Daryl Katz Thinks You Won’t Bother Checking What He Says

Daryl Katz has been kicking his public relations campaign on behalf of a new arena into high gear. Not long after arranging for a radio interview with employee Bob Stauffer, Katz has launched a new website and has produced the YouTube video above (The Oilers new motto: “We love new media!”).

There are, however some glitches. I don’t have a lot to say about the video posted at the top of the article, except that I find the entire Katz PR campaign to be heavy on grandiloquence and awfully light on detail. With that in mind, I thought I might help by flushing out at least one part of the picture.

In the video, Katz refers to Los Angeles, San Diego, Columbus and Indianapolis as cities that have seen their downtown revitalized by a new arena. He does not, however, go into details as to how those arenas were financed.

The Staples Centre in Los Angeles is owned by AEG – the same company Katz has hired as advisors – and the really interesting thing about that arena is that it was mostly paid for by private investors. According to ballparks.com, just a hair under 85% of the money for the arena came from the tenants of the arena, with the city chipping in less than $60 million. That’s because investors saw it as “a risk worth taking.”

It’s a similar story in Columbus, where Nationwide Arena was built entirely by private funding after citizens rejected a 0.5% increase in sales taxes to pay for it. Describing the arena, one Blue Jackets’ season ticket holder called it “a lesson for those who insist sports stadiums must be built entirely at taxpayer expense.”

That still leaves Lucas Oil Stadium in Indianapolis and Petco Park in San Diego as examples of arenas built largely using public funds. We might assume, based on Katz’s tone and without the benefit of five minutes and Google that these two projects have been great successes and that the cities which built them have reaped nothing but benefits.

Not so.

Take, for instance, this charming story out of Indianapolis. I’ll quote just two passages: 

Taxpayers in Indiana may already be on the hook for a financial bailout of Lucas Oil Stadium, the new home of the Indianapolis Colts of the National Football League and reputedly the most heavily subsidized professional sports stadium in the nation.

The funny thing about that paragraph? The stadium opened in August of 2008, meaning that less than two years after coughing up the vast majority of the $720 million required to build it, the city is already looking at bailing out the arena. 

The financial picture grew even bleaker in September, when CIB officials announced the cost of running the stadium would be $20 million a year…. CIB (the management group) is tapping into a $25 million reserve fund while working to find a solution before the fund dries up in 2010.

CIB Chairman Bob Grand told the Indianapolis Star in September, “We’re bleeding cash right now, absolutely.”

While Indianapolis Colts owner Jim Irsay was basically able to pay for his entire contribution to the project by selling the naming rights, the public money was raised by hiking taxes and taking on loans – and those tax increases haven’t been enough. The good news for sports fans is that the Colts make low rent payments and keep the vast majority of arena revenue, so while the city bleeds red ink they’re doing just fine.

Petco Park hasn’t been a disaster, but things haven’t gone smoothly either. The city is on the hook not just for loan repayments, but also for a portion of the operating costs, which drain millions every year; estimate place the city’s losses at between $9.0 and $19.0 million annually. Litigation against the arena (see this Berkeley article) caused a long and difficult battle which the city finally won after the arena had been delayed for two years. The city of San Diego itself has faced a massive financial crisis and saw it’s credit rating suspended by S&P; the expenditure on the arena was a contributing factor. City officials misled the public on the true cost of the stadium as well as other matters (five would eventually be charged with fraud). Meanwhile, the investment in the area surrounding the arena paid off handsomely for owner Padres’ owner John Moores. Vladimir Kogan, who is currently writing a book on San Diego politics, explained the situation well in an interview last month:

True, there was a lot of investment downtown, but all that investment provided benefits that were all private benefits. John Moores of JMI spent a billion dollars, but it also came with the ability to shape what happened downtown. They got essentially free reign to shape land-use policy downtown any way they wanted in order for them to maximize profits.

The risk was public risk. The rewards were private rewards. While the city did benefit in the end, there’s no question that Padres’ ownership benefited even more, all while risking more (one-third the cost of the arena, plus investment in the area around it) than Katz has proposed to.

This is why I’m skeptical about the arena proposal. We have yet to see details, only vague generalities and when we take a closer look at those, as we have here, things look much less favourable. I think it’s remarkable that of the four examples Katz provides to support his case, two were built with a much higher percentage of private investment, and of the two built along the lines Katz proposes one was a financial catastrophe and the other has been at best a debatable success. They aren’t the sort of examples I’d use, unless I strongly suspected that nobody was going to bother looking into them.

  • I've gotta say that Katz' image consultant should be fired first thing tomorrow morning. Unless of course he actually wants to be portrayed as "rich, overbearing, my way or the highway douchebag".

    He made every possible PR mistake in the book with that video.

  • edm_euler

    The only way to make this work without being a disaster is to do it as a partnership. Figure out the expected total revenues from a downtown arena; include the marginal tax benefits to the city as well as the value of social benefits (increased investment downtown, etc). Then figure out the costs and expenses to everybody, don't concern yourself with where the money will come from just yet. Do up an economic study based on those numbers, as if one entity was paying for the whole thing. Make a case for building the thing from those numbers. If it doesn't make financial sense then redo the design until the costs/benefits do work.

    Now, divide up the costs, revenues, and risks. The city has to be a part of it because of the tax and social benefit part. Katz has to be a part because the city would be nuts to take on that much risk by themselves.

    The important thing is to make sure the arena is sensible economically before arguing over who's going to pay for what.

  • Oilchange64

    —-
    And it's not like Katz is going anywhere. The city has plenty of leverage here – he's invested a bunch of money in the Oilers, and if he wants to move he has to find a city with:

    a) the fanbase of Edmonton

    b) the TV deal that comes with being a Canadian team

    c) a political leadership willing to hand him $100 million

    and then he has to clear the move with the rest of the NHL's ownership.

    There's a great, once in a lifetime opportunity for the city to put itself way ahead of where they would be otherwise – because they have an owner in a great situation who has very little chance to find a better one.

    They should take advantage of that opportunity.
    —-

    Ottawa took a view like this when the Senators were building an arena.

    The company owning the Senators that built the arena went bankrupt.

    Meanwhile, there is a building sitting in Kansas City looking for an anchor tenant. KC and AEG (I believe they manage it) would throw cash or consessions at any NHL or NBA team if they could get one to move there. There are other American cities and states that will do sweetheart deals to get and keep teams (Pittsburgh's new arena).

    I really think taking a hard line with Katz would be a very bad idea. Recall that the conditions for moving a team under Bettman and the BoG are a: lack of a suitable building, and b: lack of anyone wanting to own the team in the current location.

    Katz may not move the team, but he may decide to sell it. Who would buy it to keep it in Edmonton without a new rink? If the answer to the question is no one, we could line up behind Winnipeg and Quebec City for a team.

  • Oilchange64

    Yeah. I am going to say one question or thought? I am not going to bash or negatively say what I actually feel.

    Really, what are the ramifications of placing this new arena?

  • I was born in Edmonton and raised in Fort Mac. I'm currently working in Abu Dhabi. Abu Dhabi and Alberta have a lot in common. Inhospitable living conditions through most of the year, great nature to experience and access to an amazing world class resource. Now the difference:

    Abu Dhabi has been working with International Oil companies for the last 40 years in a partnership. The government (actually, much more like the "King" discussion from above) owns a share in all of the oil company's local enterprises and aggressively reinvests the profits into the Emirate. When the Cricket Stadium needed to be rebuilt, the Sheik funded it. When they decided they wanted to draw people in with a new sport, the Sheik funded the YAS Marina Grand Prix facility and paid for the F1 to come to town.

    Abu Dhabi has a vision to expand beyond oil. They are doing this through investment in infrastructure and businesses outside of their normal core. They understand and state clearly that there is a huge upfront cost in doing so. They get that they need to pay now to benefit later. They get that they need to reinvest the profits from oil into something for the future.

    Want some fun? Scan the web for pictures of Abu Dhabi circa 1972 and then more recent photos. This is a place with vision. This is a world class city. And no, Calgary is not. Calgary is an American class city, and there isn't anything wrong with that. Just not nearly on par with Paris, New York, Abu Dhabi or even Vancouver or Toronto or Montreal.

    Canada is and always will be my home. However, the small time thinking and naval-gazing (sp) that occurs whenever there is the thought of having to put money into something rattles the brain. Wonder why hockey player's wives would rather live elsewhere? Go elsewhere with open eyes. It is pretty obvious.

    JW – in the short term, Fort St John and Dawson Creek are in the red for the investment in the new facilities. You've said nothing about the quality of life improvements for the residents. Sherwood Park has benefited greatly from Millenium Place. Was that built with private money? Exclusively?

    I suspect what Katz has put out there so far is the opening salvo. This is a negotiation and he is doing it exactly as it should. Expect the tears to come soon when his organization pulls on the heart strings about loyalty and such. It is normal. Mario did pretty much the same in Pitts. Worked for him.

    Edmonton is a wonderful, blue collar city. That is part of its charm. At the same time, it is a helluva lot closer to being Winnipeg than it is to being New York or even Calgary for that matter.

    Read an article this week talking about the cost of doing business for oil companies in north America. Alberta is now the most expensive region in terms of taxes on the companies. More than Texas, more than Sask and even for than our socialist friends to the west. Wouldn't you like to see that money invested in something that will last for a while?

    Grow up guys – the future ain't free.

  • MR P

    I own a condo downtown, so i have a vested interest in this new arena project going through.

    but the fishy thing to me is that if there is a such a clear return on investment why are there not investors lining up to throw their own money at this billion dollar project?

    If Katz truly has a 'vision' for his project, why not make the details public to investors and rake in the dough?

    I doubt he wants the city to own the rink out of the goodness of his heart. methinks he cant get get others to back him and he sees tax dollars as his only chance at this thing.

  • @ Word:

    And then, the billionaire born and raised in the city, would tell the King to stuff it because he's not interested in a counter-offer that turns his investment into a donation.

    In what world is $100 million from the government with almost no strings attached to build a new arena a donation from the billionaire?

    Seriously, dude, what does that conversation sound like?

    "I don't have to take this any more! How dare you counter my request for a $400 million dollar arena with an offer to give me $100 million! I'm finished!" Something like that?

  • Has anyone here argued that the arena shouldn't be downtown?

    Or that the city shouldn't foot a portion of the bill?

    Because I haven't seen it.

    What I have seen – a lot of – is the notion that when a billionaire asks you to build an arena for his hockey team you think about it before you hop to it.

    Daryl Katz doesn't deserve public funding just by virtue of being rich. He's in this to make money. That's no crime, but the city needs to protect itself.

    I don't understand how any reasonable argument can be made against that line of thinking.

    • Oilchange64

      I haven't argued for either position, but I'm haven't read anything that suggests either argument is untenable.

      Maybe there is a good argument for building the new rink at Northlands, or that the city shouldn't pay one cent for the rink?

      JW, further to your "King" post earlier, I wonder if at some point the City might decide that if they are in for a penny, they may as well be in for a pound?

      If you're going to take out a $400 million loan to build an arena while Katz keeps the revenue streams, what's the argument against taking out a $650 million loan to buy the Oilers from Katz and build yourself an arena while keeping the arena revenue streams?

    • cableguy - 2nd Tier Fan

      has there been a study done that shows the economic impact of having the oilers in town?

      also, why, oh why, would you come right out and build the rink yourself? He didnt become a billionaire by being stupid, if you can get someone else to pony up the few hundred mil, why the **** wouldnt you?

      we are on like step 4 of a 286 step process anyways.

    • I agree – you don't become a billionaire by spending money.

      I vote we build it accross the road from Flamans. Between HWY 2 & Range Road 252. That land is for sale, & we can have a nice building in Nisku to look at while driving to Edmonton. Plus it would cut down MY travel time from an hour to just 1/2 hour. Plus it would be right next to the ececutive flight terminal for quick escapes after brutal home games.

      I think it is a case of Katz giving gifts to the U of A for many different facuties. He has contributed a lot of money there when the Province & Feds didn't want to. A bargaining chip. He has already purchased the land & paying for architecture & design & he is going to contribute another 100 million, or is that part of the 100 million?

      We need a new rink, ultimately the people who use the rink will pay. Like DeepOil said by personal seat licenses. It wasn't an invest ment in Columbus, but in Toronto a PSL is worth big bucks.

      I don't know why everyone wants Northlands to run the place. If they are involved they are funded with our tax money. What the hell is the difference?

  • @ speeds:

    Fair enough, although those positions haven't been taken here. I raised them because I tend to believe that some sort of concession from the city is reasonable, and because I don't have any particular objection to a downtown location.

    I'm just amazed at the willingness of some to dive head first into Katz's proposed financing plan.

  • Buck75 wrote:

    He has already purchased the land & paying for architecture & design & he is going to contribute another 100 million, or is that part of the 100 million?

    I just don't get why this is viewed as a "contribution". It's a damn good investment for Katz, a great situation.

    I'm not anti-Katz by any stretch but this idea that he's going to great lengths to do the city of Edmonton a favour strikes me as ridiculous.

    I'm sure Katz wants what's best for Edmonton, but it's gravy. The situation, as outlined now, is a brilliant investment opportunity for anyone with the money. If I could, I'd invest as much money as I could in it because it's incredibly low risk and incredibly high reward.

    Except for the city – for the city it's high risk.

  • Ogden Brother Jr. - Team Strudwick for coach

    I quit listening to the media. They don't understand that Katz really has no reason to give all his details yet. He hasn't went to the City and formally asked for any money so qutie frankly no one needs to know jack shat right now.

    I'm for the arena, but there are many things I'd like to know. But I work in a industry that builds things and I realize that not all the details of projects are allowed to be released when the media wants it. The fact that they don't plan to break ground til 2012 at the earliest leaves Katz plenty of time to "sell" his plan to the public.

  • Ogden Brother Jr. - Team Strudwick for coach

    I hope Katz cuts the city of Edmonton off at the knees by going out and building the project himself. What does this guy have to do for Edmonton? He has certainly done more than all the left wing goofballs who are the source of all the negativity. I'm not suggesting you go into this without doing your due diligence as a city council protecting taxpayers interests. Edmonton is full of haters and is a backwards thinking community.

    Katz record of public spiritedness and generosity should make all of the troglodytes in E-town ashamed. U of A and many others certainly haven't turned his money down have they? He has certainly put his money where his mouth is. Apparently gratitude doesn't exist in your fair town.

    There is a prevaling notion in Edmonton that everything has to be handed to them for free. More than just the Oilers hockey team are world class losers in my view.

          • Ogden Brother Jr. - Team Strudwick for coach

            Not really sure it can be deemed anything yet.

            From the start the standpoint against the arena was if the city gives money they want to be owners or involved in ownership. So Katz has from what we seen gave them that option. When Katz actually asks for the money, council can reject and counter.

            I still think that Mandel is staying so neutral because he wants to keep a good relationship with someone that is trying to help this city. I'm wondering if Mandel has some sort of plan for the airport in his mind and wants to keep Katz around as another potential partner.

          • I might be wrong, but a member of the old EIG Bill Butler is involved in Commercial Development. He was also hard lined against the sale of the team to Katz. One of the reasons that was speculated was because of the potential reward with a new rink. I can't find the old 'Cult of Hockey' stories, but if Bill Butler thought there was some money to be made I'm sure if thrown out there it would be no problem to find investors from the private sector.

            *edit* Found the article…

            http://communities.canada.com/edmontonjournal/blogs/hockey/archive/2008/01/20/canadian-nhl-teams-are-hot-commodities.aspx

  • Ender

    At the risk of oversimplifying a complex issue, I'm going to refer to an old idiom:

    "It takes two thieves to strike an honest bargain."

    On the record, if you asked Katz I'm sure he would agree that any deal put together has to benefit both parties. I'm not sure he would agree quite as emphatically that it needs to benefit both sides equally, but I think that way. Thus, my simple solution is as follows:

    Katz writes up a new finacing proposal for the arena and the development of the surrounding areas, except that this time he doesn't use his company's name or the City's. He simply refers to "Party A" and "Party B". Party A invests this much here, Party B assumes ownership of those assets there, Party A controls these revenues, Party B pays these costs, etc. Whene the proposal is completed, it is submitted to the city who will then decide whether they want to be Party A or Party B. With that uncertainty on the line, I'm willing to bet the deal presented for review would be a lot more fair for both sides, wouldn't you agree?

  • Mrs. Katz wrote:

    He has certainly done more than all the left wing goofballs who are the source of all the negativity.

    Damn left wing goofballs, opposing massive public sector involvement on a business… what's that – you say big government is a left wing idea and that conservatives prefer small government… umm… what about 'protecting the taxpayer' – that's a left wing idea isn't… oh… umm…

    Casting opposition to massive public sector investment of tax dollars in a private sector enterprise as a left wing agenda seems obviously stupid, but maybe that's just me.

    • 🙂 Indeed. It's massive corporate welfare for a billionaire, paid for entirely by city taxpayers in a city that can't even manage to keep the streets cleared of snow in a timely manner.

      Hard to imagine why anyone in their right mind would think that was a bad idea!

      Forcing team owners to pay for and own the arena they desperately want I think is a fine idea. It forces them to be arena *owners*, and not renters. It's a lot easier for a renter to leave. Look what at what happened with the Trappers.

      But I think you're right, Jonathan. The likelihood of the Oilers leaving isn't that great. The Coyotes are in one of the worst hockey markets in the NHL, and look at the tough time they've had trying to leave.

      The Oilers are fond of claiming they are in the smallest market in the NHL, and they just can't survive unless we buy them an arena!

      The reality is somewhat different. Revenue-wise the Oilers are actually a mid-market team, according to Forbes. Edmonton, after all, is hardly a small hockey market, so screaming that it's the tiniest media market *overall* doesn't really make much sense. Add to that the fact that they pay $1 a year on their on their current lease.

  • Ogden Brother Jr. - Team Strudwick for coach

    Oh yeah, and I forgot to mention earlier that the Oilers currently rank 10th in the league in operating income. In other words, they're currently more or less the 10th most profitable team in the league, and that's *with* Kevin Lowe spending money like a drunken sailor!

  • What is the need here for a CRE?

    If the city is going to borrow the money and own the arena, why not just have the Katz group pay $30,000,000 per year on a 15 year lease of the arena?

    And maybe give Katz some option to buy the arena for some amount after that time?

  • Perish the thought that the city of Edmonton and the two levels of govt should have to put up some money to begin re-furbishing your rather ratty downtown area. You make my point. I don't hear anything about the potential owners of a Quebec city team (and they don't even have on yet) proposing a $100 million investment. They want the Feds to pay for all of it! Your mentality makes me believe that you think Leduc is the edge of the earth. It's a huge leap forward to renew the heart of the city, your city. What a mentality. Nuf said.

    • The federal and provincial governments have already made it clear they aren't going to be giving Edmonton any money to build a new arena, or "downtown revitalization project" or whatever people are calling it.

      The point Jonathan has been making is that it doesn't make economic sense for taxpayers to subsidize sports team to build new arenas, stadiums, etc. and he even offered case studies that illustrate this point. There are many more such case studies *throughout* the NFL and MLB.

  • Mrs. Katz:

    Edmonton's not my city. The Oilers are my team but I have no particular ties to Edmonton itself.

    That said, I don't even necessarily think it's a bad idea to refurbish the downtown. I just think the financing model, as presented so far, is a bad way to invest half a billion dollars or so.

  • Milli

    While Katz's approach is vague and very underdeveloped, I like his push and his approach. Regardless of who is going to pay for this arena, Katz knows that if he does not push this issue, the city will take their sweetass time doling out permits and approving the project. Like any smart business man, he's going to push for the city to pay for it all. We should all know that's not going to happen. What is going to happen?
    1. Katz pitches his 100 million
    2. The city matches it.
    3. Financing
    4. Finally, this is where it gets complicated. The Oilers need to take a page from the New Jersey Devils and Dallas Cowboys book. There are so many people/businesses I know who would jump if they could get their hand on some season tickets (me included), not to mention box seats. Sell them the rights to those boxes/seats and finance them over 30 years. Suddenly, you have Oilers tickets as a writeoff within your company but now its a transferable asset as well. Dallas cowboys were charging anywhere from 16000 to 150000 just to buy the rights to club seats. Im not going to kid myself and say we could get that much but its a template.

    Also we have no problem selling out almost 17000 seats(when we have a team on the ice) why not closer to 24000 in the new arena.

  • Milli

    Also to all the Katz haters, this isnt just about Katz…this isnt just about the Oilers…the City of Edmonton needs this. For too long this city grew and grew and developed the west end, southside, even Namao…while the downtown core deteriorated. Edmonton has a great economy and a new downtown sector, LRT system, and associated infrastructure is what this city needs to boost its image. This arena is going to happen…