Arena Negotiation Discussion v2

[Manhattanboy]

Go CMLC Go!!

[nik-]

Originally Posted by Kipper is King

As for those calling for a plebiscite (cough, cough attention-seeking Jeromy Farkas!), if every notable infrastructure development with some degree of public funding went to a plebiscite, nothing would ever get built in the city due both to the time involved in organizing plebiscites, as well as people who would instantly kybosh any potential increase in taxes for any reason.

Hopefully, that latter point isn't too significant. If the deal is more sensible than what was pitched for CalgaryNEXT, I say let's move forward.

But this is corporate welfare, not an overpass.

[You Need a Thneed]

Originally Posted by nik-

But this is corporate welfare, not an overpass.

We don’t necessarily know what this is yet.

[Muta]

CMLC will monitor the convention centre development first, which is currently underway. The proximity between the new convention centre and the proposed event centre will create some interesting urban dynamics and public integration between the two facilities, so I'm glad CMLC is taking the reigns on both these projects to adhere to a synced long-term solution.

[CaptainYooh]

I know Michael Brown personally. He is a good, competent guy. Before starting with CMLC, he's been involved in construction of the Bow Tower. He's done some really good things at CMLC, quietly but noticeably. I am now really optimistic that we will have a new arena for the Flames built.

[Bunk]

I'm gonna go ahead and put in another plug for my podcast with Michael Brown. Lots here for those that haven't heard it.

https://livewirecalgary.com/2019/01/...d-corporation/

[ynwa03]

Originally Posted by You Need a Thneed

We don’t necessarily know what this is yet.

It is by default - unless the Flames are paying for the whole thing.

[You Need a Thneed]

Originally Posted by ynwa03

It is by default - unless the Flames are paying for the whole thing.

... or, if the city owns the building, and the Flames pay a lease.

...or, through some agreement that provides mutual benefit to both parties.

Let’s wait and see what the deal is.

[ynwa03]

Originally Posted by You Need a Thneed

... or, if the city owns the building, and the Flames pay a lease.

...or, through some agreement that provides mutual benefit to both parties.

Let’s wait and see what the deal is.

That's a terrible starting point.

I get the feeling the deal will be better for the Flames than the City. Otherwise the Flames would have been more receptive to the last deal. And this time around, it will be moved along under the guise of NDA's, close door negotiating, and no public input.

I hope i'm wrong, but the only way a deal gets done is if public funds are used in a way that massively benefits the Flames. Why else would the Flames come back to the table?

[powderjunkie]

Originally Posted by ynwa03

That's a terrible starting point.

I hope i'm wrong, but the only way a deal gets done is if public funds are used in a way that massively benefits the Flames. Why else would the Flames come back to the table?

Because if they don't come back to the table now (after YYCCC and CMLC have done all this work) then they can kiss any public support goodbye. The city is clearly ready and willing to do _________. If CSEC balks at it, or refuses to engage significantly, then it will be really hard for them to make any case that they are being hard done by.

Because I am of the opinion that this isn't super urgent, I had been disappointed to see the city take up the oars and drive this thing forward, because I felt like it diminished our leverage. I'm starting to change this view - I think the City in the driver's seat might be a great thing, as long as they hold the line on a fair/reasonable deal (whatever that means) for taxpayers.

I truly believe that CSEC needs Calgary more than Calgary needs CSEC, so I think putting the onus on them to make a decision on our proposal will be better than the other way around. The Flames won't be able to claim with a straight face that they didn't get the necessary support, even if they really don't like the proposal that is put forward to them.

[marsplasticeraser]

I don't know about that. I think both sides can walk away, as the arena isn't urgent need. What makes it easy is that both parties want the same outcome: A new arena.

What makes this easy an easy negotiation is that both sides can work out the financials quickly and accurately. You have very good accuracy on ticket revenue as you will know total seats, additional luxury boxes and average ticket uplift for a new arena.

You can also get a good idea of additional concession revenue by looking at other new arenas that focus more on experience. Note that I wouldn't be surprised to see outside vendors in the next arena, as the Flames have not shown any skill in managing concessions so far.

I think this negotiation comes down to who pays what and when do they pay it.

The reason for this is the Flames likely have a healthy discount rate for any investment they make (I'd guess 12-15%). This means future revenues get diluted down to nothing, while immediate spending comes in at almost full dollar value. Basically, Flames spending money now means they take a lot later.

The reason this is important is that governments don't look at IRR. They often look at borrowing costs. So city can raise capital significantly cheaper than 12%-15%.

I suspect a deal where the Flames put less money in to start and more money in later would be easier to make the numbers work.

Ultimately, I think you could convince the Flames that a new arena where the additional revenues are largely offset by an increased yearly rent would be a good outcome. It would improve player experience. It would add prestige to owners. It would increase the value of the franchise. It would also make fans enjoy the product more.

The big caveat here is Ken King. He does not seem terribly skilled or competent in anything he has undertaken for the Flames. My experience with people like Ken is that he may not recognize / understand the implications and financials of the deal. Instead he will cling to an outcome that is never going to occur. His involvement and champion the past version of an Arena would be the biggest stumbling block to a deal.

Originally Posted by ynwa03

That's a terrible starting point.

I get the feeling the deal will be better for the Flames than the City. Otherwise the Flames would have been more receptive to the last deal. And this time around, it will be moved along under the guise of NDA's, close door negotiating, and no public input.

I hope i'm wrong, but the only way a deal gets done is if public funds are used in a way that massively benefits the Flames. Why else would the Flames come back to the table?

[Weitz]

Originally Posted by marsplasticeraser

I don't know about that. I think both sides can walk away, as the arena isn't urgent need. What makes it easy is that both parties want the same outcome: A new arena.

What makes this easy an easy negotiation is that both sides can work out the financials quickly and accurately. You have very good accuracy on ticket revenue as you will know total seats, additional luxury boxes and average ticket uplift for a new arena.

You can also get a good idea of additional concession revenue by looking at other new arenas that focus more on experience. Note that I wouldn't be surprised to see outside vendors in the next arena, as the Flames have not shown any skill in managing concessions so far.

I think this negotiation comes down to who pays what and when do they pay it.

The reason for this is the Flames likely have a healthy discount rate for any investment they make (I'd guess 12-15%). This means future revenues get diluted down to nothing, while immediate spending comes in at almost full dollar value. Basically, Flames spending money now means they take a lot later.

The reason this is important is that governments don't look at IRR. They often look at borrowing costs. So city can raise capital significantly cheaper than 12%-15%.

I suspect a deal where the Flames put less money in to start and more money in later would be easier to make the numbers work.

Ultimately, I think you could convince the Flames that a new arena where the additional revenues are largely offset by an increased yearly rent would be a good outcome. It would improve player experience. It would add prestige to owners. It would increase the value of the franchise. It would also make fans enjoy the product more.

The big caveat here is Ken King. He does not seem terribly skilled or competent in anything he has undertaken for the Flames. My experience with people like Ken is that he may not recognize / understand the implications and financials of the deal. Instead he will cling to an outcome that is never going to occur. His involvement and champion the past version of an Arena would be the biggest stumbling block to a deal.

I don't think so. If the flames are involved and paying a good portion of it - they will see big gains in Revenue. Or they won't do it.

[bettercallbettman]

https://www.google.com/amp/s/www.cbc.ca/amp/1.5027477

Just more BS? Or is this a good sign

[Mazrim]

Originally Posted by Ozy_Flame

They have already acknowledged in the past that they learned lessons from what Edmonton's Ice District has done (and even that has turned out surprisingly well in the long run).

What turned out well for the Ice District? The fact that it now exists? The way the City of Edmonton and Edmonton taxpayers got taken to the cleaners is not something that turned out surprisingly well.

[Monahammer]

Originally Posted by Mazrim

What turned out well for the Ice District? The fact that it now exists? The way the City of Edmonton and Edmonton taxpayers got taken to the cleaners is not something that turned out surprisingly well.

It doesnt really even exist yet. The arena exists and looks really dumb. The edmonton city tower exists, but dubbed down from original proposal- no real usable public space (and the giant screen on top malfunctions a lot in the cold.) The Stantec and Marriott exist, but are mediocre and again dont have any public use space of note. The ice tower b that was supposed to have public gardens and a public restaurant/patio area overlooking the square has been on hold, and new redesigns are making it much shorter and removing the public space. The public square that was going to form the centre of the district with shops and restaurants is a closed off mass of construction equipment and hoarding. No one is confident this will turn out as envisioned.

Anyways, the only thing that turned out well for the ice district so far is that it has displaced the vagrants about five blocks east, so the business folk see cranes instead of them now and think its alllll good.

[tkflames]

Originally Posted by Mazrim

What turned out well for the Ice District? The fact that it now exists? The way the City of Edmonton and Edmonton taxpayers got taken to the cleaners is not something that turned out surprisingly well.

You may be right, but I thoroughly dislike this opinion stated as fact without any actual facts. What is the net impact on tax revenue generated by the area? Even if the city spent more in you opinion than their share, if it works out to a positive NPV it's still a value add project...

[Monahammer]

The entire point of elected office is so they can make the tough decisions rather than having to poll the entire city. If you dont like it then vote and campaign in the next election.
Plebiscite are terrible unless you can guarantee (impossible) that a special interest group on either end wont commandeer a large portion of the population in a mob mentality and scare off dissent. You can't actually get a representative sample because only those motivated to vote will go out and vote, and dislike or hatred of a project is far more motivating than liking it but not understanding the financial complexities.

[marsplasticeraser]

Originally Posted by Weitz

I don't think so. If the flames are involved and paying a good portion of it - they will see big gains in Revenue. Or they won't do it.

I totally disagree. I think the flames do it if the NPV of the deal is $0, but they have a new arena at the end. Then it’s uo to them to justify fans to pay more because of food product and a good fan experience.

Why should they get a new arena and more profits? That seems a ludricrous starting point.

To be more clear:the expected returns the flames need totally depends on when the flames pay money. Paying money now means they have to make a Future return, and the discount rate they’ll need is way more than the city would use.

So flames Paying less (or none now) means there is no investment to recoup. They just get a new arena. The flip side is the city gets a lot of the future upside.

[Mazrim]

Originally Posted by tkflames

You may be right, but I thoroughly dislike this opinion stated as fact without any actual facts. What is the net impact on tax revenue generated by the area? Even if the city spent more in you opinion than their share, if it works out to a positive NPV it's still a value add project...

Okay, let's go over some facts:
https://www.edmonton.ca/attractions_...agreement.aspx
- A CRL is paying for $231 million of the project. That's $231 million of tax revenue that the City won't receive for 20 years as they pay it off.
- The City of Edmonton is paying $82 million in loans on the project. They're paying for it with parking revenues and moving a subsidy from Rexall over to here.
- Katz is putting in $24 million in cash, and $140 million in rent over 35 years.
- A ticket surcharge covers the rest of the $125 million. It's currently 9.5% per ticket.
- The City of Edmonton bought the land and owns Rogers Arena, the Winter Garden, and the Community Arena. They get up to 28 days a year to use the arena and winter garden for community purposes. Katz gets the rest.

https://en.wikipedia.org/wiki/Northlands_Coliseum
- The City of Edmonton now owns Rexall/Northlands. They moved their subsidy to pay for the Ice District, and they pay for ongoing maintenance with no events planned. The Ice District has siphoned off most things that could have been there.

https://edmontonjournal.com/business...own-tower-move
The City of Edmonton is paying rent to Katz for 16 floors of space in one of the towers in the Ice District.

https://globalnews.ca/news/4701081/e...rking-revenue/
Edmonton's parking revenues are below expectations already, facing competition from Katz's Ice District parkade (2000+ stalls) and Edmonton Tower's 500+ parking stalls. They need the parking revenue to pay off the $82 million loan.

Here's some things that are harder to put actual numbers on:
- Downtown revitalization was definitely needed in Edmonton. It will be a positive and people will feel better about the City.
- Ancillary development has happened around the Ice District. I can't find any specifics though.
- People spending more time downtown at events will be good for business, perhaps at the expense of other places.
- Decisions on what events actually come to Edmonton aren't guaranteed to change because of this. (http://businessinedmonton.com/featur...zing-downtown/)
- Some of the planned developments have changed since the original plans. Some of the street interaction isn't as good as planned.

So I would say so far, given the amount of money going to paying off debt on the development, I'm hard pressed to say for sure that Edmonton is seeing a net positive right now. What price do you put on feelings, though?

[tkflames]

Originally Posted by Mazrim

Okay, let's go over some facts:
https://www.edmonton.ca/attractions_...agreement.aspx
- A CRL is paying for $231 million of the project. That's $231 million of tax revenue that the City won't receive for 20 years as they pay it off.
- The City of Edmonton is paying $82 million in loans on the project. They're paying for it with parking revenues and moving a subsidy from Rexall over to here.
- Katz is putting in $24 million in cash, and $140 million in rent over 35 years.
- A ticket surcharge covers the rest of the $125 million. It's currently 9.5% per ticket.
- The City of Edmonton bought the land and owns Rogers Arena, the Winter Garden, and the Community Arena. They get up to 28 days a year to use the arena and winter garden for community purposes. Katz gets the rest.

https://en.wikipedia.org/wiki/Northlands_Coliseum
- The City of Edmonton now owns Rexall/Northlands. They moved their subsidy to pay for the Ice District, and they pay for ongoing maintenance with no events planned. The Ice District has siphoned off most things that could have been there.

https://edmontonjournal.com/business...own-tower-move
The City of Edmonton is paying rent to Katz for 16 floors of space in one of the towers in the Ice District.

https://globalnews.ca/news/4701081/e...rking-revenue/
Edmonton's parking revenues are below expectations already, facing competition from Katz's Ice District parkade (2000+ stalls) and Edmonton Tower's 500+ parking stalls. They need the parking revenue to pay off the $82 million loan.

Here's some things that are harder to put actual numbers on:
- Downtown revitalization was definitely needed in Edmonton. It will be a positive and people will feel better about the City.
- Ancillary development has happened around the Ice District. I can't find any specifics though.
- People spending more time downtown at events will be good for business, perhaps at the expense of other places.
- Decisions on what events actually come to Edmonton aren't guaranteed to change because of this. (http://businessinedmonton.com/featur...zing-downtown/)
- Some of the planned developments have changed since the original plans. Some of the street interaction isn't as good as planned.

So I would say so far, given the amount of money going to paying off debt on the development, I'm hard pressed to say for sure that Edmonton is seeing a net positive right now. What price do you put on feelings, though?

Thank you for putting together this post!!

To summarize: from acity nvestment standpoint:
If all of the below expressed in today's dollars is a value greater than 0 then the city is better off then it would have been had it not invested.
$82M from parking revenue
+$231M from net increase in taxes in the area over X years
+ profit generated from 28 public days per year
-delta loss from not operating Rexal
-delta rent of city office space from before vs now

Obviously opportunity cost is excluded here, but while I dont think the city of Edmonton made a great deal, it is not difficult to imagine that with full office towers and soft improvements that the city is better off now than if they had done nothing at all.