact the cities ability to entice businesses and residents to want to move downtown? Think about what it would take for you to move downtown. If you are a business owner, think about what it would take to move your business downtown.
Generally speaking, these are in the form of tax breaks. Can the city still give enticing enough tax breaks to convince people and businesses to move downtown? If not, this arena isn’t going to have the effect people think it will.
In 1995, my wife and I attended the Monet exhibit at the Art Institute of Chicago –the hottest ticket in Chicago that summer and fall, attracting nearly a million visitors from around the world. Advance admissions were completely sold out, leading to the surreal spectacle of tickets for an art exhibit being scalped on the steps of the Institute as if it were the Super Bowl. According to the Chicago Tribune, this four-month long show generated more revenue for the Chicago economy than the four sports franchises – Cubs, Sox, Hawks and Bulls combined for the year. I am more excited about the new museum that will be accessible to everyone rather than a hockey arena for a well-heeled 18,000. And I am a hockey fan.
Thanks for trying to ease on the brakes, to slow this hurtling juggernaut. However, the people have spoken. Or rather, the people’s economic leadership has spoken. A parade of bar and hotel owners, construction mavens, and businesspeople big and small took their turns at the microphones on Tuesday and were solidly in favour of this leap of faith. They stand to lose as much or more than do the rest of us salaried and hourly taxpayers, if this collective gamble was to eventually fail.
I don’t want it to fail nor do I actually expect it to fail. Unlike you, though, I don’t object to the deal that’s cooking. I just don’t care about this arena. I’ve never been inside Rexall Place but I have probably attended five or six events at Skyreach Centre or the Edmonton Coliseum before it.
My entertainment values are not tuned to the sort of spectacles that require an arena. The off-again Royal Alberta Museum replacement would draw me downtown far more often than a new hockey/rock concert/monster truck venue.
I’m content to be in the minority, however, and wish the City of Edmonton and the Katz Group all the best in building a successful monument to what Albertans love to do on a night out.
Derek:
“And this certainly isn’t a good deal for the city. The city assumes all the risk in this deal (it’s mostly their funding and it’s almost all of their financing), and it’s going to take them forever to make anything out of this.”
If you speak to many young people, ask them if they want to stay in Edmonton after they graduate. Then ask the half that don’t why not. This is more serious than I think you realise, and it won’t be every day or year or decade when we can simply fall back on the fact that virtually nowhere else in the developed world has jobs as easy as we do right now.
“I can appreciate wanting to improve downtown, but I don’t think an arena is what’s going to be the catalyst for that. In order to have a downtown that is comparable to that of other big Canadian cities, it requires people wanting to be down there 24/7/365. That means not just entertainment, but living and working.”
And not just living and working, but entertainment. We are so far behind the likes of the Big Three, we cannot afford to neglect anything, or yes, we consign ourselves to the Winnipeg scenario, and who knows if they will ever get their stature back? What’s more we are well beyond the depopulation of rural areas now. We are in a phase where the default tendency is to move to bigger and bigger cities. Why seriously would anyone adamantly prefer their cozy 4 bedroom in Millwoods to one in Markham? We need a sense of comprehesive urbanity to compete, and since getting our airport terminal on its feet, urbanity is far and away our most glaring weakness. _One_ of our 200 Avenues is Whyte. _One_ of our 200 Streets is 104.
“The big question is this:
Does this deal impact the cities ability to entice businesses and residents to want to move downtown? Think about what it would take for you to move downtown. If you are a business owner, think about what it would take to move your business downtown.”
I disagree with your premise, and contend the big question is this:
Does this deal impact … to move or remain in _Edmonton_.
There can be no question that despite the lively parking garage facade of the Icon Towers, our urban offer is the weakest of the top six cities in Canada, and easily beaten by _several_ smaller cities.
Good thing all city council isn’t like Don Iveson. We’d still be negotiating when the 2014 lease runs out. And then just like the 23 ave. interchange it would cost way more even if we paid a lower percentage. He wants to see a private businesses books, yet the city owned corporation of Northlands doesn’t need to open theirs. He just wanted to be a hero to the negative thinkers of Edmonton. Not once has he consider what the Oilers have done for this city in the past, (entertainment, pride and putting us on the map) and just because they are now owned by a single wealthy man it is politically unpopular to support their interests. We should be trying to make sure they have a good deal so they can compete for the best players so we can again return to the ellite in the NHL. It’s not a fear of them leaving, it’s can we be amongst the best again.
As Bruce Saville pointed out, if the Oilers were still owned by the EIG or someone not so wealthy the decision would have been whether or not to foot the whole bill. How would of you voted then Don??? Kiss the Oilers goodbye eventually.
I do reside in ward 10 and will not vote for Don next election
If people want an Arena then build it BUT
1) I don’t agree with our tax dollars going into this project.
2) What happened to the Winter Garden? All we are getting is a pedway now? How will that benefit downtown?
3) I grew up in Edmonton, since I was 9, in all that time I have gone to the current Arena 5 times. I’m estimating because most were for Klondike Days (For those that don’t know what that is, it was the fun-nest festival in the Canada where you had a chance to dress up as Cowboys and the ladies wore outfits from times past). I went to 1 hockey game when i was 14 and only because the ticket was free from a friend otherwise I couldn’t afford it, 1 concert Tina Turner, and the rest Klondike Days. I was low income and so were my parents we didn’t find any use of the facility because we couldn’t afford it and even if we could have, my parents would have rather spend their money on more worthwhile things at the time which was the museum.
4) My children are in their twenties and have only used the arena 2 or three times in their life.
5) Most people can’t afford to go to the arena to begin with, how will this benefit low income families?
6) If the winter garden is not built, how will this facility benefit anyone with a small salary? low income family? Are we going to provide subsidized tickets?
7) As some who have stated here, I am tired of people comparing us to other Cities like Vancouver/Calgary/Toronto. If people would be realistic then you would see that no amount of money we pump into the city will put us close to what those cities have, namely Ocean, Waterfront, Rocky Mountains. We are even being out done by Fort Mac because they just built the 5 football field long bridge that will open up the north. We are stuck between Calgary and Fort Mac, two power houses, they have the money, we get the scraps. There is not amount of scraps(money) in the world to afford us what we would need in order for us to put us on the “map” like so many speak off when we are comparing ourselves to those cities. That is childish and unrealistic.
8) Has anyone spoken of the world economic climate? Or are we living in a plastic “oil” bubble that we think that just because we have the Tar Sands we are immune to what is happening in the rest of the world? My biggest worry is that we don’t have a lot of money in the coffers to begin with to spend needlessly and frivolously like this, if something bad happens, which no one can say it might not happen, then what do we do? Do we have money for a rainy day? Because it will happen, we are not immune and for those that say there is nothing to worry about, we’ll tell it to the Federal Government who one day say we are ok and the next day they say we are not immune. I’ll go with the second choice because I know that no matter what the EU does, the band-aid is only momentary, whatever the US does, its a momentary band aid holding off the inevitable. Sooner or later the flood gates will be opened and there is nothing we will be able to do about it. Is the City of Edmonton ready? Or are we all walking around with blinders?
genn:
1. It can’t be built without tax money, and it cannot be separated from the issue of a lively downtown.
2. It hasn’t been designed yet so what is it, indeed? And the benefit to downtown is bridging the 7-lane 104th Ave literally and figuratively. If you want people to move, they do need to be able to move.
3. Do you think some people value an arena’s compliment to lifestyle, and do you think some of them could be valuable to have in our city? Furthermore, again, the arena cannot be separated from downtown, and the same question applies: would Edmonton not be more attractive with a lively downtown?
4. You and your children are not everyone, and I guarantee nobody in this city benefits equally from any single tax dollar spent. How many times has Katz relied on homeless shelters or subsidised housing? Yet he still pays significant taxes for those things.
5. Think back to how “great” Edmonton was when it was hollowed out in 1981 or during the Klein purge of 1993. Low income and high income are both in the same boat here, but high income have the choice of where they live and pay significant taxes and other spin-offs. Do you really think the city would be better off not competing with the other big cities of Canada and the World?
6. The City has negotiated four full weeks for events, so perhaps Don can provide some ideas about events in the main bowl, but even having a pleasant and exciting downtown to go to would be a very nice change for _everyone_. Furthermore, there is still in the plans a community rink and hopefully what becomes The Central McDougall Community Centre. And still further, I think some form of “Winter Garden” may still be on drawing board, but its name changed because it took a lot of criticism.
7. So you think we shouldn’t even try to compete? I disagree.
8. You’re right, someday the oil industry will be down, and if we were to survive and compete with the bigger cities, we will need something else. I suggest a lively downtown as one thing to keep us competitive in the “knowledge economy” or retaining whatever other industry players we do have, but while certainly we do still need more diversification in our base economy, anything else we venture into will still need to compete on lifestyle to not bleed energy.
Don, I applaud you for maintaining a sensible perspective on this project. With as many loose ends as it currently has and the extremely lop sided revenue disbursements you are acting like a true councilor should.
Don’t ever loose that common sense approach.
Regards
Bob
I live one street over from the Century Park LRT station. I appreciate the convenience of the LRT, but I don’t appreciate the way our quiet residential streets have become a parking lot for LRT commuters. I shudder to think what it will be like when the lease runs out on the Century Park parking lot and we suddenly have a couple of thousand fans wanting to ride the LRT downtown to the new arena.
Councillor Iveson,
Heard your statement on CTV news tonight and “Thank you” for speaking for me. I like many people feel that a new arena is great idea for the city of Edmonton but also don’t believe that due diligence was done to insure that we have even the most basic business procedures followed in making a proper decision to insure that the citizens of Edmonton are equal partners in this deal and not something that we will have to pay for in years to come.
As many people have spoken on and analogy that I would like to use is, imagine a family who cannot afford the basic food essentials for their children but go out and finance a new car.
There are so many issues with our own city budget and being able to provide the citizens with the necessities that we pay taxes for.
“Thank You” once again and please keep the rest of council honest on behalf of this family.
Best Regards,
Mike J
Dear Don,
Following this one sided deal, I cannot understand that, with all respect, that councilors with all their wisdom (?) could not see the financial imbalances of the Katz Group proposal. Moreover, the City seems to gave extras (taxpayers’ dollars), like a man throwing foof to a bear to avoid (rather delaying) being eaten. But this deal may eat you, slowly, but surely. Just give 10 years and revisit the issue and compare.
Asking, hoping from provincial funding, which is also taxpayers’ money another way to skin a cat. I am already miawuing!
However, “the show must go on”, as some say, but I make sure my councilor will not get my vote next time. It is not my vendetta, but rather untrust generated of a very bad decision.
Thank you for trying to save money for Edmontonians.
Best regards,
Aurel
I’m glad I voted for you, too bad there are not more councillors like you.
When your kids are going to school in chateau Atcos and driving on 3 feet of packed snow over potholes for the next 25 years, you can look to that arena and be thankful that a bunch of millionaires got the ice rink they wanted to play in.
Nice. Maybe the homeless can avoid the wind a little easier in the downtown core.
Thank you for keeping the common sense and standing for what was right and try to get a better deal for the city. Unfortunately emotions for the great game blinded so many and we will be stuck with the bill for the decades to come.
Really impressed me how this deal was wraped up in NYC! Any deal involving public money was not supposed to be done within the City headquarters? Wasn’t it illegal????