Arena negotiation discussion. UPD: Flames release their proposal

[Locke]

Originally Posted by Ice_Weasel

I don't notionally disagree. But the a good portion of the emotional support for the mayor is based on the financial capacity of the Flames ownership to pay for the arena out of their net own net worth. Just because they can doesn't mean they should....no more than Apple sells its phones for free because they can. The owners offer is a lot closer to the market arena deal than what the City is currently offering. Somewhere in the middle there is a deal to be done.

Absolutely, I just dont know what more the CSEC wants. The City will front the money but it has to be repaid from the profits of the asset that the money is being used to create.

I do see some complaint in there from the CSEC that the City is basically profiting without paying. I'm kind of coming around to that notion because they're fronting the cash and then getting it paid back, maybe with interest, maybe not, but theres details in there that are missing.

Heres where I'm at:

The City fronts 2/3s of the cash. Their third and the ticket tax.

The Ticket Tax is repaid in the form of a user fee from people who buy tickets. Fair enough.

But then the City is asking CSEC to repay the third of the cost that the City paid for?

Here is where I think the Devil is in the Details.

Whose building is it?

If the City stumps up 2/3s of the cash but is repaid it then it should be the CSEC's building. Is it? Do they want it? Owning a declining asset isnt normally a great thing.

This is where I'm at. The City wants to be 'Made Whole' over time through a business' ventures. This is a problem. Because at the end of the day what you're doing is making the CSEC pay for the whole thing on their own, just over time. They're acting as a brokering agent.

And I'm not sure where I'm at with that. I'm not sure I have enough information to really solidify this yet.

Theres lots of problems here.

If the CSEC are paying their third and then repaying the City's 2/3s through their profits and its not their building then I can see an issue with that. Even if it is their building I can see an issue with that.

If the City are just acting as a lender and then owning the asset I can see issues with that as well.

[northcrunk]

Originally Posted by GGG

Why is this the conservative position?

I don't understand why my staunchly conservative friends are pro-arena. The argument is that we wasted so much money on the Peace Bridge, Library and the Blue Ring we should just build the Arena so we get something useful.

This is a horrible argument and betrays conservative principles. Its absolutely hypocritical to say since I like this waste of money we should do it because I want something for my team and the liberals go their bike lanes and Art.

Instead support the projects on its Merits. (Not economics because they don't exist). Just say that I would like my tax dollars to subsidize a corporation because I like the flames. Admit it doesn't fit your conservative philosophy on every other issue. Admit that you want money spent on a Public Good that has intrinsic rather than real value. Admit that on this issue you are a leftist. I know its hard but its better than being a hypocrite. The cognitive dissonance required to keep on that blue jersey is amazing.

It's more of a centrist opinion than a conservative one. I'm not exactly a conservative.

[FlamesFanTrev]

Originally Posted by Locke

Absolutely, I just dont know what more the CSEC wants. The City will front the money but it has to be repaid from the profits of the asset that the money is being used to create.

I do see some complaint in there from the CSEC that the City is basically profiting without paying. I'm kind of coming around to that notion because they're fronting the cash and then getting it paid back, maybe with interest, maybe not, but theres details in there that are missing.

Heres where I'm at:

The City fronts 2/3s of the cash. Their third and the ticket tax.

The Ticket Tax is repaid in the form of a user fee from people who buy tickets. Fair enough.

But then the City is asking CSEC to repay the third of the cost that the City paid for?

Here is where I think the Devil is in the Details.

Whose building is it?

If the City stumps up 2/3s of the cash but is repaid it then it should be the CSEC's building. Is it? Do they want it? Owning a declining asset isnt normally a great thing.

This is where I'm at. The City wants to be 'Made Whole' over time through a business' ventures. This is a problem. Because at the end of the day what you're doing is making the CSEC pay for the whole thing on their own, just over time. They're acting as a brokering agent.

And I'm not sure where I'm at with that. I'm not sure I have enough information to really solidify this yet.

Theres lots of problems here.

If the CSEC are paying their third and then repaying the City's 2/3s through their profits and its not their building then I can see an issue with that. Even if it is their building I can see an issue with that.

If the City are just acting as a lender and then owning the asset I can see issues with that as well.

All businesses own depreciating assets. That why the feds let you write off the cost of that depreciation against your profits while calculating taxes. So I don't think that's it.

I think the main sticking point of an entirely CSEC paid Arena is that they essentially are taking all the risk in an asset that limits their future decisions. If your in the red 600 mil to be amortized over 30+ years, your hands are tied on major decisions, such as being able to move the team. You've asked a buiness that has been here for 40ish years to commit to being here for another 30 years, until the arena is paid off and depreciated to nothing (as far as the capital expense of it's construction). It limits their options and reduces their negotiating power with city for a predetermined amount of time. Not saying it's right, or wrong, but I think that's the issue that CSEC has with a privately funded arena.

[Philly06Cup]

It would be great if the city had a significant vested financial interest in the Flames. Then both parties would actually be working together, since they would both share in the profits of the new stadium. How is that not the norm and beneficial to both parties?

[Locke]

Originally Posted by FlamesFanTrev

All businesses own depreciating assets. That why the feds let you write off the cost of that depreciation against your profits while calculating taxes. So I don't think that's it.

I think the main sticking point of an entirely CSEC paid Arena is that they essentially are taking all the risk in an asset that limits their future decisions. If your in the red 600 mil to be amortized over 30+ years, your hands are tied on major decisions, such as being able to move the team. You've asked a buiness that has been here for 40ish years to commit to being here for another 30 years, until the arena is paid off and depreciated to nothing (as far as the capital expense of it's construction). It limits their options and reduces their negotiating power with city for a predetermined amount of time. Not saying it's rght, or wrong, but I think that's the issue that CSEC has with a privately funded arena.

While true, a building is a whole other ballgame. Its not treated the same way as most depreciating assets.

Commitment? I dont think thats much of a barrier either. The whole 'We'll Move the Team' thing is complete Horse-Hockey.

Put it this way: If its the City's building but they get their 2/3s back I can see that being a sticking point. That would be unfair. Because with normal Real Estate you'd take the thing after its appreciated in value and sell it and profit, but with a declining asset like an arena you cant do that.

[FlamesFanTrev]

Originally Posted by Locke

While true, a building is a whole other ballgame. Its not treated the same way as most depreciating assets.

Commitment? I dont think thats much of a barrier either. The whole 'We'll Move the Team' thing is complete Horse-Hockey.

Put it this way: If its the City's building but they get their 2/3s back I can see that being a sticking point. That would be unfair. Because with normal Real Estate you'd take the thing after its appreciated in value and sell it and profit, but with a declining asset like an arena you cant do that.

With a declining asset with no major tenant and a significantly reduced revenue stream, you couldn't sell it period. So yea, a CSEC funded arena is a huge commitment

[Locke]

Originally Posted by FlamesFanTrev

With a declining asset with no major tenant and a significantly reduced revenue stream, you couldn't sell it period. So yea, a CSEC funded arena is a huge commitment

Absolutely. So let me boil this down:

The CSEC does not want to own the building. Period. Full Stop.

But, if the City expects the ticket tax to be repaid and then expects the CSEC to repay the City's other third then the City gets a building for free, or more accurately for the cost of assuming the risk, the financing and the depreciation.

Thats not fair either.

It seems to me that there are details that I'm unaware of. Or this is just a catastrophically bad negotiating process.

[FlamesFanTrev]

Originally Posted by Locke

Absolutely. So let me boil this down:

The CSEC does not want to own the building. Period. Full Stop.

But, if the City expects the ticket tax to be repaid and then expects the CSEC to repay the City's other third then the City gets a building for free, or more accurately for the cost of assuming the risk, the financing and the depreciation.

Thats not fair either.

It seems to me that there are details that I'm unaware of. Or this is just a catastrophically bad negotiating process.

This... This for sure. I think that CSEC wants someone new to negotiate with. And that's why the news broke almost exactly a month before the election.

Also, part of the equation that is getting glossed over, as far as the City's contribution, is the land. There is value there. Are they donating the land? Or do they hold the land title? Ask the folks in redwood meadow how awesome it is to own a building you can't move on land you don't own.

[DFO]

Originally Posted by Locke

Absolutely. So let me boil this down:

The CSEC does not want to own the building. Period. Full Stop.

But, if the City expects the ticket tax to be repaid and then expects the CSEC to repay the City's other third then the City gets a building for free, or more accurately for the cost of assuming the risk, the financing and the depreciation.

Thats not fair either.

It seems to me that there are details that I'm unaware of. Or this is just a catastrophically bad negotiating process.

CSEC does not want to own it because they don't want to pay property taxes right? But they also expect to operate it and pocket all profit? In the end they just want the 1/3 handout.

[JerryUnderscore]

I'm sure the entire conversation is more nuanced than this, but it seems where there is disagreement is over whether the city should act like an investor or a bank.

If the city is investing in the new arena, then the 1/3 they contribute shouldn't be paid back. However, they should be entitled to a substantial portion of the profits.

If the city is playing the role of a bank by giving CSEC an interest free loan, then their portion should be paid back and they shouldn't receive any of the profits from revenue generated.

It seems like when it comes to paying the money back CSEC wants to city to take the role of an investor, but when it comes to the profits from the revenue they want to city to be considered a bank.

Honestly, I don't know if I have an opinion either way, if the city should be an investor or a bank, but there should at least be internal consistency.

[FlamesFanTrev]

Originally Posted by DFO

CSEC does not want to own it because they don't want to pay property taxes right? But they also expect to operate it and pocket all profit? In the end they just want the 1/3 handout.

Commercial property tax is paid by the tenant, not the building owner. It would be no different unless they negotiate something with city hall, which they are trying to do.

And of course they want a 1/3rd handout. If you were in their shoes you would want to make the best deal possible too. Love this thought that CSEC should just be alturistic and shoulder all the costs and pay all the taxes just because the owner has a bunch of money. How do you think he got all the money? By getting the best deal to be had! And he's been good at it. Think Amazon, if they decide to come here, isn't going to be negotiating the same points with city hall? This is not a CSEC phenomenon, this is standard big business

[belsarius]

Originally Posted by DFO

CSEC does not want to own it because they don't want to pay property taxes right? But they also expect to operate it and pocket all profit? In the end they just want the 1/3 handout.

But how much profit do they really stand to make?

Lets say over the 30 year life of the Arena it generates $650M in net income. CSEC profits $50M with a $200M investment after repaying the city. Not actually a very good return over 30 years. $250M is a much better return over that time span. So if they are worried about how much more they can actually make then it makes sense from their point of view. If the city estimates it generating $1B then yeah I can see them wanting their investment returned and their "profits" are the ancillary benefits of having a pro team, and the team keeping $400M.

There are so many details missing, and for me I think it is a gap in estimates of what each side thinks the benefits will be. I can't blame the owners if they think they will only make 25% over 30 years and I can't blame the city if they think it will be 200%.

[DFO]

My comment was based on this from the other thread;

On twitter now from journalist Carrie Tait but not confirmed:

"Flames proposal: No rent, no property tax, no profit sharing, money from the city w/o it paying it back - municipal source."

https://twitter.com/CarrieTait/status/908371279891320832

[Bunk]

Originally Posted by surferguy

Look Bunk I like you but this is no time to try and mediate an alternative solution. Either pick a side and be very extreme about your position or get out.

[Bunk]

Originally Posted by Locke

Absolutely, I just dont know what more the CSEC wants. The City will front the money but it has to be repaid from the profits of the asset that the money is being used to create.

I do see some complaint in there from the CSEC that the City is basically profiting without paying. I'm kind of coming around to that notion because they're fronting the cash and then getting it paid back, maybe with interest, maybe not, but theres details in there that are missing.

Heres where I'm at:

The City fronts 2/3s of the cash. Their third and the ticket tax.

The Ticket Tax is repaid in the form of a user fee from people who buy tickets. Fair enough.

But then the City is asking CSEC to repay the third of the cost that the City paid for?

Here is where I think the Devil is in the Details.

Whose building is it?

If the City stumps up 2/3s of the cash but is repaid it then it should be the CSEC's building. Is it? Do they want it? Owning a declining asset isnt normally a great thing.

This is where I'm at. The City wants to be 'Made Whole' over time through a business' ventures. This is a problem. Because at the end of the day what you're doing is making the CSEC pay for the whole thing on their own, just over time. They're acting as a brokering agent.

And I'm not sure where I'm at with that. I'm not sure I have enough information to really solidify this yet.

Theres lots of problems here.

If the CSEC are paying their third and then repaying the City's 2/3s through their profits and its not their building then I can see an issue with that. Even if it is their building I can see an issue with that.

If the City are just acting as a lender and then owning the asset I can see issues with that as well.

If I'm not mistaken - most franchises that are in a publicly owned facility pay rent. It's usually a normal operating expense for teams. Why not something so normal to enable the City to "recover" its initial investment, even if it's over a long period of time? It has to be a no strings attached gift, or it has no value?

[Locke]

Originally Posted by Bunk

If I'm not mistaken - most franchises that are in a publicly owned facility pay rent. It's usually a normal operating expense for teams. Why not something so normal to enable the City to "recover" its initial investment, even if it's over a long period of time? It has to be a no strings attached gift, or it has no value?

The Flames currently pay rent. Guess what it is. I've written it in white at the end of this sentence. $1/Year. Not a typo.

[Classic_Sniper]

Originally Posted by DFO

My comment was based on this from the other thread;

On twitter now from journalist Carrie Tait but not confirmed:

"Flames proposal: No rent, no property tax, no profit sharing, money from the city w/o it paying it back - municipal source."

https://twitter.com/CarrieTait/statu...71279891320832

I'm not fully immersed on this subject by any means, but if the tax payers are essentially "investing" the same amount of money that the Flames are "investing," why wouldn't the Flames offer some form of profit sharing at all? Is their 33% better than our 33% or something? For Ken King and the higher ups to say that's not fair is extreme hypocrisy.

Arenas can be extremely profitable. So, why can't all parties stand to gain if all parties are investing an equal share. There's risk on both sides, so both sides should stand to gain. If the Flames want all the perks of owning an arena, then why shouldn't they front 100% of the costs like all the other privately funded arenas?

This just reeks of greed to me. If this situation was in an episode of the Shark Tank, I could see their proposal just getting ripped to shreds. If they want public monetary investment, then there should be some form of public monetary benefit that equals the amount of risk involved.

[RM14]

Originally Posted by Classic_Sniper

I'm not fully immersed on this subject by any means, but if the tax payers are essentially "investing" the same amount of money that the Flames are "investing," why wouldn't the Flames offer some form of profit sharing at all? Is their 33% better than our 33% or something? For Ken King and the higher ups to say that's not fair is extreme hypocrisy.

And then in years that the team loses money, is the city on the hook? (i.e. Arizona...). I don't think the city would want to share the business risk.

The word "upside", is used by Nenshi. I wonder if the city is only looking for payment should the profit in any year reach a certain level. Or on the other hand, the city only receives an amount of the profits capped to a certain amount.

[Classic_Sniper]

Originally Posted by RM14

And then in years that the team loses money, is the city on the hook? (i.e. Arizona...). I don't think the city would want to share the business risk.

The word "upside", is used by Nenshi. I wonder if the city is only looking for payment should the profit in any year reach a certain level. Or on the other hand, the city only receives an amount of the profits capped to a certain amount.

Personally I wouldn't mind giving CSEC the lions share and for me personally, I'd just be ok with getting at the very least, a large portion of the money back over a certain period of time. I'm sure they can reach an agreement where the amount can be adjusted depending on revenues gained year over year.

[rubecube]

Originally Posted by transplant99

It is?

Duh. They moved to Nashville.