Flames owner walks away from $300m arena subsidy over $10m in cost overruns

access_time personNeil deMause

So yeah, if you weren’t up and checking Twitter last night, Calgary Mayor Jyoti Gondek took to the tweets to announce that the Calgary Flames arena deal had gone and imploded over a matter of $9.7 million in cost overruns:

To briefly recap: The original plan, approved back in 2019 by then-mayor Naheed Nenshi, had the city providing roughly $213 million toward a $550 million arena for Flames owner and billionaire oilman N. Murray Edwards. That rose to $250 million the following year, and to around $300 million this summer, with the city and the team splitting the first $25 million evenly, with taxpayers covering transportation cost overruns and Edwards covering construction cost overruns after that. When an additional $16.1 million in added costs for roads, sidewalks, and solar panels popped up — some of it in a grey area between construction and transportation, since it included sidewalks adjacent to the arena — Gondek proposed splitting them 40/60. At which point the Flames owners said “too rich for our blood” and scuttled the whole thing.

Even if you consider the entire $16.1 million as the city’s responsibility under the original deal, that’s only $9.6 million extra that Gondek asked the team to kick in, so it’s kind of nuts that Edwards and his fellow owners picked this as a hill to die on. The Calgary Sports & Entertainment Corporation, the Flames’ ownership group, later put out a statement pretty much confirming Gondek’s version of events:

It is clear that the City and CSEC have been unable to resolve a number of issues relating to the escalating costs of the Project.

Accordingly, as the City and CSEC have been unable to resolve these issues, CSEC has determined that there is no viable path to complete the Event Centre Project…

The failure of the City and CSEC to find a viable path forward was not based upon simply the “the last dollar” on the table; but rather was based upon the accumulated increase in CSEC’s share of the costs, including the infrastructure and climate costs, the overall risk factors related to the Project and the inability of CSEC and the City to find a path forward that would work for both parties.

That last bit implies that CSEC is really walking away less because of a dispute over $9.6 million than because it budgeted $275 million originally (plus some money in ticket tax surcharges) for its share of the arena, and now that it turns out its price tag would actually be closer to $350 million, it’s not worth it anymore. Which is possible — remember that it’s really hard for arenas to bring in enough new revenue to pay their own construction costs, or even a large chunk of them, plus there’s no telling whether there could be more cost overruns in store thanks in part to the price of pretty much everything going up right now — or it could be that Edwards is just throwing a hissy fit because hell if he’s gonna be the one to pay for his arena costing more than he projected it to be.

As for what happens next, the CSEC statement says the team’s “intentions are to remain in the Scotiabank Saddledome,” which would be great news for those who thought that maybe building a $600 million arena for a wildly profitable NHL team owned by a billionaire wasn’t the most pressing use of tax dollars. On the other hand, if this really is just a squabble over a few million dollars, it’s easy to see both sides coming back to the table and hashing out a new deal, or maybe deciding Flames fans don’t need quite such lavish sidewalks to lounge around on before games.

Finally, since I’m going through old Flames posts, I can’t fail to note this one from a little under two years ago:

Calgary Mayor Naheed Nenshi says he’s not concerned about cost overruns because the Calgary Municipal Land Corp. “is the project manager on that project, they know how to build stuff on budget and on time”; all those who are reassured by this, please raise your hands.

Say it with me now: The only reliable estimate of sports stadium and arena costs is “more.”

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27 comments on “Flames owner walks away from $300m arena subsidy over $10m in cost overruns”

  2. How long before the city folds and says “we’ll pick up the difference?” A month or two, maybe less.

    1. Probably never. Nenshi Is no longer mayor. Gondek was opposed to the arena and some of this came about because her administration is being way more proactive about controlling costs and making sure the Flames pay their share.

  3. This should be a wake-up call to the City of Tempe.

    Do not trust the NHL or any NHL owner.

    1. Indeed. Former Globe hockey beat writer Dave Shoalts on the same subject…

      https://www.nytimes.com/2021/12/17/sports/hockey/arizona-coyotes-glendale-nhl.html

  4. Our beloved [____insert franchise name here_____] will move to (checks notes) . . . uhh . . Saskatoon or Grand Prairie or something, if we don’t give them [______in$ert dollar amount here in the hundred$ of million$*______].

    * Last blank to be filled out ONLY by team executives.

  5. While my heart would like to congratulate Mayor Gondek on holding to the line (even if only in a very moderate sense based on the numbers above), the last shoe will not drop for quite some time yet on this boondoggle.

    Edmonton city council pulled the plug on negotiating with the Katz group part way through their arena project… only to come back to the table and end up offering the pharmaceuticals billionaire nearly $200m more than was originally proposed while allowing “his” $100m commitment to the arena to be used not for the arena but for private development within the arena district.

    I hope Mayor Gondek sticks to her guns on this one… but she still has the arena boosters (and in at least one case, former Murray Edwards employees) on council to deal with. And mayors are not monarchs… they hold just one vote on council.

    Anyone who thinks Edwards and Co will not be back for more welfare-for-billionaires has another think coming. If it wasn’t for Omicron, he’d probably already have scheduled a personal jet flight to Houston….

  6. They can walk away but they still have a contract that commits them to pay their share to complete the arena? Or perhaps when they’re in default of the contract they will be ordered by a court to pay the cost of removing the partially built arena or completing it? Otherwise, what are contracts?

  7. All they have to do is go to either Scotiabank or Rogers for an advance on the inevitable naming rights contract that either one of them is gonna sign. Bam. Problem solved.

    1. Edwards is a billionaire, so it’s not access to capital that’s the problem. It’s access to capital that he won’t have to pay back.

  8. Neil, why are you bringing up the CMLC? They were fired as project manager long ago.

    Also, let’s be honest about what’s happening: the Mayor is tossing her political wish list of “infrastructure” (the left-wing interpretation of the term) and “climate” items into the project, and demanding that the Flames owner funds it. She won’t put a cap on how much the Flames will have to pay to fund her wish list, if (when?) it grows.

    We shall see where this all leads. She probably has leverage because Edwards would almost certainly have to sell the team if the Flames were to move to Quebec City. Leaving Canada is a non-starter, at least until the Rogers TV deal expires. Maybe the Mayor will let Edwards do a deal like Seattle, with a major renovation paid for by a humongous government subsidy that, for whatever reason, the media doesn’t harp on.

    1. Nenshi said he wasn’t afraid of cost overruns because he trusted the then-project manager — I find that amusing given where things ended up, but YMMV.

    2. To be honest about what’s actually happening, ‘we’ would have to note that the cost overruns – which were to be shared only up to the capped value – have now expanded to the point where the Flames’ multibillionaire owner and non-resident for tax purposes does not want to pay them. In common language, he’s backing out of the very deal he agreed to because it has become too expensive for his taste (though not his pocketbook).

      The new mayor has been in office for about two months and has not added anything to the Flames bill. She simply wants them to live up to the agreement they signed.

      The Flames could back out of the deal (as they say they will), or they could modify their design to reduce costs and thus bring the project back into budget range – as any other owner, builder or developer would do.

      Instead they have comprehensively thrown their toys out of the pram, effectively refusing a ~ $290m subsidy offer as being “not enough”.

      The appropriate action in such circumstance is to do exactly as Gondek has done. I look forward to reading what other project/RFP will be considered for this same parcel of land now that we know the Flames would prefer to stay at the existing arena.

  9. Unless they’re into spiting themselves, the Flames have no leverage. All the good hockey cities are occupied are don’t have available arenas. If they did, the Coyotes would already be there.

    1. It is totally possible they just don’t think a new arena is worth spending $350 million on. Which, if so, fair enough, though it would drive home the fact that they didn’t really want a new arena, they just wanted the subsidies they thought they could get with one.

    2. Quebec City would like a word. Arena ready to go and everything.

      Thro the problem with Quebec City is that the arena owner, Quebecor, has made it clear they want a team where they’re majority owner and the Flames owner isn’t looking to sell.

      (Also Hamilton would be an option if Zoe deal could ever be reached with Toronto, but that’s a rights issue and not a suitability issue.)

      1. It is very unlikely that any NHL owner will trade a host city of 1.3m that is home to dozens of corporate HQ for a government town of 800k.

        Especially not when they can sabre rattle again in a year or two about the arena not being suitable, then accidentally release team exec’s calendar that shows they are flying to Houston (or Tucson… Phoenix needs a geographic rival after all…) for ‘meetings’ and…

        Well, you get the rest. Edwards is not nearly done trying to suck the lifeblood out of the Calgary taxbase. I was pleased to see his former employee councillor Davidson finish well back in the Mayor’s race, but I doubt we’ve seen the last of his candidacy either.

        1. The lost Coyotes wandering aimlessly in the Arizona desert take away the Flames bargaining position. If the Flames leave the Saddledome, the Coyotes will find it far more attractive than any of their options in Arizona.

  11. Why would I want to subsidize an arena that I won’t be allowed to enter without a Vaccine Passport!

  12. really have lost alot of respect for canada over the last few years, esp th last 20+ months. what a socialist, alt left nation you’ve become. soooo inclusive, yet medical apartheid is ok. sad state. i hope calgary has the gumption to hold firm, but doubt very much that will be the case

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