GRACE

Daryl Katz: “If this deal doesn’t work, what can I say, obviously all bets are off and we’ll have to figure out what comes next. And I don’t know what that will be.”  The story is here.

When I was a young man, a company came along and offered me a really good job. Lots of money, more responsibility and a prime time shift. It was everything I wanted, except the job was in Regina and I was newly married and living in Red Deer (which was and is a very nice city).
Anyway, I called my Dad and talked to him about it. He said ‘make a list of the positives and negatives of each job’ and I said ‘what if I tell the company in Red Deer to match the money or I’ll leave?’
And of course you know what he said, because everyone with a little more life experience would say the same thing. “Son, if you make that threat you better be prepared to back it up.”
Long story short we moved to Regina. :-)
Daryl Katz: “I’m focused on making this deal work — God knows, I’ve spent enough money.”
I don’t think this will rank as a defining quote, like ‘let them eat cake’ or ‘Brownie, you’re doing a heckuva job’ but the fact remains that the quote runs out of time with what most Edmontonians are thinking.
The problem Mr. Katz is having–in my opinion–is that Edmontontians were very uncomfortable but willing to live with the deal made with the City. The mayor’s reaction to the new request for dollars was a perfect
mirror for the citizens, and that gap–however wide–may be the hill the mayor and the city of Edmonton choose to die on.
And after that? I refer you to my father’s words.

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113 Responses to "GRACE"

  1. Woodguy says:

    From the article:

    ” The fact is that this deal has always contemplated a mechanism to offset capital and operating costs,”

    Yeah, Darrell, that mechanism is where you get 11/12 months of revenue on a 35 year $6MM/yr lease from a $450MM building that you are not paying any up front costs on.

    This part is ridiculous:

    Here is what I’d really like you take away from this discussion: this is the case for public investment insofar as Edmonton is involved in this deal. Number one, Edmonton’s needs a new arena. Edmonton needs a new arena with the Oilers and our investment, or without. With the Oilers and our investment, the cost of the arena is shared. Without the Oilers, Edmonton still needs a new arena, but the public would have to pay the full freight, just as it would have to pay $250-odd million to refurbish Rexall Place. Plus it would have to pay all the capital and operating costs, just like Quebec City will, just like Kansas City, just like Phoenix, just like Seattle, just like Hamilton, and just like other cities that would all like an NHL or NBA team to subsidize their arenas. So you see, in our view, it is the team that acts as a subsidy for a city’s arena, which is effectively infrastructure, not the other way around. .

    So the Oilers are a subsidy for Edmonton infrastructure?

    Jesus Christ.

    If that’s the way you feel, you shouldn’t have bought the team Darrell.

    Gary Gregg was ready to put together a smaller group to buy the team and you starting promising a new rink for the Uof A and putting $200MM of your own money into a rink.

    Gregg couldn’t compete with that and dropped out.

    Years later there is no new facility at the UofA and you are demanding 11/12 months of revenue from a $450MM building on a 35 year $6MM lease, where you pay no up front costs and now you want your maintenance costs covered as well.

    Fuck you Darrell.

    Sell the team to Gregg, I’m sure their group would be thrilled with the current arena deal.

    Sell the team to Gregg and just fuck off.

  2. Lowetide says:

    I would like to see an independent estimate of what the deal means for Katz. Take the things WG mentioned and then add in revenue from concerts and other items–plus the casino–and what WOULD be the annual estimate for revenue?

  3. russ99 says:

    I wonder if the best solution here is to bring in another investor.

    But there’s probably little chance of Katz wanting someone else to take a bite out of his pie.

    BTW: Unless that extra $100 million that supposedly the province is going to kick in appears, the arena is dead anyway. Maybe this is what it’s all about, Katz wants more of a sweetheart deal in order to cover that and other shortfalls.

  4. russ99 says:

    Lowetide,

    I also wonder what AEG’s (conglomerate that’s going to do venue/concert management) cut of that will be vs. Katz’s cut. He could have made a deal with them that now doesn’t look so sweet.

  5. Peacecountry says:

    I must admit that I’ve been pro arena since the start. And at this point I don’t think that most people are on the fence. We are simply looking for quotes and comments that will justify our opinions.
    That being said citizens of the city need to figure out if they want a new arena or not. Its that simple. If you do then Katz is right, he is spending money to subsidize the construction. The city could have to build one all on its own.
    The onlyt flaw in Katz’ logic is that if he is subsidizing he arena and the city is building it why is he the one doing the design, logisitics ect?

  6. Bar_Qu says:

    Katz needs to stop listening to what his business manager says and hire a good PR guy to tell him what to say. He does not come across well in this interview, and like most Edmontonians (which I am not) I want to be behind him. What he says about the subsidies in most markets (Quebec, Hamilton and Kansas have teams??) leaves a lot to be be desired. And with the estimates of his wealth out there, it is hard to believe he is dickering over 6M/yr. Two billion gets 6M in interest in about a day, so I don’t necessarily get it.

    Add in the lockout (which he as an owner is supporting) this is poor message control and timing for what he said.

  7. maudite says:

    The oilfield is starting to slow down again. Most can’t see it yet but it is. Pretty sure labour and construction costs will follow. Even our little bubble world is going to creak a bit here. Tack on the rest of the continent not really firing on all cylinders, surely construction material and manpower are not going to really be a premium in the near future.I don’t really think it’s likely to cost all that much more. I think the original estimate was low for what HE wants built but I don’t think the actual costs are rising.

    If we are building it, we should be designing it. In the best interest of the actual citizens of Edmonton, this thing likely should be built different than Katz actually wants it built. Less skyboxes more actual seats (so more actual people can attend and enjoy games and concerts), is one that comes iimmediately to mind. Pretty sure there are other things as well.

  8. maudite says:

    I’m not suprised, since we bent over so willingly the first go round, that he’s trying to get more. They do need to stand their ground here. Whatever the outcome, they need to stand their ground here.

  9. Clay says:

    This whole debate is, frankly, quite pointless. Take Katz out of the equation, really. Who cares who owns the team? Whether the owner is a local billionaire or the EIG, the fact is that the team needs a new arena to play in. Even if it’s a rebuild of Rexall, they still need a new barn.

    So, if the EIG was still the owner, right now we’d be talking about how the different levels of government need to pony up the whole bill, or the Oilers are history.

    Quebec City and the province are splitting the bill for a $400M arena, and at the same time, they are tops when it comes to receiving federal equalization payments ($7.4 BILLION!). Yet, if you Google the funding for the deal, one of the first things that pops up is a picture of Jean Charest and the mayor of QC hugging with enormous grins on their faces.

    If Katz ends up moving the team, I’ll hate him for ever, but I won’t blame him one bit. Not when a “poor” province would gladly build him a rink, and the richest province in Canada won’t.

    While I’m venting, where are the feds in all this? They spent almost $900M on a four day G8/G20 summit a few years back that benefited NO ONE, you’d think they could throw in a few bucks to get a project going that would re-make the image of one of Canada’s provincial capitals, as well as provide jobs and generate tax income for decades.

    Just so sick of the whole thing. This is worse than the lockout for me.

  10. hunter1909 says:

    I’d like to nominate Woodguy and Maudite to own/operate this team.

    Katz sounds like an aging old fool – he’s just jettisoned the mother of his children(and no doubt has his whore lined up to foist on everyone in his universe); and now is posturing like some kind of incredible victim – to a city/nation that not only allowed him a life to start with.

    It’s one of the oldest stories in the world.

    Fuck him. It wouldn’t take a whole lot more of this for me to start lobbying for him to take his fucking Oilers and start wandering with them across the future North American landscape.

    Edmonton? It’s not as far from Toronto/Montreal as being the mecca of hockey as people think.

  11. VOR says:

    LT,

    You raise a great question (what does this deal mean for the Mr. Katz in financial terms?).

    It is, however, not easy to answer. I’d like to see an independent appraisal by a top end accounting firm. There are some serious problems that make back of the envelope calculations difficult.

    Problem 1 – We don’t know what the current deal means in terms of revenue. Estimates have ranged from $83,000,000 per annum to $114,000,000 per annum. At $83,000,000 Mr. Katz is losing money. At $114,000,000 he is awash in cash. I doubt the latter is true or the new building wouldn’t even be under discussion, we’d be retrofitting the Coliseum.

    Problem 2 – We don’t know how good Katz’s people will be at running a concert business or how much of Northlands concert business is tied to the rest of the complex. It should add $34,000,000 in revenue. The concert and event business in Edmonton is in trouble right now because of the strong Canadian dollar and the global down turn. It is also a very difficult industry to work in. City Council felt one place money could be saved was on making the dressing rooms, etc. more modest. Bad move if you want top end acts to use your facility.

    Problem 3 – We don’t know how to value the real estate (I’ll come back to this).

    That said the likely revenue from the new building is as follows:

    Ticket revenue – $57,200,000
    Concerts – $34,000,000
    Sky boxes – $24,000,000
    Advertizing – $40,000,000 ($2,000,000 for 10 years from City of Edmonton is part)
    TV and radio – $11,000,000
    Concessions – $10,000,000
    Merchandizing – $9,000,000
    Parking $2,000,000

    TOTAL – $187,200,000

    This number is based on a rather detailed study of every published document on league and Oilers revenues. It also represents a best case situation and is in current Canadian Dollars

    Now that sounds like a lot but lets consider the probable costs:

    Player costs – $63,000,000 (Public record)
    Building operation – $60,000,000 (City estimate cross referenced with Northlands public record including cost of goods))
    Management and Overheads – $30,000,000 (widely used league average)
    Mortgage – $6,000,000

    TOTAL – $159,000,000

    EBIDTA of $28,200,000.

    However, the worst case would be if we took attendance numbers and concert bookings from the early nineties.

    Then we get a number like $100,000,000 in gross revenue. The operating costs would also shrink but still be at least $110,000,000 or a loss of $10,000,000.

    If we assume a third of the years in the 35 year deal are sold out, one third average the same capacity as the Oilers over the last 20 years, and one third are at the worst capacity 73% and that concerts and other bookings move in tandem then you would expect Mr. Katz to make $260,000,000 over the 35 years as a result of the current deal. Sounds good right? He’d be far better off putting his money into Canada Savings Bonds (over the last 35 years a $100,000,000 investment in Canada Savings Bonds would now be worth over $400,000,000).

    Presumably he was planning to make his money developing real estate opportunities that arose out of the arena project. I think he was factoring in an enormous increase in the value of his land holdings. I also assume that several things are happening at once. His ability to make real estate development deals is far less than he thought – thus his desire to have the City of Edmonton anchor a building he’d own. Also, the costs of the building have escalated and I’d guess are coming up on the upper limit of viability at about $516,000,000. Even for a billionaire the deal is getting too risky.

    His wife is right. He is crazy. I know a lot of people here have trouble believing that but it is true.

  12. Dee Dee says:

    Maybe someone can correct my math for me.

    If he pays $6 Million per year as his part of the “contribution” and then receives $6 Million per year for maintenance costs, isn’t he, in effect, getting the rink for free? Can’t be a whole lot of Maintenance on a brand new building.

    And collecting all (or most) of the revenues, and not paying any taxes on the bulding?

    I’ll give Katz a free tip on how to start making ALOT more money and it doesn’t require a new arena or any serious investment.

    Have your 29th/30th/30th/30th place team START WINNING SOME FREAKING GAMES AND COLLECT SOME PLAYOFF REVENUE.

    Playoff games are the honeypot. Sweet sweet revenue, you can double the prices on everything and be rolling in the money.

    Katz is free to play his move the team to Seattle card, but every single team in the league, with the exception of 1 is better than his team and many of those teams would jump at the chance to be here, even in the shitty old arena. In fact you could make a reasonable argument that the Oilers have been the worst team over the past 5 years.

  13. alice13 says:

    Vor,

    The first thing is your 260M figure is a 35 year cumulation of current-dollar estimates, whereas your CSB investment reflects growth in nominal dollars that is mostly a reflection of inflation.

    But wait a sec, there actually Is no 100M up-front investment to compare, or to be more precise, there is, but it’s the city’s, and the City’s return is 5.5M/yr.

    Buddy is getting a good deal, and we’re not even talking about what a new arena does for the worth of his franchise. George W made a tidy sum selling the Texas Rangers, once gov’t built him a swanky new ball yard. The Edm Oilers franchise, in his portfolio, would take a very nice bump and that has conveniently stayed out of all this operating-costs banter.

  14. sean w says:

    Woodguy,

    Hey Woodguy,

    Do you have any links to stories about Gary Gregg’s previous interest in buying the team? I’d like to learn more about that.

    In the meantime, off to the Googles I go…

  15. sliderule says:

    Don’t despair.

    It’s negotiation .

    If the city doesn’t roll over the arena will still get built.

    If they roll over we are the suckers who pay.

  16. Kris11 says:

    Katz, savior of the Oilers in Edmonton. Willing to take a loss, spend to the cap, just to keep the city in town. What a lie! So big a lie that we thought it was likely to be true.

    At this point, the city of Edmonton would’ve been much, much, much better off if they had just issued a bond and bought the team themselves. The city is taking all the risk, paying the vast majority of the costs, all so Katz can have a virtually risk free income stream.

    Oiler fans say the players need grit and to stand up for themselves lest they be bullied into being losers.

    Do they think the same for their politicians?

    —-

    I don’t know if municipalities can do this, but I would try. If Katz gets his deal, and the arena is up and running, and Katz is making good cash, I’d pass a massive tax on all major sports-and-concert arena lease-payers in the city at about, oh, 15MM a year. If Katz threatens to leave, I’d tell the NHL that the city is happy to buy the team, keep it in a very profitable city, and so are lots of locals, but the tax will remain only dependant on whether the new owner is approved by the city.

    Not sure what taxation powers Canadian municipalities have, but you can find a way to do this. Give Katz his deal. Imply that he wins. Then use taxation powers later on to take back however much money you want.

    Seriously, the government has the power to beat up local businesses that decide to play rough if they decide to play rough back and they do it smartly.

  17. Jordan says:

    sliderule,

    To be fair, it’s not Oiler fans who pay, it’s edmontonians. I say this because
    1 – not all fans are in edmonton
    2 – not all edmontonians are fans

    The distinction needs to be made, because it affects likely decision-making becasue the buck doesn’t stop here. Although, with the thoughts here, it might work out better for all parties if it did stop here…

  18. alice13 says:

    Silly question, but since Katz’s contribution really looks like rent, why don’t the City and province build the thing without Katz at the table at all, it only muddies the waters. His franchise grows in value, City gets its CRL and other ancillary benefits. The Oilers do not need to be involved, other than as the prospective key tenant. Example: QC is building an arena without the direct involvement of their tenant, because such tenant hasn’t materialized yet. It would be easier to move Edmonton’s deal ahead politically if it looked more like a civic undertaking, ie. the City is building an arena, 100% – if there’s interest from an NHL team in using it then that’s great. The current optics have the City building an arena for a businessman. Even if it nets out the same, hard to believe they could have PR’d it any worse than it is, you’re asking councillors to vote for what looks like a corporate handout.

  19. Kris11 says:

    “At $114,000,000 he is awash in cash. I doubt the latter is true or the new building wouldn’t even be under discussion”

    I’m curious about this. (And interesting post, BTW. Lots of work there.)

    Why do you think the fact that Katz wants a new building is evidence that he is not awash in cash? Maybe he just wants to be more awash in cash.

    Why wouldn’t he say he is not making cash (while making cash) in order to get a new building and get more cash. That’s what I would try if I were him. (The Oilers refuse to make their books public, despite claiming that the public needs to help them build a new arena because they have a need for more revenue.)

  20. VOR says:

    Alice13,

    I agree completely with you that much of the CSB return would be inflation. However, I built inflation into my $260,000,000 number using the NHLs own numbers for the last 14 years and published reports for the 20+ years before that. I also tried randomization and used 4% inflation and Katz ends up making $376 M, still less than the CSB return.

    You say he hasn’t spent anything. The City says he will end up spending $100,000,000. Katz says he has already spent $70,000,000 and it is going up fast and he will end up at somewhere around double that. I am using the City’s number.

    The current deal is bad for Katz. It is also bad for the City. This I suspect reflects the point of my earlier post about the research on arena and stadium projects on average not making sense in dollars and cents. Usually they are net losses. A fair deal would thus tend to be bad for everybody. I think it is also telling us that not enough thought has gone into the alternatives.

    Katz in his interview talked about win-win and perhaps there is some way to get there. Right at the moment it is lose-lose.

  21. russ99 says:

    alice13,

    First off, every owner sells at a profit, but that has little to do with day to day operations.

    Also, there is a “shiny new, super-modern” factor with the arena. If the city builds it themselves or limits the construction plan, it ceases to be the pull that they’re expecting when it comes to revenue, and could be another Coliseum in 10-15 years.

    Dee Dee,

    I understand your frustration, but no NHL team would come into Rexall Place with the current terms. The Oilers are playing under the worst terms in the league, by a long shot. I wonder where we’d rank among the KHL as per arena revenues going to the team…

    If it means playing at Rexall without a rework of the current deal, we’re behind Quebec City, Hamilton and soon to be Seattle. Sure, the fan support is best here, but teams move for financial reasons. And if the city won’t give it to a local boy made good who rescued the Oilers, why would they give it to some other group.

    Both Katz and the city need to realize that this is a optimal economic climate to get the project done, and both need make concessions to make it a reality. If the dollar falls even to pre-2003 levels, there’s no way they could build it.

  22. LoDog says:

    The framework that the City has already agreed to included a mechanism to offset maintenance costs. This is not a new ask. Was supposed to be casino money but that seems to be going nowhere.

  23. Captain Obvious says:

    Woodguy:
    From the article:

    ” The fact is that this deal has always contemplated a mechanism to offset capital and operating costs,”

    Yeah, Darrell, that mechanism is where you get 11/12 months of revenue on a 35 year $6MM/yr lease from a $450MM building that you are not paying any up front costs on.

    This part is ridiculous:

    Here is what I’d really like you take away from this discussion: this is the case for public investment insofar as Edmonton is involved in this deal. Number one, Edmonton’s needs a new arena. Edmonton needs a new arena with the Oilers and our investment, or without. With the Oilers and our investment, the cost of the arena is shared. Without the Oilers, Edmonton still needs a new arena, but the public would have to pay the full freight, just as it would have to pay $250-odd million to refurbish Rexall Place. Plus it would have to pay all the capital and operating costs, just like Quebec City will, just like Kansas City, just like Phoenix, just like Seattle, just like Hamilton, and just like other cities that would all like an NHL or NBA team to subsidize their arenas. So you see, in our view, it is the team that acts as a subsidy for a city’s arena, which is effectively infrastructure, not the other way around. .

    So the Oilers are a subsidy for Edmonton infrastructure?

    Jesus Christ.

    If that’s the way you feel, you shouldn’t have bought the team Darrell.

    Gary Gregg was ready to put together a smaller group to buy the team and you starting promising a new rink for the Uof A and putting $200MM of your own money into a rink.

    Gregg couldn’t compete with that and dropped out.

    Years later there is no new facility at the UofA and you are demanding 11/12 months of revenue from a $450MM building on a 35 year $6MM lease, where you pay no up front costs and now you want your maintenance costs covered as well.

    Fuck you Darrell.

    Sell the team to Gregg, I’m sure their group would be thrilled with the current arena deal.

    Sell the team to Gregg and just fuck off.

    Exactly. This idea that the Oilers are subsidizing an arena that is being built for them for free is through the looking glass stuff. And yet people like Staples and Rishaug are lapping it out and trying to sell it to a willing public. People who still support the arena are either too stupid to breathe or moral cretins. When Staples calls the arena “public infrastructure” I want to punch him in the face. He’s become a shill who is actively lying in an attempt to defraud the public. If city council approves anything more they should be brought up on charges of corruption. If the Feds have any role in this it is to make public subsidies of these kinds of projects illegal.

    I am reminded of the old Upton Sinclair quote: “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”

    I was going to swallow the original deal even though it was bad because it benefited personally. However, this is so far across the line that I’d much prefer the Oilers just leave. Edmonton doesn’t need the Oilers and it doesn’t need a new arena. I’d rather have my pride and my money than to be fucked in the ass and told to say thank you.

  24. Mr DeBakey says:

    I understand your frustration, but no NHL team would come into Rexall Place with the current terms. The Oilers are playing under the worst terms in the league, by a long shot. I wonder where we’d rank among the KHL as per arena revenues going to the team

    I’d look into that if i were you.
    You might be confusing the current terms with the terms during the Glory years, or the WHA years.

    This is, of course, the problem here.
    When the Coliseum was built tenants paid rent, didn’t get concession revenue, and the word “iconic” hadn’t even been invented.

  25. Captain Obvious says:

    russ99,

    Are you on crack? The Oilers have a sweetheart deal at Rexall. They pay zero rent and are subsidized to take care of the building. It is because they already have a building for free that they think they are entitled to another free building.

    Again, if this means the Oilers leave for a community that is stupider than ours. Good. That just makes us less stupid.
    LoDog,

    Why the fuck would we give Katz casino money? That would funnel money away from community leagues, schools, and hockey associations, in order to pad his pockets. Seriously, why are people in Edmonton so stupid? Building the arena on Katz’ terms would make our city much, much, worse.

    At this point supporters of the Oilers and the arena are traitors to the city. This has gone beyond a disagreement. It is friend and enemy time.

  26. VOR says:

    Kris11,

    Perhaps Katz is making the $25 million per year some people think he is. However he thought he’d make so much more from the real estate that it was worth taking the chance of irritating the City of Edmonton, Northlands, and the fans. Greed is a funny thing. People kill the goose that laid the golden egg all the time.

    The reason I don’t think that is the case is that Katz took on major financial risks as well. Staples is right about that. In the original deal there is both more probable return and more certain risk. Katz clearly wanted both casino money and Northlands gone which would have improved the risk somewhat by creating some certainty on the revenue side. However, he would still have considerable risk.

    Yes he tried and is trying to mitigate that by bringing removing debt (on his part) from the formula. That said, he still has to know this deal could step up and bite him on the butt in any number of ways. It wouldn’t have played out this way if there wasn’t an element of stress on Katz’s side of the equation.

  27. Captain Obvious says:

    Mr DeBakey,

    Imagine that. A business that has to pay rent for a facility it uses. What a shocking concept?
    alice13,

    The city can’t build the arena by itself because the arena has no value of any kind without a tenant. That’s the leverage the Oilers have. If the city built the rink by themselves then the Oilers could extort massive subsidies to stay which is exactly what has happened to Glendale.

    Only the Oilers can make money with an arena because only the Oilers have any use for an arena. So long as the Oilers are a private entity, the arena is private infrastructure. It only has value to the Oilers. But if the arena only has value to the Oilers then it is the Oilers that should be paying for it.

  28. VOR says:

    I support the arena. That is probably obvious. If not, let me make it clear.

    I am all for the shiny new thing. I just don’t expect it to ever make financial sense. Should it be a good deal for Katz? If possible. Should it be a good deal for the City of Edmonton? If possible.

    What nobody wants to see here is a truly terrible deal that damages the Oilers and the City of Edmonton. Some people think this deal will mess up the City of Edmonton and be a boondoggle of epic proportion. I don’t think that even if the City built the entire thing and tossed the keys to Katz it would be that.

    Thinking this doesn’t actually makes me too stupid to breathe or a moral cretin.

  29. Captain Obvious says:

    I don’t think that even if the City built the entire thing and tossed the keys to Katz it would be that.

    Where are you getting the “even if” part. The original deal was for the city to build the entire thing and toss him the keys. The new deal is for the city to build the entire thing, toss Katz the keys, and then pay him for the privilege because he is “subsidizing” “public” infrastructure.

    Think about that for a second. The deal we are currently talking about is worse than building him an arena for free. We are actually talking about paying him for the privilege of building him a building for free.

    This is only happening because the NHL is run as a syndicate which uses its monopoly position to extort private benefits from the public. In a just world it would be against the law. In our world, the best we can do is to kill the golden goose and walk away.

  30. Woodguy says:

    VOR,

    The concert and event business in Edmonton is in trouble right now because of the strong Canadian dollar and the global down turn.

    Actually its the opposite from what I read.

    When the EIG bought the Oilers, they were also asked to run the rink for non-hockey stuff.

    They refused as, at the time, the concert business was a money loser.

    The main reason give for this was the low Canadian dollar.

    Concert costs are in US$ and revenues were in C$, which at the time was about US$0.70=C$1

    Same as the hockey business. Contracts paid in US$, but revenues in C$.

    When the $ went back above $0.90, the concert business became very profitable again.

    This morning $US1.02=$1. I’d imagine the same holds true today.

  31. Woodguy says:

    VOR,

    ounds good right? He’d be far better off putting his money into Canada Savings Bonds

    But he’s not investing $ up front, that’s the rub.

    His whole costs on the rink are coming from future cash flows. No money down.

  32. Woodguy says:

    VOR,

    You say he hasn’t spent anything. The City says he will end up spending $100,000,000. Katz says he has already spent $70,000,000 and it is going up fast and he will end up at somewhere around double that. I am using the City’s number.

    Katz has spent $70MM on the PRIVATE investment around where the rink will be, not on the rink itself.

    From the KG press release:

    In the pursuit of these shared goals, the Katz Group has invested countless hours and millions of dollars towards the design and development of a new downtown arena, plus approximately $70 million, including land acquisition costs, to advance the related private sector development.

    http://oilers.nhl.com/club/news.htm?id=641314

    That’s what he has spent on the development portion, not the rink. Do not confuse the two.

    He is spending that $ to make a profit from the development (as he should)

    He has not put much $ into the arena.

    In fact he’s made $ on it so far because he sold the arena land to the city for $75MM

    http://www.cbc.ca/news/canada/edmonton/story/2011/10/31/edmonton-arena-land-city.html

    Most of the land the city bought for the rink, was purchases FROM the Katz group.

    To recap.

    Katz has invested $70MM into the private development, not the rink.

    Katz has sold land to the city for the rink.

    The city has paid $75MM for the land. I am unsure how much of that land was sold by Katz, but it was at minimum the majority of the land.

    Katz has not invested much at all into the rink.

    His investment into the rink all comes from future cash flows.

  33. LoDog says:

    Captain Obvious,

    It is quite obvious that you have no idea what you are talking about.

    You keep throwing around a free arena for him like if you say it enough times it will be true.

    People are all upset that they now think Katz is asking for more than was originally agreed to, when in fact it has always been in the agreement. Just because some of the idiots on council (and some here) have not read the damn thing doesn’t change that fact.

  34. Woodguy says:

    sean w:
    Woodguy,

    Hey Woodguy,

    Do you have any links to stories about Gary Gregg’s previous interest in buying the team? I’d like to learn more about that.

    In the meantime, off to the Googles I go…

    Here’s one:

    http://www.canada.com/edmontonjournal/news/sports/oilers/story.html?id=3bf8d8fb-329a-4463-a03e-e3d335def9d8

  35. alice13 says:

    /Only the Oilers can make money with an arena/
    Not true. Just as Katz has other Cities to consider, I expect there would be another NHL franchise willing to locate in Edm if the Oilers were to depart. There is an NHL market in Edm, and it would be pretty hard to justify vacating it if a new arena has just been built. As I said, Quebec is building one. So could we. As it stands we’re going to be building it anyways, whatever sweetheart arrangement gets made with the tenant at least it’s clear who is the owner and who is the tenant. The blurring of that line is what makes the public investment unpalatable, not the actual cash flows.

  36. Kris11 says:

    Hi Vor,

    I don’t quite get how what you’re saying is evidence that Katz isn’t awash in cash even while the Oilers are playing at Northlands (with no playoff revenue and spending to the cap, etc., etc.)

    Are you saying when Katz originally bought the team, the terms of his purchase were such that we should believe he bought the team not to make a big profit (could’ve done better with just savings or whatever), so therefore we should conclude that he is still not in this business to make as big a profit as possible?

  37. Ducey says:

    WG, from your article:

    By early January 2008, Katz had upped his offer from his August 2007 bid of $135 million to $154 million. A competing internal bid would have to come close to that offer if it had any hope of winning approval from the majority of shareholders. The Group of Five faction estimated they would need to borrow $70 million, and if any more money was needed, new partners would be recruited.

    So Gregg at that time would have had to have borrowed $70 M just to buy the team. That would not have been enough as Katz wound up buying them for $170M. Forbes valued the Oilers at $212 M in November. So Gregg and friends would need to borrow about $132 million based on the same finances, and then come up with $100+ M (you have been asking for more from Katz) to build the arena.

    To say that we should flush Katz based on the prospect of Gregg taking over is, well, questionable. We don’t know whether he has the money or the interest. I rather doubt he has either.

  38. Mr DeBakey says:

    and then come up with $100+ M (you have been asking for more from Katz) to build the arena.

    I think WG suggested that the current deal would be satisactory.
    $100,000,000 out of all arena revenues, over 35 years, not now.

    But you’re right, he may no longer be interested.

  39. DSF says:

    Woodguy:
    VOR,

    ounds good right? He’d be far better off putting his money into Canada Savings Bonds

    But he’s not investing $ up front, that’s the rub.

    His whole costs on the rink are coming from future cash flows. No money down.

    Woodguy, you can’t look at Katz’ investment in an arena apart from his investment in the team.

    You say, Katz “is not investing $ up front”.

    That’s just not true. He has already invested $200M to buy a hockey team.

    We will never likely know the amount, apart from land assembly, how much he has spent on research, design, communication, etc, to get the process this far. But I would wager it’s in the millions.

    Do you think Karavellas works for free?

    You also keep referencing Gary Gregg and I would be curious to see if you think Gregg has the means or the stones to come up with $210M to buy the team from Katz as well as invest in a new arena to the extent which you think Katz should.

    I take Forbe’s numbers with a huge grain of salt because they don’t have access to NHL teams books but I post the following as a means of furthering discussion.

    http://sports.nationalpost.com/2012/09/18/the-nhl-economy-financial-disparity-from-the-bottom-up/

    If you take Forbes numbers at face value, (I think they are too optimistic) you see the Oilers are making an operating profit of $17M while only spending to 90% of the cap.

    Obviously, if they spend to the cap, which they will soon have to do to accommodate their young talent, that $17M will virtually disappear.

    Is it reasonable to expect Katz to have a ROI of zero on a $200M investment?

  40. VOR says:

    KRIS 11,

    I think he bought the team planning a new arena with a ton of real estate profit arising from it. I don’t think he was terribly worried in the short term about the profitability. On the other hand I think if he was actually currently making large amounts of money given he has zero risk at the moment he wouldn’t be doing anything more than saying “hey guys, over here, this arena is falling down around me, what are you going to do about it?” But as I said, maybe greed prevents him seeing how good he has it. Or he still isn’t making a return commiserate with his financial investment and needs a new arena he controls to get there. Maybe it is just ego. On the other hand there does seem to be some sense of panic in his camp.

    In accounting terms the project internal revenue return on the new arena is far below his current return as he presently operates (if he is actually making the money Forbes for example claims). I think many Oilers fans feel he is spinning cash. That is part of why so many think he should build his own building. All I can say is in pure accounting terms it seems very likely if he was a rational actor that he would be staying put and letting the City and Northlands sweat bricks to recreate the Coliseum as a modern arena if he was actually making huge dollars as things currently stand.

    Woodguy,

    Actually, you should take a look at the total revenues for Live Nation or for that matter look at Northlands own annual reports. If you remove the revenue from the World Juniors this year they made just about exactly the same as they made last year from events at Rexall. There has been a steady decline in the money coming out of Rexall. 2011 was a great year for the concert industry, they almost got back to where they were in 2009 (with world juniors Rexall got back to 2009 as well). According to Stats Can it goes up and down but over the years since 2007 the concert industry has just held even with inflation in terms of the bottom line which is why many stadiums aren’t being rejuventated and promoters are cheaping out on the expense side every way they can.

    My point about the agreement is that it clearly says he has to put up $30,000,000 up front, so no it isn’t all from cash flow. Second, when you buy from the Brick that installment payment isn’t real money? He also has to account on his own books for the $70,000,000 he has put into the project, money that isn’t in the $450,000,000 but is still real.

    I’d agree with you, that if he got what he is asking for now Katz would in fact have got the arena for free. My point was, so what? In real terms if things go badly (half what the City thinks) then a doubling of the ticket tax (pardon me CEF) recoups it. Plus, all the City’s projections are based on 19 or 20 years which people seem to be missing. It is conservative as all get out. Worst case taxes go up by about 0.85% per annum over the next 20 years. That is if the City of Edmonton builds the building, makes no extra money from CRL, charges no ticket tax, gets no increased revenue from parking, and there is no increase in the City’s land value at sale over the life of the agreement.

    Let me ask a simple question, to all the critics. What exactly do you counter propose?

  41. Ducey says:

    Mr DeBakey: and then come up with $100+ M (you have been asking for more from Katz) to build the arena.I think WG suggested that the current deal would be satisactory.$100,000,000 out of all arena revenues, over 35 years, not now.But you’re right, he may no longer be interested.

    Sure, but you need the $100M now to build the thing. Thats a $232 M mortgage right off the hop with only $80M in equity. He may have the revenue to pay that off over time, but he wouldn’t be having a good time if there was a lockout or the CDN $ dropped.

  42. Mr DeBakey says:

    Katz is not putting $100M in now.
    Me, and my fellow taxpayers have it covered.

  43. Captain Obvious says:

    LoDog,

    One of us is ignorant and it isn’t me. Once you peel back the various layers of money moving to and fro, Katz isn’t paying anything for the arena. Zero. What he is paying all comes out of revenue that is generated by the arena itself. Therefore, he isn’t paying anything for the arena.

    This is simply a fact. To argue otherwise is to argue in bad faith (and hence my moral cretin point).

  44. FastOil says:

    I find myself quite surprised that Katz seems to be turning all Pocklington on us. Another greedy amoral corporate creep. Imagine the gall, being a billionaire and trying to extort public money, working people’s money, in an era of massive pressure on municipal coffers. Not much to recommend an individual like that IMO.

    Mandel has the true leverage if he realizes it. There may be a cultural aspect for the city having a fancy arena and an NHL team, but the “Kat” is out of the bag as to there being much of an economic benefit to anyone but the team’s owners according to the Ottawa professor as I recall. If you factor in infrastructure and transit costs a city likely is in the hole to have the prestige and entertainment.

    You know the saying, money talks…. Edmonton is such a good money making NHL hockey market, there will always be NHL hockey there until the taps dry up. Be it the Oilers or not. If Katz wants to move out of one of the best markets and take a chance somewhere else and try to get a free arena, let him.

    I’d call that bluff in a Vegreville minute. Go ahead, move the team. In fact, if you want the deal changed, try on $100M, shared revenue for the City’s end as an investor, that’s it. I don’t like orange and blue team colours anyway, they ‘re ugly.

  45. hunter1909 says:

    NHL lockout, so no hockey. Grrreat.

    Followed by Katz’s politicking, which makes everyone suddenly drop any pretense of fandom, and replaced by adult talk about business etc.

    I can get real life, in, real life. I used to like hockey as a diversion; but once it oversteps all boundaries and turns into a glorified coffee shop debate on business practises, then it’s time to go.

    With respect, I hope you can manage to gleam pleasure out of this situation. I cannot, so until the morons(owners+players) return to giving me what I want, then it’s so long, and fare thee well.

  46. Captain Obvious says:

    I’d support a public/private partnership for a downtown arena even thought I know it doesn’t make economic sense. I like hockey and I like downtown.

    However, this isn’t a partnership. If you add up the costs to the city it adds up to more than 100% of the building costs. No amount of prestige and entertainment can justify public policy that bad.

    If Vor is right and the Katz doesn’t make that much money on the OIlers or the arena doesn’t produce that much revenue then there is no reason to build an arena at all. If everyone loses by building an arena then there is a very elegant solution. No arena.

    So either the arena is profitable in which case Katz should be paying a significant share of it, or the arena is not profitable, in which case it should be built. Otherwise the arena is an expensive make work project in a city that already has a labour shortage.

  47. VOR says:

    Captain Obvious,

    I am going to guess you are not in business and thus are just being ignorant rather than either too stupid to breathe or a moral cretin.

    His $100,000,000

    - $30,000,000 of which he must come up with up front according to the current agreement. I encourage you to go to the City’s website and read a bit
    -$70,000,000 the arena finances – that is it comes out of cash flow (ie. it reduces the real money Katz makes from the arena)

    Think of it this way. I am busy building a $12,000,000 project. We expect it will generate $1,200,000 a year gross revenue. We are financing half of it and over 20 years that money is costing us $600,000 a year in interest and payments. That means we have to cover all our operating costs and cost of goods out of that remaining $600,000. If something goes wrong then we are on the hook for the loan.

    While I object Katz got the money at zero interest he is in excatly the same situation I and my partners are which is that if it goes bad he pays. I really object that he suddenly expects the City to gaurantee the revenue from the arena so he has no risk on the investment side (though it seems everybody thought some magical casino revenue stream was going to do exactly that). He still, however, has to pay to operate the building and take a look a Northlands books if you think that is non-trivial.

    Just because you don’t pay with cash out of your own pocket when you borrow money doesn’t mean the money isn’t real.

  48. DawnM says:

    Just a small observation of the prior comments on this page – The ‘pros’ are coming across as reasoned and thoughtful, while the ‘cons’ are resorting to profanity and name calling. Heads up. It makes you sound ignorant when you use profanity.

    And a small point – The most recent numbers from Forbes (2011) report that the Oilers annual operating income was $17.3M (before interest, taxes, amortization, depreciation), clearly not nearly enough income to finance an arena. Anything over what the team itself can finance amounts to philanthropy from Darryl Katz’ personal wealth. While it would be highly commendable for him to finance infrastructure owned by the city, it would also be terribly foolhardy.

  49. Moosemess says:

    http://www.globaltvedmonton.com/edmonton+city+council+responds+to+katzs+latest+arena+comments/6442717504/story.html

    Like this response from the Mayor. The more public the City can make this negotiation, the more it eliminates the false posturing and plays against Katz as his demands won’t play well in the court of public opinion. The City’s biggest mistake thus far is thinking they could negotiate this honorably behind closed doors.

    Don’t like the details being leaked Darryl? Don’t renege on your word.

  50. Mr DeBakey says:

    while the ‘cons’ are resorting to profanity and name calling.

    So far I’ve been nothing but Con here; I’m F-Bomb free and have called no one stupid. No matter how doltish they are.

    the Oilers annual operating income was $17.3M

    I think Iconic is short form for “building with enhanced revenue streams”.
    And we’re talking all revenues, Oiler events and otherwise.

    Let me ask a simple question, to all the critics. What exactly do you counter propose?

    I probably don’t have one that would satisfy Katz & Co.
    But
    I think a company should be formed to build and operate a new downtown arena – lets call it Paris du Nord LLC.
    The equal shareholders of Paris du Nord LLC would be the City, Rexall Sports and lets say, ATB Financial.
    Each partner would put up an equal share of the land and building costs.
    All tenants would pay rent.
    All partners would share whatever profits exist after costs are met.

  51. commonfan14 says:

    Captain Obvious: I was going to swallow the original deal even though it was bad because it benefited personally. However, this is so far across the line that I’d much prefer the Oilers just leave. Edmonton doesn’t need the Oilers and it doesn’t need a new arena. I’d rather have my pride and my money than to be fucked in the ass and told to say thank you.

    I think this is pretty much what the EIG guys said to Lowe after Smytty’s camp asked for that extra couple hundred grand back in ’07.

  52. Captain Obvious says:

    VOR,

    I presume you are talking about this:

    “Arena Entertainment District

    The Katz Group will commit $100 million to development in the arena district, subject to commercial viability. In the Council-approved framework, $30 million of the $100 million must be invested prior to the start of construction of the arena.”

    This isn’t money for the arena. It is a private investment in nearby real estate from which, I imagine, Katz expects to profit. It isn’t philanthropy on his part nor does it change the equation of who is paying for the arena.

    As for the arena itself. That involves a separate $100 million, none of which is upfront and which will be paid for out of revenues generated by the arena itself.

    “The Katz Group’s $100 million contribution would be paid over 35 years at an estimated $5.5 million/year. This total includes the cost of interest to borrow this money. The actual cost would depend on the actual interest rates.”

    Add these things together and Katz is spending nothing on the arena directly. What he is doing is assuming a minority percentage of the mortgage that can easily be paid for by the revenues generated by the arena plus the operating costs of the arena. This part of the deal is risk free unless you think that there is a chance that operating revenues will be less than costs + 5.5 million a year.

    The other $100 million is an ordinary real estate deal which is inconsequential to the equation. If he puts up $30 million in land at today’s prices the only risk he is assuming is that the value for land in the area will decrease. However, the entire premise of this “revitalization” is that it won’t. What is the worst that can happen for Katz here. What is the risk? Are you suggesting that Katz has offered to put $30 million of his own money into bad land deals? Surely, not.

    Anyway you cut it Katz is putting up no money for the arena. That’s simply a fact and is supported by all the public documentation of the project.

    DawnM,

    I’m sorry that you feel an attempt to defraud the public trust should be responding with rational arguments. You are acting as if the rational argument was in dispute. It is not. All that is left is the outrage.

    In any case if the Oilers can’t make money on a 100% publicly funded arena, then a new arena shouldn’t be built. It’s really that simple.

  53. VOR says:

    By the way, whichever side you are on you should know the Journal now has an article up in which the details of what Council says Katz asked for are very clear.

    Bryan Anderson actually speaks to the sense of panic I mentioned above and attributes it to the current lease running out at Northlands, and oh lord what a negotiation an extention is going to be.

    I want to be clear I think Katz’ requests border on the insane if it is true and they all seem to be saying the same thing. On the other hand I still think the deal as currently structured is a poor one for Mr. Katz. I get the impression that having worked that out his people started throwing crap at the wall hoping something would stick.

    Mayor Mandel comes right out and says he now has no idea what Mr. Katz wants or needs and that Mr. Katz should come to Council and explain. I am guessing we would all like that meeting to be public. And we all know it won’t be. If it happens at all.

    The problem is the current deal wasn’t thought through adequately by either side (though it appears the City may have done the better job). Now the good will is lost and the deal is falling apart.

  54. Captain Obvious says:

    I also find the suggestion that the casino should pay for the shortfall. Currently charity casino revenues in the city fund a huge proportion of the budgets of actual public goods: community leagues, youth sports, non-profit preschools, etc. If casino revenues were redirected towards the arena that would gut the civil society of the city.

    It goes to show what is at stake here. A pro sports team could be a net contributor to a city (while profiting) but it can also be a parasite that sucks money out of the city. More and more it is looking like the Oilers, as presently run, are the latter.

  55. LoDog says:

    Captain Obvious,

    No, it is you. You resort to profanity and name calling and have your “facts” so mixed up and backwards that I can’t tell if you are just lying or just so uneducated and unwilling to read any of the details that you actualy believe what you are typing.

    Here are some actual facts.

    30 million to be put into surrounding development around the arena before construction begins. He has already put in 70 million. Everything that is planned to go up around it is based on the arena being built.

    5.5 – 6 million a year to pay off the 100 million dollar loan and all interest.
    7 million a year in ticket tax that would otherwise go in his pocket.
    10 million a year in operating costs.

    Now he wants 6 million a year subsidy, why that back stabbing piece of…. Oh wait, this was always in the framework with the actual means to make it happen not yet decided.

    Finally no current casino and gaming money would be taken away from little Bobby and his preschool. It would be a new casino on the land that would pay 6 million a year to operate there.

  56. VOR says:

    Captain Obvious,

    I am sorry but you are reading that wrong.

    The CRL is a vital part of the funding from the City. Katz is expected to put up $100,000,000 towards jump starting the CRL and $30,000,000 real dollars had to be spent before anything from the City. Whether he profits or not isn’t why the City built it into the negotiations. They built it in because it produces the $45,000,000 that they are re-injecting into the project themselves. That is why they are so pissed he wants to pay no tax since their CRL contribution was partially tax recovery from Katz. (There are actually eight of these side deals going on and apparently some of them haven’t even been finalized yet). By the way, what often goes wrong in these deals is the developed doesn’t ever make their contribution of reinvestment in the neighbourhood. Katz is well on his way.

    Katz is paying $5.5 million a year for his $100,000,000 mortage. Over up to 35 years. The marketing fee is mean to make the money more or less interest free. That is still real money. Every year Katz writes a cheque for $5,500,000 in the original agreement. If Katz doesn’t make $5.5 M he still writes the cheque. He is also paying for the operation and maintenance of the building. The City will borrow roughly $350,000,000 so $100,000,000 is 28.5% of the mortgage. Katz is on the hook for 57.1% if the province doesn’t kick in money. Not trivial, at all. Plus $100,000,000 in land improvements.

    Now consider the deal Katz gets with Northlands and still only makes $17.3 M EBIDTA. Now take away $5.5 M for mortgage payments and the estimated $12,000,000 operating budget for the building which Northlands doesn’t pass on to him as things stand at the Coliseum but that he will be paying here. Not looking very good at all, which was my original point. Plus the Oilers stay for 35 years. If the concert net is negative and the land deals don’t come together then Mr. Katz is looking at 35 years of losing money under the old deal.

  57. Dipstick says:

    I think that we are being a bit misdirected regarding this issue. I don’t believe that this is an issue of Katz needing a new arena to make the Oilers viable as much as he needs the Oilers to make his real estate aspirations viable. Will the franchise be as valuable to develop lands he would acquire in another city? I have my doubts.

  58. Moosemess says:

    Katz can only play the parasite if the citizens and Council by proxy empower him to do so. There will always be markets out there falling all over themselves to offer a better deal, and unfortunately, most owners will use that leverage to their advantage when needed.

    All this debating over whether the deal is good or bad ignores the simple reality that Katz CAN get a better deal elsewhere, so you’re left with what we have now which is essentially the point at which Council has to call his bluff. And in any negotiation, the only way you can play that card is if you are actually prepared to live with the worse case scenario that can result from it (i.e. losing the team).

    Katz properly assessed this market and knew there was no way in hell this City would let the team go and that puts him in a very advantageous position for cutting this deal on his terms. It’s disappointing that an owner who sold himself as more altruistic than this is now revealing his true colors, but it could be worse, he could be raping the public trust while pulling a Harold Ballard on the hockey operations side.

    Eventually he’ll get the sweetheart deal he wants. Hopefully we’ll get a Cup contender. And we better hope like hell that the new concert venue is suitably spectacular to salve the wounds of those taxpayers who could care less about having a professional sports team in their town.

  59. Captain Obvious says:

    LoDog,

    $30 million put into surrounding development is not money being spent on the arena. That doesn’t require interpretation. It’s simply English. So we agree. Katz isn’t spending any money on the arena. Thank you.

    So quit dissembling. Katz isn’t put any money into the arena. The so-called $100 million he is paying for the mortgage is less than rent. If you combine the proposed operating subsidy then he really is putting zero into the project. Likewise Katz doesn’t get to count the ticket tax as money he is spending. If there were no Oilers those dollars would be spent elsewhere. He only gets the money in the first place because there is a rink there for him to use. Saying he is paying for it is an administrative fiction.

    Finally, casino revenue is, for the most part, zero sum. It isn’t new revenue. It redirects revenue that would have gone elsewhere. So yes, it is stealing from the children.
    VOR,

    The point is that $30 million isn’t an investment in the arena. It is an investment that Katz is making for which he expects a return. Which is fine, but don’t try and sell it as an investment in public infrastructure. It’s not.

    As for the rest, if Katz can’t make money on the deal then the arena shouldn’t be built. If it doesn’t provide any good for him (as you say) and it doesn’t do any good for the city (as it doesn’t) then both sides should happily walk away. That’s not lose-lose, that’s win-win.

  60. Captain Obvious says:

    Moosemess,

    He won’t get the deal if the public turns against him and the team. The lockout doesn’t help him here. That’s why outrage is important. We need to poison the well. Tell your friends, tell your colleagues, tell everyone.

    If you go on twitter, people like Fenwick, Dellow, and Cosh, are doing a great public service. But that’s a very small segment of the population. A full scale revolt would do a world of good.

  61. VOR says:

    Captain Obvious,

    Again, I agree with you that the two sides walking away from this deal in which they both miscalculated is a win-win. There may be ways that a new arena could be beneficial for all parties including the fans and citizens. I’d certainly like to think it was possible.

    Where we disagree is in your characterization of Katz as a parasite and isn’t putting in any money. He has plenty of skin in the game as things stand.

    For example, you are wrong about the $30,000,000 it is very much tied to the arena because the City tied them together. No construction of an arena can start until Katz puts in his real estate bucks. That is what the deal says on this we agree also, I and LoDog just see that as a real investment from Katz that City is requiring him to make in order to get his arena. Presumably he will make money. However, so will the City as it has amassed siginificant land holdings in the same area that it can sell, lease, etc. Also, his investment should jump start the area increasing property taxes.

    What revolt exactly is necessary? Council isn’t going to back down and Katz isn’t going to go ahead as things stand. What are we revolting against?

    I like a good revolt particularly if it involves gullitoines. A thumping, blood pounding anthem is important. A massive blaze in and a policy of free love would help mobilize the masses. I’m sure there are quite a few people on here who know how to run a revolution. Try to avoid committees though. Maybe some crowd sourcing.

  62. Moosemess says:

    CO, I think you’re missing the primary point of my post. I’m not being defeatist or apathethic. I’m simply postulating that revolution is pointless because Katz holds the only leverage that matters.

    Are you prepared to lose the team? Because that’s ultimately what it takes to play hardball on this.

    That’s where the committment to this rebuild is proving truly brilliant. The city’s hockey fans are genuinely excited about the future prospects for THIS team. We don’t want Darryl to leave the sandbox with his toys, leaving us with the prospect of a Thrashers quality replacement squad a couple years or more later.

    City council can and will drag this out to win as many concessions as they can, but at the end of the day, Katz wields the hammer and he doesn’t sign on the dotted line unless this deal passes muster for his definition of due diligence.

    I don’t think City Council has the balls to bluff Katz on this. We saw as much when Mandel went to NY with a much better deal in theory and came out of the boardroom with a lot of the upfront cash suddenly absent. Boys against men.

  63. FastOil says:

    Moosemess,

    The City wields the hammer. Edmonton is a top NHL market in fan support and team revenue. That as a losing team to boot. Northlands can be renovated, it isn’t falling to the ground, and the small seating capacity is offset in that it’s FREE. If the Oilers left, there without a doubt would be another team. Likely sooner rather than later. There is a lot of money to be made.

    The question is do they realize it? Do they have the cajones to stand up to a now non resident and tell him no, he can’t raid the public’s piggy bank? It might smell a little better if he at least lived in the city.

    Katz is banking on the fact that the Oilers are so beloved by the people. However he may have erred in tapping into some old hurts – behaving like Pocklington and going back into the old move the team crap. The team is completely viable without this deal.

    If a development like this can’t make enough money to pay it’s own bills, it’s a fool’s gambit and the kind of thing that damages cities finances long term. Really it should be illegal if it’s not a public private revenue sharing arrangement, a proper attempt by the City to invest for benefit. At least then failure could be justified.

    I can understand the City using it’s financial capabilities to help get a project like this off the ground. Yet it shouldn’t cost the taxpayer money in the end. I am ok with Katz owning it after the City gets paid out if that’s what he wants – the Oilers are of course the necessary anchor for such a project. However a public albatross that only ever had the potential for private benefit should lead to jail terms.

  64. DSF says:

    DawnM:

    And a small point – The most recent numbers from Forbes (2011) report that the Oilers annual operating income was $17.3M (before interest, taxes, amortization, depreciation), clearly not nearly enough income to finance an arena.Anything over what the team itself can finance amounts to philanthropy from Darryl Katz’ personal wealth.While it would be highly commendable for him to finance infrastructure owned by the city, it would also be terribly foolhardy.

    It’s really as simple as this.

  65. jake70 says:

    Boy, wouldn’t want to be a councillor in Edmonton. No guarantees but most agree the next 6 years will be a hell of a lot better than the last 6 for the team. You got 3 #1 overalls, a #22 pick performing like a top 5 etc etc. possibly ushering an era of hockey not seen since the late 80s…..uggh. Emotional interest in the team is really picking up. Any labour lawyers ( I am not one but was part of a provinical negotiating team some 10 yeas ago and learned 1 or 2 things during that 18 months) out there will know what BATNA is…best alternative to the negotiated agreement………ie what’s your best worstcase scenario. If Katz’s BATNA is moving the team for better economics, well then he does wield the hammer. There will be some bullet sweating out there in days and weeks to come. Indifference to the outcome, that’s it.

  66. DSF says:

    FastOil,

    You say the Oilers are a “top NHL market” in terns of operating revenue”.

    That is not true.

    According to the Forbes numbers:

    1) Toronto – $193M

    2) NYR – $169M

    3) Montreal – $165M

    4) Vancouver – $146M

    5) Detroit – $127M

    6) Boston – $125M

    7) Chicago – $118M

    8) Philadelphia $111M

    9) Pittsburgh – $110M

    10) Calgary – $105M

    11) LAK – $101M

    12) NJD – $100M

    13) Ottawa – $100M

    14) Minnesota – $97M

    15) San Jose – $96M

    15) Edmonton – $96M

    So, the Oilers, playing in Rexall, are league average in revenue, barely above a struggling team like Dallas ($90m) which has been bleeding money for years.

    The ONLY reason the Oilers MIGHT have turned a profit last season is because they did NOT spend to the cap.

    If they did, they would be losing money.

    From a business, perspective, Katz has 2 choices. Increase revenue or cut expenditures.

    I would think the revenue chicken in Edmonton is all all plucked out and the only way to cut expenditures is is to not spend to the cap.

    From a hockey perspective, there is not a chance in hell the Oilers can compete over the long term with teams like Vancouver who have an extra $50M in operating revenue to play with every season.

  67. DSF says:

    I should add:

    I just listened to an in-depth interview with Pierre Lebrun whom i think is likely one of the wisest hockey analysts going.

    He said (and I’m paraphrasing) that he had had a very long conversation with an NHL owner this week who believes in 10-10-10.

    That means 10 teams are financially successful, the next 10 are marginal and might make a modest profit if they have a long playoff run and the bottom 10 are bleeding out.

    If we look at the Forbes numbers, the cut line would seem to be the Calgary Flames who receive ALL revenue from ALL events at the Saddledome and are barely keeping their heads above water.

    The next 10, are on shaky ground and only a long playoff run can offer a ROI and, even then, it’s been stated the LA Kings lost money last season because they spent to the cap.

    The next 10, are in dire shape.

  68. Woodguy says:

    DSF:
    FastOil,

    You say the Oilers are a “top NHL market” in terns of operating revenue”.

    That is not true.

    According to the Forbes numbers:

    1) Toronto – $193M

    2) NYR – $169M

    3) Montreal – $165M

    4) Vancouver – $146M

    5) Detroit – $127M

    6) Boston –$125M

    7) Chicago – $118M

    8) Philadelphia $111M

    9) Pittsburgh – $110M

    10) Calgary – $105M

    11) LAK – $101M

    12) NJD – $100M

    13) Ottawa – $100M

    14) Minnesota – $97M

    15) San Jose – $96M

    15) Edmonton – $96M

    So, the Oilers, playing in Rexall, are league average in revenue, barely abovea struggling team like Dallas ($90m)which has been bleeding money for years.

    The ONLY reason the Oilers MIGHT have turned a profit last season is because they did NOT spend to the cap.

    If they did, they would be losing money.

    From a business, perspective, Katz has 2 choices. Increase revenue or cut expenditures.

    I would think the revenue chicken in Edmonton is all all plucked out and the only way to cut expenditures is is to not spend to the cap.

    From a hockey perspective, there is not a chance in hell the Oilers can compete over the long term with teams like Vancouver who have an extra $50M in operating revenue to play with every season.

    You are forgetting the Bettman model of NHL business.

    Most the NHL teams breaks even, makes a little or loses a little on actual hockey operations, then make more of the profit on non-HRR using the rink.

    Only NYI and EDM play in arenas they don’t control.

    That’s why Seattle isn’t a great option for Katz. The basketball owner will get the majority of of the non hockey nights.

    Sure, some teams make a pile and some lose a pile, but the profit is in the non hockey stuff with much, much lower overheads in a facility financed by local governments.

    Elliott Friedman was on Spector’s show today and said he was told that outside of PHX, all teams that control their buildings make a profit, even FLA, if you include all rink related revenue.

  69. Woodguy says:

    VOR,

    Actually, you should take a look at the total revenues for Live Nation or for that matter look at Northlands own annual reports. If you remove the revenue from the World Juniors this year they made just about exactly the same as they made last year from events at Rexall. There has been a steady decline in the money coming out of Rexall. 2011 was a great year for the concert industry, they almost got back to where they were in 2009 (with world juniors Rexall got back to 2009 as well). According to Stats Can it goes up and down but over the years since 2007 the concert industry has just held even with inflation in terms of the bottom line which is why many stadiums aren’t being rejuventated and promoters are cheaping out on the expense side every way they can.

    I did look at a few annual reports (for what those vague documents are worth) when the whole rink deal came down a few years ago.

    I like to see some real cash flow statements on arena operations.

    Here is this past years annual report. PDF WARNING http://www.northlands.com/annual/

    Having revenues similar to 2007/2008 etc isn’t a bad thing. Certainly doesn’t mean its not profitable.

    Northlands has rink related revenue at $34MM last year with $4.48MM operating surplus from the same.

    Of course we have no idea how they are costing the events, how the allocate parking revenues, concession revenues etc.

    They wouldn’t be the first organization to allocate the majority of their costs against their highest cashflow business. We need to regconize that the $4.48 number has almost no value, while the $34MM does point in the right direct (albeit with WJR increase).

    The Oiler games are a net loss for Northlands since they get little revenue and have all the costs.

    Of course the Oilers don’t get all the revenue from the games either.

    Projecting those cash flows on the new rink is crystal ball stuff since no one knows how two competing buildings will actually work, but chances are it shrinks margins.

    Given that the new building will seat about 3000 more people and have more luxury boxes you have to take that into account, especially for hockey game revenue.

  70. Woodguy says:

    DSF: It’s really as simple as this.

    No, both you and Dawn forget that non hockey revenue is the key to all this.

    That’s profit form 45 nights of hockey.

    There are 320 more nights to sell.

    The city is supposed to get 30 of them.

    So 290 nights for Katz to rent out the building.

    Its about a lot more than hockey revenue.

  71. art vandelay says:

    ” the fact is that the team needs a new arena to play in.”

    Citation needed.

    I like Woodguy’s point-by-point takedown, but Captain Obvious’s “People who still support the arena are either too stupid to breathe or moral cretins,” sums up things pretty nicely.

    Judging by his fact-free defence of the Corporate Welfare Dome and his bureaucrat phraseology, my strawman sense tells me Lodog is a city hall hack, maybe the mayor’s assistant. But certainly someone with a massive conflict of interest.

    A losing team + a lockout by the 30 Greedheads /=/ a good way to drum up sympathy for New Pocklington.

    People have looked at their property tax bills. And they’re only going to get worse if we allow Mayor McWeasel and 11 of Edmonton’s 12 municipal parasites to steal our money and give it to a private company.

    If people like Lodog and others who advocate this theft had even the slightest sack, you’d come to my house wearing a mask and brandishing a gun, and demand the money. Then go door to door doing the same until you had the $500M ready to go.

    But you don’t. Because you are cowards. And, to quote Captain Obvious again, “moral cretins.”

  72. DSF says:

    Woodguy: You are forgetting the Bettman model of NHL business.

    Most the NHL teams breaks even, makes a little or loses a little on actual hockey operations, then make more of the profit on non-HRR using the rink.

    Only NYI and EDM play in arenas they don’t control.

    That’s why Seattle isn’t a great option for Katz.The basketball owner will get the majority of of the non hockey nights.

    Sure, some teams make a pile and some lose a pile, but the profit is in the non hockey stuff with much, much lower overheads in a facility financed by local governments.

    Elliott Friedman was on Spector’s show today and said he was told that outside of PHX, all teams that control their buildings make a profit, even FLA, if you include all rink related revenue.

    So, on one hand you make the case that Katz shouldn’t get non hockey related revenue and then you postulate he needs it to make a profit.

    Duh!

  73. DSF says:

    Woodguy: No, both you and Dawn forget that non hockey revenue is the key to all this.

    That’s profit form 45 nights of hockey.

    There are 320 more nights to sell.

    The city is supposed to get 30 of them.

    So 290 nights for Katz to rent out the building.

    Its about a lot more than hockey revenue.

    Yes.

    Yes it is.

    Always has been and Katz has been very upfront about that.

    The problem with your argument is that you want Katz to pay upfront for the arena so he can capture that revenue while that has not been the case with the construction of almost every other arena in the NHL.

    Vancouver, Ottawa, Montreal and Toronto all built arenas privately with the team owner either selling for pennies on the dollar or going into bankruptcy save Toronto which also has an NBA team and a massive television market.

    It’s the business model of the NHL, love it or hate it but, if Edmonton wants to play with the big boys, it’s go big or go home.

    You mention the Seattle market as not being an option but that is ridiculous.

    Edmonton WITH a new arena on Katz’s terms is certainly a better market than Seattle.

    But Seattle with a new 19,000 seat arena with state of the art amenities and luxury box revenue is a much better market than Edmonton WITHOUT a new arena.

    HRR revenues which include corporate sales and sponsorships would be much higher than Edmonton can generate playing in Rexall Place.

    It’s not even close.

  74. Mr. K says:

    It seems that seems that lost in this conversation is how badly our downtown needs re-juvenation. The area is a complete disaster for a city our sized. I have been to every major city and any large ones in between in both Canada and USA and I feel embarrassed of our downtown. What we have here is a prospective developer willing to pay $5.5 million a year on top of the $200 million he paid for the team and the $70 million he has shelled out for land/arena investment downtown. Do you know of any other developer willing to invest the kind of money he will into our city?

    We are staring at a spark in development for the core of the city, and a deal that ensures the Oilers stay here for 35 years. People need to look at the big picture here.

  75. Kris11 says:

    http://www.snrub.org/

    Hello, my name is Mr. Snrub. And I come from, uh… someplace far away. (Yes, that’ll do.) Anyway, I say we invest that money back in the nuclear plant.

    Mr. K: I like the way Snrub thinks.

  76. VOR says:

    Mr. K,

    I agree with you that part of downtown needs rejuvenation very badly. That isn’t to say that a hockey rink is the only or the best way to accomplish this. The one thing we can take away from this fiasco is that our current council and city management clearly have a vision for how to remake downtown Edmonton and were working on it before the new arena was on the radar. There is a plan, a good one, and a very long view that is refreshing in the modern political world.

    The problem for me begins with trying to shoehorn the new arena into the established framework for rejuvenation. It seems a stretch, making the arena a key piece of the CRL for downtown. The City of Edmonton is trying to practice a more wholistic and ground up planning process and the arena project is top down and driven by the interests of the few. Actually, in the end it didn’t even work for the few which was predictable (Jonathan Wills did in fact predict it). Bad deals tend to blow up and this one is well on its way.

    Before I go on – let me say it again – I am pro arena and it is not a result of any love affair with Mr. Katz or the Oilers. I think iconic buildings and big projects make people happy because they are a source of civic pride. The “look what we did” effect. I know I feel that way. I love the new Art Gallery. I hope someday we finish redeveloping the Provincial Museum into something equally wonderful.

    Ultimately though what makes a city great isn’t the buildings it is how the place feels, how livable it is, and the people who choose to live in it. There is very limited evidence that public buildings have much impact on who decides to move to a city. Other things clearly matter much more.

    So there has to be some sort of line in the sand where municipal politicians must not give another dollar to any sort of project (public or private). That is the point where that extra dollar comes out of money that should go to higher priorities. It is just that figuring out where that point is can be very difficult.

    There are many good questions people have raised here that need answering about the arena in order for any but the most doctrinaire of us to make an informed decision about where that line should be drawn. Sadly, there is also a lot of tommy rot here and elsewhere. I have found it impossible not to get caught up in the emotion of the moment. All I started out to say is, “it is tough out here for a billionaire.”

    One of my favorite writers, Somerset Maugham once said, “It’s a funny thing about life. If you refuse to accept anything but the best, you very often get it.” I want Edmonton to be great. I won’t accept anything less. I assume many of the rest of you feel the same way. I can’t see greatness arising from secretive meetings, top down planning, and endless negotiations on how best to divide a pile of stinking manure. Can you?

    I’d like us all to try to accept that Katz isn’t a bad, bad man and his supporters aren’t moral cretins. Nor is City Council a group of ill intentioned idiots. The best arena projects do make their host cities better places to live and can be valuable parts of good urban planning and rebirth. I want to build one of those.

  77. sliderule says:

    Katz figures he has the city by the nuts.

    He assembled the land and then got the city to buy it when his options were about to expire.

    He turned over the design to the city and it sounds like their in for about half this cost.

    I can’t figure if he wants the city to bend over or just simply build the arena on their own.

    How could the city commit so many dollars and work without having a binding agreement is beyond me.

  78. Woodguy says:

    DSF,

    But Seattle with a new 19,000 seat arena with state of the art amenities and luxury box revenue is a much better market than Edmonton WITHOUT a new arena.

    That’s pretty obviously wrong. The new EDM arena will be about the same size. Katz gets revenues from 290 days + hockey.

    He will not get that in Seattle.

    EDM also has the 4th highest average ticket price in the NHL. No way Seattle bears those prices for hockey.

    HRR revenues which include corporate sales and sponsorships would be much higher than Edmonton can generate playing in Rexall Place.

    It’s not even close.

    Umm, yay.

    I’m talking about Katz not getting a free used of a $450MM new rink and getting 290 days of revenues.

    No one is talking about staying in Rexall.

    Katz wants 290 days of revenues, but doesn’t want to pay $1 for the use of it.

    How is that not ridiculous?

  79. Woodguy says:

    DSF,

    So, on one hand you make the case that Katz shouldn’t get non hockey related revenue and then you postulate he needs it to make a profit.

    Duh!

    Your reading comprehension is at an all time low.

    I’ll type slowly.

    I am opposed to Katz getting 290 days of the rink for free.

    I had a hard enough time with the “No money down. $5MM/yr + maintenance costs”, deal and now he doesn’t even want to pay that.

    I never argued he shouldn’t get non-HRR.

    I am arguing that if he wants it, he needs to pay some of the costs.

  80. DSF says:

    Woodguy:
    DSF,

    But Seattle with a new 19,000 seat arena with state of the art amenities and luxury box revenue is a much better market than Edmonton WITHOUT a new arena.

    That’s pretty obviously wrong.The new EDM arena will be about the same size.Katz gets revenues from 290 days + hockey.

    He will not get that in Seattle.

    EDM also has the 4th highest average ticket price in the NHL.No way Seattle bears those prices for hockey.

    HRR revenues which include corporate sales and sponsorships would be much higher than Edmonton can generate playing in Rexall Place.


    It’s not even close.

    Umm, yay.

    I’m talking about Katz not getting a free used of a $450MM new rink and getting 290 days of revenues.

    No one is talking about staying in Rexall.

    Katz wants 290 days of revenues, but doesn’t want to pay $1 for the use of it.

    How is that not ridiculous?

    Speaking of reading comprehension….

    I said…

    “But Seattle WITH a new 19,000 seat arena a state of the art amenities and luxury box revenue is a much better market than Edmonton WITHOUT a new arena.”

    Please note the bolded.

    I seriously doubt that Katz would move the Oilers to Seattle in any case…I think he would instead put the team up for sale and either a new local owner steps up and is prepared to play in Rexall Place or the team is purchased by someone looking for a team in another city.

    As for what prices the Seattle market will bear…neither you nor I have any idea.

    Seahawk tickets top out at $425.00 and they don’t have any trouble selling them.

    If you took the time to read what Katz actually has to say on the subject, he is fully aware than Edmonton has great hockey fans but it is NOT a great hockey market.

    It’s too small so the media reach (and revenue) and available corporate sponsorships are much, much lower.

  81. DSF says:

    Woodguy:
    DSF,

    So, on one hand you make the case that Katz shouldn’t get non hockey related revenue and then you postulate he needs it to make a profit.


    Duh!

    Your reading comprehension is at an all time low.

    I’ll type slowly.

    I am opposed to Katz getting 290 days of the rink for free.

    I had a hard enough time with the “No money down. $5MM/yr + maintenance costs”,deal and now he doesn’t even want to pay that.

    I never argued he shouldn’t get non-HRR.

    I am arguing that if he wants it, he needs to pay some of the costs.

    What would you suggest as a reasonable amount?

  82. FastOil says:

    DSF,

    I didn’t say operating revenue – you did. The Forbes list I saw had Edmonton at seventh most profitable – I should have said profit – sorry. In a market of a million people, no playoffs, I’d say that’s a pretty good market.

    Imagine if the team made the playoffs, might even make a few bucks on out of town merchandise sales.

    The arena has the potential to generate a lot of revenue in total. It is an big time investment, one that should be made by a business that can finance, build, run and thus profit from it. the city should not leave any tax money in it. Look at the world around us. Governments are under massive financial pressure. In North America, we also have an aging population. It would be extremely irresponsible for the City to put at risk or lose any public funds, especially long term, given that the prospects for provincial and federal transfers over time are not as likely to increase as stay stagnant or worse.

    Alberta may be flush, cities aren’t, and have limited ways to get money. Isn’t Montreal still paying off the O?

  83. Gerta Rauss says:

    VOR,

    Thanks for that last post Vor-that’s the most sensible piece I’ve read on the arena project.

  84. DSF says:

    FastOil:
    DSF,

    I didn’t say operating revenue – you did. The Forbes list I saw had Edmonton at seventh most profitable – I should have said profit – sorry. In a market of a million people, no playoffs, I’d say that’s a pretty good market.

    Imagine if the team made the playoffs, might even make a few bucks on out of town merchandise sales.

    The arena has the potential to generate a lot of revenue in total. It is an big time investment, one that should be made by a business that can finance, build,run and thus profit from it. the city should not leave any tax money in it. Look at the world around us. Governments are under massive financial pressure. In North America, we also have an aging population. It would be extremely irresponsible for the City to put at risk or lose any public funds, especially long term, given that the prospects for provincial and federal transfers over time are not as likely to increase as stay stagnant or worse.

    Alberta may be flush, cities aren’t, and have limited ways to get money. Isn’t Montreal still paying off the O?

    Well, to answer your concerns would mean no new arena and no Oilers.

    Then what?

    I would think Rexall would be suitable for an AHL team looking for a home.

  85. FastOil says:

    DSF: Well, to answer your concerns would mean no new arena and no Oilers.

    Then what?

    I would think Rexall would be suitable for an AHL team looking for a home.

    Perhaps, but what I am saying is that in a rabid hockey market in an affluent smaller city that makes money with an outdated arena and no playoff revenue, someone else will have a team here.

    Times change, and the mistakes other cities make don’t need to be repeated for the “Edmonton NHL franchise” to succeed, and handsomely.

    Extorting money out of public coffers is not what it used to be. When countries, states, municipalities start going bankrupt in first world countries with regularity, what more do you have to see to understand that public finances are not limitless? Borrowing ends.

    The concepts and borrowing that lead to other deals of public contribution have proven to be a mistake. How can I say that? Because economists say that pro sports teams capture the majority of spending and revenue, as they should. They do not contribute to infrastructure and transit development or maintenance costs, or even the increases associated with a new massive facility. Who pays for that? What is the end public financial benefit?

    These are private ventures and should support themselves. Preying on the affection of the populace to throw money in, or claims of economic benefit are false, and academically proven so. What that means is that these deals should not cost tax payers money in the end.

    I understand that there are cultural benefits to fancy venues, but seeing economic disasters that have gone before, and thinking about realities coming because of demographics is what publicly elected, and therefore responsible for the common well being, officials should be looking at.

    The Oilers can continue to play in Northlands and make a profit. If Katz wants to make more he is more than capable of making the deal, that he has said publicly he loves making, and his business reflects, that doesn’t involve taking and absorbing public money.

    The days of publicly funded projects that end up benefiting private interests are going to end soon, for the foreseeable future. The capacity to borrow and make poor decisions is being overtaken by the burden of public debt, everywhere. Why are the Chinese so panicky?

    Katz is acting with greed, it is not appropriate for the current times, and it is disgusting to me and apparently many others. He is a decade ore two, too late. Assuming the council doesn’t cave to his superior deal making abilities. Why didn’t he strike the deal correctly the first time? Is he not a good businessman who has made land deals in the multiples? If this development is so dodgy why does he want to do it, or has proposed all of the things he did?

    The Oilers are loved, but should not be loved more than the well being of the city or it’s great people. There will be NHL hockey in Edmonton, Katz, Oilers, or not.

  86. Woodguy says:

    DSF,

    If you took the time to read what Katz actually has to say on the subject, he is fully aware than Edmonton has great hockey fans but it is NOT a great hockey market.

    It’s too small so the media reach (and revenue) and available corporate sponsorships are much, much lower.

    A lot of people in the know are calling bullshit on Katz for the “small hockey market” comment.

    Freidman (again) in the Spec interview figured that at least 20 NHL owners would swap markets with Katz in a heartbeat.

    It doesn’t matter that your possible TV audience is 10MM when only 50,000 are watching.

  87. DSF says:

    FastOil: Perhaps, but what I am saying is that in a rabid hockey market in an affluent smaller city that makes moneywith an outdated arena and no playoff revenue, someone else will have a team here.

    Times change, and the mistakes other cities make don’t need to be repeated for the “Edmonton NHL franchise” to succeed, and handsomely.

    Extorting money out of public coffers is not what it used to be. When countries, states, municipalities start going bankrupt in first world countries with regularity, what more do you have to see to understand that public finances are not limitless? Borrowing ends.

    The concepts and borrowing that lead to other deals of public contribution have proven to be a mistake. How can I say that? Because economists say that pro sports teams capture the majority of spending and revenue, as they should. They do not contribute to infrastructure and transit development or maintenance costs, or even the increases associated with a new massive facility. Who pays for that? What is the end public financial benefit?

    These are private ventures and should support themselves. Preying on the affection of the populace to throw money in, or claims of economic benefit are false, and academically proven so.What that means is that these deals should not cost tax payers money in the end.

    I understand that there are cultural benefits to fancy venues, but seeing economic disasters that have gone before, and thinking about realities coming because of demographics is what publicly elected, and therefore responsible for the common well being, officials should be looking at.

    The Oilers can continue to play in Northlands and make a profit. If Katz wants to make more he is more than capable of making the deal, that he has said publicly he loves making, and his business reflects, that doesn’t involve taking and absorbing public money.

    The days of publicly funded projects that end up benefiting private interests are going to end soon, for the foreseeable future. The capacity to borrow and make poor decisions is being overtaken by the burden of public debt, everywhere. Why are the Chinese so panicky?

    Katz is acting with greed, it is not appropriate for the current times, and it is disgusting to me and apparently many others. He is a decade ore two, too late. Assuming the council doesn’t cave to his superior deal making abilities. Why didn’t he strike the deal correctly the first time? Is he not a good businessman who has made land deals in the multiples?If this development is so dodgy why does he want to do it, or has proposed all of the things he did?

    The Oilers are loved, but should not be loved more than the well being of the city or it’s great people. There will be NHL hockey in Edmonton, Katz, Oilers, or not.

    I’ve never thought of the Chinese as panicky.

  88. DSF says:

    Woodguy:
    DSF,

    If you took the time to read what Katz actually has to say on the subject, he is fully aware than Edmonton has great hockey fans but it is NOT a great hockey market.


    It’s too small so the media reach (and revenue) and available corporate sponsorships are much, much lower.

    A lot of people in the know are calling bullshit on Katz for the “small hockey market” comment.

    Freidman (again) in the Spec interview figured that at least 20 NHL owners would swap markets with Katz in a heartbeat.

    It doesn’t matter that your possible TV audience is 10MM when only 50,000 are watching.

    Did Friedman say which 20?

    I would assume he wouldn’t include Toronto, New York, Montreal, Boston, Vancouver, Calgary, Philly, Washington, Pittsburgh, Detroit, Chicago, Los Angeles or Ottawa who all had higher attendance in much newer buildings.

    Wait…that’s 13 right there.

    Only 16 left and I’m not sure Buffalo or San Jose would be all that keen to move into a market with a smaller, decrepit arena.

    Must have been hyperbole.

    You keep ignoring what I’ve said about corporate sponsorship being massively larger in Seattle than Edmonton.

    You may not think it important but it’s a key element in the financial well being of any sports team.

    Teams make much more money when they have more luxury boxes, club seating etc. as oppposed to another 2,000 cheap seats in the gallery.

    One of the contentious issues in the labour negotiations is what portion of that premium revenue must be included in HRR.

    As it stands right now, one team arenas must count all of that revenue while 2 team arenas, like Seattle will be, need count only half.

    It’s apparently a ton of cash.

  89. DSF says:

    Actually, some relevant information about HRR from Elliot Friedman including a reference to Katz.

    http://www.cbc.ca/sports/hockey/opinion/2012/09/making-sense-of-hockey-related-revenue.html

  90. russ99 says:

    Interesting article:

    http://touch.chicagotribune.com/#section/-1/article/p2p-72410864/

    Could Phil Anschutz selling away pieces of his AEG empire (who was supposedly going to manage the non-hockey side of the new arena) be the cause of Katz looking for more financial certainty from the city?

  91. spoiler says:

    russ99:
    Interesting article:

    http://touch.chicagotribune.com/#section/-1/article/p2p-72410864/

    Could Phil Anschutz selling away pieces of his AEG empire (who was supposedly going to manage the non-hockey side of the new arena) be the cause of Katz looking for more financial certainty from the city?

    Let me get this straight… The guy is building a $1.2B football stadium with NO tenant, and NO public money? Shocking. What’s that? He thinks sports empires should be run like businesses and not toys? The insanity.

  92. spoiler says:

    I love the arguments the “pro” side has thrown up: Other cities have jumped off a fiscal cliff so we should.

    How well did those arguments work on your Mom when you were like 10?

    Surely you guys have more to bring to the table than such foolishness.

    And VOR, you are one of my favorite posters to read, always erudite and insightful, but using the past 30 years of CSB returns to predict the next 30 years of returns is madness. The financial world will collapse if returns ever reach those heights again. Hell a 1% increase right now would bring many countries to their knees. That world is gone. What we need now are City councillors who are aware of that fact and make decisions accordingly.

  93. DSF says:

    spoiler: Let me get this straight… The guy is building a $1.2B football stadium with NO tenant,and NO public money?Shocking.What’s that? He thinks sports empires should be run like businesses and not toys? The insanity.

    Using Los Angeles, Anschutz and the NFL in the same conversation as the Oilers is bit over the top.

    Los Angeles is the second largest TV market in the United States with 5.7 million TV homes.

    The $1.2B football stadium you refer to also includes a convention centre and ancillary real estate development.

    The NFL will have a team in the stadium the second it opens its turnstiles.

    The NFL has wanted back into LA since the Rams left and has only been waiting for a stadium.

    A team in LA (likely moved from Jacksonville) would might rival the Cowboys in terms of revenue and TV ratings.

    The Cowboys franchise, worth $2.1 billion dollars, has operating revenue of $500 million ANNUALLY.

    That’s about 10 years worth of Oiler revenue.

    In 2010, each NFL team received an average of $11o million in television revue and that has risen significantly since.

    You can pour a lot of concrete with that kind of dough.

    Rather than point to Los Angeles which is in another galaxy, it would be far more instructive to look at the 3 stadiums currently under construction or planned in Canada in Quebec City, Winnipeg and Regina.

    In all three cases, the projects were financed via a public/private partnership.

    Other than the ACC, every other private attempt to build an arena in Canada has been a dismal failure.

    You may not like the that the NHL’s business model makes that a necessity but, it does.

    And, other than changing the model (good luck with that) or booting the NHL out of Edmonton, you’d be better off suggesting how a P3 MIght be successful in Edmonton.

    When asked, arena proponents always just say Katz should pay more.

    Tooth fairy stuff.

  94. VOR says:

    Spoiler,

    It is a bit bizarre that this thread still has a life, but rather than mess up some other thread I thought I would respond here.

    Honestly, I have no clue where interest rates or CSB rates are going to go. If either you or I actually knew to a certainty what interest rates would do over the next 35 years we could buy the Oilers and operate them as a charity.

    I have tried to avoid, as I said in another thread, a ton of hard work and some very complicated concepts. When you simplfy there is always a risk that you will lose some vital aspect of the concept. I am pretty sure that has already happened here but I am going to double down and try again.

    I think this is a bad deal for Mr. Katz because whoever operates this arena will have enormous risk and that risk does not produce an adequare return exclusive of real estate speculation. I think it is a bad deal for the City because whoever operates this arena will have enormous risk and that risk will trickle down to the City of Edmonton and that risk does not produce an adequate return exclusive of real estate speculation. The City of Edmonton giving Mr. Katz money to hedge his risk (as he is now asking) would pass the operational risk on the City without waiting to see if Mr. Katz fails or not. I’d say that is pretty clearly not in the City’s interests. Such stupidity would create a not inconsiderable moral hazard.

    What most concerns me is that both sides have based their original deal around assumptions about real estate values that have not been stress tested and that may be (lets try to be kind) utter balderdash. That is just one of a number of simply accepted assumptions which have contaminated rational discourse on this subject. I find it quite horrifying that nobody has actually considered the possibility that demand for NHL hockey might not be infinitely elastic.

    I’d rather see a deal where there was much less risk of Mr. Katz failing and where his success didn’t depend on casino licences and real estate appreciation and phantom office towers, etc. Equally, or perhaps more, importantly I don’t want any of that risk to be able to reach the City. I can imagine any number of ways the deal could be structured to accomplish these two goals while still getting the “iconic” building we all want.

    I continue to stand behind my original point, ignoring real estate the original deal is a bad deal for Mr. Katz and because of the way it is structured a bad deal for the City of Edmonton, its citizens and tax payers.

    What happens next I have no clue but I refuse to accept any deal that doesn’t work for all sides.

  95. spoiler says:

    VOR:
    Spoiler,

    It is a bit bizarre that this thread still has a life, but rather than mess up some other thread I thought I would respond here.

    Honestly, I have no clue where interest rates or CSB rates are going to go. If either you or I actually knew to a certainty what interest rates would do over the next 35 years we could buy the Oilers and operate them as a charity.

    I have tried to avoid, as I said in another thread, a ton of hard work and some very complicated concepts. When you simplfy there is always a risk that you will lose some vital aspect of the concept. I am pretty sure that has already happened here but I am going to double down and try again.

    I think this is a bad deal for Mr. Katz because whoever operates this arena will have enormous risk and that risk does not produce an adequare return exclusive of real estate speculation. I think it is a bad deal for the City because whoever operates this arena will have enormous risk and that risk will trickle down to the City of Edmonton and that risk does not produce an adequate return exclusive of real estate speculation. The City of Edmonton giving Mr. Katz money to hedge his risk (as he is now asking) would pass the operational risk on the City without waiting to see if Mr. Katz fails or not. I’d say that is pretty clearly not in the City’s interests. Such stupidity would create a not inconsiderable moral hazard.

    What most concerns me is that both sides have based their original deal around assumptions about real estate values that have not been stress tested and that may be (lets try to be kind) utter balderdash. That is just one of a number of simply accepted assumptions which have contaminated rational discourse on this subject. I find it quite horrifying that nobody has actually considered the possibility that demand for NHL hockey might not be infinitely elastic.

    I’d rather see a deal where there was much less risk of Mr. Katz failing and where his success didn’t depend on casino licences and real estate appreciation and phantom office towers, etc. Equally, or perhaps more, importantly I don’t want any of that risk to be able to reach the City. I can imagine any number of ways the deal could be structured to accomplish these two goals while still getting the “iconic” building we all want.

    I continue to stand behind my original point, ignoring real estate the original deal is a bad deal for Mr. Katz and because of the way it is structured a bad deal for the City of Edmonton, its citizens and tax payers.

    What happens next I have no clue but I refuse to accept any deal that doesn’t work for all sides.

    Lol, yeah I agree, lets keep the discussion to this thread.

    And I guarantee you this: We will either see interest rates continue to drop in N. America or problems will be so huge, the problems with pro sports will be the last thing on anyone’s mind.

    The only way for the Ponzi scheme of an irredeemable currency to survive is for the central banks to continuously reduce rates. They do this to allow bond speculators to front run open monetary operations. This has been the game since 1981. If this bond speculation scheme disappears or becomes unprofitable, it is Game Over. Now that could happen at anytime, but the Fed et alii will try to keep the con alive as long as they can. Japan has structural differences (that are starting to disappear), and has managed to avoid becoming Greece for 20 years, despite having the same problems for much longer.

    Now part of this problem is that there are entities not in control of the scam… The countries in Europe don’t control their own currency any more so can’t resort to OMOs. So we get the issues the PIIGS have gone through.

    The same is true for municipalities and states. They can’t keep the debt scam going by monetizing and thus are subject to the whims of bond vigilantes and ultmately bankruptcy. These political entities misallocated capital throughout the inflationary decades of the 80s, 90s and 00s, and many are facing the consequences of that imprudence now. Cities in the US are declaring bankruptcy, and California and Illinois are reliant upon Federal bailouts to avoid complete insolvency.

    And households are told lies like “housing always goes up”. That’s what inflation and fiat currencies does: encourages misallocation of capital. We all pay for it eventually.

    So the last thing I want is for our fair city to make the same mistakes, thinking that the last 3 decades represents “normal” economics. They don’t.

    I suspect that this structural instability is partly why Katz is avoiding taking on the risk such an arena project implies. The risk in the system right now is astonishing. But it is also the very reason why taxpayers shouldn’t take on that risk either.

  96. VOR says:

    I can’t help myself. DSF, the private financing that built Bell Centre, Rogers Centre and ScotiaBank Centre was not a dismal failure. Bell Centre is an extraordinarily lucrative business and the cost of building it had nothing to do with why the Molson’s sold it nor why they bought it back just a few years later. They had problems on the brewing side and with deciding where to focus their energies.

    The cost of Rogers Centre did not bankrupt the Griffith’s family. The 1994 NHL labor strife was contributory certainly, and the cost over runs did not help but it had far more to do with the NBA expansion fees, the NBA’s lack of support and the strange deal with the McCaws that led to the Griffith’s being bought out. Operationally, the Bell Centre is profitable, and since the departure of the NBA apparently always has been.

    ScotiaBank Place, was a fiasco from the beginning, mostly because John Bryden was undercapitalized. He also had the great misfortune of his banker going bankrupt which pulled him into bankruptcy as well. It isn’t as clear if it is a good business in its own right as it is for the Rogers Centre and Bell Centre but it is widely believed to make money as a stand alone facility.

    To blame these buildings and their financing for the problems of their owners is far less than accurate. Dumb owners was the problem. The Molson’s take the cake. Sell for 275 million buy back a few years later for 550 million, that is a great business strategy. Though building an arena without the financing in place and then doubling down by buying an NBA franchise without checking the fine print probably runs it a close second. Though Bryden and his associates allowed the Province of Ontario to charge them for an overpass ($27,000,000) and didn’t think it would work without building an entire town around Corel which the province nixed and they went ahead anyway.

    That doesn’t mean private money should finance the new arena here in whole or in part but the success of these buildings (as versus the success of their owners) certainly shows it isn’t impossible.

  97. VOR says:

    Spoiler,

    I don’t disagree with your overall analysis. I just think in the end history wins and history shows interest rates are at historic lows. Governments around the world are trying desperately to reinflate the bubble. Eventually we will suffer the ravages of their stupid decisions but that will be followed by another boom cycle and more high interest rates.

  98. DSF says:

    Katz says FU to Edmonton City Council:

    http://oilers.nhl.com/club/news.htm?id=641974

    This is over kids.

  99. VOR says:

    DSF,

    Once again you seem to believe that the essence of analysis is to remove all context. This is now a messy public negotiation where both sides have dug their heels in about the process. Neither side has indicated that they aren’t interested in reaching a deal. In fact, quite the contrary.

  100. DSF says:

    VOR,

    Once again, after three decades of covering Edmonton politics as a journalist, I can assure you the process has come to an end.

    Katz’s refusal to appear before council is a huge tell…he’s had enough dithering.

    Politically, council now has absolutely no where to go.

    It’s over.

    Book it.

  101. sliderule says:

    This is not over by a longshot.
    Katz is using the Pittsburgh model with at the moment veiled threats.We will soon hear more direct threats about Quebec or Seattle or Kansas City.All of those venues will not give him anywhere as good a deal as he will eventually get here .In addition any team that goes into those markets will have tough sledding.Remember Pucks threats about moving to Phoenix.
    The City has to not panic and don’t respond to his threats.When he realizes they won’t work he will cut a deal.
    This time get it in a binding agreement.

  102. VOR says:

    So DSF you are once again reduced to an argument in which all you offer up is, “because I say so.” You were just wrong about the financial details and impacts of three arenas and yet now you claim to know City Council’s next step, or rather lack of one. Well I guess I’ll just concede then since you know everything even when what you know is wrong. You have a nice night.

  103. spoiler says:

    VOR:
    Spoiler,

    I don’t disagree with your overall analysis. I just think in the end history wins and history shows interest rates are at historic lows. Governments around the world are trying desperately to reinflate the bubble. Eventually we will suffer the ravages of their stupid decisions but that will be followed by another boom cycle and more high interest rates.

    History shows that no fiat currency has ever survived. Interest rates set by a fiat authority have never survived either. If historical is your guide, and by historical I assume you mean more than 30 years of history, then you will bet against the past three decades. The only question is when the pyramid scheme collapses and that will still be some years away.

    Unless you’re a country in Europe.

  104. spoiler says:

    VOR:
    D.S.F.

    Once again you seem to believe that the essence of analysis is to remove all context. This is now a messy public negotiation where both sides have dug their heels in about the process. Neither side has indicated that they aren’t interested in reaching a deal. In fact, quite the contrary.

    Context is everything. Always.

    If I could summarize my philosophy in one line, that would be it.

  105. DSF says:

    David Staples ‏@dstaples

    RT @OilersNow:

    Bruce Saville: “If this arena doesn’t get built, the team will be gone.”

    #Oilers #yegcc

  106. Captain Obvious says:

    DSF:
    David Staples ‏@dstaples

    RT @OilersNow:

    Bruce Saville: “If this arena doesn’t get built, the team will be gone.”

    #Oilers #yegcc

    If he’s right that changes nothing. Building the arena under the terms Katz proposes would be a massive violation of the public trust. Arena’s aren’t a magic money fairy. There will be no additional $2 billion dollars of tax revenue or any of these other fantasies. So if those are our choices it’s really easy. I’d say goodbye to the Oilers, don’t let the door hit you on the way out.

    My wife couldn’t care less about hockey. It is outrageous that she and thousands and thousands of people like her are demanded to subsidize the entertainment of others to the tune of hundreds of millions of dollars.

    The original deal of 100% public financing was horrific but I was willing to stomach it out of my interest in hockey and my liking of downtowns. But the current proposal is theatre of the absurd stuff. Mandel should tell Katz to get lost and come back when he’s serious.

  107. DSF says:

    More from Bruce Saville:

    “The only alternative for the 40 percent that didn’t want to sell was to go out and borrow $120-million to pay out the guys that wanted out. And what would they would left with? You’d have the same shareholders, they’d have more shares each; same situation, identical situation, but they’d have a debt of $120-million. That made no sense at all and it was at that time, I believe, that Cal Nichols changed from one side to the other and said, ‘I don’t think this will work.’”

    Nichols indicated at that time that he would sell his shares, resigning as the Chairman of the Board of Directors. Slowly over the next several months, more shareholders stepped down and agreed to sell their shares. The sale of the Oilers was approved in June of 2008 for C$200-million.

    From the EIG’s standpoint, it was time to move on. Recognizing that it was in the Oilers’ best interest to have a new arena built to ensure the club’s future in Edmonton, Saville says the group “saw the writing on the wall.”

    “There was no appetite — no appetite — for anyone in the EIG to step up with the money for a new arena,” he said. “We thought we’d done our part. We’d stepped up with $70-million US in 1998 and we were done. There had to be a new arena and we would have been out lobbying for it, but we wouldn’t have been out writing cheques.”

    With the arena deal currently facing challenges four years later, Saville’s concern is obvious.

    “If this arena doesn’t get built, the team’s gone. I would bet my life that in five years from now, if there’s not a new arena, a hole in the ground or one almost finished, the team will be gone and there won’t be any team coming along behind it to replace it — other than, perhaps, an AHL team.

    “We have an opportunity right now,” he added. “Construction costs are starting to rise again, but they’re still lower than they were four or five years ago when we started talking about it. Let’s get a quote, let’s get it signed and get on with it.

    “We’ve got to get this thing done and we’ve got to get it done right. Now.”

    http://oilers.nhl.com/club/news.htm?id=642003

  108. DSF says:

    Captain Obvious: If he’s right that changes nothing. Building the arena under the terms Katz proposes would be a massive violation of the public trust.Arena’s aren’t a magic money fairy.There will be no additional $2 billion dollars of tax revenue or any of these other fantasies.So if those are our choices it’s really easy. I’d say goodbye to the Oilers, don’t let the door hit you on the way out.

    My wife couldn’t care less about hockey.It is outrageous that she and thousands and thousands of people like her are demanded to subsidize the entertainment of others to the tune of hundreds of millions of dollars.

    The original deal of 100% public financing was horrific but I was willing to stomach it out of my interest in hockey and my liking of downtowns.But the current proposal is theatre of the absurd stuff.Mandel should tell Katz to get lost and come back when he’s serious.

    He won’t come back.

  109. VOR says:

    DSF,

    Where is it you think he is going?

  110. DSF says:

    VOR:
    DSF,

    Where is it you think he is going?

    If the arena isn’t built, I think he’ll put the team up for sale locally.

    Since it’s highly unlikely another local buyer with the cash to buy the team and contribute to a new arena can be found, he would then sell the team to outside interests.

    My best guess would be Don Levin, the owner of the Chicago who would relocate the team to Seattle.

    http://www.theglobeandmail.com/sports/hockey/chicago-wolves-owner-interested-in-seattle-franchise/article546516/

    Levin was in the running to buy the Chicago Cubs and certainly seems like he could easily afford the Oilers.

  111. Captain Obvious says:

    I don’t understand how this is supposed to be a credible threat. This thread is populated solely by people who love hockey and there are still lots of people who would rather the Oilers leave then build them an arena for free and then pay them to play there.

    It doesn’t matter whether the threat is credible because under those circumstances Edmonton would be better off without the Oilers. Don’t let the door hit you on your way out.

  112. Mr DeBakey says:

    and contribute to a new arena can be found, he would then sell the team to outside interests.

    Why would a potential new owner have to contribute to an arena?
    Katz isn’t.

  113. DSF says:

    Mr DeBakey:
    and contribute to a new arena can be found, he would then sell the team to outside interests.

    Why would a potential new owner have to contribute to an arena?
    Katz isn’t.

    They wouldn’t necessarily but isn’t that the problem, not the solution?

    If a new Edmonton owner wasn’t going to contribute to construction, then we’re right back where we started.

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