Arena negotiation discussion. UPD: Flames release their proposal

[Bunk]

The other possibility is Edwards doesn't want a "worse" deal than Katz, could still make a boatload of money on the current offer, and it's an ego thing.

It would help if they opened the books and talked about the project economics, but we all know that ain't happening.

[Backlunds_socks]

Originally Posted by Ducay

This is precisely the "layman" approach I am talking about. Its not about billionaires wanting to pay as little as possible (well, yes it is) but it is all about returns. If M.Edwards could get 15% return on the 1/3 deal, he'd be all over it. Heck, I'd imagine just to be the "good guy" or get the project moving, he'd take a deal that gets him a return equal to some kind of personal WACC or a low risk investment. Sure, they could be holding out for a return higher than they should, but they've set their return at a certain level and are holding out for something in that range.

These guys have more money than they will ever need and the bad press isn't worth it if they were really trying to get insanely greedy. They live for the reputation at this point.

So yes, they have enough money to fund it, but why would they if they are going to earn peanuts on their investment? Can't blame them if they could use that same money to get better returns invested elsewhere.

Man, u know something, I have a strong finance background and I’ll tell u this much:

You can sure bet that even CSEC front. 100% it would be very viable, greater than 7-8% ror.

[Ducay]

Originally Posted by Makarov

Alright, but I sure hope that myth of the brilliant business minds of Murray Edwards, Ken King et al dies at the end of this debacle. The Winnipeg Jets organization has made it a viable business in Winnipeg with a completely private arena, one half the population, less disposable income, and maybe one quarter the corporate sponsorship budgets. I may be a layman but, based on the foregoing, I don't accept that many in the Flames organization are "experts".

Again, you're looking at this in an apples to apples approach.

What makes it work in Winnipeg isn't the arena itself. Lets say it cost $500m for either arena. Winnipeg pays for it all and makes it work and only earns 1% return on the new arena (bear with me), assuming you could see arenas return alone. So CSEC says, nope, 100% doesn't work, nor does the 1/3 model, because they need to earn 10% return.

From your perspective, Winnipeg made it work at 1% and CSEC is being greedy because they want to hold out to 10%.

Ignoring the fact that they may have different risk profiles and costs of capital, the value in Winnipeg isn't from a new arena, it was from the ability to get the team at all. Winnipeg (TNSE) may have sacfiriced to make only 1% on the arena, because the real return for that ownership group comes from the value of the franchise as a whole and its increased value. So they either ate a lower return or got no team at all. CSEC isn't in the same position. Winnipeg is going from $0 revenue to $XXX million. Calgary is only going to be getting a minor increase in revenues annually with a new building.

Originally Posted by Backlunds_socks

Man, u know something, I’m an analyst at a big bank and I’ll tell u this much:

You can sure bet that even CSEC front. 100% it would be very viable, greater than 7-8% ror.

Is it? $600m for how much increased revenue every year? Once you add in discounting, making back your $600m on only incremental revenue is tough.

[Backlunds_socks]

Originally Posted by Ducay

Again, you're looking at this in an apples to apples approach.

What makes it work in Winnipeg isn't the arena itself. Lets say it cost $500m for either arena. Winnipeg pays for it all and makes it work and only earns 1% return on the new arena (bear with me), assuming you could see arenas return alone. So CSEC says, nope, 100% doesn't work, nor does the 1/3 model, because they need to earn 10% return.

From your perspective, Winnipeg made it work at 1% and CSEC is being greedy because they want to hold out to 10%.

Ignoring the fact that they may have different risk profiles and costs of capital, the value in Winnipeg isn't from a new arena, it was from the ability to get the team at all. Winnipeg (TNSE) may have sacfiriced to make only 1% on the arena, because the real return for that ownership group comes from the value of the franchise as a whole and its increased value. So they either ate a lower return or got no team at all. CSEC isn't in the same position.

When does it become public duty to make their business successful?

[Ducay]

Originally Posted by Backlunds_socks

When does it become public duty to make their business successful?

Exactly my point! It isn't. If city thinks its a bad deal at 1/3 and CSEC thinks its a bad deal at 1/3, then agree it is a no deal situation.

I am not arguing city to make the deal, just that I appreciate it isn't meeting CSEC's required return. If it was up to me, city would give the bare minimum, and I think the 1/3 deal is just about right. Anything richer is a bad deal for the city as the offer stands.

[Svartsengi]

The city doesn't build movie theaters for the big chains. Its up to the Flames owners to make it work and pay for it themselves.

[Makarov]

Originally Posted by Ducay

Again, you're looking at this in an apples to apples approach.

What makes it work in Winnipeg isn't the arena itself. Lets say it cost $500m for either arena. Winnipeg pays for it all and makes it work and only earns 1% return on the new arena (bear with me), assuming you could see arenas return alone. So CSEC says, nope, 100% doesn't work, nor does the 1/3 model, because they need to earn 10% return.

From your perspective, Winnipeg made it work at 1% and CSEC is being greedy because they want to hold out to 10%.

Ignoring the fact that they may have different risk profiles and costs of capital, the value in Winnipeg isn't from a new arena, it was from the ability to get the team at all. Winnipeg (TNSE) may have sacfiriced to make only 1% on the arena, because the real return for that ownership group comes from the value of the franchise as a whole and its increased value. So they either ate a lower return or got no team at all. CSEC isn't in the same position. Winnipeg is going from $0 revenue to $XXX million. Calgary is only going to be getting a minor increase in revenues annually with a new building.




Is it? $600m for how much increased revenue every year? Once you add in discounting, making back your $600m on only incremental revenue is tough.

Well, I suppose they'll just have to try to sell or move the franchise then. That's their prerogative. But, if I were them, I wouldn't expect much sympathy or many well wishes on this forum (or in southern Alberta in general). That's our prerogative.

[monkeyman]

Originally Posted by nik-

Unfortunately, I think it's less of this and more just wanting an Edmonton deal. That's a large part of what their stance comes down to.

Originally Posted by Bunk

The other possibility is Edwards doesn't want a "worse" deal than Katz, could still make a boatload of money on the current offer, and it's an ego thing.

It would help if they opened the books and talked about the project economics, but we all know that ain't happening.

Definitely agree. King himself kept referring to the Edmonton deal.
Again, it's a bad deal by something Edmonton that has tainted the pool for everyone else.
Watching King, I kept feeling like he was about to drop to the ground, start kicking his legs and tell us how unfair it is that Edmonton got a new shiny arena district for free, so whey can't he.

[Mathgod]

This video does a decent job wrapping up my views on this topic: https://www.facebook.com/OnTheMoneyC...7729833199695/

[ynwa03]

I really wish people would stop using the term "the city"
The city is us. We are the city.
The Flames are trying to get us, the taxpayers, to pay for a majority of their arena.

It seems to me people still fully on the side of the Flames are mostly fans who don't live in Calgary, or do but have a personal or professional connection to the team/owners.

[VladtheImpaler]

Originally Posted by Ducay

This is precisely the "layman" approach I am talking about. Its not about billionaires wanting to pay as little as possible (well, yes it is) but it is all about returns. If M.Edwards could get 15% return on the 1/3 deal, he'd be all over it. Heck, I'd imagine just to be the "good guy" or get the project moving, he'd take a deal that gets him a return equal to some kind of personal WACC or a low risk investment. Sure, they could be holding out for a return higher than they should, but they've set their return at a certain level and are holding out for something in that range.

These guys have more money than they will ever need and the bad press isn't worth it if they were really trying to get insanely greedy. They live for the reputation at this point.

So yes, they have enough money to fund it, but why would they if they are going to earn peanuts on their investment? Can't blame them if they could use that same money to get better returns invested elsewhere.

This is good. I totally see that POV. Let's say they are making $18M/year at the dome. They would like a new arena. But, if they have to front $300M (just making up a number) to make $25M/year (just making up a number) and have the value of the franchise appreciate by, say $30M, the deal makes no sense, as they could do much, much better investing the $300M elsewhere. Quite aside from who is paying for what, the ROI has to make some financial sense. Is there a magic number which makes sense for everyone? Not sure, given where sports economics may be heading... Will be interesting to see.

[JiriHrdina]

Originally Posted by CaramonLS

The only poll we've had on this topic has been a poorly worded one, designed to solicit a specific reaction. As much as I'd like to see the sentiment here, I wouldn't hold your breath on getting one.

If that poll was designed to solicit a specific reaction it certainly did a poor job of it. It may not have been the question you wanted to ask - but I asked it because I wanted to get a sense of how important the issue was to folks relative to the chance of losing the team.
We are happy to add other polls. Do you really think there is some grand conspiracy within the mods (10+ of us) to only add polls that suit a certain narrative. I assure you we are much to lazy for the type of coordinated effort that would require. More to the point, even with the moderation team this issue solicits a wide variety of opinions.
I've added the poll to the other thread and happy to add more if folks want. You are welcome to request other questions

[CliffFletcher]

Originally Posted by VladtheImpaler

But, if they have to front $300M (just making up a number) to make $25M/year (just making up a number) and have the value of the franchise appreciate by, say $30M, the deal makes no sense, as they could do much, much better investing the $300M elsewhere.

I thought it was a given that sports teams are not good investments. They're ego vehicles for the mega-rich who are willing to give up some small fraction of their staggering fortunes to have have a really cool toy to play, and enjoy enormous prestige in the community.

But what do I know. I admit I find it impossible to put myself in the shoes of people who have far more wealth than they could ever spend, their children could every spend, their grandchildren could ever spend, and yet still avidly pursue greater and greater wealth. Buying the stadium outright would not cause the owners or their children or grandchildren any conceivable hardship. And yet it's unthinkable to them.

[Roughneck]

Originally Posted by CliffFletcher

I thought it was a given that sports teams are not good investments. They're ego vehicles for the mega-rich who are willing to give up some small fraction of their staggering fortunes to have have a really cool toy to play, and enjoy enormous prestige in the community.

They're not that great for most until you sell them. In the meantime they're ego vehicles but when they grow in value from the mid-eight figures to the mid-nine figures that is where their investment pays off.

[Locke]

This is the gist of it as I see it:

They have a sweet deal at the Dome. No rent, no Property Taxes, only Operating Costs.

I do see King's point in a lot of ways. Based on the City's Proposal the Flames would have to:

- Pay Rent or Property Taxes
- Repay the City's Investment (via Rent or Property Taxes)
- Potentially Operating Costs (depending on rent vs. own)
- Repay the ticket tax (by not being able to keep it)

This is a substantially worse deal than the one that they already have. And these were outlined very specifically in King's presser.

Yes. It does appear that, apart from Edmonton, the days of the 'Sweetheart Arena Deal' seem to be nearing their end. Maybe they should have hopped on that Gravy-Train before it was pulling in to the end of the line.

Well, their designated representative (King) took his sweet time. That is evidently going to cost them.

But going back to King's points and that if those 'were true we'd be better off staying in the Dome' that is a statement that may or may not be true.

The fact of the matter remains is those points are all costs. With no mentions of additional revenue.

I mean, if there were no more additional revenue, or at least appreciation of the value of the Franchise, then why would they do it? But those numbers tend to be inconvenient.

To boil it down: I understand the position of King and the Flames/CSEC. I do. They want something for nothing because other Organizations got it. They're upset that the current administration in Calgary isnt just giving them what they want and that upgrading to a modern building isnt going to meet their revenue projections because they're not going to get it for free.

And I understand where Nenshi stands. The Flames are not a Charity.

I dont want to comment on King's comments regarding the Philanthropic efforts of CSEC ownership because those have been more than commendable, but that doesnt mean the City is obligated to hand over the blank cheque. Thats not what Philanthropy is about.

In the end, the Flames want free money.

They couldnt have possibly asked at a worse time.

[stamps]

Originally Posted by ynwa03

I really wish people would stop using the term "the city"
The city is us. We are the city.
The Flames are trying to get us, the taxpayers, to pay for a majority of their arena.

It seems to me people still fully on the side of the Flames are mostly fans who don't live in Calgary, or do but have a personal or professional connection to the team/owners.

I get the impression from Ken King that the city is including in their contribution the extension of 17 avenue through the Stampede grounds and some underpasses and Green line infrastructure that is being built regardless ... which in my understanding is being paid back with Flame revenue through a rent or tax agreement ... the land is vacant and does not cost the city anything as of now ... the demolition of the Saddledome is also being counted as part of the city's contribution , a building the Flames do not own ... I have to see what the Flames are offering before I pass judgement but, as is , I can see the Flames point of view with the way the city has structured their proposal as not really being that fair ...

[Roughneck]

Originally Posted by Locke

- Pay Rent or Property Taxes

Heaven forbid.

- Repay the City's Investment (via Rent or Property Taxes)

Again, heaven forbid.

- Potentially Operating Costs (depending on rent vs. own)

Basically the same with either.

They either own the building and are responsible for the upkeep and get 100% of revenue, or lease all management rights of the building to get 100% of the revenue but are still in charge of upkeep. This is basically the same as what they have right now.

- Repay the ticket tax (by not being able to keep it)

Which was a part of their original proposal as well, the only thing that changes is the city considers it a user fee separate from the public or private breakdown, while the Flames consider it their money. They don't get to play the 'woe is me' card with this since it is their idea to have a ticket tax in the first place.

This is a substantially worse deal than the one that they already have.

They do have a pretty sweetheart deal right now, that's for sure. But they're the ones insisting they need something different to remain competitive, not the city.

[GirlySports]

They could go to Quebec! Free arena already built and they might even throw in more perks for a team.

[Roughneck]

Originally Posted by GirlySports

They could go to Quebec! Free arena already built and they might even throw in more perks for a team.

Quebecor wants to own the team so they'd be selling it to Peladeau (they operate the arena so they kind of get last say on who gets to play there), and then the league has to deal with that East/West team split which they don't like.

Advantage: City of Calgary.

[GirlySports]

Originally Posted by stamps

I get the impression from Ken King that the city is including in their contribution the extension of 17 avenue through the Stampede grounds and some underpasses and Green line infrastructure that is being built regardless ... which in my understanding is being paid back with Flame revenue through a rent or tax agreement ... the land is vacant and does not cost the city anything as of now ... the demolition of the Saddledome is also being counted as part of the city's contribution , a building the Flames do not own ... I have to see what the Flames are offering before I pass judgement but, as is , I can see the Flames point of view with the way the city has structured their proposal as not really being that fair ...

The city proposal is not fair but it's been a PR disaster for the Flames. Ken King is not entirely wrong but they did not need that press conference to rub it in our faces. A press release saying we will respond next week would have sufficed.