Implications of Edmonton's Downtown Arena Deal: Hicks on Biz, originally published Edmonton Sun, May 18, 2013
There was more relief than joy on Wednesday, when city council, by a 10-3 vote, approved the deal for the new $480 million arena, as if, by some miracle, the mega-project comes in on budget and on time for the Oilers’ opening game of the 2016/17 season.
It was more reminiscent of a triple-overtime Stanley Cup playoff game, the winners lacking the energy to even touch foreheads with their goalie.
Thank God this debate is over.
Serious design and construction plans can begin, with shovels in the ground by next year.
Mayor Stephen Mandel is right. The investment in the city-owned, Katz Group-leased arena is ultimately the right thing to do, part of a greater vision: Creating a lively, vibrant, wealthy city that our children and grandchildren will be proud to call home, creating a quality-of-life that, despite our long winters, attracts much-needed professionals to our city.
As for the deal itself, the mayor nailed it: Not the best, not the worst. The Katz Group, as owners of lead tenants The Oilers and the Oil Kings, chips in $17 million upfront. The city redirects Northlands subsidies and new downtown tax revenue to pay a long-term arena mortgage. The consumer pays via a $7 ticket tax. The Katz Group can build towers around the new arena, if it chooses to take on that risk.
For every action, there is reaction.
Why the assumption the province will meet the Capital Region Board’s $25 million request for the arena as a regional project? Why should a request from the regional board be more politically palatable than a request from the city?
Even so, it’s a much smaller sum (percentage-wise) than the usual contribution of the province to public buildings.
How does Northlands – the agricultural society operating Rexall Place, the horse-racing track and the Expo Centre, producing K Days, Farmfair and The Canadian Finals Rodeo - avoid bankruptcy?
Northlands will lose a $2.5 million annual subsidy from the city. That’s going to the new arena.
Revenue from Rexall Place will drop like a rock once the new arena opens.
Horse-racing, wrongly subsidized by the province, is on the ropes. It’s no money maker.
The new Expo Centre is meeting revenue targets, but it has payments on a $60 million mortgage to meet, a mortgage guaranteed by the City of Edmonton.
K Days, FarmFair and the Canadian Finals Rodeo generate some revenue after costs. But not much.
If Northlands goes broke, it’s a whopper of a city problem. The city owns the property and the “old” area. The city is on the hook if Northlands defaults on its Expo Centre mortgage. If the rodeo and Farmfair ride out of town, there goes rodeo-fan-driven Christmas in November. What would happen to K Days? Do we care?
Arena cost over-runs: On paper, PCL as the arena contractor has to “guarantee” the price, and is on the hook if the project goes over budget. But if construction costs jump, PCL will ask city council what to cut from the project … or the city will have to ante up, to keep the building true to its vision.
I’m not a big believer in pasting numbers on the “economic impact” or “economic spin” of the arena.
But, obviously, bringing 5,000 to 20,000 fans downtown 100 to 200 times a year for hockey games, concerts and other events is good for the downtown, its hotels, restaurants and bars.
Obviously the arena makes the downtown more attractive for developers to build new residential, commercial and institutional buildings – including the Katz Group.
And, equally obvious, a vibrant, attractive downtown is crucial to the city’s future well-being.
One thing fiscal conservatives must emphasize to our city councillors.
With this giant commitment to the arena and its public amenities, defer all other “quality-of-life” spending until the arena debt has been digested, until the city’s dangerously high debt load is reduced … including the downtown airport redevelopment.
In return, make sure the new arena and its community facilities is built to its current specifications.
Get the shovels in the ground, before the unforeseen comes up to bite city council’s bum!
Cost of building new arena: $480 million
Trying to make sense of where the money will come from:
$80 million from $2.5 million a year city subsidy of Northlands, transferred to new arena (calculated total, after interest payments over initial life of building)
$125 million from $7 per attendee per event ticket tax (calculated total, after interest, over initial life of building)
$115 million total from $6 million a year lease.
$17 million - upfront contribution from Oilers’ owner the Katz Group.
$25 million – anticipated provincial contribution via Capital Region Board for “regional project.”
$120 million – anticipated contribution from Community Revitalization Levy over undisclosed period of time, steering new downtown tax revenue to arena.