Missing A Party

Jonathan Willis
October 18 2012 01:28PM

One of the Katz Groups’ battle cries throughout the process of negotiating a new arena deal, and particularly of late, has been ‘we want the same kind of deal that Winnipeg got.’ In Winnipeg, the ownership of the Jets receives an annual subsidy estimated at $5.5 million from gambling revenue, in addition to the help they got in building their arena.

The problem is that the Winnipeg deal saw three parties at the table, rather than just two.

I’m sick to death of talking about the arena dispute, for a lot of reasons. It’s a frustrating story to cover, a more frustrating story even than the NHL lockout. But with the breakdown in negotiations this particular point felt salient, and so I’ll make it.

The Winnipeg Deal

In discussing the Edmonton arena deal with David Staples, one of the things he passed along to me was this assessment of the Winnipeg deal from the Canadian Taxpayers Federation. The CTF is committed to lower taxes (and consequently reduced spending and smaller government), and thus have every incentive to play up the dollars spent by various levels of government in this sort of deal.

Now, using their assessment, let’s split the public money by the level of government contributing the funds:

Municipal

  • $40 million in construction costs in 2001 (equivalent to ~$50 million today)
  • Tax rebates for 25 years (valued at $3.25 million for 2011)
  • Property tax reduction (unvalued, but worth “millions”)

Provincial

  • Approximately $1.5 million in VLT revenues (later raised to roughly $5.5 million) per year.

It’s hard to value the municipal contribution, but using the CTF’s figures we’re looking at a figure in the ballpark of $120 million or more from the city over 25 years. The $5.5 million VLT subsidy comes out to a little under $140 million over 25 years, but that money is coming from the provincial government.

The Edmonton Framework

The problem with comparing the Edmonton framework to the Winnipeg deal should be clear at this point: the provincial government isn’t chipping in here.

When we compare the City of Edmonton’s contribution to the City of Winnipeg, we see that the municipal government in this case has been at least as generous.

Municipal Contribution (as previously proposed)

  • $125 million in direct funding
  • $225 million in loans to be repaid by Katz and via ticket tax
  • ~$25 million in land for the arena
  • A sponsorship deal for 10 years (the city buys advertising from the Oilers for $2 million/year)

In up front capital alone, the City of Edmonton is being far more generous than the City of Winnipeg. $150 million represents roughly three times the up-front capital handed to the Jets, and that’s before getting into infrastructure, the sponsorship deal, the loans, and any increased financing required to compensate for the $100 million expected from “other levels of government” or the rising cost of the project.

This leads to a problem. The Katz group can say ‘well, we’d like the sort of annual subsidy that the Winnipeg Jets get’ and point out that they aren’t getting it. On the other hand, there’s no question that municipal politicians in Edmonton would be equally justified in saying that they’re doing far more for Katz than their counterparts in Winnipeg did for the Jets’ ownership.

There has been no indication that other levels of government are going to step in and make the problem go away. Both at the federal and provincial levels, budget-cutting is the order of the day. If the province steps in to help Edmonton, they’ll also need to step in and help Calgary, as the battle for a new arena there is looming on the horizon.

The Bottom Line

Whether or not such public sector funding is justified is not an argument I want to tackle in this particular piece. But it seems apparent to me that the Winnipeg subsidy isn’t a fair comparison, for either side – because there was another moneyed party at the table in that deal.

Recently by Jonathan Willis

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Jonathan Willis is a freelance writer. He currently works for Oilers Nation, Sportsnet, the Edmonton Journal and Bleacher Report. He's co-written three books and worked for myriad websites, including Grantland, ESPN, The Score, and Hockey Prospectus. He was previously the founder and managing editor of Copper & Blue.
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#1 vetinari
October 18 2012, 01:52PM
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Good point, Willis. You can't compare apples to oranges and expect to resolve the impasse that way.

As an aside, anyone with a fist, please step away slowly from this space...

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#2 Dave
October 18 2012, 01:59PM
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The other levels goverment of do not want negotiate with Northlands either? Lets be honest, and admit that Northlands are driving this bus.

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#3 DSF
October 18 2012, 02:00PM
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If $225 million is being repaid by the ticket surcharge and Katz, it is not a civic contribution, it is a loan payable by Katz and the Oilers to the city.

The city's contribution is $125 million plus $25 million for land.

The city agreed to pay Katz $2 million a year for advertising in lieu of a non-compete agreement with Northlands.

The city is also providing infrastructure around the arena but that would normally be done with any development. (see South Edmonton Common)

In real terms, the city is providing 33% of the cost of the arena.

In Winnipeg, public financing was 30% of the cost of the arena, however, the Manitoba Government allowed the installation of 140 VLT terminals in the building which are expected to provide the Jets with more than $100 million over the life of the agreement.

http://www.cbc.ca/news/canada/manitoba/story/2011/06/02/mb-mts-centre-subsidy-raised.html

"The additional funding is guaranteed for 20 years, which means True North could net more than $100 million in the expanded deal.

True North president Jim Ludlow said the funding is needed to pay down debt.

"Lots of debt," Ludlow said Thursday. "It's a very long-term investment and, you know, you've got lots of private-sector risk in that, and you just want to make sure that that can be managed."

The 20-year guarantee matches the amortization period for the centre's mortgage, Ludlow said.

The province said the investment is worthwhile because the MTS Centre is a valuable community asset."

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#4 Oil Kings 'n' Pretty Things
October 18 2012, 02:25PM
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These articles always make my head spin. Our (Winnipeg's) mayor's name is Sam Katz.

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#5 book¡e
October 18 2012, 02:39PM
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@DSF

Yes, but it's Winnipeg.

DSF is correct though that the ticket surcharge should really be seen as the Oilers contribution because it basically becomes part of the ticket price. The reason to do it as a 'surcharge' is because then they can advertise lower prices - i.e the same reason most retailers don't include GST in the price, it also may have different tax implications.

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#6 GiftedGregerius
October 18 2012, 02:40PM
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@ DSF

I am confused by your post, are you just repeating the same things that Willis just said? If so, then why? If not then maybe explain your point?

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#7 DSF
October 18 2012, 02:47PM
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@GiftedGregerius

Willis suggested the $225 million being paid from the ticket surcharge and Katz annual $5.5 million is a "civic contribution".

It isn't.

It's a loan being repaid by the Oilers. And it actually makes sense to it that way to allow access to capital at the significantly lower rates the city pays.

The risk for the city is that the Oilers will go belly up and not be able to meet those payments but I think the chances of that happening are exceedingly small and any new buyer of the team would have to honour those terms in any event other than bankruptcy.

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#8 DSF
October 18 2012, 02:48PM
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book¡e wrote:

Yes, but it's Winnipeg.

DSF is correct though that the ticket surcharge should really be seen as the Oilers contribution because it basically becomes part of the ticket price. The reason to do it as a 'surcharge' is because then they can advertise lower prices - i.e the same reason most retailers don't include GST in the price, it also may have different tax implications.

Exactly so and it also creates a "user pay" component of the financing package which I think almost everyone would agree is a good idea.

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#9 whoa
October 18 2012, 02:53PM
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The other thing missing is modesty. Tough to compare the glowing orb proposed for Edm with a re-purposed department store in Wpg.

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#10 Crooked
October 18 2012, 02:57PM
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To get an NHL franchise, the city, and province, needed to chip in because the arena holds 3,000 less seats than any other team in the league. Those subsidies help offset the shortfall, ensuring the team can stay in the black.

If Katz wants those subsidies, then chop 3,000 seats off the proposed arena and he can have it too.

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#11 -30-
October 18 2012, 03:12PM
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The Katz Group is cherry picking when it makes comparisons. Winnipeg's situation is different than that of Edmonton's. The 3000 less seats is less annual revenue from ticket sales. That adds up to many millions of dollars annually.

I applaud the city for standing out for a better bargain for the city of edmonton taxpayers just like the Katz group is bargaining hard to get the most for their side. Fair is fair after all.

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#12 book¡e
October 18 2012, 03:31PM
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@-30-

and Winnipeg is 2/3 the size of Edmonton with a lower average annual income. Edmonton is a much better market.

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#13 Dave #2
October 18 2012, 03:31PM
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Dave wrote:

The other levels goverment of do not want negotiate with Northlands either? Lets be honest, and admit that Northlands are driving this bus.

How is Northlands driving the bus ? Where is the bus going ? Not saying opposite ... just want to hear more about Northlands in this situation.

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#15 DSF
October 18 2012, 05:52PM
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Jonathan Willis wrote:

I'm not suggesting that the contribution of the city is worth $225 million there.

But as you said yourself - with the city agreeing to take on the loan and play the role of banker to Katz, they are making a contribution - if only through the reduced interest rates that Katz now has to pay.

That's why I included it as part of the city's contribution.

For the city, just a pass through with no cost to the city although there is a the minimal risk I outlined.

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#16 DSF
October 18 2012, 05:53PM
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book¡e wrote:

and Winnipeg is 2/3 the size of Edmonton with a lower average annual income. Edmonton is a much better market.

And this impacts the discussion exactly how?

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#17 Fresh Mess
October 18 2012, 05:58PM
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It is clear the deal Katz is getting is much more generous than Seattle or Winnipeg. But in typical lawyer fashion, they demand more and argue they are doing the taxpayers (who are being screwed)a service.

The arrogance. I suppose it's what you should expect from the smartest guys in the room.

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#18 KHR
October 18 2012, 06:02PM
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DSF wrote:

Willis suggested the $225 million being paid from the ticket surcharge and Katz annual $5.5 million is a "civic contribution".

It isn't.

It's a loan being repaid by the Oilers. And it actually makes sense to it that way to allow access to capital at the significantly lower rates the city pays.

The risk for the city is that the Oilers will go belly up and not be able to meet those payments but I think the chances of that happening are exceedingly small and any new buyer of the team would have to honour those terms in any event other than bankruptcy.

I have said this before and I will say it again. The ticket tax is not a contribution by the Oilers towards the arena.

It is a charge levied against ALL events in the building including concerts, trade shows, etc. Therefore this is hardly an Oiler contribution. This is a USER PAY tax on the attendees of functions held in the arena. Katz/Oilers are not paying that bill, I as a season ticket holder am, the casual walk up purchaser is, the person who goes to see Justin Bieber does, but Stan who lives on the corner of your street who never goes to a game or concert doesn't pay a penny.

The only way that this becomes a contribution by the Oilers is that the tax is wiped out of existence and Katz prices the Oilers tickets and rental on the building high enough to generate enough money to pay the City back. He declares the money as income and then the payment as an expense. Neither of those two things will be happening with the ticket tax therefore NO Oilers contribution.

PLEASE do not give this guy anymore credit than he deserves, and right now he deserves very little.

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#19 fsd
October 18 2012, 06:13PM
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The missing (PC) party has been in bed with a certain horsey outfit and the casino outfits it enriches with that licence freeze.

Hate to say it but the Flames need to stop waiting for the Oilers deal to go through first and step up to the plate with their own project.

The only thing that gets the missing (pc) party to let the Alberta hockey teams join the gambling cartel is a push from Calgary.

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#20 DSF
October 18 2012, 07:03PM
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KHR wrote:

I have said this before and I will say it again. The ticket tax is not a contribution by the Oilers towards the arena.

It is a charge levied against ALL events in the building including concerts, trade shows, etc. Therefore this is hardly an Oiler contribution. This is a USER PAY tax on the attendees of functions held in the arena. Katz/Oilers are not paying that bill, I as a season ticket holder am, the casual walk up purchaser is, the person who goes to see Justin Bieber does, but Stan who lives on the corner of your street who never goes to a game or concert doesn't pay a penny.

The only way that this becomes a contribution by the Oilers is that the tax is wiped out of existence and Katz prices the Oilers tickets and rental on the building high enough to generate enough money to pay the City back. He declares the money as income and then the payment as an expense. Neither of those two things will be happening with the ticket tax therefore NO Oilers contribution.

PLEASE do not give this guy anymore credit than he deserves, and right now he deserves very little.

What nonsense.

Without the Oilers, there is no new arena.

Without the arena, there is no ticket surcharge.

Sure, the city could forgo the ticket surcharge revenue and Katz could then charge more for all tickets at the new arena and pay the city back from that revenue but that it just a shell game.

The thing is, if you don;t want to pay that amount at the new arena...don't go.

Someone else will.

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#21 DSF
October 18 2012, 07:10PM
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fsd wrote:

The missing (PC) party has been in bed with a certain horsey outfit and the casino outfits it enriches with that licence freeze.

Hate to say it but the Flames need to stop waiting for the Oilers deal to go through first and step up to the plate with their own project.

The only thing that gets the missing (pc) party to let the Alberta hockey teams join the gambling cartel is a push from Calgary.

The Flames don't need to "step up to the plate".

They already play in a 19,000 seat arena with way more luxury boxes and three restaurants AND they get all revenue from non hockey events plus concessions and parking.

The Flames annual revenue is $10 million higher than the Oilers which, over the 35 years of the proposed Edmonton agreement amounts to $350 million.

Edmonton needs to step up to the plate.

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#22 Rob...
October 18 2012, 08:20PM
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@book¡e

Don't forget that if the players get their way, 56'ish percent of that ticket tax / surcharge would automatically go to them as part of HRR... and I really really wish I could say my statement was sarcasm.

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#23 DSF
October 18 2012, 09:13PM
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Rob... wrote:

Don't forget that if the players get their way, 56'ish percent of that ticket tax / surcharge would automatically go to them as part of HRR... and I really really wish I could say my statement was sarcasm.

It also isn't correct.

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#24 toprightcorner
October 18 2012, 09:18PM
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DSF wrote:

For the city, just a pass through with no cost to the city although there is a the minimal risk I outlined.

DSF - That is not entirely true. The city only has so much borrowing power at a reduced rate and they have limits on how much they can borrow. It limits them from borrowing more money for other infrastructure down the road and it could cost them more in interest to do so. That is a huge risk for the City.

BTW, do you work for the Katz Group? If not you should consider applying.

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#25 toprightcorner
October 18 2012, 09:22PM
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DSF wrote:

What nonsense.

Without the Oilers, there is no new arena.

Without the arena, there is no ticket surcharge.

Sure, the city could forgo the ticket surcharge revenue and Katz could then charge more for all tickets at the new arena and pay the city back from that revenue but that it just a shell game.

The thing is, if you don;t want to pay that amount at the new arena...don't go.

Someone else will.

Do you really believe what you are saying?

Do you honestly think that Katz will not be able to charge what he wants for tickets with the surcharge? Sold out for the last 4 years, he can charge what he wants and the surcharge goes on top. You are fooling yourself if you the the surcharge will force Katz to charge less for tickets.

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#26 toprightcorner
October 18 2012, 09:25PM
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How the world changes!

5 years ago, Katz was the saviour of the city and was loved by a million people. Now he just looks like a greedy kid in the sandbox who threatens to take his toys home if everyone doesn't play the game he wants to.

No more adoring fans, just a bunch of people realizing how selfish he is.

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#27 Morgie99
October 18 2012, 10:48PM
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toprightcorner wrote:

Do you really believe what you are saying?

Do you honestly think that Katz will not be able to charge what he wants for tickets with the surcharge? Sold out for the last 4 years, he can charge what he wants and the surcharge goes on top. You are fooling yourself if you the the surcharge will force Katz to charge less for tickets.

DSF

A ticket tax is not an never will be dollar for dollar, meaning 1 dollar of ticket tax doesn't mean Katz can't charge a dollar more for a ticket, absolute nonsense

and you suggest Katz is paying the equivalent of the ticket tax, talk about rose colored glasses, take them off for a change and see both sides but you are so blinded and have such hard on for Katz and the Arena it's sickening

He has more than enough in this deal

It's extortion which most are sick of

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#28 DSF
October 19 2012, 08:36AM
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toprightcorner wrote:

Do you really believe what you are saying?

Do you honestly think that Katz will not be able to charge what he wants for tickets with the surcharge? Sold out for the last 4 years, he can charge what he wants and the surcharge goes on top. You are fooling yourself if you the the surcharge will force Katz to charge less for tickets.

Oh, I see.

According to your logic, Katz can just charge $800 per ticket and pay for the arena all by himself.

I'm sure there won't be any problems with that approach,

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#29 toprightcorner
October 19 2012, 08:48AM
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DSF wrote:

Oh, I see.

According to your logic, Katz can just charge $800 per ticket and pay for the arena all by himself.

I'm sure there won't be any problems with that approach,

If he can charge that and still sell out, go right ahead. It's called supply and demand, basic business principle.

Even then I would not expect him to pay for the arena himself since he is not the only one benefitting from it. It still has to be a fair deal. Katz can't just pick and choose the best parts he likes from other deals and say he wants those in the deal.

This is not a corporate take over, it is a deal with the city that involves every person living in the city.

If it wasn't for Katz greed, we could have broke ground 2 years ago and moved in next season. That alone will cost him millions!

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#30 KHR
October 19 2012, 06:30PM
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DSF wrote:

What nonsense.

Without the Oilers, there is no new arena.

Without the arena, there is no ticket surcharge.

Sure, the city could forgo the ticket surcharge revenue and Katz could then charge more for all tickets at the new arena and pay the city back from that revenue but that it just a shell game.

The thing is, if you don;t want to pay that amount at the new arena...don't go.

Someone else will.

What I said was nonsense? Holy cow.

To classify a change of a ticket tax to a system where the Oilers/Katz have to charge more on their own to repay the $225M as a shell game is nonsense. It is the farthest thing from a shell game.

With the ticket tax the Oilers/Katz have nothing at stake and have no risk at all in the repayment of that $225M. The agreement will simply say that the City will impose a ticket tax on all events until the $225M is repaid. Simple and done.

How long will that take? I have no idea, nor do you, nor does the City, and Katz won't care. If it is 25 years so be it, if is 15 years so be it, if it is 50 years so be it.

If the Oilers/Katz have to pay that money out of their own pocket they will care very much if attendance goes down, or the number of concerts going through the new arena drops because now they have to pay for it out of their own money. When it is a ticket tax it is the City that has to worry about decreased attendance at functions not Katz.

I am sorry but I am not willing to give credit where credit is NOT due.

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