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.

  • Fun side point:

    The cities of Fort St. John and Dawson Creek both recently built new arenas that had massive cost overruns. These were smaller projects ($30 MM range, IIRC) and while I can't speak for the D.C. arena except to say it went way over budget, I do know the political fallout in Fort St. John claimed the jobs of a popular mayor and the city planner.

    • Deep Oil

      Please note that the Alberta Art Gallery was an idea with corporate funding, donation by the Poole family, but went into cost over runs
      when built by Ledcor…. the net price tag was almost impossible to nail down, past the 88 million mark….. not much public input here,
      just showed up for the elite of edmonton and our mayor to look at their navels….. and the famous argument that many nation have used… our 23 avenue overpass was underestimated by a JUNIOR ENGINEER, creating EDMONTON JOURNAL headlines when the cost ballooned over 250 million….

  • OB1 Team Yakopov - F.S.T.N.F

    I've always been a little skeptical about Katz, it seems the majority almost viewed him as a charity for the team when his intentions actually seem to be the opposite.

  • I'm not against the idea of a new arena, I just hate the current proposal and the way it's being sold insults the intelligence of the general public.

    It basically assumes that everyone will buy into this "vision" without researching any part of it, because the plan collapses under even light scrutiny.

    Ideally, Katz would fun a significant portion of the arena (say 40%) and be on the hook for operating costs. He's getting a substantial chunk of change from the city, and that means a) he should take some of the risk and b) the city should get some protection, in this case from the operating expenses which have plagued both San Diego and Indianapolis.

    • cableguy - 2nd Tier Fan

      insults the intelligence of the general public

      ~c'mon now willis. have you seen the average edmonton hockey fan? i am half surprised Katz didnt try and explain himself using a blow up doll and a case of Canadian as props~

    • OB1 Team Yakopov - F.S.T.N.F

      Obviously we don't have all the nuts and bolts of the situations, but from a glance it looks like a horrible deal for tax payers and a marvelous deal for Katz.

      Good on you for trying Darryl, I never fault a man for trying to make as much $$$ as he can, but I hope the tax base doesn't get burnt here.

  • VMR

    The Nationwide arena in Columbus has more problems as well. The team and owners are losing money left and right and while it's revitalized the downtown area they cant make money on the building through sporting events and concerts. They've been fighting with the city for a few years now to get bailed out, so even success stories have problems.

    Their doesnt seem to be a winning solution. They cant keep playing at Rexall forever. A new building is going to end up costing the city and taxpayers one way or the other. Some form of tax on tickets might help out but increasing the cost of Oilers tickets when they're playing this well might just drive down the audience more than it builds revenue.

    • Deep Oil

      City has been quoted in the Edmonton Journal, that 1 billion dollars brings in 14 million in incremental tax revenue.

      $400 million dollars @ 4% interest is 16 million dollars in interest – so the arena NEVER gets paid off. THE PRINCIPAL WILL ALWAYS REMAIN UNDER THIS ARRANGEMENT.

      This is a conservative
      rate based on a 15 year mortgage, renewable.

      EDMONTON ALL RISK, KATZ ALL REWARD.

      Why not have KATZ take all the risk, and charge the season ticket holders a PERSONAL SEAT LICENSE, raising $300 million like they did for the ACC.

      Katz is referencing AMERICAN cities because it suits his argument, note as mentioned in past posts, that NOT ONE CANADIAN arena (GM PLACE, ACC, Scotia, Bell) was built with public funds.

      Note to YOUTUBE Daryl, the man that does not have his own twitter, just a corporate wizard of oz account….. YOU ARE IN CANADA, play by the rules of this government, not the tax forgiving americans.

      People do not want to send an email to your PR REPRESENTATIVE – JANET RIOPEL, as noted on the site, they want to interact and communicate with you…. Daryl. Marketing 101.

      SOURCE: ballparks.com

      Note – Scotia received government backed loans,
      and some $10 million in highway money.

      Why in Canada does Katz want or need corporate welfare….. Why does Edmonton need a handout when all the other cities in Canada did it on their own….

      Question: Does Edmonton want to fund an arena and allow a private entity to use it tax free?

      What ROI does the development have, it seems Katz realizes putting $100 million into the arena is a white elephant investment, so a quick flip on the development side, means he can possibly get out / break even or make a few pennies….

      If the public knowledge that Katz has a mortgage on the team, mortgage on his home, and had PUBLIC DOCUMENTED legal issues with his inlaws over his father inlaws inheritance / North American Road…. what lies with Rexall…. is this a 2.1 billion dollar entity with 2.05 billion of debt?

      Where did he get the money to pay for the down payment on the team, since he is mortgaged to the hilt – possibly a corporate loan from the
      another corp, or a shareholders loan from the Rexall bank fairy.

      I feel that the tide is turning against this wannabe billionaire that has not liquidity and has to borrow from Peter to pay Paul.

      It seems that every media launch is a failure rejected by Edmontonians, PUSHBACK, as Katz may consider himself an Edmontonian, but he will not mingle with the unwashed, only to show
      up at the Mayfair Golf Course and enjoy the privacy of this PRIVATE GOLF on CITY LAND that the taxpayers pay for EVERY YEAR.

      NOTE TO PATRICK LAFORGE WITH THE MISINFORMATION PRESENTED ON THE TEAM 1260, THE LIGHTHOUSE PROJECT IS NOT PROCEEDING AND IS STILL UNDER REVIEW, TELLING EDMONTONIANS ON LOCAL RADIO IS BAD FAITH, NOTING THAT A QUICK SEARCH CAN PROVE THIS PROPAGANDA WRONG.

      • OB1 Team Yakopov - F.S.T.N.F

        Man I'm tired of your personal agenda against Katz.

        Quit making assumptions as the keys to your point. Just because the guy has a mortgage doesn't mean he is far worse off then we're lead to believe. Ultra high net worth have different tax and leverage stratigies then everyday people.

      • Oilchange64

        OK, it is pretty obvious tht I have some concerns regarding the deal, but really, this is taking it a little too far. Reality is that he is a private citizen and how he funded it is his business. I don't want to "give away the farm" but the reality is that Katz is a local product with deeper pockets than most, and he has shown a commitment to the city. Others have posted that a partnership is the best solution and while that looks good in theory, they tend not to work so well in practice. I still feel that Katz should control the arena, but to do so, he needs to put more of his $'s in. I am more of the mind to say go really big – spend $500mil on something special – find a reasonable cost sharing scheme and/or ongoing concessions – but not totally at city expense. For those who are ready to jump at the current proposal for fear of offending Katz, get over that too, you are in the minority and it won't happen. A compromise is going to be necessary and he knows that. I really don't like the way it has been handled so far and can't believe he blew the good will that had been built – which concerns me as that alone will cloud a lot of taxpayer's minds. It is not necessarily thinking small (maybe it is for some), it is more about feeling you have been taken advantage of.

        • Deep Oil

          Why should Katz be the first nhl owner in Canada to receive a subsidized arena, excluding the saddledome which is out of date and a federal gift to Calgary via the Olympics.

          The comparisons to all these american cities are irrevelant due to the fact WE ARE IN CANADA under a different tax and government system.

          Not one NHL arena received funding, why should Katz be the first via the city, his lobbyists (FORGE and RIOPEL) are Edmonton level based,
          noting that the provincial government and feds are not interested.

          • Oilchange64

            In theory I totally agree with you. But reality is that this IS Edmonton, we are "underdeveloped" IMO, and I don't have a problem with SOME tax dollars going to something that will improve the city. We do need to see a bigger picture. Your reasoning (and again, I get it) would never see anything built to improve the city. And if that is what the majority end up wanting, so be it. I just don't think it will happen here without some support, though I would certainly prefer it to be entirely privately financed.

  • Ender

    Jonathan Willis wrote:

    I think it’s remarkable that . . . the four examples Katz provides to support his case . . . aren’t the sort of examples I’d use, unless I strongly suspected that nobody was going to bother looking into them.

    Or there just weren't any better examples to use, which is even scarier. I hope we get a new arena and I don't even mind marginally higher taxes to pay for it (although I'm obviously a biased Oiler fan); the thing has to make money for the city that pays for it, though. The relationship needs to be symbiotic, not parasitic. C'mon, Katz; you can do better than this.