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No Surrender in the War for a New Arena in Calgary

Pascal Visentin (2L)

The Calgary Sports and Entertainment Corporation (CSEC, which owns the Calgary Flames), recently released details of their funding proposal for a new arena. The City of Calgary had previously released their own proposal on the heels of Ken King (President of CSEC) making a surprise announcement that CSEC was no longer seeking an arena deal with the City. In near synchronicity with the kick-off of Calgary Mayor Naheed Nenshi’s re-election campaign, King publicly alleged that talks with the City had come to a standstill. Of course, the timing of King’s announcement is far from coincidental. But, this begs the question: what was unreasonable about the City’s proposal?

Nenshi called King’s bluff and – flanked by a few city councillors – revealed the details of the City’s proposal. In brief, the direct project costs would be in the realm of $555 million. The City offered to contribute one-third ($185 million) of the direct costs through a $130 million contribution, a $30 million land grant, and by paying the $25 million cost of demolishing the old Saddledome. Another third of the direct project costs would be paid for by a user fee and CSEC would bear the final third (again, $185 million). It should be noted that the City’s proposal does not account for the indirect costs associated with an arena (e.g. utilities, transit, policing, etc.) which the City will inevitably bear.

So this was what King called the “unfair” proposal. CSEC gets 100% ownership and all revenues from an asset while only paying a third of the price. On their official website, the Flames argued that the City’s proposal does not account for their true funding contribution. You see, if they own the arena, they’ll have to pay property taxes. Oh, the humanity!

Instead, CSEC proposed that the City contribute $225 million through a community revitalization levy and they would pay $275 million upfront as prepayment of 35 years worth of rent. The City would then retain 100% ownership of the arena. There are a few peculiarities about the CSEC proposal. For example, they seem intent on ensuring that the City contributes a greater share of the construction costs and are even willing to cede ownership of the arena to make this happen. What does this say about the arena’s value as an asset? Additionally, they justify costs imposed on the City by touting numerous economic spin-offs from arena projects which have been repeatedly disproven empirically. In short, arenas do not provide much of a boost to consumer spending due largely to the inflexible budgets of many households. Instead, arenas create a substitution effect where, for instance, a dollar spent on a beer at Rogers Place is a dollar not spent at a neighbourhood sports bar. It’s not exactly zero-sum, but it’s pretty close.

However, of all the oddities in the CSEC proposal, the back-of-a-napkin accounting and accompanying rhetoric is most telling. For instance, the Flames count the ticket surcharge as part of their contribution to the project, even though they would have no basis upon which to collect a surcharge without a new arena and, therefore, are not really giving up any revenue. Additionally, they insist that property taxes form part of their contribution to the project, while conveniently ignoring the infrastructure costs the City would continuously bear because of the arena.

King’s overall strategy is unclear as he has been adamant about not moving the team to another city. Perhaps this is a last-ditch effort to give a boost to political candidates who are keener on corporate welfare than the current cohort in Calgary. Regardless, it appears to me that we are witnessing the growing frustration of an organization which wants to reap the benefits of being in a community without sharing the costs.