Quote:
Originally Posted by morgin
The fact is that keeping a team in Edmonton isn't dependant on a subsidized arena (katz could pay for the whole thing himself and earn it back over probably 10-15 years), but other regions ponying up funding drastically changes the model. (edit: I should add that I realize there is massive risk built into this for Katz given profitiability of the Oilers depends probably 20% on things the Oilers can control and 80% on external factors. Obviously this should factor in, but it factors in equally to every region.)
Worst prisoners dilemma for municipalities ever.
Either spend public money and give in to the threat of relocation, or don't and watch as some other region offers a sweetheart arena deal and makes the economics of the team in your region less favourable.
If every public body just stopped funding sports complexes, owners would have to only account for potential profitablility of the region.
The other problem though is that even if you don't have spinoff economic benefits, the attraction of concerts and other entertainment that is only possible with an arena gives the owners this public good argument that society seems to have a difficult time refuting. (And quite frankly, the public policy argument that while arenas may be a net negative in terms of revensue for the city, they add cultural value, is a pretty solid one.)
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Good read and describes the basic dynamic. This has nothing to do with economics but is basically a bluff call between the owner and a municipality operating in a race to the bottom context.
Politically losing the team is probably bad for politicians, owners know this, so the threat of relocation is real even if it is an empty threat.
If you sat and thought about it, what are the actual odds of Katz relocating the team? First there's basically nowhere for him to go that's better than where he currently is. He could move to Kansas with their new arena but whatever gains he made there he loses goign to a pillow soft market. There's not a whole lot of landlords left. He could go to Phoenix...
So yeah, the City is most likely calling his bluff because they think that a) the immediate threat of relocation is very slim and b) Katz wouldn't have the stones to relocate a storied franchise (and one that he grew up as a fan of).
If I'm the City I offer him some additional chicken feed like some municipal bonds but pretty much tell him to take a hike and pay for it himself. The thing is that the City must know how valuable the subsidy is. It's basically the net present value of expected profit from the new arena minus the NPV of avoided financing charges over the amortized life of the arena, a huge figure and the reason why Katz is playing dirty.