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Old 09-20-2017, 02:29 PM   #1
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https://www.calgarypuck.com/2017/09/...d-a-new-arena/

Tried to write this as balanced as possible.

I'm very interested in a discussion on the model's assumptions as I'm fully willing to alter the look and produce different numbers if we can arrive at better information.

Either way looks like a bad investment to build a new arena in Calgary.
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Old 09-20-2017, 02:38 PM   #2
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Two comments:
1) Don't think most fans are that concerned about the Flames getting a new arena. They are perfectly happy with what they have now. Fans would be more enthusatic if the location was changing or the old arena was falling apart.

2) Big piece missing is franchise value appreciation. That is in most cases the big return on these franchises (at least from what we know).

EDIT: should add - good article.

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Old 09-20-2017, 02:40 PM   #3
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This looks fantastic, Bingo, but I am interested to know why the construction phase of a new arena is five years. The new dump in Edmonton took 2.5 years from ground-breaking to complete, and Little Ceasar's Arena took 3 years.
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Old 09-20-2017, 02:41 PM   #4
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Quote:
Originally Posted by Bingo View Post
https://www.calgarypuck.com/2017/09/...d-a-new-arena/

Tried to write this as balanced as possible.

I'm very interested in a discussion on the model's assumptions as I'm fully willing to alter the look and produce different numbers if we can arrive at better information.

Either way looks like a bad investment to build a new arena in Calgary.
Great write-up. When you build a model based on league wide assumptions and then after you plug the Calgary numbers it becomes break-even you have to think you are on the right track.

It changes the tone when the owner's proposal doesn't make them a lot of money but only breaks even from the current position. They are not interested in a subsidy to finance profits, but protection against losses while providing better facilities for all. Makes them look less like billionaires trying to make a buck off the back of the taxpayer.

On the same note it seems the city is willing to take a "loss" on the proposal but only to a certain extent. Very interesting to see where it goes from here.
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Old 09-20-2017, 02:42 PM   #5
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Quote:
Originally Posted by PeteMoss View Post
Two comments:
1) Don't think most fans are that concerned about the Flames getting a new arena. They are perfectly happy with what they have now. Fans would be more enthusatic if the location was changing or the old arena was falling apart.

2) Big piece missing is franchise value appreciation. That is in most cases the big return on these franchises (at least from what we know).
Thanks meant to mention that I left franchise value out. Did this not to avoid a ownership win, but to me there are problems with it.

1) You don't get the value unless a) you sell and b) you find someone to actually pay that value.
2) The Flames franchise value went down last year. Trend? Is the hockey model broken?

Either way if the team is worth 400M or 410M it doesn't really take the sting out of losing $285M on an investment.
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Old 09-20-2017, 02:43 PM   #6
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Well done Bingo. That's a well written article

It leads me to 2 questions which are highly subjective:


Is there a public benefit to the new arena which justifies government funding?

If so, what is the dollar value?
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Old 09-20-2017, 02:45 PM   #7
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This looks fantastic, Bingo, but I am interested to know why the construction phase of a new arena is five years. The new dump in Edmonton took 2.5 years from ground-breaking to complete, and Little Ceasar's Arena took 3 years.
Believe King has said 4-5 years as an estimate, but then that was CalgaryNext. I can certainly look at tightening that up.
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Old 09-20-2017, 02:45 PM   #8
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This isn't surprising. The Toronto, Montreal, and NYR franchises have made the lion's share of NHL revenue (and especially profits) for years and years and years now.

Just because I'm sure the discussion will go there, I wonder what franchise losses on arena would look like if the appreciation in franchise value over time is considered. I'm not sure how you would isolate the growth in value of a franchise with a new arena vs one without.

Going through the Forbes numbers (older ones, I haven't looked up any past 13-14), the Flames franchise grew in value from $200M in 08-09 to $450M in 13-14 (so over a 5 year period). That is something like a 17.61% annual appreciation compounded over 5 years. EDIT: I looked up the newest Forbes valuation on the Flames, and it seems to be $410M for 15-16. (a 7 year period). That's still a 10.8% annual appreciation compounded over 7 years. That suggests that the franchise worth $410M today might be worth >$685M in 5 years when this hypothetical arena might be ready for use.

Even though the gain on the franchise value can't be realized without selling, surely the increase in value could be used to secure some kind of financial investment to offset or exceed the NPV loss that is based solely on construction costs of a facility.

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Old 09-20-2017, 02:46 PM   #9
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After seeing Edmonton's new arena built and ticket prices sky-rocketing (cheapest seat being $120 FV). I'm quite content staying in the Saddledome finding decent seats for $50 a ticket.
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Old 09-20-2017, 02:46 PM   #10
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Believe King has said 4-5 years as an estimate, but then that was CalgaryNext. I can certainly look at tightening that up.
If memory serves me correct, he indicated it was five years from final agreed-upon presentation to puck drop, with three years of that being actual construction.
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Old 09-20-2017, 02:49 PM   #11
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A couple of additional things:

1) You have noted that a huge city like LA does not justify the value of the Staples Center based on hockey revenue, but that is surely offset by having two NBA teams in that building, no?

2) Has the "value" of the Oilers increased with the construction of their new toilet bowl?
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Old 09-20-2017, 02:51 PM   #12
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1) You have noted that a huge city like LA does not justify the value of the Staples Center based on hockey revenue, but that is surely offset by having two NBA teams in that building, no?
Does concert revenue play into things as well?
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Old 09-20-2017, 02:54 PM   #13
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Bingo,

Appreciate the time and effort pt into this. Two thoughts around the assumption:

As has been mentioned, if looking at arena only, no reason it should take 5 years.

Non hockey revenue of 30%. This seems like an important driver here, and I have no idea how to estimate. How did you come up with 30%?

I do think franchise value appreciation is relevant. Yes requires a sale to monetize, and there is risk over whether values will continue to appreciate. But those are just factors to consider IMO.
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Old 09-20-2017, 02:56 PM   #14
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Does concert revenue play into things as well?
I assume that is part of non-hockey revenue.
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Old 09-20-2017, 02:59 PM   #15
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...I do think franchise value appreciation is relevant. Yes requires a sale to monetize, and there is risk over whether values will continue to appreciate. But those are just factors to consider IMO.
This is why I am especially interested in how a new building has affected the value of a team like the Edmonton McDavids. Since team valuation is tied to revenue the huge increase in ticket prices would seem to me to also affect this.
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Old 09-20-2017, 03:00 PM   #16
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Bingo,

Appreciate the time and effort pt into this. Two thoughts around the assumption:

As has been mentioned, if looking at arena only, no reason it should take 5 years.

Non hockey revenue of 30%. This seems like an important driver here, and I have no idea how to estimate. How did you come up with 30%?

I do think franchise value appreciation is relevant. Yes requires a sale to monetize, and there is risk over whether values will continue to appreciate. But those are just factors to consider IMO.
30% was honestly a plug to get the investment back to zero using the Flames offer, and a starting point, and the biggest variable in the model as I had Edmonton to set ticket prices and the ticket surcharge

The franchise value comes down to what I'd do. If I owed the Flames (or a portion) I'd see it as a legacy item for my family that would never be sold and therefore not a true investment figure.

And as I said it's a pretty small year over year change to ponder vs the losses of the investment to build an arena. Even if it went up by 5% a year over the next five years you'd only see the value at an uptick of roughly $85M vs the $285M investment hit to build the thing on their own.
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Old 09-20-2017, 03:03 PM   #17
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This is why I am especially interested in how a new building has affected the value of a team like the Edmonton McDavids. Since team valuation is tied to revenue the huge increase in ticket prices would seem to me to also affect this.
Forbes valued the Oilers as worth $166M in 08-09 vs $445M in 15-16. How that valuation changes after the first year with the new arena remains to be seen. Presumably the revenue will spike, but the operating/financing costs probably will too.

The annual compounded return on $166M to $445M in 7 years is a shade over 15%.
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Old 09-20-2017, 03:14 PM   #18
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30% was honestly a plug to get the investment back to zero using the Flames offer, and a starting point, and the biggest variable in the model as I had Edmonton to set ticket prices and the ticket surcharge

The franchise value comes down to what I'd do. If I owed the Flames (or a portion) I'd see it as a legacy item for my family that would never be sold and therefore not a true investment figure.

And as I said it's a pretty small year over year change to ponder vs the losses of the investment to build an arena. Even if it went up by 5% a year over the next five years you'd only see the value at an uptick of roughly $85M vs the $285M investment hit to build the thing on their own.
Thanks for the response. I get the legacy argument, but even in that scenario who knows what happens as things get passed down. I believe Les Alexander viewed the Houston Rockets as a legacy investment at one point and they were sold for $2.2 billion a few days ago.

To me its a tiebreaker of sorts maybe. Owning a sports team has some great intangible benefits (I would imagine). Breaking even from an investment perspective coupled with these intangibles and appreciation in value would seem like a sweet deal for your average billionaire.
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Old 09-20-2017, 03:20 PM   #19
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And as I said it's a pretty small year over year change to ponder vs the losses of the investment to build an arena. Even if it went up by 5% a year over the next five years you'd only see the value at an uptick of roughly $85M vs the $285M investment hit to build the thing on their own.
The least valuable team in 15-16 was the Hurricanes at $230M, which is up from $177M in 08-09. That's 4.01% annually. The least valuable team in 13-14 was the Panthers at $190M, which is up from $159M in 08-09, a 3.63% annual return. The Rangers are estimated to be worth $1.25B in 15-16, from $416M in 08-09 - a 24.61% annual return.

Even averaging out the appreciation of a club in 15-16 gets to a return of about 4.2%, and that was with the dollar in the tank around $0.76 to a USD, compared to about $0.815 today, which would account for a lot of the decrease in value of CA based teams year-over-year.

I think it's not unreasonable to suggest that a 5% annual appreciation in value of a CA based NHL team is on the low side, especially over the medium term.
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Old 09-20-2017, 03:24 PM   #20
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30% was honestly a plug to get the investment back to zero using the Flames offer, and a starting point, and the biggest variable in the model as I had Edmonton to set ticket prices and the ticket surcharge
I think that number is one of the numbers the City and CSEC are stuck on as well. Between the Flames, Hitmen, and Roughnecks, the arena will have events going on roughly 100 nights a year. That's high and assumes long playoff runs for each. That leaves ~265 nights. A new arena could significantly increase your 30% number. But, alas, I can't give you a better value Great article.
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