Arena negotiation discussion. UPD: Flames release their proposal

[CorbeauNoir]

Originally Posted by Red_Baron

Okay, so the owners have said that they will work with what they have, why can't people just accept that?
They did want public money, the city said no, they said they can't proceed without it. I am yet to see any model that proves that the Calgary Flames as a business can afford to build and operate a building on their own. They did come off like a spoiled child the way they broke off the negotiations but they were right, the business can't afford it.

No matter how personally rich the owners are, it is the business of the Calgary Flames that has to be able to afford the arena. Calgary is simply not a big enough market for that to happen with the current economic reality. Hopefully this exponential increase in construction costs levels off and the economy in the city of Calgary improves and an arena can be built then.

Uh, what? The city's offer very clearly includes public money. Whether or not you feel the Flames ought to be getting any public money at all is one thing but you're making a claim about the city's offer that's objectively untrue.

[Backlunds_socks]

Originally Posted by Red_Baron

Okay, so the owners have said that they will work with what they have, why can't people just accept that?
They did want public money, the city said no, they said they can't proceed without it. I am yet to see any model that proves that the Calgary Flames as a business can afford to build and operate a building on their own. They did come off like a spoiled child the way they broke off the negotiations but they were right, the business can't afford it.

No matter how personally rich the owners are, it is the business of the Calgary Flames that has to be able to afford the arena. Calgary is simply not a big enough market for that to happen with the current economic reality. Hopefully this exponential increase in construction costs levels off and the economy in the city of Calgary improves and an arena can be built then.

I've yet to see a model that they cannot run a successful business by building a new venue.

Either way sounds like a business that needs to liquidate.

[Roughneck]

Originally Posted by Resolute 14

-Separating $25 million as "Flames not defined" is likewise rather odd.

Why?

-"Flames ownership pays" should include what the city expects the cost of the lease/rent under their proposal to be.

It does: Zero.

[Ice_Weasel]

This does not seem insurmountable to me either. The biggest philosophical shift required is the City to accept that there is some incremental benefit to them to having a state of the art arena in Calgary, that over time will benefit them. 35 years is a long time to recover $150-200 million. Discounted at 5% this is like 9-12m per year. How about the Flames guarantee a $5m donation to amateur sport in Calgary per year and call it even? Is it unreasonable to think that the net economic benefit of a state of the art arena is less than $5m per year? People need to think beyond pure property tax impact. Every incremental dollar brought into the city helps the economy.

[Red_Baron]

Originally Posted by CorbeauNoir

Uh, what? The city's offer very clearly includes public money. Whether or not you feel the Flames ought to be getting any public money at all is one thing but you're making a claim about the city's offer that's objectively untrue.

Is it? The city offered an interest free loan that has to be paid back, the Flames wanted public money.

[ThePrince]

Originally Posted by Backlunds_socks

I've yet to see a model that they cannot run a successful business by building a new venue.

Either way sounds like a business that needs to liquidate.

You didn't read Bingo's post on the subject? There's literally a model right on this website that shows exactly that...

https://forum.calgarypuck.com/showthread.php?t=163873

[GGG]

Originally Posted by Ice_Weasel

This does not seem insurmountable to me either. The biggest philosophical shift required is the City to accept that there is some incremental benefit to them to having a state of the art arena in Calgary, that over time will benefit them. 35 years is a long time to recover $150-200 million. Discounted at 5% this is like 9-12m per year. How about the Flames guarantee a $5m donation to amateur sport in Calgary per year and call it even? Is it unreasonable to think that the net economic benefit of a state of the art arena is less than $5m per year? People need to think beyond pure property tax impact. Every incremental dollar brought into the city helps the economy.

Yes it is unreasonable to think that a state of the art arena will bring a net economic benefit to the city. The substitution affect is real. Arenas are poor investments if your goal is to increase economic activity

[Red_Baron]

Originally Posted by Backlunds_socks

I've yet to see a model that they cannot run a successful business by building a new venue.

Either way sounds like a business that needs to liquidate.

Or make what they have work, which is exactly what they are planning on doing.

[GGG]

Originally Posted by ThePrince

You didn't read Bingo's post on the subject? There's literally a model right on this website that shows exactly that...

https://forum.calgarypuck.com/showthread.php?t=163873

That model assumes that the owners proposal is break even at 10% NPV and a threshold of 10% NPV to execute the project therefore any funding lower than the owner proposa will show it not being economical.

However if you lower the theshold to 5% NPV treating this more like a REIT instead of and Oil project and the project becomes highly desireable even at the cities funding levels. So if the city fronts the ticket tax and absorbs the risk on the Flames ability to pay property tax then the Flames have low capital risk ants a 5% NPV seems reasonable.

So the model depending on underlying assumptions shows it is or isn't economical.

[Ice_Weasel]

Originally Posted by GGG

Yes it is unreasonable to think that a state of the art arena will bring a net economic benefit to the city. The substitution affect is real. Arenas are poor investments if your goal is to increase economic activity

I am not saying it covers the entire cost of the Arena...but to say the net economic impact is 0 is nonsensical to me.

Edit: And even if the economics just break even, why wouldn't the city want to do that deal? Could you at least agree, that all things being equal, its better to have a new arena than old one?

[Roughneck]

Originally Posted by Ice_Weasel

I am not saying it covers the entire cost of the Arena...but to say the net economic impact is 0 is nonsensical to me.

Edit: And even if the economics just break even, why wouldn't the city want to do that deal? Could you at least agree, that all things being equal, its better to have a new arena than old one?

What is the added economic benefit of a new arena vs. what the Saddledome currently provides?

If the investment doesn't cover the cost of the arena, the net economic impact would be less than zero, no? The city could generate similar economic activity by just giving a bunch of bars and restaurants and construction companies a share of $225M.

[Makarov]

Originally Posted by Red_Baron

Is it? The city offered an interest free loan that has to be paid back, the Flames wanted public money.

Paying property tax is not "repaying a loan". It is paying property tax (as nearly all property owners are legally required to do. Incidentally, this has been explained many times already by many different posters in this thread.

[Resolute 14]

Originally Posted by Makarov

I disagree. An arena will certainly require a larger station (capable of serving larger crowds on event nights) which will of course cost more to build.

There's already an arena there, and this is right on top of the Stampede Grounds. The need for larger station capacity already exists and is already undoubtedly being planned for. The proposed new arena does not change this in any way.

Originally Posted by Hot_Flatus

The thing that I fail to understand is how this was even deemed to be going nowhere by CSEC. This is a negotiation and the city is obviously going to cave on some of this stuff (and so they should) just like the Flames will.

That's easy, actually. The Flames are looking at the end costs being that they ultimately pay for everything + extra on the property tax/lease/rent. As a consequence, their view is that the city's proposal is it ultimately pays $0. And relative to the Rogers Place deal where Edmonton is going to end up paying about $300 million that won't ever need to be repaid, you can see the gulf from the team's POV.

Originally Posted by Roughneck

Why?

Because the city is both assigning that $25 million to the Flames and trying to separate it anyway to make it seem like the Flames aren't responsible for it.

It does: Zero.

Semantics. Nenshi has said they could investigate any model from city owned with lease/rent to team owned with property tax. It's all the same in the end. Any which way you slice it, and even if you are 100% in support of having them do so, it will still come out under "Flames pay".

[CorbeauNoir]

Originally Posted by Ice_Weasel

I am not saying it covers the entire cost of the Arena...but to say the net economic impact is 0 is nonsensical to me.

Edit: And even if the economics just break even, why wouldn't the city want to do that deal? Could you at least agree, that all things being equal, its better to have a new arena than old one?

Because the Flames are evidently demanding veto powers that would give them the ability to torpedo the city's economic plans for the area? Why would any city accept a deal with a clause that gives a private entity free reign to go over it's collective heads?

[CaramonLS]

Originally Posted by Makarov

Paying property tax is not "repaying a loan". It is paying property tax (as nearly all property owners are legally required to do. Incidentally, this has been explained many times already by many different posters in this thread.

Kudos to the Ken King for somehow convincing part of the population this is the case. I'm not exactly sure how a reasonable person can actually come to that conclusion, but kudos nonetheless.

[Red_Baron]

Originally Posted by Makarov

Paying property tax is not "repaying a loan". It is paying property tax (as nearly all property owners are legally required to do. Incidentally, this has been explained many times already by many different posters in this thread.

Okay, so they also dispute who should own the building. This is pretty much splitting hairs at this point. If i rent a dwelling, I don't pay property tax, the landlord does.

In the meantime, no point in planning something that neither side can afford right now.

[ThePrince]

Originally Posted by GGG

That model assumes that the owners proposal is break even at 10% NPV and a threshold of 10% NPV to execute the project therefore any funding lower than the owner proposa will show it not being economical.

However if you lower the theshold to 5% NPV treating this more like a REIT instead of and Oil project and the project becomes highly desireable even at the cities funding levels. So if the city fronts the ticket tax and absorbs the risk on the Flames ability to pay property tax then the Flames have low capital risk ants a 5% NPV seems reasonable.

So the model depending on underlying assumptions shows it is or isn't economical.

I looked at the points you made in that thread, and I don't really agree. Sure, with the city's cost of capital, it's fair to assume a 5% discount rate. I don't believe a 5% discount rate is fair with what the owner's cost of capital would be, and the return they would be seeking to make that large of an investment.

[Ice_Weasel]

Originally Posted by CorbeauNoir

Because the Flames are evidently demanding veto powers that would give them the ability to torpedo the city's economic plans for the area? Why would any city accept a deal with a clause that gives a private entity free reign to go over it's collective heads?

Pretty sure this would be a negotiable point...its nothing more than another poker chip on the table. Its unfortunate that things got so adversarial - if the City and the Flames had the same vision this wouldn't even be an issue.

[Roughneck]

Originally Posted by Resolute 14

Because the city is both assigning that $25 million to the Flames and trying to separate it anyway to make it seem like the Flames aren't responsible for it.

They're separating it away because it wasn't included as either the owner's $100M or the ticket tax's $150M as a part of the overall $275M in the Flames proposal. There was $25M without a funding source in the Flames proposal.

Semantics. Nenshi has said they could investigate any model from city owned with lease/rent to team owned with property tax. It's all the same in the end.

Except it isn't the same. The city's proposal has the team owning the building paying property taxes (but therefore no rent/lease, because why would they?).

The Flames proposal has the city owning the building (therefore no property taxes) but the Flames also paying no rent.


One side has a way for the city to recoup their investment. The other doesn't.

[rvd123]

Originally Posted by Red_Baron

Okay, so they also dispute who should own the building. This is pretty much splitting hairs at this point. If i rent a dwelling, I don't pay property tax, the landlord does.

Your rent would include/cover property tax, if your landlord has a brain and wants a positive roi.