Audio: Daryl Katz interview
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Daryl Katz: I want to thank you for taking the time to talk to me. It's not often I talk. I wanted to now because I think there is a lot at stake. And people in Edmonton need to understand the full picture. First thing, I'd like to clear the air on this issue of an operating subsidy. Because what's come out of the city over the past several days, to be frank, is unfair, untrue and totally counterproductive if what we're trying to do is secure the Oilers’ future in Edmonton and have us participate in the development of a new arena and sports entertainment district so we can do things like improve the quality of life downtown at expand the city's tax base. The fact is that this deal has always contemplated a mechanism to offset capital and operating costs, just as other small markets have done. In the famous New York City framework, that mechanism was a casino-and-gaming mechanism that the city agreed to help facilitate. Now, you'd have to ask the city what they've done in that regard, but it didn't materialize, and when it didn't happen, we started looking for an alternative mechanism, but it is absolutely not a new concept. It has always been there, and to suggest that I've tried to change the deal at the last minute is untrue. The fact is that I'm trying to save the deal by finding a way to make the economics work for both sides. Obviously, to have those efforts turned against me is really unfortunate. Having a mechanism to offset capital costs is a key element of the deals in Winnipeg and Pittsburgh. These have been our models in our discussions with administration from the outset, and we've been talking to the mayor and the administration about this for month. I feel badly in members of council were caught off guard, but I guess that is politics and that's not actually our responsibility.
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 the key to the arena, and the arena, in turn, is the key to a whole host of benefits to the city and the public. It will sustain the Oilers and the National Hockey League in Edmonton for 35 years. It will drive the revitalization of downtown. It will generate billions of new investment downtown. It will enrich life and the social, cultural and economic fabric of the city. And it will also drive the CRL (the Community Revitalization Levy, a pool of new property taxes from new business in the downtown over a 20-year period). Now, the CRL is a critical element of this deal, and it's unique to Edmonton, but people don't understand it because, frankly, I think the city has downplayed it. The city has conservatively estimated the CRL can generate $1.2- to 1.6-billion for the city. We actually have reason to believe its current internal estimates are in excess of $2 billion.
Now, this CRL is an annuity for the city. It's a multi-billion-dollar fund that can be used to fund the costs of the arena, plus a host of important civic projects for decades to come. And the arena is the catalyst project for the CRL. Now, you don't have to take my word for it. The DBA (Downtown Business Association), the Chamber, even the city has said it themselves. As a result, some would argue the CRL should pay for the entire cost of the arena, but at this point, only $45 million has been directed to the arena. Now, in addition to that, the CRL has very little risk, especially because we've already invested $70 million towards what could be a multi-billion-dollar private sector development downtown, and that's just our piece.
But make no mistake, the Oilers are the key. They make the arena possible, and the arena drives the CRL and everything else follows. So that is the point.
This deal meets the city's need for a new arena, and provides a host of additional and significant benefits, but none of it can happen if the Oilers aren't sustainable and in Edmonton for the long term. That's why we feel it's right and it's appropriate and it's even smart for the city to partner with us to invest in this new arena, just as Winnipeg did with the Jets, and just as Pittsburgh did with the Penguins. That's, frankly, why Edmonton, like very small markets, has to decide if it wants to be a major league city. At some point, all small markets need to decide if they want professional sports franchises. If they do, they need to develop viable P3 models to attract and retain pro sports franchises. You know, that's especially the case for Edmonton, which is one of the smallest pro sports markets in North America. That's the case. That's the key takeaway here.
The other thing we have to realize, I think it's important, is that it's not particularly productive to discuss or debate the specific individual elements of the funding framework. What matters, as Mayor Mandel has said, is that the whole package works, and the whole package here is a) the opportunity here to sustain the Oilers and then, through the Oilers, to turn Edmonton's downtown into a magnet for new people and new investment, and b) to expand Edmonton's taxbase by billions of dollars for the benefit of the entire city.
It's clear we're willing to partner with the city to meet this need to try to capitalize on the opportunity, but we can only do so on terms that are fair and make sense for both sides. That means for us we need a deal that is commensurate with other small markets, even though Edmonton is one of the smallest of small markets, and even though the city of Edmonton gets way more upside through downtown revitalization and the CRL than you would normally find in other markets.
I think the other point to make is the deal presents little risk for the city because the city needs a new arena anyways. For our part, on the other hand, we're taking a lot of risk by committing to one of the NHL's smallest markets for 35 years, which by its nature, (is) a relatively small reward on the hockey side (but) a bigger reward on the real estate side, however, that carries with it its own risks and uncertainties. So, fundamentally, all we want is a model that will sustain the team for the long term and is on par with other small markets and what they've done to sustain their teams.
But, you know guys, notwithstanding everything, all the hurdles, we've never been more excited about the potential for Edmonton to have this world-class arena at the heart of a world-class sports and entertainment district in the heart of a great city. We know that everyone loves the design. It would be an incredible signature landmark for the city and not just because the building is a good-looking building, (but) because we've listened to the public. It's sensitive to an urban landscape and everything else that can be done around it by us and others. Aside from that, let's face it, we've obviously just as excited about our team. We really feel this whole project is far too important to fail. We're confident we can get a deal done if the city will work with us creatively and constructively towards a solution that works for both parties.”
David Staples: As part of the New York agreement, the city agreed to approach the province about this casino issue you are asking about, seeing if they can help you out in some way with the casino. So my understanding is they’ve made this approach to the province. What exactly do you want in terms of a casino? What kind of revenue would it generate, what kind of split would you get, and have you approached the province yourself about this matter because it’s their decision, not the city’s, as you know.
DK: David, look, I’m not going to get into the specifics or comment on what’s been reported. We committed not to negotiate this deal in public and we’re going to keep our commitment. But I can tell you that the incremental costs when compared to the incremental revenue in this deal are not enough for us to justify a 35-year commitment in one of the league’s smallest markets. We don’t care if it’s a casino or a gaming initiative or something else. We need a mechanism to offset capital and operating costs just like Pittsburgh and Winnipeg. Casino and gaming is just one way and it happens to be used in other markets all over North America. That’s why it was part of the initial framework because it’s used in other parts of North America. That’s neither really here nor there, whether it’s casino gaming or something else. Pittsburgh has a complete reversion of their ticket tax to the team. They’ve used that in a way to subsidize operating costs. Winnipeg has all kinds of subsidies from business subsidies to property tax subsidies to gaming subsidies to a whole whack of things, so we’re not set on casino gaming. It was merely a mechanism in the initial framework that everybody knew had to be delivered in one context or another to make the funding model and the framework work
DS: How would you say in terms of the city’s take-up of this issue on the casino, or on this particular issue, (city councilors) (Kim) Krushell’s saying she’s surprised at the Katz Group’s new demands, Bryan Anderson saying he’s taken aback. In terms of their take-up of your issue here on the casino money, how would you characterize what you’re thinking about the negotiations and where it’s at and what’s your state of mind?
DK: Well, David, the New York City framework was clear on a number of things, OK? Nobody should be surprised, in our view, and as I said in my initial statement, this is not a new thing. This goes back a long time. Why the councilors were surprised – the mayor and the administration certainly shouldn’t be because the framework goes back a long time and the New York meeting was almost a year ago – I can tell you, though, the New York framework was very clear on a shared vision for a new arena that enriches Edmonton, revitalizes downtown and serves as a catalyst for this billion-dollar CRL, and it was very clear that a condition of the deal had to be to ensure the Oilers’ sustainability long term. Now, the vision stands, but based on everything we know, subsequent to the New York framework, some things have changed. The costs of the arena and the winter garden are higher. Based on the design of the building, revenues will be lower, costs will be more than expected. The casino that was contemplated in the framework to act as a mechanism to help offset operating costs hasn’t happened, so that’s a change — merely one way to skin the cat. We have a better understanding now of things like taxes and what’s been done in other markets. We also have a better understanding, to be frank, that the CRL is going to be double in value relative to what it was supposed to be. So we have things that have changed, but I can tell you one thing that has not changed is the recognition in the initial framework that we require this mechanism to offset capital and offset operating costs, and casino or gaming – Winnipeg does it by casino/gaming, Pittsburgh does it I think by casino – was penciled in as the way to facilitate that. Relative to what the city has done with the province – you’ll have to ask them – we’ve been told by the city from the offset relative to this and other matters dealing with the province to let them deal with it.
DS: So you haven’t approached the province yourself?
DK: Our people have had discussions, but I don’t know precisely the specifics. As with everything having to do with the province, these things are kind of bigger picture arrangements between the province and the city.
DS: You brought up the Winnipeg deal a few times. Mayor Mandel might say you can’t cherry-pick good things from the Winnipeg deal because, he would point out, the Winnipeg arena was built from the start largely with private money – yes, going forward, there are these subsidies in various tax concessions and also some lottery money – but at the start, there was far, far more private money going in than we see in Edmonton. So, in total, he’s characterizing the Edmonton deal as a very generous offer from the city to an NHL team – that’s what he said on the radio last week. What would you say to his position?
DK: Well, relative to Winnipeg, the MTS Centre was built in 2004 for $144 million. It’s a different day, it’s a different time, it’s a different project, and costs are different. Of that amount, I think $54 million came from various orders of the government. But the one big difference, David, is the arena is 100 per cent privately owned. In Edmonton, the city way back insisted on owning the arena. Now, I might feel differently if I owned the arena, but I don’t. The city is going to and they want to. Winnipeg’s entire subsidy, operating capital – irrespective of the original capital costs, which was 10 years ago – is over $12.5 million a year. Now Pittsburgh, which is maybe a more direct comparison because it’s a newer facility, was built in 2008 for about $320 million, probably consistent with our price today adjusted for inflation. The team made no upfront capital investment, they paid a rental number -- $5 million a year – they pay no property tax, they have complete reversion of the ticket tax, and they have a cap on capital maintenance. And you know what? That market is three times the size of the Edmonton market. Three times.
DS: I want to ask you about the CRL. New property taxes from this new development around the arena if it’s built will be gathered in a downtown community revitalization levy, which the city estimates will raise conservatively $1 billion in new property taxes over 20 years. So $45 million of that as you said is slated to go to pay for the new arena. Is that the right amount? If not, why not, and how much should it be?
DK: Well, David, you know, our position is this deal has to be a win-win for everyone, and you have to look at all of these things, what’s reasonable in the context of the deal. And the CRL, you’re quite correct, is something that is unique to the Edmonton structure. For instance, they didn’t have that in Pittsburgh. Pittsburgh did not get an enormous annuity and windfall when they cut the deal with the Penguins. Our initial belief was the revenues from the CRL could finance the whole cost of the arena because, at the time, it was worth $1.2 billion. The city then said it wasn’t possible, even though $1.2 billion seems like a lot of money. They decided, for whatever reason – I don’t know why – that they’d only commit $45 million to the arena. That’s how we wound up with the ticket tax, because they wouldn’t commit more than $45 million from the CRL. Now we know that the current estimates are as much as $2.5 billion for the CRL. That’s something you really should ask the city because we’ve been trying to find out the right numbers and ask for the internal reports many times and we haven’t got them. What I can tell you, though, is that the windfall of the CRL, if it comes, will all be because the Katz Group and the Oilers are there to underpin the arena development, which brings us full circle back to the need for the Oilers to be sustainable for the long term.
DS: So how much of the CRL should go now, would you say .. What should we get from the CRL for the arena?
DK: I’m not going to negotiate in public. I’ve suggested that already, and I can tell you you need to look at the facts and make some decisions. The CRL is a goldmine for the city. The Oilers are the anchor for the arena and the arena is the catalyst for the CRL. Some would argue it should pay for the whole arena. We’re not asking for that, David, OK? We’re willing to partner with the city to meet the needs of everyone and capitalize on the opportunity. All we’re asking for is a deal that’s fair and makes sense for both parties and that is commensurate with other small markets – i.e. Winnipeg and Pittsburgh – even though the City of Edmonton gets way more upside through revitalization and the CRL.
John MacKinnon: Daryl, it’s John MacKinnon here. Just taking a bit of a different tack – and you’ve talked earlier in your own remarks of the timing of you coming publicly in this fashion -- as we talked about earlier as well, it coincides obviously with the onset of an NHL lockout, which was preceded by really a lot of spending on the part of owners around the league – not necessarily you guys, but certainly Minnesota spending like $100 million each basically for Parise and Suter and so forth. Is there a mixed message here -- the perception maybe from the public that the deal here may be changing or there’s a new or different ask coming to the public at a time when the league itself is in fact in lockout? Is that an unfortunate juxtaposition?
DK: John, as I said to you, the ask for a mechanism to offset capital costs has been in the framework from the beginning. I have no idea why it’s such a surprise to members of council. Relative to the lockout – lookit, the only people that can talk about the lockout are Gary Bettman and Bill Daly, but I will answer your question on timing and why now, OK John? If we don’t move quickly, this deal’s done. Time is our enemy. This thing’s been going on for four and a half years. Our lease expires in less than 24 months. Costs are mounting every day on the design process. Construction-cost inflation in Alberta is a fact of life. The longer it takes, the more it will cost. Even if we were to stop the design process now, we’re looking at an additional $25 million in costs just from the design fees and construction-cost inflation in Alberta. At some point – and that point’s soon – the costs will become prohibitive for everyone and there’ll be no project. That’s why time and delays are our enemy right now.
JM: You mention earlier – and again, just referring to this apparent disconnect from your point of view, these components of the formula have been there all along – but for whatever reason this has occurred, you have seemingly some councillors, at any rate, who were – I don’t think they were pretending to be surprised or somewhat taken aback – obviously, to facilitate, to move this forward, the relationship between you and that council has to be I think sorted out, at this point. And you indicate it’s really not your business. But pragmatically, how do we get to that at this point.
DK: Well, John, my team … if you want to look at our track record and judge the quality of our commitments and what we’ve done from the outset, we -- Katz Group -- have made our investments of time and money in absolute good faith and without regret. We do remain confident we can make this work if the city will work with us creatively and constructively. We continue to do that today with the administration. Just to put things in context, John, I think this is really important that we look at how we really got here, all right? Because people forget. I bought the Oilers because EIG (Edmonton Investors Group) was fractured and Edmonton’s ability to keep the team was at risk, OK? Nobody can doubt that. That was only four years ago. EIG knew and I knew that the key to Oilers’ sustainability was a new model and a new arena. I stepped up. Nobody else would, John, OK? I stepped up with two goals: to insure the Oilers’ long-term sustainability in Edmonton and to turn Edmonton’s need for a new arena into something unbelievable for the city. I’ve been at this five years, OK? I spent $200 million on the team, I’ve funded operating losses since, I’ve put $70 million into acquiring land. Nobody can question my good faith or my commitment. We’ve made enormous progress over the last five years that even relevant to this arena, we know what the public wants in terms of the design. We know what it’ll cost. We now know what the CRL will generate. We are determined to find a deal that works. We feel we’re close to realizing the opportunity, but only it achieves the fundamental goal of ensuring that the Oilers and the NHL are sustainable in one of the league’s smallest markets for the long term. The city has little risk, John, and every deal has to look at risk reward. So the city has little risk but they have enormous reward, because it needs a new arena that it otherwise would have to pay for by itself, and without us – so what do they get? They get a 35-year deal for the NHL in Edmonton; they get a subsidized arena because the NHL team is there to play in one of the league’s smallest markets; they get a revitalized downtown, that new downtown will drive a $2 billion-plus CRL annuity; Katz Group, for our part, we make a 35-year commitment to the NHL’s some would say smallest market, and we get a cost sharing of some elements but nothing yet that’s commensurate with Winnipeg, even Pittsburgh, which is three times the size of the Edmonton market. And neither Winnipeg nor Pittsburgh has the upside of the CRL to offset the investment they’re making to keep their pro sports franchise in the city. You look at the risk reward – in your mind, is that deal disproportionate?
JM: Well, in the overall …
DK: It’s a rhetorical question. You know what I mean?
JM: I do. You mentioned that – and this is clear and we’ve seen this happening over time and there’s been a lot of frustration and a lot of stakeholders hear about time passing and time passing and costs increasing and inflationary factors kicking into gear -- and you mention if something isn’t achieved soon, what does that mean? What is the timeframe, in your mind? What is sort of the drop-dead date?
DK: Well, I think it comes down to construction costs. We were ready to go years ago. I don’t know the numbers, but I think in the last year – Bob (Black, Katz Group executive vice-president)’s got the numbers through Alberta Infrastructure – prices are up significantly in the last couple of years, let alone when the mayor’s leadership report four years ago said we should build a $450-million arena. A $450-million arena four years ago, I can tell you, sure isn’t a $450-million today. And if we wait because of the boom going on in Alberta, I’m very concerned this deal’s going to price itself out of the market. So when I say ready to go, we’d like to be able to agree on a deal within the next month or two, and we’d like to be able to break ground on the project in the spring and get had pricing late fall, or else costs could be up another 10 per cent, John. I mean, this thing has been dragging. Quebec City is in the ground before us and they started, like, three years after us. You know what I mean? It’s something like that.
DS: Daryl, this is David again. Your lease is up in 2014 and kind of the implication of what you’re saying is if the city is going to do this on their own without the Oilers, it’s going to cost them a lot of money, so is the implication of that that one of the options is moving the team or selling the team to another location. Is that a possibility?
DK: No, I was merely making the point, David, that other cities all around North America – from Quebec City to Kansas City to Seattle to Hamilton – build arenas on their own even if they don’t have an NHL or NBA team. Why? Because big cities need arenas, because they’re multi-purpose sports and entertainment venues. They are tantamount to infrastructure. For those cities who are fortunate enough to attract an NBA or an NHL team, those teams act as a subsidy for the city because they would otherwise be left with having to pay all the costs themselves. Kansas City is a perfect example. Brand-new arena, no NBA team, no NHL team. So, I’m saying Edmonton has to build one anyway. Why? Because our arena now was built in 1972 and is falling apart. So as a major-league city, you need a public sports and entertainment multipurpose venue. I was making a comparison to cities who have done this and continue to search for NBA and NHL teams. Relative to moving the team, I’m focused on making this deal work. God knows I’ve spent enough money. My wife thinks I’m nuts, OK? Guys, don’t laugh. I’m tellin’ ya, she thinks I’m nuts. If this 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, OK? That’s truthful. But I’m focused on making this work. And I’m continuing to spend a pile of money. And we just want a deal that’s commensurate with the other small markets even though the City of Edmonton is going to walk away with a $2-billion CRL that these other cities did not have.
DS: You called Edmonton, when you were first talking to us here, the smallest of small markets. My understanding, though, it’s more like a market right now in the range of the No. 10 market in the NHL, in there, and that you pay into revenue sharing in the NHL. So it’s not, right now, a small market. Some people would say it’s not a small market and that means that the Oilers are in a position to build the arena largely privately. So what would you say first to the size of the Edmonton market right now, the size of the Edmonton market going forward, and this notion you should be doing more to build this privately as we saw Toronto, Ottawa, Vancouver.
DK: Well, No. 1, I can tell you the way we look at the markets. Markets are determined by the size of their media market. The size of the media market determines TV revenue, advertising and sponsorship revenue. Edmonton and Winnipeg are tied for the smallest markets in the league. That significantly affects revenue and the ability to grow. So I don’t know where you’re getting your numbers, but we in the league don’t look at it that way.
DS: Well, from ticket revenues would be the …
DK: Ticket revenues are not relevant. Everybody should sell out if they win, if they have a winning team. Further, ticket revenues – the way the NHL looks at it – have foreign-exchange risk. So in our view, if you have a winning team, everybody should sell out, that’s just the way it is, but what some markets have that others don’t are enormous media markets, and that drives an enormous part of a team’s revenue. So when I say Pittsburgh, who on paper – I described their deal – is three times the size of Edmonton, Dave, that’s the size of their media market that controls television, advertising, sponsorship and the like, OK? That’s the big variable.
DS: Does not Edmonton, though, have a larger base of people who are willing to pay top dollar for NHL tickets and does that not also something (that’s used for) a formulation of how big the market is?
DK: No, it doesn’t. Edmonton could be viewed as a very loyal hockey market but you have to also understand we have the lowest corporate season-ticket base in the National Hockey League. We have more of an individual season-ticket base when you look at every other team in the league. That’s something that’s a challenge for the Oilers. To be frank, that’s something that the Calgary Flames, for instance, don’t have. They have a very big corporate base. Relative to your question to the need for public money to sustain the NHL or professional sports, let’s be frank, the only privately funded NHL arena that hasn’t been a financial disaster is ACC (Air Canada Centre) in Toronto, where they have the Leafs and an NBA franchise. Everyone else lost their shirts. Dave, you know that. They lost their buildings and their teams, right?
DK: So this has to be a private-public partnership. I don’t think anybody denies that. Now, Edmonton is a great hockey town, not necessarily a great hockey market. We have the best and the most knowledgeable and, to be honest, loyal fans in the NHL. That’s what we believe. But Edmonton is tied for the smallest media market in the league by far, and we have the lowest percentage of corporate season-ticket holders. And in already a small market, you guys, we have to compete with a taxpayer-subsidized facility currently being renovated at public expense to better compete with us. You know who that is?
JM: It’s Northlands.
DS: I’m assuming that is a rhetorical question.
DK: The reality is we need a new arena. The city needs one. The arena doesn’t generate enough for us to build it ourselves, especially if we’re not going to own it, that it has huge benefits to the city that warrant public investment. No. 1, it locks up the Oilers and the NHL for 35 years, and that’s pretty important; (No. 2,) You gain an iconic landmark that can transform the city’s identity; (No. 3) Enormous, expanded tax base, including multi-billion-dollar CRL; (No. 4) Major catalyst for much-needed revitalization of our downtown core; (No. 5) Billions of new investment downtown; (No. 6) New sports-and-entertainment district; (No. 7) Stronger draw for people to work, live and play downtown, which helps all our employers. The city has been focused on the downside risks of the project, which is appropriate, but they also have to look at the benefits. We have to think about the city’s future and design a future boldly and with some confidence, OK? We need a P3 that can sustain the Oilers that is commensurate with other small markets. That’s what we need. That’s all we’re asking for, and we’re willing to partner with the city to meet this need and capitalize on this opportunity. But we can only do so on terms that are fair and make sense for both parties.
DS: Councillor Don Iveson said this past week he heard talk that, with all these what he characterizes as new demands, that the talk is the Oilers are trying to scuttle the deal so they can get a better deal elsewhere. This is some of the chit-chat, gossip that is going around city hall that he’s hearing and relaying. What do you say to this concern?
DK: Well, so he’s questioning my track record and good faith. I just went over with you guys how much I’ve spent and what I’ve committed to this project. He’s suggesting he doesn’t believe me. That’s ridiculous. If you want to judge the quality of my commitments, guys, look at what we said we would do with the hockey team four years ago and what we’ve done since, and we’re just getting started. The Oilers are the talk of the National Hockey League, just like Edmonton can be the talk of North America if we get this deal done. We’ve made every investment of time and money in good faith and without regret, and I’m confident we can make this work if the city will work with us creatively and constructively towards a solution that works for both parties. I didn’t hear what Don Iveson said, but how is that productive?
JM: It’s John again here, Daryl. I always find it interesting, the whole discussion – you’re clearly very impassioned – this is something I know you believe in very strongly and have thought through with great detail but also with the sense of doing something grand for the city you’ve been part of for a long, long time, and I’m grateful, so is David, for this opportunity, but would it have been more appropriate for you to make this impassioned discussion to city council -- you had the opportunity and declined it – or in a larger public forum?
DK: Well, you know, John, that’s what the mayor and the administration should be doing. I think we’ve added up, John, all the money this deal will cost us if we do it. I think it’s between $500- and $700-million. Now you know why my wife thinks I’m nuts.
DS: What did she say to you, exactly?
DK: I can’t repeat what she actually said to me (chuckles). We didn’t go to the last council meeting because we are in negotiations with administration and the mayor and administration suggested we shouldn’t go if a lot of the issues weren’t resolved and there’s still a lot of outstanding issues. At the appropriate time, we will go to city council. You guys forget I made my impassioned pitch over two years ago, July 20 or whatever.
DK: Over two years ago, guys, and where are we? We’re still banging our heads against the wall. Like I said, Quebec City already broke ground. So we’re either going to do this deal or just the lapse of time is going to preclude us from doing it. But nobody can question our commitment or that we’ve made our investment of time and money in good faith and, you know, my guys talk to the administration daily. None of this would have even come into the public vein, David, but for the leak, which we’re still trying to find out where it came from. Because we were in the midst of negotiating and trying to finalize things with the city based on the initial framework that did include a casino mechanism, and if it didn’t work out, it didn’t work out, but when two parties are trying to make a deal, it’s just not sufficient for one to say ‘too bad, so sad, you guys eat it.’ That’s not how two sides make a reasonable deal. You work together and find alternatives. I was surprised that councillors were surprised because they should not have been. They should have been, I would imagine, briefed and had copies of the framework and been kept up to speed, but to have my integrity and commitment questioned, and to suggest this is new and came out of nowhere just is not true and not fair.
JM: Last October, the New York meeting at NHL headquarters, for a time anyway, seemed to have facilitated something concrete. There was a framework that came out of that, there seemed to be some positive momentum, and obviously Gary Bettman’s involvement was central to that process. Is there an opportunity or some occasion where another intervention by Bettman would help or is that actually a part of the process in an ongoing way?
DK: I don’t think so. We came out of the New York meeting, we had our list, we had our framework, John. We were supposed to have the deal signed, sealed and delivered by the end of the year. It’s over a year later, we’re not even close. I’ve been working on this, John, for four-and-a-half years. I’m probably in it for $300 million, including the team. I understand everyone’s frustrated, but not everyone’s spent $300 million. To consider our track record and what we’ve done from the outset, when the team was on the ropes and at risk four years ago, and what we’ve spent to get it to this point and all the good things we’re trying to do. What happened the last couple weeks just isn’t even fair. You know, John, some guys just wouldn’t put up with it.
DS: How close are you to throwing it in, Daryl? This is David here.
DK: Lookit, I’m focused, David, on trying to make this deal work. I have a lot of advisors and friends. I say in jest they tell me I’m nuts but why would you put yourself through this?
DS: What do you tell them?
DK: Lookit, everything that’s worth doing is worth making sacrifices for. Nothing is easy to get done. There’s no deal, no transaction that’s easy to get done. This has been maybe more trying, but I think we are close to realizing our vision with the city and I think if we work together and are reasonable, we could do so. So, I’m committed to trying to make this happen, but you ask one of the reasons I’m talking to you guys is because of timing and delay. We have to move quickly. Time is our enemy. The longer it takes, the more it will cost, and costs will make it more prohibitive for all of us. So it’s crunch time, and that’s why I’m talking to you.
DS: How important is the office tower project and what would you like to see from the city in that regards?
DK: Well, Dave, I think I’ve said three times I’m not going to get into negotiating in public, because I committed to the city I wouldn’t do that. So that’s why we don’t leak stuff and we don’t negotiate in public, OK? But that is a very good question and I’m glad you asked it, because this is where you really see how the whole package has to work for everyone. And to Steve Mandell’s credit, he has always said this isn’t a line-item exercise, you can’t cherry pick, we need an overall package that works for both parties and realizes the full potential for the City of Edmonton. OK? So relative to the office building, the public had great insight relative to design. On the arena, through our focus groups, they said it had to work on all four sides – there could be no back door. They didn’t want to see loading docks and all that stuff. You can understand why. So the solution was to shroud the loading bays with a commercial building that we would build as part of the private-sector development around the arena. To make economics work, we need the critical mass, obviously, of an office tower. And guess what? The city actually needs office space that could save, by their report, taxpayers money by centralizing all their office space. So what we’re saying to the city is if they went to an RFP, we would compete for it, and if we won, then together with the arena we’d have a critical mass to build a hotel and related projects. Now, all those things working together would supercharge the CRL and drive it forward faster for the city to realize its billions of dollars in tax revenue. Without office space, it might not be possible to achieve the current design. Now, to be clear, we need an anchor tenant. It doesn’t have to be the city. It could be others, but it seemed like an obvious answer for us if mutual interests and opportunity because the city needs and was looking for office space, so that was the genesis of that, Dave.
DS: So what do you need from the city in order to proceed on that in terms of …
DK: I’m not going to get into what we need and what we don’t need. The city has a process. I imagine they’re going to go through an RFP. That’s a public process and we’ll respond. That’s what it comes down to.
--Announcement that hour mark reached for interview —
DK: If you guys have a few questions, I don’t mind. I don’t mind talking to you. You guys, what I don’t want you to do is lose the key message here, that this is an enormous opportunity, that none of it can happen without the Oilers’ sustainability, and we need to agree on a whole package that makes sense for everyone having regard to risk-reward and win-win and all this other stuff.
DS: How about one more question each for John and I, and I’ll start, if that’s OK. And I wanted to correct one thing, Daryl. I believe that the 2008 mayor’s task force envisioned a $00-million arena, and I could be wrong about that – not $450 million at that time – but that’s my understanding.
(It was $450 million not including land)
DS: OK, well that’s in the records and perhaps I’m wrong. So, my question is this: The New York framework for the deal saw you move from, envisions you moving you from $1 a year rent in your deal to $567 million per year for your lease to go to the mortgage. Instead of getting $4.5 million in ticket tax, that money would go to the arena’s mortgage at $7 million per year. Instead of paying $1.2 million for operations each year, you would pay around $10 million a year for operations and maintenance. Is that what you agreed to then, and if so, why? And what does it mean to the Katz Group to have that kind of change to the bottom line on the arena operations?
DK: David, this is the fifth time I’ve told you, I’m not going to get into the details in public because we promised that we wouldn’t. But I can tell you that the incremental costs of this deal, when compared to the incremental revenue, are not enough to justify a 35-year commitment in one of the league’s smallest markets. It doesn’t work. You can look at the Pittsburgh deal or the Winnipeg deal as a commensurate deal. We need a deal that is fair and enables the Oilers to be sustainable for the long term. We’re here to try, over the next several months, to try to finalize a deal and bring it to conclusion.
JM: Daryl, just one last thing from me. You’ve talked a great deal, echoing the mayor, that this is a sort of a gestalt, this is an entire project, and if you start to strip it down to component parts, not only do you get off track, you don’t get what’s going on, do you think through all this process that the citizens – the average Edmontonian – understands what this would bring to their city? And if they don’t, how would you impress upon them that this is in fact the large, kind of transformational project that you believe it to be?
DK: Well, John, that’s an excellent question. That’s what we hope you guys will get out of this interview, is the big-picture stuff. The mayor has been very astute in saying that this isn’t a line-item exercise. You can’t cherry pick, Dave, each of these elements and look at them in obscurity. The mayor said we need an overall package that works for both sides. The whole package is the opportunity, and that is to sustain the Oilers and the National Hockey League for 35 years, to turn Edmonton’s downtown into a magnet for people and new investment, and to expand the city’s tax base by $2 billion to fund a whole host of other important civic initiatives. I hope that sums it up.
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