EDMONTON - Two questions stand out on the downtown arena file: what does the Katz Group want to proceed with the project, and what, if anything, should the city now offer?
The Katz Group are a secretive bunch, but they have made their needs known in general terms. Their desire, they say, is a deal like the one that Penguins owner Mario Lemieux got in Pittsburgh, or the one that lured the Jets to Winnipeg.
This may sound simple enough, but there’s nothing simple about arena deals anywhere. The deals are complex and varied, each carved out in heated, lengthy, complicated negotiations, each in differing markets with differing owners and differing government bodies, all with a differing willingness and ability to pay.
As a start, however, before any of us can figure out if something that made some sense in another city might make sense here, it helps to know more about what the Pittsburgh and Winnipeg deals are. That’s where Simon Farbrother and Lorna Rosen come in.
They are the city’s lead negotiators on the downtown arena deal. They’ve been studying arena deals for years now. They’ve studied the Pittsburgh deal, but not so much the Winnipeg deal, though perhaps with good reason.
The Winnipeg deal isn’t a useful comparison for Edmonton. The arena only has 15,000 seats, which makes it a much more difficult place for an NHL owner to turn a profit. It was also privately built in 2002-04, with 70 per cent of the funding coming from the private owner.
So let’s stick with Pittsburgh, where the rink is publicly owned and has 18,400 seats, about the same as Edmonton’s city-owned downtown arena is expected to have.
Here are the main elements of the Pittsburgh deal:
• The Consol Energy Center was built from 2008 to 2010 for $330 million. The Penguins’ share is $5.7 million per year for 30 years. When Rosen crunches all the numbers, she finds the Penguins will contribute about 24 per cent of the arena’s cost. The state and the city use casino money to pay for the rest.
• The city of Pittsburgh has a five-per-cent amusement tax on all sporting and entertainment events, including every event staged at the Penguins’ arena. This five-per-cent tax goes directly into city coffers.
• There’s an additional three-per-cent surcharge on tickets to Penguins games and a five-per-cent surcharge on other arena events. This surcharge money is returned to the Penguins each year to cover operating costs.
The Edmonton deal — based on the October 2011 framework — is that the Oilers pay $5.7 million a year for 35 years on the arena’s mortgage, which Rosen says works out to about the same one-quarter share of the arena’s cost as the Penguins paid.
The main difference is how the ticket tax money is handled. If, for example, Pittsburgh raises $9 million per year in combined ticket tax/surcharge, roughly $5 million goes to the city and $4 million to the Penguins.
In Edmonton, however, the ticket tax won’t go to the Oilers but to pay off $125 million of the city-owned arena’s mortgage.
Over the term of both deals, the Penguins will do better off on the tens of millions of ticket tax money, with their roughly 40-per-cent take, than will the Oilers, with no take.
Of course, just because Pittsburgh got a sweet deal doesn’t mean every other NHL team must get the same.
The City of Edmonton negotiators studied the Pittsburgh deal to learn some best practices, not to try to replicate it, Farbrother says. “In Alberta, we’re looking at a different model, a different market, different revenue streams. It’s a different scenario.”
Pittsburgh is a bigger city than Edmonton, but there’s no evidence it has a greater numbers of rabid hockey fans willing to watch games on TV and pay top dollar for tickets. The Penguins also were a winning team and had hockey hero Mario Lemieux going for them when their arena deal was struck. If the Oilers were owned by Wayne Gretzky and were now challenging for the Stanley Cup, Edmonton’s willingness to pay would also be greater.
My bottom line? It looks like the Pittsburgh deal is indeed better than the proposed Edmonton one, but that only goes so far. The Katz Group must fully and openly make its case that a sweeter deal is needed and deserved here. It has so far failed to do so.
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