The Books

One of the key arguments behind Daryl Katz’s drive to get a new arena built in downtown Edmonton is that the Oilers are losing money and aren’t economically viable in their current facility. Given that those around the team have stressed this point repeatedly, I wonder if there was any face-palming when Oilers V.P. of communication and broadcast, Allan Watt, started talking about the Oilers’ revenue flow with the local media.

Discussing the hiring of play-by-play man Jack Michaels, Watt included the following gem:

“We have a $3-billion industry (NHL), we’re a $120-million business and there are no borders in our business.

(g/t Tyler Dellow for the link)

That’s a rather difficult statement for a team pleading poverty. If the $120-million referred to the Oilers’ total hockey revenue, as the context would seem to indicate, it puts them well into a group of have-teams. The NHL (at last report) was slated to earn about $2.7-billion in total revenue – and average of $90-million per team – and that $120-million figure puts the Oilers a full $30-million ahead of the average NHL team. Not bad for the worst club in the league last year.

Curious about the discrepancy, I contacted the Oilers to ask for comment on Watt’s figures. While the club declined to comment for OilersNation, I was told that Watt’s figures represented the entire revenue stream for Rexall Sports Corp. (i.e. not just the Oilers), and that as a privately-owned company Rexall does not disclose its financial reports.

That may or may not be the case; I have no way of verifying that statement. The thought that I couldn’t get out of my mind, though, is that it’s simply wrong of Rexall Sports not to make that information available – if not to the general public, at least to Edmonton City Council.

The fact is that Rexall is asking the City for a substantial investment of funds in a public work that will have enormous benefits for the financial health of the Edmonton Oilers. Since a key pillar of their argument is that the Oilers need that facility to be financially viable, it seems to me that the City should compel them to provide evidence of their statement – in the form of financial statements.

A private company has the right to keep its financial information private. As far as I’m concerned, however, that changes when they ask for a large public handout based in large part on that information. As it stands, the only people who know how badly the Oilers’ finances warrant a new facility are people with a vested interest in making the situation appear as desperate as possible – and that makes it impossible for the City or anyone else to make an informed decision.

  • JohnQPublic

    I don’t think Willis is qualified in this area – stick to what you know: hockey stats. Oh, and stick to the facts, you flounder when you speculate in areas don’t normally follow.

    A) private companies do not divulge financials even to the Wall Street Journal, get used to it

    B) the difference between revenue and profit is a mile wide

    C) how a company organizes itself significantly impacts how its financials are reported

    The bottom line is, any business that walks into Edmonton with a $400M business investment and a plan to revitalize an under developed district with up to $1.5 billion in investment, and sign a relocation agreement is going to get City concessions. If you knew anything about development, you would know that instead of trying to manufacture drama about it.

  • Oilchange64

    Numbers will certainly be provided but I would be stunned if it is his actual financial statement. As others have mentioned a non disclosure agreement with a Large group of politicians would be a waste of time.

    Katz has to be really pleased with the focus on the airport. Not seeing much in MSM about the arena lately but every day there is something on a different controversy. The deal gets done after the election.

  • Zamboni Driver

    Actually, Robin, I happen to think that’s EXACTLY what they want to do. They’re captializing on all the tall foreheads writing and phoning in complaining that City Council was being RUDE to Mr. Katz (who, btw, actually managed to sit before the (like ’em or not) ELECTED OFFICIALS for about 30 seconds before going to chase the Riddler). They are counting on smoke, mirrors and veiled threats to get what they want.

    This is the way these guys do business….

    Stauffer says they’re losing heaps of money every year, and “…you knoooowwwwwww….I’m not saying the team would move, buttttttt…..”

    But won’t disclose, you know…evidence…and stuff.

  • VMR

    I’m totally for a new arena downtown but I expect city council to work out a better deal than what the Katz group has proposed so far. Why should the city pay to put up the building, be the “owner” of it but get no revenue for any events, and likely be on the hook for any maintenance or renovations? It’s ludicrous.

    Northlands has built a good concert business at the rink, why should they hand that all over to Katz? Sure other teams have sweatheart deals like that but those other teams also pay millions in rent per year rather than the $1 per year the Oilers have been paying at Rexall. What are they going to pay for rent if they are managing everything?

  • When guys like Tyler, Willis or Grabia bring up this ‘open the books’ issue in respect to the new arena, is it fair to ask if the real underlying reason is just angling to see the books for an opportunity to disect them from an ‘all things Oilers’ perspective as opposed to trying to figure out if the Oilers could or should finance the arena all by themselves?

    The city has a vested interest in being a part of this project. It simply does.

    So the trick is coming up with a deal that will see the city come out ahead after their initial investment.

    As interesting as it may be to see how the Oilers are making out financially right now, if the city is on board with a new arena development – it appears they are, and the city sees some kind of financial involvement -it appears they do, then it’s all about the future numbers and not the existing ones.

  • GSC wrote:

    Whether you like it or not, Mr. Willis, Katz is going to get his arena and he will receive a significant amount of public funds (read: tax dollars) to cover the costs. He became a billionaire for a reason, there is a method to his madness.

    As not one of those tax dollars is going to be mine, I’m fairly indifferent to that. I also tend to agree that’s what will happen, no matter how cynical a statement that is.

    Katz has a lot of resources and an emotionally invested fanbase and ultimately will rpobably get everything he wants or close to it.

    • Librarian Mike

      The harsh truth of it all is that if Daryl Katz follows the Pocklington script and openly threatens to move the team, no member of our City Council will want to be labelled as ‘the one who let the Oilers go’.

  • @ JohnQPublic:

    A) private companies do not divulge financials even to the Wall Street Journal, get used to it

    I realize that, which is why I suggested private disclosure to City Council as opposed to public disclosure. Confidential information is confidential information, and I have no expectation it’s going to get flogged around the city.

    B) the difference between revenue and profit is a mile wide

    Again, I realize that, although given what we do know it’s difficult to imagine a model where the Oilers are currently losing money – unless KAtz’s interest payments on the team are getting added into the equation. The point is that we don’t know and Edmonton City Council doesn’t know.

    The bottom line is, any business that walks into Edmonton with a $400M business investment and a plan to revitalize an under developed district with up to $1.5 billion in investment, and sign a relocation agreement is going to get City concessions. If you knew anything about development, you would know that instead of trying to manufacture drama about it.

    It seems to me this is a dramatic issue either way, regardless of what I say. It’s massive public expenditure, a huge project that’s going to shape the city for better or worse for decades.

    What I do know is that in any private/private partnership I’ve seen, each side gets a look at some of the relevant financial information of the other, and that’s all I’m suggesting here. I don’t think it’s so much drama as it is due dilligence. Would you agree or disagree with that take?

    • Gilmore Tuttle

      Why on earth would Katz’s interest payments not be included in the financials. He raised a significant sum of money to purchase the Oilers. You can assume that the debt is on the team’s balance sheet, possibly with the team pledged as security against the loan. The interest payments absolutely would be on the income statement of the company, and so they should be.

      If you bought any company, and used debt to do so, you’d use the company’s earnings to pay down the debt. It would appear on your financial statements. This is no different, and it’s likely that given the size of the loan, the interest payments are one of the biggest single expense items the Oilers have. It would be strange accounting to show the statements without that attached.

  • @ Rick:

    When guys like Tyler, Willis or Grabia bring up this ‘open the books’ issue in respect to the new arena, is it fair to ask if the real underlying reason is just angling to see the books for an opportunity to disect them from an ‘all things Oilers’ perspective as opposed to trying to figure out if the Oilers could or should finance the arena all by themselves?

    Absolutely that’s a fair question. It’s not going to surprise anyone when I say I’d love to see those books to get a better idea of the behind-the-scenes hockey numbers.

    But that’s why I suggested a private disclosure of the information. As much as I’d love to see those numbers, I wouldn’t disclose them if I were in Rexall’s shoes and I don’t expect them to make them public.

  • @ Ducey:

    I just thought of a possible middle ground: what if Rexall agreed to allow a city-selected auditor to review it’s books, under a non-disclosure agreement, and he could verify a select group of points agreed to by both sides? Could that strike the right balance between Rexall’s desire for privacy and the City’s need to perform due dilligence?

    • Why is getting the Oilers to open the books part of the City’s due dilligence?

      The City has already aknowledged that Rexall as a facility is in need of addressing either through extensive renovations or replacement which is completely separate from the Oilers making or losing money.

      All the City needs is a location agreement and an acceptable and binding method of payback. If that payback can be accomplished through increased tax revenue then great, if it requires the Oilers cutting a cheque then so be it but whether that cheque is written in red ink instead of black ink is the Oilers problem.

  • @ Rick:

    Maybe it’s just me, but when partnering with a private entity on a project with a dollar figure around half a billion dollars, I would want to know how far I could trust them.

    Rexall’s made repeated statements about how much money they’re losing; a quick look by an independent entity could go a long ways towards knowing how much faith to put in their statements.

    Besides which, the financial health of the team does matter – I’m sure Glendale wishes they’d spent a little more time investigating it during their due dilligence.

    • Deep Oil

      The biggest mistake that the city can make in this is to approach it as anything but a real estate/development deal because that is what it boils down to.

      The Oilers being viable at Rexall or not is their problem. If they want to try and use current finances to drum up emotional support then it’s their game to do so.

      From the city’s perspective though it’s all about the viability of the development and if we are going to talk about the city doing it’s due dilligence then step one of that is keeping their eye on the ball.

      This “need” to see the books open is about satisfying our craving to know. It has very little if anything to do with the project. As I hinted at in my question above, I think the whole blogger aspect of pounding this point home probably rates a 1 on a scale of 100 for importance in the arena debate and a 99 for a chance to critique and disect how a professional hockey team employs accounting tricks.

    • Ender

      Which set of books do you ask for in this case? 😉

      Also, how detailed will the information be? Since there are multiple properties/entities in Rexall Sports that we are aware of, and likely a few that we are not, there are plenty of ways to make the situation look better or worse depending on what your end game is. As others have stated, I doubt that they would let anyone do a “detailed” review of their operations as a private company for the city or an independent advisor. In the end, we will have to take Katz at his word and that is it.

      The one organization I would love to see a detailed audit of in town is Northlands. If they want to play in any new arena the city should know the answer to the following: When the new Indy/Champ organizer (Octagon?) spoke at the initial news conference their representative said that he could hold a race for cheaper in Montreal than he could in Edmonton and he would look into why. Considering that Northlands was handling the race, where did the money go?

      • Gilmore Tuttle

        @Ryan2 – here you go, a link to their last three. Northlands is audited every year for their annual report, which is made public. They have also been audited by the City’s auditors.

        http://www.northlands.com/annual-report

        As for Octane, I wish them luck. Remember that the race here used 500 volunteers and Octane doesn’t for their races. They get money from the Quebec government to hire people for a short time as a make work project – courtesy of Alberta’s transfer payments. As the Alberta government won’t pay for this, it will be interesting to see what happens and how their costs work out. And remember that Octane is a private company and don’t have to tell anyone if they are making money or not.

        This TSN story sounds familiar. Don’t let your hate for Northlands and a lack of true knowledge of the costs of the IRL race lead you to a wrong conclusion. It is cheaper in Montreal because the temporary stands here cost $40 per seat to rent, set up and tear down. They also had to move all the concrete, run power and water, rent the airport, set up fences, etc.

        http://www.tsn.ca/story/?id=331724

  • Ender

    I think JohnQPublic nailed this thing out of the ballpark. As an accountant for a private business I can confirm that we don’t “open our books” for anybody. Period. Don’t care what business we are doing with anyone. Oh ya, I’m sure the yahoos down at City Hall will keep that information really confidential, they won’t go around yacking to everyone they know at all…
    Whether you want to believe it or not, the city stands to gain a lot from this arena district, and should have to put up a bit to help it along. They help out a lot of other developers you don’t know about, so why not this one.

    • Ender

      Fine, Team Hall. No problem.

      Hey, guess what? If you don’t want to “open your books” to anybody, then don’t expect said “anybody” to give you hundreds of millions in free money just because you want them to!

  • Ender

    I would love a new downtown arena. LOVE IT! Come to think of it, I live on the westend….. a new state of the art privately funded Spruce Grove arena works equally well for me too but…..

    When private corporations ask for someone else to subsidize their business to the tune of $300 million dollars, they actually do have to open & share their books or run the risk that they will not get the funding.

    If the projections as to the surrounding development work, the City will do just fine in servicing the debt they will take on in building the new arena. If the projected development does not raise the neccessary funds, CRL or otherwise, the City will have to come up with an $15- 20 million annually just to carry the debt. Not to pay it off…to carry it.

    Course if that happens JohnQPublic,Rick and other pro city funded arena will suffer complete amnesia about their pro City subsidy arguments and will,I am sure, ask why the City did not do more due diligence…get Rexall financials, etc.

    If the City is funding this project their dilligence should consist, at a minimum, of 2 things: firstly, review the statements that the Oilers are losing money — which means scrutinizing Rexall Sports books and secondly see if their is a need for the ancilliary development proposed for the area: hotels, office building etc. No need for those projects, no revenue from developments that do not proceed.

  • Ender

    The desire to open the books is nothing to do with private curiosity and everything to do with seeing whether Rexall is telling the truth or not. Are they really losing money at Northlands Coliseum? I find that hard to believe, given that they’re net contributors to revenue sharing, and have been every year since the lockout. Assuming revenue is in the ballpark of $120M, there’s no way on earth the expenses of the Edmonton Oilers Hockey Club can possibly run north of that, unless they’re paying Kevin Lowe $30M per year to tell stories about the Boys on the Bus at Chamber of Commerce luncheons.

    I suppose in a way it is irrelevant, though. RSE is a private business, just the same as any other. Why should the city subsidize their new place of business either way? They already let the Oilers play at their current arena without rent; now the team wants the City to buy them a new one? Come on. It’s absurd. And if you think Katz is going to move the team, you’re drinking the Kool Aid. He’s no more going to move the team than the Molsons are going to move theirs. There’s nowhere for him to move it to that’s going to be a better scenario than where he’s at right now.

  • Ender

    FWIW, City hall does fund other businesses. I know when Dell shut down City Hall was freaking out about it because they gave Dell a bunch of concessions to move in. I don’t remember the exact details, but I’m pretty sure they didn’t need to pay taxes and I think the land for their offices was paid for by the city.

    The city gives money to people who will bring more money into the community. The big question is how much the downtown revitalization project will aid the economy (jobs, etc.) outside of the hockey team. That said, either way the arena will be bringing a significant amount of money into the economy because of the more expensive boxes for random rich out-of-towners.

    • Ender

      Wait, hold on, is your argument really going to be that because the City of Edmonton was recently burned by having (IIRC) $20 million in concessions wasted in a bad business deal, they should instantly make $300 million plus ~$20 million ANNUALLY in concessions…

      …and this is even if the organization asking for the concessions cannot demonstrate that said concessions make the difference between their success and their failure?

      • Gilmore Tuttle

        No. I wasn’t making any argument at all. I was just pointing out that this sort of thing happens *all the time* and rarely ever hits the spotlight like this.

        I don’t have the numbers here, nor the developmental knowledge to say anything about them. I just know that’s why they gave the money to Dell, and as such it wouldn’t be surprising for them to do the same thing here. Logical consistency and all.

        In summary, I don’t care either way, but it is probably worth thinking about how this happens all the time and isn’t necessarily tied to the arena, but possibly to the complex.

        That said, it could just as easily be a huge scam and a horrible deal.

  • Ender

    All this talk of opening the books to the public or at least the politicians is neccesary. On Yahoo sports there is a great article about the new baseball stadium/development in south Florida for the Marlins. Jeff Loria told everyone the Marlins were losing truckloads of money and would never survive without a new stadium.

    Guess what, leaked papers show Loria lied, the Marlins made money and the county taxpayers are on the hook for over 2 billion when interest on loans is factored in.

    I would love a new arena, but no books no deal.

  • Gilmore Tuttle

    I’m getting tired of Katz already. How about the team (e.g. GM) spend the money more effectively instead of whining? Look at last years player payroll. ~53 million for a last place team. One would argue overpayment of at least 20 million dollars. And that’s conservative in m opinion. Katz seems to want everybody to spend money to add to his empire and hide in the closet and count the money.