Posts Tagged ‘Arena’

Arena: Katz Group Pitch

Jul
24
2010

This post follows up on three previous posts on the Arena topic: here, here and here.

Mr. Katz came to City Hall this week in response to Council’s invitation to come and publicly present his vision for the Arena District. He clarified his position on funding: $100 million toward the arena itself, a new $100 million toward the nearby development, and reminded us that he spent roughly $200 million buying the team in the first place.

The Katz Group asserted that the Oilers will not play in Rexall Place, renovated or otherwise, past 2014. They would not clarify what happens after that, which leaves us all to speculate. But it does present a deadline and, more or less an ultimatum to deliver a new arena.

It would seem that Council may be prepared to go ahead and partner with him to build a new arena publicly. Council directed that this not involve raising taxes, and asked for Northlands to be brought back to the table (all the motions are below).

I’m still not sold.

My questions of the Katz delegation (here on video at the Edmonton Journal website) and city staff focused on two main points: exploring why a private funding option appears to have been ruled out, and what risks and opportunity costs the city might experience by being involved in building and financing the arena. My motions at council, which passed, probe these issues further:

Downtown Arena – Private Development

1. That Administration develop a benchmark scenario for private development of the facility and report back on the proforma for this. If it is Administration’s conclusion that it is not feasible for an arena to be built privately, then detail and quantify the financial gaps that stand in the way.

Community Revitalization Levy – (Downtown) Risk Leakage

2. That Administration report to Council on the risks of leakage of development potential from the pending Quarters Community Revitalization Levy to the proposed Arena District Community Revitalization Levy. [I wrote about some of the issues with levy financing in a previous post.]

The key message in the Katz Group pitch for a new arena is the assertion that the Oilers are ‘not sustainable’ as they operate today. They argued that this is because:

Rexall place does not meet their needs - not enough seats and luxury boxes, which translate to lower ticket revenues than might be realized in a new arena.

They don’t get all revenues realized from the arena - apparently other NHL teams get the non-hockey related revenues from their buildings, whether they own them or not; in other words, they want the business Northlands is doing on the other nights between hockey games. They also want a larger building with more concession opportunities.

The team has lost money over the last ten years, including each of the last two - it was said that Mr. Katz has subsidized the team with several million dollars in both seasons he’s owned it.

After speaking to the community benefits of the team Mr. Katz put it plainly: “But the team is also a business. And like any business, it needs a sound financial base in order to be sustainable, which today it is not.” This remark comes about five minutes into a video of his remarks on the Edmonton Journal website.

The Katz Group essentially argued that the Oilers play in a small building in a small market and that because of insufficient revenues they can’t afford to build their own rink – even if they had control of non-hockey revenue and could sell more seats.

They also argued that three of the last four Canadian NHL arenas failed – all of which were built privately – and that they are not prepared to take that risk (they supplied me this document on this point).

There may in fact not be enough money in the hockey business in Edmonton for them to afford to build a rink. If that’s true, and if they won’t play at Rexall, and if we want to have a hockey team, their logic flows that it has to be built by the city.

And so the real question Council was led to was: what’s it worth for Edmonton to keep the team? I don’t think there’s all that much risk of Mr. Katz moving the team. I think the issue is what happens if he felt forced to sell the team – and then who knows what the next owner might do?

The main motion, moved by Cllr. Batty was:

That Administration:

1. Enter into discussions with the Katz Group of Companies and Northlands on a framework for the financing, not including an increase in current property taxes, and operations of a potential downtown arena and entertainment project.

2. Develop a community consultation program, in line with City Policy C513, on a downtown arena and entertainment district project on a city-wide basis.

Anticipated Impacts on Northlands

3. Prepare a report for Council on Edmonton Northlands’ anticipated impacts and opportunities relating to any potential downtown arena and entertainment district project.

Invitation to Edmonton Northlands

4. Invite Edmonton Northlands to make a formal presentation to Council on the impacts of a new sports and entertainment facility and the future of Rexall Place and the overall financial health of Northlands.

Cllr. Sloan’s motion:

Downtown Arena – Potential Impacts

That Administration prepare a report on potential impacts on City operations, infrastructure and investments of a potential downtown arena and include an update on any commitments of Federal and Provincial funding for this project.

[Update, 2pm July 26: my written questions to Katz Group and City Administration posted to the comments area below.]


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Posted in 2007-2010 Term, Arena | 44 Comments »

Update: downtown arena rezoning application

Apr
10
2010

This is the April instalment of my Edmonton Examiner column, from this week’s paper, reproduced here for the record:

The Katz Group proposal for a Downtown arena and related development remains a work in progress, which has contributed to uncertainty both for members of City Council as well as the public.

I can relate my thinking about it based on what I know so far.

Firstly, I’m still not convinced that there’s any crisis with the Coliseum/Rexall Place. I believe it could last another 10-20 years without major renovations.

Secondly, with regard to planning a ’sports and entertainment district’ downtown, I don’t have any real objection to the general concept. I gather a rezoning application was submitted very recently but I haven’t seen the specifics, and it likely will evolve with input from City planners. Whether I could support the planning permission (in terms of urban design) remains to be seen. There will be at least one public open house as well as a public hearing before council before any planning permission is granted.

Third, and separate entirely from the urban planning questions, are the financing questions: I, for one, am not keen on using the city’s borrowing power to finance any part of the development.

City borrowing power is prudently limited by both city policy and provincial law, and we need all of what’s remaining for the next phases of LRT expansion. I also don’t think it’s appropriate in general for the city to provide financing for-profit enterprise. We partner with not-for-profits all the time, but private enterprise has traditionally fended for itself.

Further, I’m not keen on the city owning any part of a new arena. If there is a new arena development it should survive financially on its own merits. Main reason why is that I really don’t want the city to wind up on the hook for developing a new arena every generation to meet the tenant hockey team’s specifications.

It’s unclear how the public will be formally consulted on the financing question. I am receiving a lot of input on this question and would be happy to hear from readers of this article.

I’ve posted a few notes on my blog about this and you can view the arena items by typing www.doniveson.ca/tag/arena in your browser and feel free to provide comments that way as well.

The Katz Group has launched a website at www.revitalizedowntown.ca with their perspective on the project.

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Posted in 2007-2010 Term, Arena | 5 Comments »

Arena: The Morning After

Feb
11
2010

I took a bit of flack for the rhetorical device I employed in my previous post on this topic. If you go back and look, you’ll see that the reasons I said are motivating me to say no are principles: 1) limits on public borrowing authority and the application of those borrowed funds; and 2) public consensus among my constituents.

The other issues I noted were more practical challenges I have with the proposal and overall situation. I simply judged the principles more important to my decision making that the practicalities.

I accept that the well orchestrated public relations effort will, if nothing else, cause this to be an election issue again which will give anyone who goes door knocking a chance to take a fresh sample. I look forward to that. I think there are probably now more than one in a thousand who would support this type of proposal, but my read from questions I get asked at Community League events and in correspondence with the public is that there remains an overwhelming degree of skepticism among the people I represent about the financing. I think public opinion is more mixed about whether it’s compatible with Downtown. I’m open in principle to such a development downtown, and would evaluate an application for rezoning coming forward to Council with an open mind.

Meanwhile, Paula Simons at the Journal has addressed some of the factors in play with the Community Revitalization Levy (CRL) model in today’s paper. She notes that $1 billion in development (if and when completed) would yield on the order of $14 Million in annual property tax revenue (quoting a city official). At today’s interest rates this might leverage up to $150 million in borrowing. Presumably it will take other revenue streams (casino bucks, ticket surcharges, expanding the levy area into Downtown North Edge, and maybe others) to cover $400M borrowed.

There is another issue she didn’t cover which I call the zero sum problem. No doubt the hypothetical new hotel next to the hypothetical arena is induced by the arena. However, the demand for at least some of those new hotel rooms already exists for people coming to events at the current Rexall Place. Same with pubs and restaurants, etc. This is about moving demand around, and creating some new demand in the process, which is fine. But a new arena can’t be given credit for all the demand for new property development nearby. A related consideration: if new capital is invested in an arena complex hotel instead of a hotel in the Quarters, we’ve lost the tax revenue elsewhere. It’s just false to argue that all the tax lift in the hypothtical CRL can and should be linked to a new arena.

I anticipate a retort to this: why use a CRL in the Quarters and not for an arena? Simple: the $160M we plan to spend in the Quarters is for sidewalks, streets, parks, and so on – in other words, municipal infrastructure. Yes it’s designed to attract capital to develop the area that might go elsewhere, but the success of turning around Downtown East hinges on that. While I have said that a new arena complex could be positive for Downtown, I don’t think that the success of Downtown Edmonton hinges on it. Indeed, Hyperbolic suggestions that the future of our city depend on this development have added little to the debate.

I think the sport and entertainment industry and development business together need to build a business case and a project scope they can afford, then what we’d be talking about is something sustainable in its own right, and therefore not requiring government involvement.

But If this is really about small market NHL hockey not being sustainable without government involvement, let’s debate that and let’s talk about which orders of government should be involved in solving that issue, bearing in mind that municipal government has five cents from the average Edmontonian’s tax dollar, while the province has 26 cents and the Feds have 69 cents.

Here’s one of the most important questions about the future: If the new arena were built, in 20 years will it then be too small and dated and whathaveyou? I just want to be mindful of getting onto a treadmill of having to do this over and over again. I think that if we go for this once it will never stop.

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Posted in 2007-2010 Term, Arena | 8 Comments »

On the $400 Million Arena Loan Request:

Feb
10
2010

My answer is no.

I am not saying no because the request was announced to a room full of people other than City Councilors (at a building owners and managers industry luncheon).

I am not saying no because our municipal borrowing power is limited by law, nor because what’s left within our ‘credit limit’ will be needed for the most part to fund our portion of the next phases of LRT, should the province in turn come forward to fund the NAIT, West and Millwoods LRT lines.

I am not saying no because the Coliseum (as I knew it growing up) has a generation of functional life left in it as far as I can tell, nor am I saying no because Northlands needs a better seat for any new scheme than the spot in the nose-bleeds they currently occupy.

I am not saying no because the deal seems to be changing and Katz’s $100M seems to be off the table for the arena and is now proposed to go toward the surrounding development.

I am not saying no because the province just cut the Municipal Sustainability Initiative (MSI) grants for infrastructure from $260M to $160M for 2010.

All of these are related issues, but the two reasons I am saying no are:

Firstly, because it’s not our City’s place to give private industry access to government borrowing power. We are fortunate enough as municipalities in Alberta to borrow through something called Alberta Capital Finance, which – thanks to the fiscal discipline of both local governments and the province – enjoys among the best credit ratings you’ll find (and thus lowest interest rates) anywhere. The public sector has earned this. The private sector has not. Which raises another question about who else would we do this for, or alternately why for an arena and not, say, for a hotel/spa?

The second reason I am saying no is that I knocked on thousands of doors in 2007 and this issue was raised by at least a thousand people. Only one told me the city should help finance a new arena. So I have my marching orders.

This is a relief. I was waiting for something concrete I could react to. So there you have it.

(Update: this has provoked some vigorous follow up debate in the blogosphere and on Twitter. Some fair critiques of style and rhetoric. Guess I shouldn’t write these while taking a redeye flight. One clarification I should have added: I am not against a planning application to develop something like what’s been proposed. It could be compatible and positive for downtown. However, I’ve always seen the financing question as separate.)

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Posted in 2007-2010 Term, Arena | 26 Comments »