ARENA DEAL IN LIMBO

Jason Gregor
October 17 2012 06:57PM

Yesterday Daryl Katz informed Edmonton Mayor Stephen Mandel that he wouldn't accept the mayor's invitation to come talk to city council. Today city council voted unanimously to cease negotiations with the Katz group and empowered city administration to look at other options.

This doesn't mean the deal is dead. The city is still very much open to negotiating with the Katz Group, but they will cease spending any more money on the design at this point.

Call it part of the negotiations, but for Edmontonians it was just another bad day in a four year negotiation.

This doesn't put the city any closer to a new arena, and make no mistake Edmonton needs a new arena, mostly because we need to start upgrading our downtown. The arena will be the catalyst, and now we to wait until January 13th to find out what the next step is.

There was also a motion tabled that would see the city agree to the original deal from last October. The reality is the longer this deal takes to make the more it will cost. For all those who are celebrating today as a defeat of Katz, keep in mind the city is no closer to a new arena, and you might be on the hook for the entire thing.

The most sobering and disappointing comment came from Mandel, "I don’t believe we are much further ahead today than we were four years ago except for a greater ask of money.”

Four years and no progress. Ouch.

Simon Farbrother, who has been negotiating on behalf of city administration, told council he didn't get the sense the Katz Group wanted to back off of their new demands of another $6 million/year in operating subsidy and so city council voted to cease negoitations.

WHAT NOW

  • I honestly don't believe that negotiating publicly would have helped Katz, but by not showing up he lost the trust of many Edmontonians. Why couldn't he have shown up and stated he was willing to continue to negotiate, but didn't feel doing it publicly would help. At least he would have shown he was willing to talk, and maybe answer a few simple questions.
     
  • Many have suggested the Katz Group should have to show his financials to city council. This could turn out to be a legal nightmare for the city. Can anyone guarantee some of the info wouldn't be leaked publicly? Rather than worry about that, city councillors should at least get to see the Master agreement. To date they've never seen that, and that is a tad perplexing. I'm not in favour of the Katz Group needing to show their finances. I think we can all see the Oilers have made a profit in the past.
     
  • The city can look at funding the arena on their own, but there will be some hurdles. They'd have to negotiate rent with Katz and they'd have to give him some non-game night revenue. Also then they'd be in the business of operating the arena, and that is something the city should be a part of. Maybe Katz operates it, who knows, but I don't think Katz will completely walk away.
     

I applaud the city for taking a stand. I feel this was a tough decision that needed to be done. I still believe both sides will meet again though. 

Today was not a win for anyone. We aren't any closer to a new arena, and in fact we are farther away than we were last October.

I hope that before January 13th the Katz Group contacts city administration and continues to negotiate. If they don't then city administration has to do some serious research and find out the major hurdles of building on their own and ensure they come to city council with plan that ensures we reach an arena deal sometime in 2013.

Unfortunately there is no resolution in sight. You know it is bad when the NHL and NHLPA might reach an agreement before the Katz Group and the city does.

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One of Canada's most versatile sports personalities. Jason hosts The Jason Gregor Show, weekdays from 2 to 6 p.m., on TSN 1260, and he writes a column every Monday in the Edmonton Journal. You can follow him on Twitter at twitter.com/JasonGregor
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#51 David S
October 17 2012, 11:32PM
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Gazmort wrote:

Confusion: EBIT = Earnings Before Interest & Taxes....right?

Interest carrying costs would not "bring down EBIT dramatically" because by definition EBIT is a measure of earnings before interest is deducted.

Further, I'm unclear on your EBIT of 10% that is required to finance construction of an office tower. This varies wildly based on amortization, interest rate, lease income, etc.

Lot of questions here.

Yeah. Sorry. I'm a little rusty for sure on some of the fine points.

The point I was trying to make is that Katz drastically overpaid for the team. Some estimate by as much as $50M. The theory is he did so willingly because he saw the opportunity to make up the loss by getting into the development game. He'd be doing so by leveraging the team's revenue flow (currently estimated at $20 or so annually) to secure a development loan.

He'd only be able to do so by proving a healthy net debt to EBIT ratio (and I may be slightly off base here). Problem is his debt is high, thus he needs above normal profits to normalize the equation in order to qualify.

The other issue is that Rexall is highly leveraged (it's how Katz made his fortune). Even though Rexall Sports is operated as a distinct entity, I have a hard time believing debt financiers wouldn't take that into consideration.

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#52 Gazmort
October 17 2012, 11:34PM
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@David S

Right it is two payments, but there are a couple things:

- the cashflows are categorized differently, but what is the NET effect, regardless of the purpose/categorization of the cashflows?

- the City is borrowing the $100M (because of advantageous pricing due to the municipality's credit rating) - with the Oilers making the payments. The City is the legal obligant on the mortgage. The agreement is for the Oilers to make the payments. The Oilers go bust (unlikely, sure) - then the City is on the hook, as they are the Borrower. City accepting risk on the Oiler's $100M contribution, and subsequently, the City is on the hook for the $5.5MM mortgage payment should the Oilers default.

Taken in isolation, these two points are a lousy deal. Factor in property tax revenue forecasts, and the picture evolves into something approaching a win-win.

Here's what people have trouble with - it's not solely annual payments. It is risk management. That means that parties that accept risk should expect to be rewarded proportionally - municipality, corporations and individuals.

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#53 Gazmort
October 17 2012, 11:38PM
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@David S

No worries on being fuzzy. Happens to everyone. I just managed to double post my latest, so it's all good!

Re: leverage. Without knowing the debt that Rexall carries, I would say that yes, a prudent business partner would make it a key part of due diligence to understand how the entire corporate entity works. Leverage in one company can easily impact the other's ability to service existing or proposed debt, particularly, but not limited to, situations wherein one company guarantees the other's debt.

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#54 David S
October 17 2012, 11:53PM
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Gazmort wrote:

Right it is two payments, but there are a couple things:

- the cashflows are categorized differently, but what is the NET effect, regardless of the purpose/categorization of the cashflows?

- the City is borrowing the $100M (because of advantageous pricing due to the municipality's credit rating) - with the Oilers making the payments. The City is the legal obligant on the mortgage. The agreement is for the Oilers to make the payments. The Oilers go bust (unlikely, sure) - then the City is on the hook, as they are the Borrower. City accepting risk on the Oiler's $100M contribution, and subsequently, the City is on the hook for the $5.5MM mortgage payment should the Oilers default.

Taken in isolation, these two points are a lousy deal. Factor in property tax revenue forecasts, and the picture evolves into something approaching a win-win.

Here's what people have trouble with - it's not solely annual payments. It is risk management. That means that parties that accept risk should expect to be rewarded proportionally - municipality, corporations and individuals.

As I understand, the risk component was in part mitigated by the 35 year location agreement. But you are correct in pointing out people's concern about the proportion of that risk.

However, if Katz agrees to locate in Edmonton for 35 years, his only out would be to declare bankruptcy because the 35 year clause would carry over to the new owner if he sold.

As I'm sure you're aware, the rewards for each party are different. In the city's case, new tax revenue conservatively estimated anywhere between $1.2 Billion and $2 Billion. This on top of increased public pride and attracting new residents by (in part) providing more inviting amenities, not to mention staving off competitive offers for corporate locations from competing cities.

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#55 Butters
October 17 2012, 11:54PM
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Why doesn't YEGCC just pay Northlands off to get them to sign the non-compete clause? 5 mill to Northlands would be far more politically palatble then giving that subsidy to Katz. JMO

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#56 David S
October 18 2012, 12:05AM
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Gazmort wrote:

Right it is two payments, but there are a couple things:

- the cashflows are categorized differently, but what is the NET effect, regardless of the purpose/categorization of the cashflows?

- the City is borrowing the $100M (because of advantageous pricing due to the municipality's credit rating) - with the Oilers making the payments. The City is the legal obligant on the mortgage. The agreement is for the Oilers to make the payments. The Oilers go bust (unlikely, sure) - then the City is on the hook, as they are the Borrower. City accepting risk on the Oiler's $100M contribution, and subsequently, the City is on the hook for the $5.5MM mortgage payment should the Oilers default.

Taken in isolation, these two points are a lousy deal. Factor in property tax revenue forecasts, and the picture evolves into something approaching a win-win.

Here's what people have trouble with - it's not solely annual payments. It is risk management. That means that parties that accept risk should expect to be rewarded proportionally - municipality, corporations and individuals.

I'm not sure I understand what you're getting at (it's getting pretty late). Katz loan repayment is $6M/yr.

Arena Op costs ≈ $6M/yr.

Net (pre-subsidy request) from Katz should therefore be ≈ $12M/yr. Taking that subsidy into effect does not negate his $100M commitment. He still pays it, but is asking for help with Op costs, which are in addition to his "rent".

Like I said above, my belief is the conservative projections he's looking at conclude he could not generate sufficient revenue to meet financiers' requirements because 1) He overpaid for the Oilers and 2) Splitting non HRR with Northlands must be assumed.

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#57 Tyler
October 18 2012, 12:21AM
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You also know its bad when Katz wants Gary to step in and help with negotiations. I assume that means slapping the city in the face and then not talking about anything important for quite some time. Then, propose something fair, and hope the other side agrees. Just put your penis meter sticks away, talk, and figure something out.

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#58 Dave
October 18 2012, 01:15AM
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Tyler wrote:

You also know its bad when Katz wants Gary to step in and help with negotiations. I assume that means slapping the city in the face and then not talking about anything important for quite some time. Then, propose something fair, and hope the other side agrees. Just put your penis meter sticks away, talk, and figure something out.

Penis sticks not standing, I don't think Katz is willing to negotiate until their is a credible council to negotiate with.

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#59 The Oilers Shot Clock
October 18 2012, 03:09AM
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Why doesnt Katz find a second investor?Why doesnt the city hold some sort of glorified bake sale? Has the option to scale down the arena been discussed? Is there no middle ground? There's way too many facts,numbers,percentages, and statistics involved and they have been getting thrown at one another like insults lately. Im not going to pretend to understand the finer points but..... We have a billionaire owner of one of the few profitable teams in the league, in a wealthy Oil driven city in a wealthy province. Numbers be damned, this makes no sense.

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#60 Pat Hughes ruled
October 18 2012, 03:47AM
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Not that I am with Katz but why is it that the artsy fartsy get what they want fairly easily but sports related fans have to work there butt off to get support? Katz should get some arts group on his side and watch the arena magically appear.

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#61 mayorpoop
October 18 2012, 06:27AM
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often municipalties and government, in general, build/invest in things that are profit neutral. they make no money.

that's ok. part of governing is appealing to a broad and eclectic population. pleasing everyone is impossible. literally. can never ever happen. while 99% of the population wants peace there is always the 1% who want war.

the arena deal, aside from the Katz gongshow, should be built. as much i hate the idea of driving downtown with copiuos amounts of horrbile drivers, i will. it belongs downtown.

this shouldn't be about money generated and coffers stocked. cities, towns, villages and even hamlets need to grow. they will grow. let's direct that growth.

think of this project as in investment in tomorrow. an investment in opportunity.

leave Katz sulking in his jet flying somewhere i don't care. build the arena for Edmontonians BY Edmontonians.

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#62 JSR
October 18 2012, 06:34AM
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With the whole lockout thing, and now the arena sh$#show, I don't care anymore! I'm a season seat holder, not from Edmonton, and I've had enough! Move the fu$@g team! I'm sick of the whole thing! I'll find something else to do with my money and time!

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#63 oilers2k14
October 18 2012, 06:36AM
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I bet the NHL would love for this oilers team to be moved to Seattle or Houston or somewhere south and move a team like Pheonix to edmonton.. Why? Edmonton fans will always show up no matter what, south of the border names like Ebs, Hall, RNH, and Yakupov would be huge selling points..

Slap in the face for us canadians though..

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#64 Russ99
October 18 2012, 06:40AM
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@RJSOILER69

The city building the rink is a non-starter, people need to stop with this line of reasoning.

The city won't put up the money for Katz, how can they fund a whole new design study, buy land, and deal with construction costs and overruns on their own?

Also, this assumes that Katz's deal with AEG to run the building is out the window, and the same bad for hockey ownership deal handing Northlands way too much control and operations that lead us to this mess - that again the city will have to subsidize.

Now assume Katz is out, either moving the team or selling it. Who would go into that kind of deal, knowing that Quebec City, Markham and other potential new arenas have a much better deal for their business, and don't have to deal with the political implications of wringing any kinds of concessions out of Northlands?

Also assume these people have zero ties to the community and have no such view towards helping the city or keeping the team like Katz and the group of owners before them.

Just don't see it happening, the point here is creating an economically friendly deal that benefits ownership and the city, and a city built arena wouldn't do that.

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#65 Bloodsweatandoil
October 18 2012, 07:42AM
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Did or did'nt Katz purchase the land on which the new arena is to be built on?

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#67 KenL
October 18 2012, 08:02AM
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For anyone who believes the City is mostly at fault with the current arena mess, you have to remember there are politicians who are putting their careers on the line by supporting the arena project. Mayor Mandel can probably kiss his career go bye since he's been the biggest arena booster and Katz ally. As well as Kim Krushell, who openly admitted on Gregor's show she's no hockey fan, but supported the arena because of the bigger picture.

Katz can spin how they're taking most of the risks for this project, but if the deal falls through, few at Katz group would lose their jobs over it. They're not accountable to shareholders since it's a private company. City council however has to answer to its constituents.

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#68 Truth
October 18 2012, 08:04AM
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@Jason Gregor

It is my understanding that Katz believes the $6M was part of the original framework, probably through a casino deal. Since the casino revenue sounds like a no-go, Katz was ensuring this money would still be provided to him. Is that correct?

If that is the case and Katz was originally promised that $6M revenue from the casino, which is now unattainable, then the confusion would be in Katz losing an annual $6M in revenue which now has to be replaced with what can only be described as a subsidy.

I am sorry if this was covered in the previous 60-something comments , I unfortunately don't get enough time in the day to be distracted from work.

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#69 michael
October 18 2012, 08:40AM
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Jason Gregor wrote:

Dave, Simon Farbrother the city administrator is doing the negotiating, not city council.

Keep in mind last October city council voted in favour of the proposed deal. Since then Katz has asked for an additional $6 mill in operating costs.

How has city council been the problem in negotiating. Because they voted to cease spending money on design details for the time being?

I'm just curious who or why you think city council has held this back? Sure some have voiced their concerns, but a year ago they voted 10-3 in favour of a deal.

Someone with a brain cell or three has stated the obvious. Farbrother is in Charge of the negotiation. Not Mandel.Not Council.And Katz has his suits on the other side of the table doing whats in his best interest. Mandel and Council expect Katz to show up for what? So they can grill on stuff that he pays other people to know. Really folks. Its time to grow up and enter the real world of buisness. council needs to get its head out of its collective craw and stop the incessant public whining. Its like a bunch of grade 3's. He called me this.She called me that. Please we elected this council with the understanding that they were mature people who would act in the best interest of the people. Bypassing your appointed negotiating team,who you pay money to to negotiate btw, seems immature and self serving. Farbrother is the guy you hired.If he needs further details and explanations he will ask Katz's people for them.Not Katz himself. Whaaaah Whaaaaaah. That is all I am hearing from council.Shut the public frak up and keep your opinions to yourself just like you have done with SE LRT deal. The less is more theory works for me. Let Farbrother do his job.

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#70 Rick
October 18 2012, 08:44AM
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@michael

Did you even follow what went on at council yesterday?

Or further more, can you grasp that Farbrother has set parameters established for him when is sent to do his negotiations?

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#71 Gazmort
October 18 2012, 08:45AM
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@Truth

I have trouble believing that an intelligent individual wouldn't have been able to comprehend that the City has no ability to grant gaming licenses. This is a Provincial matter. Sure, it might have been part of the framework, and the City may have agreed to lobby on behlaf of the katz group, but you can't hang that on the City, who has zero authority to grant these gaming licenses.

As a broader comment, I am confident this deal will get done. This is a nasty, confrontational negotiation, as opposed to a collaborative one, but the outcome will be a new arena for the Oilers, in Edmonton. I appauld City Council for pushing back on these negotiations, which seemed to very quickly become the Katz group firing volleys and swinging daggers above Council's heads. Cooler heads will ultimately prevail.

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#72 al
October 18 2012, 08:46AM
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About time council grew a backbone and told this guy to go pound salt.

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#73 Ambassador humantorch
October 18 2012, 08:52AM
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Remember when Katz was all "Yeah, that little junket to Seattle to explore relocation? Oops, I'm awfully sorry about that."

Is there anyone left who thinks there was a single shred of sincerity in that whole apology BS?

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#74 boxman
October 18 2012, 08:52AM
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As one of the many that was ecstatic when Katz bought the team I am seriously disappointed in the latest news. To me Katz is either an incredibly arrogant rich jerk or he is running a house of cards like Peter Pocklington and needs hockey to support his lagging businesses. The man will go visit the city of Seattle but won't lower himself to talk with the city of Edmonton, his supposed partners. The man who is "willing" to put 5.5 million dollars yearly towards building the arena if the city pays him 6 million dollars to offset it. Turns out he is not the saviour he led us to believe but just the latest owner with a napoleonic complex to try to blackmail our city because of our love of hockey. Well there is bad news Katz. Our love of hockey is being ruined by the other Napoleon, Bettman, and the incredibly shortsighted and greedy NHLPA. Eventually, and quickly, there will be a tipping point where many of us just won't care. That point may have already been reached in many regions of the U.S. and it is folly to think it can't happen here.

Props to many on the city council who put their careers on the line and got their feet kicked out by the latest greedy "gnome".

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#75 DSF
October 18 2012, 08:58AM
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Gazmort wrote:

Right DSF, you've correctly identified that the two cashflows are separate issues. What you haven't done is explain your position that we shouldn't be offsetting these two cashflows to arrive at a net result.

I'm really interested to hear it, especially given that I work in corporate finance and get to negotiate deals every day. What am I missing in your point?

Of course, both need to be considered when contemplating the bottom line but I don't think you would roll your utility bill into your mortgage payments.

My point is we have a lot of folks who keep saying Katz isn't going to make mortgage payments.

He is.

That he is looking for assistance with his utility bill is where the problem lies.

People also forget, despite me saying this over and over, that the city has use of the arena for 1 month every year so Katz is NOT getting all the revenue as critics keep claiming.

If we look at Calgary, the Flames play in an arena that was built entirely with taxpayer money.

The team convinced the city that it needed ALL the revenue from the arena to be profitable.

The city (Stampede Board) sold the arena to the Flames for $20 million.

So, what do you think the response would be if the city now builds a new arena and sells is to Katz for $20M.

I'd wager Katz would be all over that deal.

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#76 DSF
October 18 2012, 09:01AM
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David S wrote:

It's not the value of the team, rather the carrying costs. He probably financed the vast majority of the purchase. Servicing the debt with private financing is probably eating into his profit.

If he wants to leverage the team to finance the arena development (i.e. the office building), he'd have to show an EBIT of around 10%, which by all accounts is about what he's making right now (I've seen reports of around $20M).

His interest carrying costs bring that EBIT down dramatically, which I guess is part of his claim he's "losing money" with the present deal. Losing money in this case meaning "not making as much as he should".

A fine distinction, I agree.

Yeah, I see your argument.

Katz reportedly borrowed half the team purchase cost IIRC.

While the team may be posting an annual operating profit, Katz may be losing money after debt servicing costs are accounted for.

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#78 madjam
October 18 2012, 09:22AM
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Lets see what city contingency plan is before all is said and done . It might be far superior than conceeding too much to Oilers as current deal suggests financially and otherwise . Katz could go buy another team , but i doubt Bettman and the Nhl would allow him to move team if we build a new arena without first putting them up for sale , perhaps even to city .

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#79 Gazmort
October 18 2012, 09:25AM
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@DSF

Using the utility bill/mortgage analogy isn't completely accurate, because the direction of the cashflows are the same, not offsetting.

Ignoring that, I would say that yes, when I contemplate a property purchase, be it residential, commercial or industrial, I factor my debt servicing cost as well as property taxes, utilities, etc. If you don't/can't, you aren't modelling the transaction correctly. All cashflows, positive and negative, should be modelled.

Re: Katz making the mortgage - take a look at the news. Bigger companies than his have defaulted on debt payments. Never say never. The City has an obligation and fiduciary duty to adequately mitigate risks in a transaction. They are not obligated to accept the majority of risk without corresponding return in a deal with a private corporation.

The Calgary model is one example, outdated, and unlikely to happen. Commenting on it further is irrelevant.

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#80 rubbertrout
October 18 2012, 09:32AM
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TigerUnderGlass wrote:

The fact that you enjoy and can afford a museum is irrelevant. They are bult with public money, they service a relatively small portion of the population, and they do not provide good return on investment.

The only reason people see a difference is because a wealthy man might profit from one. This is not a good reason to refuse to build an arena. There are plenty of other reasons, but this is pure idealistic nonsense.

Tiger, on days like today I wish I could put more than one prop per comment. Well said.

It applies equally to your reply to Captain Obvious and Gregor.

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#81 Harlie
October 18 2012, 09:32AM
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DSF wrote:

I'll always be more than willing to talk about the breathtaking ferry ride to Seattle.

It just has so much more cache than a drive from Edmonton to Calgary in a snowstorm to watch an NHL game.

But enough about me....

At this point, I think it's likely Katz will quietly put the team up for sale and we'll see if there is anyone in Edmonton with the stones and the rubles to buy the team for $225 million.

I expect there isn't.

Once Bettmann becomes aware that the the team has a reluctant owner and a shabby arena to play in, he won't be adverse to a relocation.

The City can ramble on about the possibility of building the arena on its own but it must be remembered that, without Katz, $125 million in ticket surcharge revenues will vanish as will Katz' $5.5million annual payment.

One would assume Katz will also pull back on his commitment to invest in the surrounding arena district so the value gleaned from the CRL will be much delayed and/or much reduced.

If the City can come up with $450 +++ million of its own (very doubtful) it will then have to go about wooing a major tenant to make its investment worthwhile.

Since we know how long it takes Edmonton council to make a decision on anything of import, it's highly like that, even if the city finances the whole thing, it will be many year before it is finished meaning construction costs will soar even further.

Would the last one out please turn off the lights.

A $215 dollar ferry ride with hotel, $100 minimum for hockey tickets, 2 days off work for travel back and forth ($$), $100 for food and drinks...yeah I bet the whole travel to Seattle thing for hockey games will go over like a lead balloon to the majority of Vancouver/Victoria area people when they could easily just watch the Cansucks.

Give your head a shake, this Seattle argument is tired and boring. It ain't gonna happen and the last I checked, the Victoria housing market is in the dumps and it is all most can do to live in a house and they have to rent out the other half. Believe me, I've been following the Victoria market for YEARS.

http://househuntvictoria.blogspot.ca/

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#82 Archaeologuy
October 18 2012, 09:40AM
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Numbers! Numbers! Math, Integer, Ledgers! Cashflows, Equity, Risk.

I wanted to add to the conversation so I thought I'd adopt the language. Except I think when you translate what I said to english it says, "Where can I Milk the Hamburger?" and all I really wanted to say was, "Where can I find the Washroom?".

I think I should cancel my extended vacation to the Island of Accounting.

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#83 DSF
October 18 2012, 09:42AM
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Gazmort wrote:

Using the utility bill/mortgage analogy isn't completely accurate, because the direction of the cashflows are the same, not offsetting.

Ignoring that, I would say that yes, when I contemplate a property purchase, be it residential, commercial or industrial, I factor my debt servicing cost as well as property taxes, utilities, etc. If you don't/can't, you aren't modelling the transaction correctly. All cashflows, positive and negative, should be modelled.

Re: Katz making the mortgage - take a look at the news. Bigger companies than his have defaulted on debt payments. Never say never. The City has an obligation and fiduciary duty to adequately mitigate risks in a transaction. They are not obligated to accept the majority of risk without corresponding return in a deal with a private corporation.

The Calgary model is one example, outdated, and unlikely to happen. Commenting on it further is irrelevant.

I agree this all about mitigating risk but it works both ways.

While bigger companies than Katz' have failed, let's also look at history.

It is just as conceivable at some point in the next 35 years the Canadian dollar will nosedive and the Alberta economy will tank.

I lived through two previous booms and busts in Alberta so it is not impossible for it to happen again, especially with a government running a massive deficit during boom times.

That presents a huge risk to Katz and is exacerbated by the fact that Katz will be competing with Northlands for non-hockey events.

Since you seem to be adamant in your demand that the city be protected from all risk, I would be curious to see the basics of a deal that you think would satisfy risk aversion for taxpayers while, at the same time, providing Katz with the ability to compete with other teams on a financial basis.

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#84 Ryan2
October 18 2012, 09:42AM
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DSF wrote:

Yeah, I see your argument.

Katz reportedly borrowed half the team purchase cost IIRC.

While the team may be posting an annual operating profit, Katz may be losing money after debt servicing costs are accounted for.

I am shocked that none of the bloggers or MSM types have looked into the financials of the Rexall empire yet. In addition, how was the empire financed in the first place? Who else owns a piece of it? What is Daryl's actually stake?

Don't get me wrong, he still has a net worth that any of us would love to have, but net worth is a lot different than free cash flow.........

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#85 Guest
October 18 2012, 09:49AM
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DSF wrote:

Of course, both need to be considered when contemplating the bottom line but I don't think you would roll your utility bill into your mortgage payments.

My point is we have a lot of folks who keep saying Katz isn't going to make mortgage payments.

He is.

That he is looking for assistance with his utility bill is where the problem lies.

People also forget, despite me saying this over and over, that the city has use of the arena for 1 month every year so Katz is NOT getting all the revenue as critics keep claiming.

If we look at Calgary, the Flames play in an arena that was built entirely with taxpayer money.

The team convinced the city that it needed ALL the revenue from the arena to be profitable.

The city (Stampede Board) sold the arena to the Flames for $20 million.

So, what do you think the response would be if the city now builds a new arena and sells is to Katz for $20M.

I'd wager Katz would be all over that deal.

1) The City of Calgary still owns the arena.

2) The arena was built not only for NHL hockey but also for the Calgary Olympic bid. Therefore, the situation isn't really comparable to Edmonton.

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#86 Khabi
October 18 2012, 09:54AM
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Gregor brings up the best point in the discussion when he says the city cannot grant casino licenses. It is a provincial matter through the ALGC. Katz would have to go and apply for a licence through them. The only way the city can help Katz on this matter is perhaps lobby a bit on his behalf to the ALGC. That said though, Katz is the one who actually has to apply for it. For people to say that the casino is a no go and that is why Katz needs the $6 million per year is ridiculous. He has not even applied for a license yet.

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#87 Archaeologuy
October 18 2012, 09:54AM
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Guest wrote:

1) The City of Calgary still owns the arena.

2) The arena was built not only for NHL hockey but also for the Calgary Olympic bid. Therefore, the situation isn't really comparable to Edmonton.

Why isnt it comparable? Because the motivation behind building it?

If Edmonton said "We plan on bidding for the Olympics too" would those empty words make it suddenly comparable?

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#88 DSF
October 18 2012, 09:55AM
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Harlie wrote:

A $215 dollar ferry ride with hotel, $100 minimum for hockey tickets, 2 days off work for travel back and forth ($$), $100 for food and drinks...yeah I bet the whole travel to Seattle thing for hockey games will go over like a lead balloon to the majority of Vancouver/Victoria area people when they could easily just watch the Cansucks.

Give your head a shake, this Seattle argument is tired and boring. It ain't gonna happen and the last I checked, the Victoria housing market is in the dumps and it is all most can do to live in a house and they have to rent out the other half. Believe me, I've been following the Victoria market for YEARS.

http://househuntvictoria.blogspot.ca/

As a matter of fact, I just booked a trip to Seattle that includes the return ferry trip, TWO nights in a downtown hotel, and admission to the King Tut exhibit for $234.00 taxes included.

If you substitute hockey tickets it will be a little more expensive but I am sure it wouldn't cost much less to go to an Oilers game WITHOUT the hotel and ferry.

And, of course, people living in the lower mainland can drive to Seattle in two hours and, in fact, do it all the time to watch Seahawks, Mariners and Huskies games.

There are many Oiler fans living in places like Calgary and Ft. McMurray who travel much farther and spend far more than that to attend games in Edmonton.

Suggesting all these hockey fans just go to Canucks games is silly.

The Canucks are sold out and tickets are much harder to come by than Oiler tickets since the team has been much more successful and the market is so much larger.

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#89 DSF
October 18 2012, 09:57AM
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@Ryan2

It's a private company.

The information is not available.

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#90 russ99
October 18 2012, 10:04AM
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I wonder if Katz may make overtures to Sherwood Park or even Red Deer/Saskatoon to cut the city out of it completely.

Would have to be to a completely different physical and financial scale in those cases.

To me the whole "get Bettman in" part of his letter seems to me that Katz is intimating that Bettman has his back if it comes to relocation.

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#91 DSF
October 18 2012, 10:06AM
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@Guest

Technically true.

The Flames bought out a 50 year management agreement from the Stampede Board for $20 million.

I am aware why the Saddledome was built but that has no bearing on the lucrative deal the Flames have.

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#92 Gazmort
October 18 2012, 10:07AM
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@DSF

Fair commentary.

Point of clarificaiton: I did not say the City has to be protected from all risk. It is the sharing of the risk (and expected return) that is the issue.

So let's examine how the deal appears now, based on what has been released to the public.

Katz Group - $100MM contibuted by way of a mortgage with annual payments of approx $5.5MM - borrowing which is in the City's name, but agreed to be serviced by Katz. RISK to Katz: $5.5MM OUTFLOW - $6MM annual operating subsidy paid by the City to Katz. RISK to Katz: City falls into hole and cannot make the subsidy payment. Unlikely. $6MM INFLOW - Agreement from City to become main tenant in Office Tower development (unrelated to Hockey/arena revenues) - unknown parameters. Does Katz require the City pay above-market lease rates to further augment his operations? Fair market rates? Unknown. RISK to Katz: Construction risk, mitigated partially (not entirely) by major AAA tenant.

City of Edmonton - $100MM mortgage - to be paid by private corporation but ulimtately borrowing done by City. RISK - katz defaults, City is obligated to make whole. - $6MM subsidy to Katz Group - RISK - $6MM annual payment. - Lease agreement with developer (track record of successful projects? unknown) at undisclosed rates (above/below market rate? terms? restrictive covenants?) - unknown. BUT agreeing to this without a comeptitive bid process is not a guarantee of the City capturing favourable terms.

Based on the points we are discussing, it shoudl be clear that there is substantial upside for Katz with minimal downside. The reverse is true for the City.

This is long already, and to be frank, I don't know what the perfect deal looks like. I think the roots of it are in what has been established.

Again, it should be clear by now that this is not about one party accepting an undue amount of risk without being open to receiving the proportionate reward. That's all. It's not about insulating oneself completely. History tells us that this cannot be done.

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#93 DSF
October 18 2012, 10:09AM
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russ99 wrote:

I wonder if Katz may make overtures to Sherwood Park or even Red Deer/Saskatoon to cut the city out of it completely.

Would have to be to a completely different physical and financial scale in those cases.

To me the whole "get Bettman in" part of his letter seems to me that Katz is intimating that Bettman has his back if it comes to relocation.

Bettman has already been very clear that Edmonton needs a new arena to keep its hockey team.

If Katz was to look at an alternate location, I would think Enoch would be near the top of that list.

You can bet the feds would be chipping in there.

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#94 Gazmort
October 18 2012, 10:10AM
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Whoa, my formatting didn't flow through on my last post. Apologies that the risk breakdown secitons are jumbled.

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#95 David S
October 18 2012, 10:21AM
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Gazmort wrote:

Whoa, my formatting didn't flow through on my last post. Apologies that the risk breakdown secitons are jumbled.

Excellent comments dude. Thanks for your input.

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#96 Rick
October 18 2012, 10:23AM
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DSF wrote:

Bettman has already been very clear that Edmonton needs a new arena to keep its hockey team.

If Katz was to look at an alternate location, I would think Enoch would be near the top of that list.

You can bet the feds would be chipping in there.

There is no disagreement between Katz and the City when it comes to the question of Edmonton needing a new arena.

As for Enoch being an option, only a fool would see it as legit.

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#97 DSF
October 18 2012, 10:27AM
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@Gazmort

Overall, I agree with your assessment but you are underestimating the upside for the city and its impact on its risk.

As part of the agreement, $125 million would be raised from the ticket surcharge to pay down the mortgage.

The city has access to the arena for 1/12 of the year in which it, presumably, would stage profitable events which it could use to further pay down the mortgage.

The city's own bean counters have estimated the CRL will raise $1.6 billion in NEW tax revenues over the life of the agreement.

While the city has earmarked only $45 million of that new revenue to the arena, it could very easily retire its debt if it allocated more of the CRL revenue to the arena.

The city is also re-allocating $55 million that it is ALREADY SPENDING on Rexall Place so there is no additional risk there.

I, quite frankly, see very little risk for the city except in the case where the Oilers and Katz declare bankruptcy.

While that could happen, I suppose, a 35 year location agreement is likely the best protection against that eventuality.

The notion that the city should have additional financial upside is an interesting one in that the city is by nature a non-profit organization and it's real benefit and its real responsibility is creating and directing through policy decisions the means for the private sector to thrive.

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#98 Harlie
October 18 2012, 10:27AM
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@DSF

Vancouver lost their NBA team. So did Seattle. Nice try that Vancouverites actually can help Seattle support any type of sporting franchise.

You got any numbers to support how many people from BC go to support Seattle sports teams? What kind of actual impact they directly have on each team you mention? If you do, and can support your argument to convince me otherwise I will conceed.

But I am betting that you can't.

And the disposable income for people in Northern Alberta is way higher than for Victoria or Vancouver people. It is a proven fact. This number factors into who can and will go to things like sporting events.

http://www.numbeo.com/cost-of-living/compare_cities.jsp?country1=Canada&city1=Edmonton&country2=Canada&city2=Vancouver

ALSO,

" What makes matters worse is that while real-estate prices in Vancouver look a lot like those in Hong Kong, Sydney and New York City, the incomes that people earn look more like those in Windsor, Ont. or Saint John, N.B. According to Statistics Canada, the median household income (that is, the mid-point at which half the population earns more and half earns less) in Vancouver in 2009 was $67,550. (In Edmonton, by way of comparison, the median household income for that year was $86,250.) As a result, it takes 94 per cent of the average pre-tax household income in Vancouver to cover the standard ownership costs of a two-storey home and nearly 91 per cent for a detached bungalow, assuming a 25-per-cent down payment on the mortgage, something that’s almost as rare in Vancouver as a sunny day in February.

That’s right — if the average Vancouver family tried to buy the average Vancouver home and maintain some semblance of financial discipline, they’d be left with just over $4,000 each year to spend on utilities, groceries, transportation and entertainment. And they’d still have to pay their taxes, too. It shouldn’t be surprising, then, that in addition to carrying the largest mortgages in the country, they’re among the provincial residents that also have the highest level of non-mortgage household debt in Canada"

SOURCE: http://www.avenueedmonton.com/articles/paradise-found-0

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#99 Rick
October 18 2012, 10:27AM
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@Gazmort

Out of curiosity, why did you include the Office Tower lease as part of your assesment?

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#100 DSF
October 18 2012, 10:28AM
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Rick wrote:

There is no disagreement between Katz and the City when it comes to the question of Edmonton needing a new arena.

As for Enoch being an option, only a fool would see it as legit.

Why is that Rick?

Be specific.

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