Arena negotiation discussion. UPD: Flames release their proposal

[Ducay]

Originally Posted by Matt Reeeeead

Because the entire industry makes a lower return on investment than other more profitable ones. It's the fact of most types of entertainment industries. They are reliant on consumer disposable income.... not providing need based service. Any sports team owner signs up for this when they invest, and choose to bypass better returns available elsewhere. Sports teams are limited and a higher demand from potential owners than they should based purely on profit due to the "fun and prestige" of owning these things.

No different than how they treat employee salary. Do you think they pay their employees market rates like an oil and gas company or other typically successful industry would? Presumably no, they would pay based on the profits available which would be lower than another industry.

My point being... if you want 10 percent returns without taking on a pile of risk, then perhaps don't choose an industry reliant on public subsidy to make it happen. The flames should be aiming for modest returns available within the scope of the industry.

I agree with your points & logic - but the point isn't returns are lower in Entertainment, but we don't know what management wants to earn and what they are earning, and what they seek to earn in a new deal. Its all unknowns, and frankly doesn't matter. Management will take a deal that works for their return, and it is up to the city to hold their line on a deal that works for them as well.

[Roughneck]

Originally Posted by New Era

Rent to the tune of $275M dollars! Be accurate. There was nothing in the deal about the city picking up anything more than the $225 million, and it was meant to be all encompassing.

All encompassing of what?

Is that really your position? Really? An you accuse me of trolling? The Flames presentation suggested they were fronting $275M in cash.

'Fronting' it as a rent prepayment, which is city revenue (because rent is something a building owner receives to recoup their investment, like how a ticket tax is actually Flames revenue because it is money they would otherwise be receiving as something a business owner receives to recoup their investment).

[Regorium]

Originally Posted by New Era

Interesting details in there that the Flames did not release about their cash contribution. That turns the tide somewhat. The Flames need to step up more in that regard and secure a greater deal of the financing itself. I don't like the expectation of the City having to carry the ticket tax, although that is the only way it could be done, since the Flames can't impose a tax. I don't like the City slushing in all the stuff in regards to the Saddledome, as its their building and they should pay for costs associated with its destruction or repurposing. Little bits that are important and need to be addressed.

I think if the CSEC has stipulated that the Saddledome must be demolished due to a non-compete clause, then it absolutely becomes a contribution from the City.

Otherwise if we're okay with having two arenas and the City chooses to demolish the Saddledome for planning or their own reasons, then it shouldn't go into the calculation.

[Lanny_McDonald]

Originally Posted by Roughneck

All encompassing of what?

That was the problem, short on specifics. Both proposals were short on specifics, but the Flames more so. I still think there is a deal hiding in the details of both.

[Ducay]

Originally Posted by Roughneck

'Fronting' it as a rent prepayment, which is city revenue (because rent is something a building owner receives to recoup their investment, like how a ticket tax is actually Flames revenue because it is money they would otherwise be receiving as something a business owner receives to recoup their investment).

Rent for 35 years and prepaying 35 years worth of rent has no value because the Flames are getting something for it?

You should tell this factoid to all the Real Estate companies - they're never going to make any money because they're just getting rent! Also they should offer no discounts or incentives for prepayment (hell 35 years has a massive value on the earned returns alone).

[Regorium]

Originally Posted by Ducay

Rent for 35 years and prepaying 35 years worth of rent has no value because the Flames are getting something for it?

You should tell this factoid to all the Real Estate companies - they're never going to make any money because they're just getting rent! Also they should offer no discounts or incentives for prepayment (hell 35 years has a massive value on the earned returns alone).

I think fronting 275M over 35 years is probably something like 80-100M in financing costs, so absolutely the Flames are putting SOMETHING into the pot, just not a lot.

[Ducay]

Originally Posted by Regorium

I think fronting 275M over 35 years is probably something like 80-100M in financing costs, so absolutely the Flames are putting SOMETHING into the pot, just not a lot.

Thats just the discounting. Rent itself has $275m in value, source: multi-trillion dollar commercial real estate industry.

[Roughneck]

Originally Posted by Cali Panthers Fan

So again, judging by the city's rebuttal, the Flames' math is off. There's a chunk that is simply unaccounted for, and in the Q & A section the City indicates that the CRL doesn't cover nearly as much as the Flames believe because part of it is already spoken for.

So I will just wait for the Flames to hire an accountant. Locke, care to help them out?

It actually indicates all of the CRL is spoken for

Due to the downturn in the economy and with only 10 years remaining on the CRL (conclusion in 2027 as per provincial legislation) only $150M of additional CRL remains. Due to the downturn in the economy and with only 10 years remaining on the CRL (conclusion in 2027 as per provincial legislation) only $150M of additional CRL remains. Earlier this year, CMLC determined the balance of the CRL would go toward infrastructure improvements in Victoria Park (e.g. 17th Avenue extension, street improvements, RiverWalk extension).


https://www.scribd.com/document/3595...ring-proposals

That $150M is the 'indirect' costs the city has in their infographic.

[Cali Panthers Fan]

^Thanks. I'm tired from the new baby and misread that slightly.

[Roughneck]

Originally Posted by Ducay

Rent for 35 years and prepaying 35 years worth of rent has no value because the Flames are getting something for it?

The Flames are considering it their contribution, when the rent money is city revenue, which according to Ken King math makes it a city contribution.

You know, like the ticket tax not being a user contribution, but a Flames contribution because it would otherwise be revenue they get to keep rather than being earmarked for construction repayment. The city would get to keep that rent too if it wasn't earmarked for the construction cost.

Again, if it doesn't make sense, that is because it comes from the Ken King school of finance.

[GGG]

Originally Posted by Ducay

I hate jumping to their defense, but sorry, why should owners be required or prepared to accept a lower return? This is an investment, they can demand whatever return they so choose. Doesn't mean they'll get it or that they need to give anything up if they don't want to either. Being a "coveted" asset doesn't mean jack beyond they have a captive market and ability to tug at emotional side of things.

Also, city seems to be pushing hard as showing the user fees as a separate source of funding; I'd say thats one point ownership is correct on.

I'd agree except that in the Flames description of the Edmonton Offer they had the the user fee and the rent in a different colour to make it look like the Oilers only were paying 10% of the cost when in their proposal which included a user fee they did not disclose was all in red and didn't differentiate the fee.

So while it's clearly an owner contribution the way they presented there offer was far more disingenuous than the way the city is.

[GGG]

Originally Posted by Ducay

Rent for 35 years and prepaying 35 years worth of rent has no value because the Flames are getting something for it?

You should tell this factoid to all the Real Estate companies - they're never going to make any money because they're just getting rent! Also they should offer no discounts or incentives for prepayment (hell 35 years has a massive value on the earned returns alone).

You can't claim you are both contributing 285 million to the capital cost of the arena and paying rent. They are trying to claim they are doing both. Again it's disingenuous.

[Regorium]

Originally Posted by Ducay

Thats just the discounting. Rent itself has $275m in value, source: multi-trillion dollar commercial real estate industry.

Okay. I don't understand how your math works. You're double counting both the construction and the "rent" as two separate line items.

I believe what you're thinking is that the 275M from the Flames goes towards the construction, and then the City gets another 275M from the Flames up front as pre-payment for rent.

In this scenario, I would absolutely agree that the City would profit massively from the Flames pre-paying 35 years of rent.

That's not what's happening.

The Flames are paying 275M into building the arena and then paying no rent. This is in exchange for 100% of the revenues.

In your commercial real estate scenario, it'd be like your tenant offering to build half of a building, then getting to use the entire thing rent free forever, while you pay the costs of running the building. You were expecting to recoup the costs of constructing the building through rent (like every other real estate deal on the planet), but actually you're just doing nothing but paying operational costs.

[Matt Reeeeead]

Originally Posted by Ducay

I agree with your points & logic - but the point isn't returns are lower in Entertainment, but we don't know what management wants to earn and what they are earning, and what they seek to earn in a new deal. Its all unknowns, and frankly doesn't matter. Management will take a deal that works for their return, and it is up to the city to hold their line on a deal that works for them as well.

I don't disagree, they can certainly aim and ask for what they want. I certainly agree we don't have all of the facts and each of us are doing our best to read the tea leaves here.

But to me, it's not really a reasonable position to balk at the other side of the party, and call them so unreasonable to remove themselves from the bargaining table, while presenting an offer that shows minimal sacrifice and appears based on the parameters of using public money to get a sizeable roi (and has been supported by models in this thread that the city's deal is not achievable for the flames to get 10 percent return). On that basis, I don't believe it should be the aim, because such a return leaves the other party in a deficit.

Point being, in studies I have read, investing in sports stadiums is not in an overall basis the best use of resources compared to other opportunities. This deal, and similar other ones, aren't going to achieve that kind of return on an overall basis, and therefore, both sides investing, if they are truly interested in making a fair deal, should be prepared to accept that fact, rather than expect the other side is going to take on all of the risk and lack of returns. Currently neither side appears willing to make that sacrifice. It's not a reasonable position to me to act like you are actually interested in pursuing this without willing to look at the reality of this type of investment.


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[bob-loblaw]

If the Flames left Calgary, could Rogers Sportsnet reduce some of the cash they fork over to the NHL? Few Canadian viewers means less advertising bucks. If so, then the probability of Calgary is pretty low if all teams lose a little bit.

[djsFlames]

Originally Posted by sureLoss

May have already been posted, but city's response to the Flames releasing their proposal



source: https://www.scribd.com/document/3595...ring-proposals

I like how Ken King was hyping up their offer like we were going to be shocked at how fair it was and they were being the good guys and voice of reason all along.

Turns out this is the Flames' version of the Edmonton deal. City takes the brunt of the immediate costs, while the Flames only front a fraction, and the user ticket surcharge is considered part of the Flames' contribution... And apparently they didn't even get the total cost of the thing right.

If this is the hill they choose to die on then I bid them a fond farewell to whatever American market where hockey is the 3rd or 4th most popular sport in which they believe they'll find better business.

[Jacks]

I'm not crazy about spending tax dollars on arenas but to me there are a few basic facts.
1) The Flames are never going to self fund an arena. Besides the fact that it makes no financial sense as an investment, owning the building would tie the team down for 30+ years and leave them with no negotiating power against present or future governments. It's not going to happen, ever.
2) Calgary will eventually have to replace the Saddledome. It's nearing the end of it's days. Might be 5 years, might be 15 years but it has to be replaced eventually.
3) If the Flames stick around until they can't make money in the Dome anymore then leave then the city/province will be on the hook for 100% of the costs. Anyone who says they will never leave or can't leave is fooling themselves. They aren't going to stay in Calgary and lose money when they can go to a nice new, shiny, rent/cost free arena in a different city.

If you can accept the above as true then it is obvious that a deal needs to be made with the Flames or it will cost us more in the long run. I have no problem with the Flames claim that the ticket tax is part of their contribution, you can only charge so much for a ticket. I think the Flames have to put in a bit more but I think their proposal is closer than the city on what will be required to get the deal done.

[djsFlames]

Originally Posted by Parallex

Also I'm told these are Ken King's new and improved renderings...

Better rendering than Calgary Next.

[nik-]

Originally Posted by bob-loblaw

If the Flames left Calgary, could Rogers Sportsnet reduce some of the cash they fork over to the NHL? Few Canadian viewers means less advertising bucks. If so, then the probability of Calgary is pretty low if all teams lose a little bit.

I think there's an assumption that some type of number of Canadian markets involved would be in the contract, but there's no proof it exists. Roger's may have just felt that a Canadian market leaving would be unthinkable and didn't bother to account for it, but I can't see them being optimistic to that level.

[You Need a Thneed]

Originally Posted by krazycanuck

In the US I know lots of stadiums are paid partially on hotel and rental car taxes. Is this something that is possible or legal in Canada as a source to fund stadiums? I never hear of it being explored here.

Not possible at the municipal level in Canada. These could work if the cities are able to negotiate a new deal with the province that could allow new taxing powers.