MacKinnon: Katz must make his case to city council
Letter reverses effect achieved by recent apology
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EDMONTON - On the day National Hockey League commissioner Gary Bettman met face-to-face with the leadership of the NHL Players’ Association and offered what he said was a 50-50 split of the league’s $3.2-billion revenue pie, Edmonton Oilers owner Daryl Katz dispatched a two-page letter to Mayor Stephen Mandel restating his demands for a better deal on the proposed downtown arena.
Rather than deign to appear at city council today — Mandel’s deadline for the Katz Group to explain their latest demands — Katz archly informed the mayor: “My door is open if City Administration wishes to continue our discussions.”
L’aréna, c’est moi, more or less.
It’s a message that reverses whatever softening effect was achieved by Katz’s recent public apology, delivered by way of full-page newspaper ads, a surprisingly positive gesture. Now this.
For those Edmontonians still torn between viewing the local billionaire as either a successful businessman with the vision to do something grand for his city or a rapacious, capitalist shark out to leverage every dollar he can from his fellow citizens in the Heartland of Hockey, well, Katz is making that choice mighty easy.
The reality is, Katz is both a passionate Edmontonian and unabashed Oilers fan, and he’s a cold-blooded businessman with his eye fixed on the main chance.
And he is right in trying to extract the best deal he can as he assembles a sustainable business model for the Oilers for the next generation in a new, downtown arena.
But to achieve that, his pitch has evolved from working out a funding model for a glittering arena to welding that deal to a transformative downtown real estate play he believes will generate revenues that will fill the city’s coffers to overflowing for decades to come.
Compared to the tax riches beyond the dreams of avarice the private sector development will produce, Katz is saying, a $6.5-million operating subsidy is picayune, mere chump change. Fair’s fair. Or so he maintains.
It has been just about a year since that framework of agreement to fund the arena was pounded into shape in New York, producing so much apparently naive optimism that an actual deal was at hand.
In the intervening time, Katz’s people have crunched the numbers and now will tell you, with great urgency, the numbers won’t work. Forecasts project that revenues will be lower than previously expected; costs are rising higher.
If that’s so, it is basic that he or his representative make that case to city council, a case that much available evidence contradicts.
NHL teams zealously guard their financial information, which is their right. But based on the best-available financial snapshots, those provided annually by Forbes magazine, teams that have moved from outdated arenas since 1998 have seen their revenue streams increase from 30 to 50 per cent.
As well, the value of the franchise itself increases in the move from old barn to new arena. For example, Forbes valued the Pittsburgh Penguins at $222 million in 2009. In 2011, the valuation jumped to $264 million.
In 2009, by Forbes’ conservative estimate, the Penguins generated $93 million in revenue; in 2011 that estimate was $110 million.
In 2011, Forbes pegged the Oilers revenue at $96 million. In a new, larger arena, factoring in a 30-per-cent increase — a revenue bump some experts say would be conservative — that total would be $125 million.
In 2011, Rexall Place generated $34.6 million in revenue from 46 concerts and a total of 88 non-hockey events, not to mention the highly successful world junior hockey championship.
According to that fragile framework of agreement between Katz and the City of Edmonton, the revenue streams from all events at the downtown arena would flow to the Katz Group.
Even allowing for competition with Rexall, which plans to continue staging concerts, you would expect that a significant chunk of that nearly $35 million in revenue would be available to the Katz Group.
Something else. Long almost exclusively a gate-driven league, the NHL’s TV revenues have taken a massive uptick in recent years.
That 10-year NBC deal alone will deliver $200 million to the NHL, or about $6.6 million per team annually.
The Oilers’ new local deal with Rogers Sportsnet is said to be particularly lucrative; just how lucrative a well-guarded secret.
Even as the NHL’s revenue pie has grown to well more than $3 billion, Bettman is doing his best to shrink the overall players salary expense, an outcome that will improve the individual operator’s profit margins and further increase franchise values.
Yet, in this era of unabated revenue growth, Katz says the numbers don’t work in a newer, larger arena unless he gets that operating subsidy, among other things.
No wonder city councillors who thought they had a fair deal a year ago are at the end of their tether.
They have every right to be terminally offended that not only will Katz not show up at City Hall to explain his demands, he has told the City, in so many words, ‘You know where you can find me.’
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