On the Edmonton Arena Deal Kerfuffle

Kent Wilson
September 24 2012 12:40PM

 

 

Although there are no game results to talk about or aniticipate right now, there remains plenty of hockey related business items to discuss. The Oilers arena thing is turning into a bit of a fiasco, but also following a path well worn by other sports owners who have extracted public dollars for private interests in the past.

Ask For the Moon

"We had a whiteboard, and we're putting stuff down" to demand in a stadium lease, he recalls. "I said, 'Guys, some of this is crazy.' And John Shaw, who was president of the Rams at the time — brilliant, brilliant guy — said, 'They can always say no. Let's ask for it.'"

- source

The Edmonton arena project has become very messy over the last couple of weeks. While an apparent deal was struck in principle awhile ago, the devil, they say, is always in the details. Katz's demands have escalated recently, even though, as JW points out here, the initial deal was really quite favorable. Beyond all the operating revenue from the arena going into his pockets (including non-hockey related stuff), a demand to handcuff the departed Rexall place (in order to ensure they don't have a competitive advantage over him whem it comes to major concerts and the like), Katz is also seeking a $6 million per-year operating subsidy. In addition, he wants the government to rent out an office apartment planned near the new arena (built and owned by Katz, of course).

Keep in mind, that is all on top of what the city was going to put towards the rink's expenses in the first place, including hundreds of millions towards the construction plus an annual $2-million "advertising agreement" (a subsidy by any other name...) which would pay Katz $20M in total over the first 10-years of operation. In addition, an Edmonton City Council member recently revealed that the Katz group is pushing for a property tax exemption. Oh yeah...and a casino license.

So it's pretty obvious why the City's representatives are balking at this point. Katz is holding them over a barrel. Rich men have made a habit of foisting the risk and expenses of pricey arena projects on the public for the last few decades and the special position major sports holds in the hearts and minds of the North American public has made it possible.

It makes sense from a pure rational standpoint on the owner's end - arenas are kind of like cars in that they are depreciating assets. New ones are fun and exciting, but after the novelty has worn off and the shine has dulled, it becomes about the utility of the building; mounting operating and maintenance dollars and the building's inevitable fall out of fashion. The building cycle for stadiums and arenas is about 30 years, which is sometimes not even enough time to completely service the debt it takes to build them in the first place.

Public Expenses, Private Profit

Which is why private interests aren't terribly enamoured with buying (meaning: paying for) arenas. However, if one can get major costs covered by the public, the possibility of new luxury boxes, private suites and increased seating capacity - plus other, ancillary development around the rink - suddenly starts to make a lot of sense. In addition, it's a lot easier to sell the public and politicians on fuzzy concepts and overly optimistic scenarios like civic pride and "downtown revitalization" than it is banks or private investors (who typically ask for a higher rate of return on investment or an equity stake in the venture itself).

The one major ace in the hole for team owners is the threat of relocation. It's an extortion tactic that has been effective in a number of other sports and markets in the past (including Pittsburgh where Mario Lemieux admitted the meetings with other cities like Kansas was a method of upping their leverage in negotiations with the city).

And that's where the fight went this week. Bob Stauffer's "Oilers Now" radio program interviewed Bruce Saville on the topic last week and the former EIG member believes the team "is gone" if the arena doesn't get built. A few days later the Oilers official twitter account re-tweeted (and since deleted thanks to some backlash)  this John MacKinnon article entitled "Downtown Edmonton Arena Deal Can and Should be Made - enough is Enough" which echoed the threat of relocation in the body:

In fact, the NHL has communicated to city council that, absent a lease, and with no state-of-the-art arena either being constructed or about to be, the Oilers would be a candidate for relocation. That would require a majority vote of the NHL board of governors. But that gang, one of the most exclusive boys’ clubs extant, wouldn’t stop Katz from moving.

Is Moving the Oilers Plausible?

Personally, I am incredibly dubious of the relocation threat. The Oilers were a top-10 revenue team last season and have enjoyed numerous years of sold out rinks and exuberant fan interest despite being one of the very worst outfits in the league in terms of on-ice performance. Edmonton isn't the biggest or most glamorous town around, but they enjoy some of the strongest, grassroots support of any club in the union. In a league that sports at least a half a dozen financially unstable franchises, Edmonton is way down on the list of "teams to be moved". Meaning - even if Katz can somehow extract an even more favorable deal from another city, there's little chance he'll find a market as viable as Edmonton. And as the Coyotes have consistently illustrated in Phoenix, a publicly built rink/arena district is in no way a guarantee of financial success.

That said, the fear of losing a long beloved institution like the Oilers is palpable in Edmonton, however small the chances of it actually occurring. When you can't win with sugary rhetoric and lavishly drawn building concepts, default to threats and fear I guess.

This is all relevant in Calgary because we're poised to have a similar issue here in a couple of years. Ken King and the Flames have been very careful not to say anything significant on the topic of a new rink over the last few seasons, perhaps waiting to see how the fight goes for Katz et al up in Edmonton. I suspect that if the Oilers owner succeeds in shunting a vast majority of the expenses on the taxpayers up north, the Flames will  likely run with the same playbook down here (although I assume they'll be less clumsy and hamfisted about it).

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Former Nations Overlord. Current FN contributor and curmudgeon For questions, complaints, criticisms, etc contact Kent @ kent.wilson@gmail. Follow him on Twitter here.
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#1 backburner
September 24 2012, 01:10PM
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As much as I loathe the Oilers... to see them relocate would feel like kissing your own sister... even if she looks like Megan Fox it just ain't right!

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#2 Kevin R
September 24 2012, 01:14PM
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Gotta say, the timing of this is about as good as the timing of the Parise/Suter/Weber & all the other multi year multi million dollar contracts that were thrown around leading up to this lockout. I guess if they dont have a league where games by the best players are being played, he can move the Oilers up to Innuvik & pioneer hockey up through the Territories. I'm sure 50 to a 100 eskimos(not football players) would go watch if they were given a free hotdog & beer at the game.

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#3 Monaertchi Gaudnett
September 24 2012, 02:13PM
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I may hate the Oilers and their fans with the fiery passion of a thousand Suns, but if the NHL relocates them because Katz wants a better deal than already agreed upon, I will personally chip in money for an assassin to brutally murder Gary B and the Kat.

Moving the Oilers out of Edmonton just ain't right.

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#4 JayD54
September 24 2012, 02:15PM
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I think its pretty safe to say that holding cities ransom has become a familiar tactic in professional sports.

If this is what Mr. Katz (you know, that wealthy guy from Edmonton that lives in Vancouver) has as an end game, then I think he should bring it on. He bought the franchise from a varied group of investors (including some from as far away as Lloydminster if memory serves) who were far more civic minded than Katz ever has or ever will be.

Thats not to say that I don't understand that an NHL franchise need be a viable business.

But this circumstance is endemic of the self centred nature of both sides in the lockout as well.

Both sides just expect the fan, the city, the building clientele to pay and pay and pay. . . Well, you know what? There really is no such thing as a free lunch and those who pay the freight can only afford to haul so much. The changing nature of options for that entertainment dollar will erode the attractiveness of paying $500 for a night at the rink to watch NHL hockey, particularly when one can stay at home and watch on the tube. There remains a very real possibility that the forecast Hockey Related Revenues will crash and render even the most impassioned, died in the wool hockey market no longer 'viable'.

Again, tell me which side has benefited the most from the last lockout? It sure isn't the fan, who continues to pay a bloated rate into the pockets of the owners and, by extension, the players!

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#5 Price per Head
September 24 2012, 02:17PM
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The Edmonton arena project is actually a shield. The cost and requirements go beyond the eloquent. I really hope that the team needs it.

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#6 suba steve
September 24 2012, 02:31PM
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@Price per Head

Kent, this seems to be a gambling site ad. Hope they are paying you.

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#7 suba steve
September 24 2012, 05:12PM
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Katz spotted touring Seattle. Might as well sell every drug store he has in Alberta (possibly Canada) if he is stupid enough to make that move. Business is gonna get real bad real fast Darryl, cause people do have other options.

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#8 beloch
September 24 2012, 05:19PM
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Katz is playing hard-ball and Edmonton City Hall needs to make a counter-offer. Something like this:


-Rexall place operates without restrictions.
-Katz pays for his own office space.
-Whatever percentage of the funding the city provides is the percentage of profits they will receive from all operations. If Katz wants more money from City Hall, they take more of the profits.
-No subsidies. If the new arena loses money, Katz may be given the option to surrender shares in future profits for short-term operating grants.


That's worse than the deal he already has, but if he wants to keep renegotiating it then it's time for the city to bite back. Otherwise Katz will take them to the cleaners like a bunch of chumps.

The key thing to recognize is that Katz is completely full of it when he suggests he'd consider moving the Oilers. The Oilers are a stable and profitable club. If they can sell out Rexall place with the current product they have on the ice, the club can literally do no wrong in Edmonton! That would likely not be the case in another town. There is the possibility of finding a larger, untapped, hockey-mad city, but the probabilities overwhelmingly favor lower profits and a far more fickle fan-base. Thus, a move would be potentially ruinous to Katz's own finances while offering little potential upside. Additionally, if Katz did try to move the team, the league would likely *not* permit it since the oilers would run a real risk of changing from a "have" club to a "have-not" club, which would decrease revenue shares for teams like Phoenix and increase the burden on teams like Toronto. Rich boys listen to the money talking far more than they listen to each other.

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#9 Tach
September 24 2012, 05:57PM
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If/when the same shakedown comes for the Flames against the City of Calgary, I trust that Flames Nation will be leading the rational argument of forcing the owners to pay their own freight or take a hike. Anything less will leave me a sad panda.

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#10 jeremywilhelm
September 24 2012, 06:51PM
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Even the normal sheep in Edmonton are turning on Katz. He is on his way to Pocklington levels of hatred.

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#11 Butters
September 24 2012, 09:56PM
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Oiler fan here. No worry Flames fans, if the Oilers go, the province will do everything it can to get your arena built.

And jeremywilhelm is right, a lot of us are ticked off at Katzlington right now.

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#12 JayD54
September 24 2012, 10:02PM
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@JayD54

Well, Mr. Katz has fired the first volley across the bow of Oiler fans, Edmonton and Alberta politicians, his fellow NHL owners and, indeed, Gary Bettman.

It may be distasteful at the moment, but its time that some local, community minded and well healed Edmonton businessmen (and there are more than a few) to step up and buy the franchise from Katz.

He's already demonstrated he's only in it for the buck. . .

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#13 Kevin R
September 24 2012, 10:43PM
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Curious, based on court battles with NFL owners relocating teams, NHL would be subject to the same court precedent & Bettman may not be able to block an existing established owner from relocating his franchise. Up until now, really any other relocation scenarios that Bettman has blocked has been along the lines of a sale & move. In those cases, the league can block the sale. This Katz thing is a different animal. I think Seattle should have a team but not the Oilers.

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#14 MC Hockey
September 25 2012, 04:29PM
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I hate the lockout and arena debates. But interesting design for arena...pardon the biology lesson but sort of looks like a sperm cell if you look at it on an angle.

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#15 The Last Big Bear
September 28 2012, 02:37PM
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I can't even believe that he managed to wrangle the deal that was on the table.

Absolutely should have been told to go pound salt.

The fact that he's not only coming back for more, but threatening to move the team unless he gets it...

It takes a lot to get me to sympathise with Shelbyville, but man, that's ****ing **** **** so hard that **** **** **** until they have to call a doctor to pull it out.

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