Missing A Party

11 years ago

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.

Missing A Party

The Winnipeg Deal

The Edmonton Framework

The Bottom Line

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