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February 10, 2011
Quebec: Screw it, we'll just pay all $400m for an NHL arena
Not even three weeks after declaring that he'd look for a new source of funding for a Quebec hockey arena, Quebec City Mayor Regis Labeaume announced today that the source would be ... himself. Okay, really his city's and province's taxpayers. Ladies and gentlemen, your Plan B:
Quebec's government Thursday announced it would pour $200 million into a new coliseum in Quebec City, whose raison d'etre is drawing back a National Hockey League team, something the NHL has warned is not guaranteed.
It amounts to a near 50-50 financing arrangement with Quebec City for the estimated $400 million venue, placing the burden almost entirely on taxpayers.
"An arena financed with 100 per cent public money is unacceptable," said Claire Joly, executive director of the Quebec Taxpayers League. "There are a lot of people who want an arena and a hockey team in Quebec City, but not at any price."
The risk for Quebec City is going up dramatically. It had originally committed $50 million. Now it's on the hook for $187 million. (A group of citizens has raised $13 million to "reserve" seats in the new venue.)
The federal government hasn't ruled out chipping in as well, but nobody's holding their breath that they'll do so, especially not when the latest idea floated — allowing cities to use existing federal gas-tax payments on arenas — drew jeers from city officials, who rightly point out that allowing them to use money they already have isn't much of a federal subsidy. Meanwhile, that offer from Quebecor's Pierre Karl Peladeau to put in "tens of millions of dollars" was apparently rejected, as neither Labeaume nor Quebec Premier Jean Charest said anything about private money.
What they did indicate, though, was that in exchange for paying 100% of the arena costs, the city and province would be looking to get a cut of the vig. From the Globe and Mail:
Future private revenue from the Quebec City arena will be evenly split between the city and the province. This includes the commercial naming rights for the building, marketing revenues, and operating rights. All of this could total several million dollars a year, according to the mayor.
That's all well and good, and it's nice to see elected officials putting naming rights money in the "taxpayer" pile instead of letting teams get away with considering it their private stash (something they do even when the building the name is going on is owned by the public). Still, "several million dollars a year" is going to be a drop in the bucket in paying off $400 million in arena bonds, unless 30 counts as "several" in Canada. And that's even assuming that a team relocating to Quebec — remember, this arena doesn't have even a glimmer of a tenant yet — agrees to turn over those revenues to its public landlord.
All in all, it's a stunning amount of money for public officials to commit, especially in a nation which doesn't have nearly the same history of funneling taxpayer dollars to sports teams as the U.S. And to do it on spec, without a team in place — as I've noted before, you might as well stick a "kick me" sign on your back.
Well on the plus side it seems at least one of the unloved "sunbelt" hockey teams will be going back where it belonged the whole time...
Posted by Dan on February 11, 2011 01:25 AM
It is a shocking amount of public money, Neil. However, one thing I will credit the province/city with is that they are 'paying for it' themselves. They may get some federal money (my guess would be less than $50M in total) that helps reduce their tax burden, but they will still be left with a huge debt to pay.
I hope the building can be busy enough to make it self sustaining, but I doubt it. In Canada, municipalities do have the ability to borrow at preferred rates (as opposed to issuing construction bonds). I'm not sure if they plan to do this as part of the funding, but it could lower the toll on the debt from 6% (or thereabouts) down to about 2% (assuming they borrowed entirely at municipal rates, which for a project like this I would expect will not be possible).
Nonetheless, it will be a publicly owned facility in which any economic benefit goes to the taxpayer preferentially. That is Taxpayer field at it's finest, but so long as the money the facility generates (assuming it exceeds the operating cost) goes back into the public coffers of the province, I can't really complain about it. It is their decision how Quebec invests it's money.
Now, if a prospective relocation team extracts significant concessions to favour the city with a team, this deal could get really bad in a hurry... But I sense that NHL teams - particularly those that are losing money by the bucket load - may have less leverage than some of their more financially secure brethren in other sports.
The only thing I don't get is why they plan to spend $400m on it. IF their plan is to scoop up a financial basket case in the sunbelt, they can build the equivalent of what that team has now for far less than $400m... even in an insane construction market like that in Quebec. $275M tops should do it. Beggars, after all, can't be choosers.
Posted by John Bladen on February 11, 2011 03:22 PM
/\/\/\ I fail to see how an city with an arena and no team to play in it would have leverage over a team with a crappy fan base and other potential options (Hamilton, Winnipeg, Kansas City, etc.).
Posted by Brian on February 11, 2011 10:10 PM
You raise an excellent question, JB.
It's one I frequently ask in debates about with others here in Edmonton with the Oilers arena plans. Why not build something nice for $200M? Or $250M? Or a well negotiated $300M that leaves both parties satisfied?
Don't see why the Phoenix Coyotes can play in what has been described as a great hockey arena (never been there, just heard plenty of accolades about the place) that cost $180M. It was built during a construction boom down in Phoenix - so how come they can make an excellent venue for less that $200M but nothing short of a half-a-bill will cut it in Edmonton or Quebec City? (Conversely the Penguins play in a great palace and it cost $100-150M less than what they're suggesting here in Edmonton).
Right now people are packing the age old Rexall Place/Northlands Coliseum and if Quebec got a team tomorrow I can almost guarantee you that they'd pack the old Colissee no problem.
So why spend more up here when people are going to come regardless?
Posted by Andrew T on February 11, 2011 10:11 PM
Brian, if your comment was directed at my post (not sure), I'll address it.
The cities building modern arenas don't necessarily have any leverage. That's the point. They are taking a gamble - either that they can generate enough revenue absent a team to cover costs (which is possible, several cities are doing just that without a major tenant), or that they will get a team at a price/deal that allows them to do the same. However, if Quebec's plan is to relocate a financial basketcase, they are a significantly more attractive market than some of the others you mentioned.
Hamilton: present arena closing in on 30 years old. The NHL has said it is not at an acceptable standard for NHL play. Hamilton also has the insurmountable problem of the Toronto Maple Leafs permission being required to enter the league. It's not happening unless the Leafs get paid an amount equivalent to what it would cost to buy TML, in addition to the expansion fee. If your choice as a buyer is the 2nd team in the GTA, or TML for the same price (lower, when you consider expansion fees and arena/mods), you'd be very foolish to own the second team. You would have paid for the Lakers and received the Clippers.
Winnipeg: A newish arena, but a bit on the small side for NHL. It could work fine. But would you really leave a market of 2-3M for a market of 600k with NO surrounding population? It would be risky... I believe the fans would come out, but the best case scenario for Wpg is being in the middle of arena revenues around the league. They could spend to the floor just fine, but probably could never reach the cap without incurring significant losses annually - just like some of the markets teams are looking to leave.
Kansas City: Well, if you are Atlanta, this would be a natural fit - another city that has proved in the past it doesn't care about NHL hockey. New arena, but take a look at the support their present franchises get (outside of the Chiefs, who are a law unto themselves). As with Winnipeg, KC has very little 'surrounding' population to draw from, though the city itself is obviously much larger. AEG (arena operator) isn't going to be willing to give any team the sweetheart deal it desires, either. P.A. Anschutz did not become a billionaire by giving money away... He has demonstrated amply that he can make money without a major tenant parasitizing his business.
QC scores over the others in that fans will attend en masse. QC also has significant populations within a couple of hours drive, something Wpg & KC do not. If you are the owner of a team that generates about $500k in gate revenues on average (and there are several in that general range), you can easily double your gate (and probably triple concession revenues) by moving to QC. That's + $30M in arena revenues alone, from paying customers.
The arguments about US tv and advertising are all valid. But for the owner of the failing franchise in question, moving to QC will earn them more than revenue sharing ever could.
Hamilton or Toronto would certainly be a better bet. But unless the league is prepared to go to war with it's richest franchise, there is no path to get there at a price that makes sense.
Andrew:
No-one seems to be interested in that question, unfortunately. I've asked several media types to raise it in discussions with Katz' people. So far as I know, no-one has.
$450M? Why? The Consol energy centre is generally accepted to be an example of staggering overkill. It cost $320M. The Prudential Centre did cost $375m, as I recall, but that included an awful lot in addition to "arena".
Since 1999, 11 arenas have been built for NHL tenants. Four of them have been in the $130-180M range - including Glendale's arena. Three have cost $320M or more, including the multiuse Staples Centre in LA, and the Pens & Devils new playpens - both heavily publicly funded.
The most interesting thing? Three of the leagues 5 most profitable teams play in privately funded arenas (all built since 1995). Even the mighty Leafs, the richest franchise in the game, spent just $265M on their privately funded arena. So why is it that the minimum anyone can consider now is a $450M boondoggle?
Posted by John Bladen on February 12, 2011 02:48 PM
John:
I agree with you that how the Quebec deal turns out depends on what the lease ultimately looks like, and that the city might have better leverage than places like Kansas City. But having leverage and using it are two different things, especially when you know the team owners and the NHL are not going to want to set a precedent of actually sharing revenue with their host city. Remember, Washington was far and away the best baseball market for the Expos, and MLB still got away with demanding a sweetheart lease.
Plus, at $400-450m, it's going to be almost impossible for any team to provide enough rent payments to make this profitable for the public, even if you add in concerts and the like. Great market or no, there's only so many hockey tickets you can sell in a season.
This is why I maintain that building on spec is a horrible idea. Promise to build a $400m arena if you can get a team to commit to a reasonable lease, fine. But build an arena and then hope that somebody's going to come along and pay for it? That's a recipe for disaster.
Posted by Neil deMause on February 12, 2011 04:19 PM
Fair enough, Neil.
I think my comments may be a bit out of context. I would never say I think QC is a fantastic hockey market. It's not going to generate Montreal, Toronto or NYR like revenues, but it could be significantly better than some present ones.
As for the $400M... I agree completely. They could build a perfectly serviceable NHL arena for $250M tops.
If memory serves, that's about what the AEG building in KC cost. I wouldn't consider that one a great financial success, but it seems to be a money maker for AEG sans primary tenant - though perhaps not for the city that paid for it.
Posted by John Bladen on February 13, 2011 06:10 PM