Stadiums & Arenas of Canada, Part 3

[blueandgoldguy]

The new arena will bring development to the area...hmmmmm.

Why didn't the Saddledome (in the exact same area) drawing:

- 18,500 people 45 days per year (Flames)
- 8,000 people (Hitmen) 36 days per year
- 12,000 people 9 days per year (Roughnecks)
- 5,000 - 15,000 people 50 - 60 times per year (concerts and other sports events)

draw more development to the area? There is a see of parking around the Saddledome currently. All the new arena will do is draw a few more dozen concerts. All the other events (Flames, Hitmen and Roughnecks) will draw the same number of people.

It's interesting...if you look at satellite images of this particular area of Calgary prior to the construction of the Saddledome, there was actually less parking lots than after it was completed.

[Corndogger]

Originally Posted by blueandgoldguy

The new arena will bring development to the area...hmmmmm.

Why didn't the Saddledome (in the exact same area) drawing:

- 18,500 people 45 days per year (Flames)
- 8,000 people (Hitmen) 36 days per year
- 12,000 people 9 days per year (Roughnecks)
- 5,000 - 15,000 people 50 - 60 times per year (concerts and other sports events)

draw more development to the area? There is a see of parking around the Saddledome currently. All the new arena will do is draw a few more dozen concerts. All the other events (Flames, Hitmen and Roughnecks) will draw the same number of people.

It's interesting...if you look at satellite images of this particular area of Calgary prior to the construction of the Saddledome, there was actually less parking lots than after it was completed.

Here's a real simple answer for you. The Saddledome wasn't built to attract development to the area. Totally different mindset back then.

[Chadillaccc]

That was also back in the days of rampant crony capitalism wherein the Stampede Board basically ruled the city government, allowing for the entire neighbourhood of Victoria Park to be razed to facilitate the expansion of Stampede Park. This has only began to be reversed over the past ten years as high density skyscrapers have begun to be constructed throughout the area.

Comparing those days, and the economic model of the Saddledome, to today and the model being used for this development is like comparing apples to.... I dunno... bricks? Completely useless comparison, regardless.

[Djeffery]

Surprised this hasn't been posted already. Calgary council today approved the arena deal 11-4.

https://www.sportsnet.ca/hockey/nhl/...l-nhls-flames/

[milomilo]

Originally Posted by Corndogger

The City already has the money to pay for their share. There's not going to be any additional taxation to pay for the arena.

I specifically replied to you last night that I do not believe the City knows how to stimulate the economy better than the private sector so why are you repeating the point? The arena is also a lot more than just a sports facility. If that's all it was there would be a lot less support for it. There would also be the push by others to build a facility to host concerts. One way or another the City would be contributing a nice chunk of change to an entertainment type project.

If you think this is a bad deal give them your two cents and see if something changes. It's definitely not the best deal for the City but now that they've made it clear that they need CSEC more than CSEC needs them they'll never get the "best" deal. They could do better on the ticket tax. If 2% is supposed to bring in $150 million then the push by one of the councilors to up it to 5% would solve the City's financial concerns if the other numbers are correct.

The fact the funds have been allocated is irrelevant. If the city does not spend money on the arena, then they would not have to increase taxes as much in the future, or they could put that money in an investment portfolio and earn growth that way.

By using the argument that the city will gain more in tax revenue through this $290M cost, you are, in fact, saying that the city will be better at stimulating the economy with this arena than the private sector would have been had that money been spread among them. It's possible, but I don't buy it, and all the research shows this to be a false assumption.

So we can toss that argument out. The city will get some money back from the ticket tax plus some other minor benefits, but not enough to cover the subsidy. And they have no property tax from the Flames. We are spending money because we want a thing, which is OK, it just isn't an investment. It's like me buying a TV.

[Hackslack]

https://research.stlouisfed.org/publ...orts-stadiums/

A good read that supports the argument that subsidizing stadiums is not in the general public interest, with respect to the economics, pretty well reinforcing milomilo.

I’m not sure who owns the stadiums referenced in the write up, but as the city will outright own the new arena, they are getting a $600 million build for half the cost. That should be a factor when considering this spending.

Me personally, I am neither in favour or opposed. A reason I am in favour is this is something the city is spending money on that I will likely attend every now and then. The city has wasted 10’s of millions of dollars on things that I, and most I think, would consider a complete waist of taxpayer dollars, such as the blue ring, the rock art display on 16th ave, all the unused bike lanes, peace bridge, to name a few. I know those specifics one obviously don’t equal to the $275M they will spend on building the arena.

A reason I am opposed is the obvious that public funds shouldn’t be used to finance private ventures.

[Calgarian]

The terms of the deal aren't great, but they are far better than the previous deal that saw the Flames pay no money after their initial investment, and they got to keep all revenue as well. I don't like public money going to this, but Edmonton was weak and caved to Katz tactics, so there was no way CSEC was doing it all on their own.

[JHikka]

Originally Posted by Hackslack

https://research.stlouisfed.org/publ...orts-stadiums/

A good read that supports the argument that subsidizing stadiums is not in the general public interest, with respect to the economics, pretty well reinforcing milomilo.

I’m not sure who owns the stadiums referenced in the write up, but as the city will outright own the new arena, they are getting a $600 million build for half the cost. That should be a factor when considering this spending.

US Bank Stadium in Minneapolis is owned by the State of Minnesota. AT&T Stadium is owned by the City of Arlington. Lucas Oil Stadium in Indianapolis is owned by the State of Indiana.

[Hackslack]

Originally Posted by milomilo

The fact the funds have been allocated is irrelevant. If the city does not spend money on the arena, then they would not have to increase taxes as much in the future, or they could put that money in an investment portfolio and earn growth that way.

By using the argument that the city will gain more in tax revenue through this $290M cost, you are, in fact, saying that the city will be better at stimulating the economy with this arena than the private sector would have been had that money been spread among them. It's possible, but I don't buy it, and all the research shows this to be a false assumption.

So we can toss that argument out. The city will get some money back from the ticket tax plus some other minor benefits, but not enough to cover the subsidy. And they have no property tax from the Flames. We are spending money because we want a thing, which is OK, it just isn't an investment. It's like me buying a TV.

The return on investment to the city with this deal is 100%, right off the bat, as the city owns the arena while only having to pay half the cost. What portfolio investment would provide that sort of return?

[wave46]

Originally Posted by Hackslack

The return on investment to the city with this deal is 100%, right off the bat, as the city owns the arena while only having to pay half the cost. What portfolio investment would provide that sort of return?

Generally, sports facilities are worth less than their construction cost.

So, if you spend $275 million for a building that might be worth $100 million (guessing here) on an open market, your investment is a bad one.

Now if one considers the utility value of such a thing, you can make an argument for it being a good investment.

For instance: A car is generally a bad value for an investment point-of-view (a car generally depreciates in value), but a good one from a utility point-of-view (it gets me to work and back).

[Hackslack]

Originally Posted by wave46

Generally, sports facilities are worth less than their construction cost.

So, if you spend $275 million for a building that might be worth $100 million (guessing here) on an open market, your investment is a bad one.

Now if one considers the utility value of such a thing, you can make an argument for it being a good investment.

For instance: A car is generally a bad value for an investment point-of-view (a car generally depreciates in value), but a good one from a utility point-of-view (it gets me to work and back).

I agree with you, but if the construction cost is $600 million, the true value of the building is $400 million, the city would still have made a return of close to 50%.

Sorry I’m not trying to defend one way or the other, but when one considers investing that $275M into a separate portfolio to earn a return, it would be tough to meet even the 50%... it’s easy to say the government is giving $275M to the Flames to build the arena, but one can consider the opposite, the flames are funding $275M for the city of Calgary’s arena, the Flames in return get to operate, maintain, receive revenue from it, all the while paying the city back through ticket taxes.

[milomilo]

Originally Posted by Hackslack

The return on investment to the city with this deal is 100%, right off the bat, as the city owns the arena while only having to pay half the cost. What portfolio investment would provide that sort of return?

They don't actually get much financial return from the paper value of the arena though, because the Flames live in it for 35 years. By the time 35 years is up, it probably won't be close to the value that could have been made spending the investment some other way. Look at the saddledome once this new arena gets built... it's less than worthless, we have to spend $15m demolishing it.

[MonctonRad]

Originally Posted by wave46

For instance: A car is generally a bad value for an investment point-of-view (a car generally depreciates in value), but a good one from a utility point-of-view (it gets me to work and back).

An excellent point. An arena isn't necessarily a good investment for the taxpayer, however a well placed arena in the downtown core will add significantly to the vibrancy of a city, give people more entertainment options and will make people feel better about themselves.

A car is a bad investment too. You would be better off taking public transit and banking your money instead but a car gives you a heightened sense of self worth, gives you more personal freedom, and makes you feels better about yourself, especially if you get a new car with all the bells and whistles.

An arena, like a car, is a luxury but an expenditure like this can make a huge difference in your sense of well being and self worth........

[Hackslack]

Originally Posted by milomilo

They don't actually get much financial return from the paper value of the arena though, because the Flames live in it for 35 years. By the time 35 years is up, it probably won't be close to the value that could have been made spending the investment some other way. Look at the saddledome once this new arena gets built... it's less than worthless, we have to spend $15m demolishing it.

True enough. But because the Flames are tenants of the building for 35 year though does that mean the city is required to own it for 35 years, or could there be an option for, say, Brookfield Assets to purchase it from the city, while still committed to the Flames as the tenant for the balance of the lease... these are likely terms of the deal I am certainly it privy to.

[wave46]

Originally Posted by Hackslack

I agree with you, but if the construction cost is $600 million, the true value of the building is $400 million, the city would still have made a return of close to 50%.

Sorry I’m not trying to defend one way or the other, but when one considers investing that $275M into a separate portfolio to earn a return, it would be tough to meet even the 50%... it’s easy to say the government is giving $275M to the Flames to build the arena, but one can consider the opposite, the flames are funding $275M for the city of Calgary’s arena, the Flames in return get to operate, maintain, receive revenue from it, all the while paying the city back through ticket taxes.

I'm curious how the 'true value' is being calculated though.

The land has some value, yes.

The building has some value, but I don't see $400 million of value there as it is a very single-purpose thing. Given that not many private businesses have invested in arenas/sports facilities outside of the largest cities in the world, my hunch is that unless you have a monopoly on being the premier venue in a large city (see: Air Canada Centre/Madison Square Gardens) the actual value of most arenas is much lower than the quoted figure.

At the end of its lifespan, will it really be worth much? Northlands Coliseum in Edmonton isn't worth much - it's basically bulldozer bait now.

Will the city have a return on investment >$275 million it spent on it? That's something we'll only know at the end of that timespan and based on what assumptions are made. (Do you include development around it? Would that development happened without the arena?)

[Hackslack]

Ya I’m not sure... I agree that by 35 years from now it wouldn’t be worth much. Examples like the Saddledom, Northlands, even the Skydome that Rogers purchased are proof that the building isn’t worth much at the end of its life. But in 10 years though? Perhaps it is an asset the city could liquidate for a few hundred million.

[Hackslack]

^^ to counter my own point though is that regardless who the owner is, the Flames are tenants and receive all revenue for the life of the deal. So unless the asset appreciates from the time of purchase, it will likely be worth less at the end of the lease term than the time of purchase..

[Djeffery]

Originally Posted by Hackslack

Ya I’m not sure... I agree that by 35 years from now it wouldn’t be worth much. Examples like the Saddledom, Northlands, even the Skydome that Rogers purchased are proof that the building isn’t worth much at the end of its life. But in 10 years though? Perhaps it is an asset the city could liquidate for a few hundred million.

They only have value when they have tenants. Northlands would be worth money if the Oilers still played there. They aren't like a vacant Target or Sears store in a mall where the mall can renovate it into another store. Maple Leaf Gardens and the Memphis Pyramid are rare examples of a sports venue finding life after their prime tenants have moved.

[wave46]

Originally Posted by MonctonRad

An excellent point. An arena isn't necessarily a good investment for the taxpayer, however a well placed arena in the downtown core will add significantly to the vibrancy of a city, give people more entertainment options and will make people feel better about themselves.

A car is a bad investment too. You would be better off taking public transit and banking your money instead but a car gives you a heightened sense of self worth, gives you more personal freedom, and makes you feels better about yourself, especially if you get a new car with all the bells and whistles.

An arena, like a car, is a luxury but an expenditure like this can make a huge difference in your sense of well being and self worth........

There's the intangible argument, definitely.

Nobody complains about public parks or junior sports facilities being a poor return on investment, but they're amenities that is very much appreciated by the locals.

That being said, hundreds of millions of dollars is not an insignificant sum of money, so I think there should be some debate around it, as opposed to a backroom deal that's rushed through.

I can't exactly wander down to the car dealership and buy myself a new Audi without at least discussing it with my wife, no matter how nice it is.

[DizzyEdge]

Will the city own the event center and the land under it, or just the building?
Does owning the building make any difference other than making whoever owns it on the hook for its demolition cost in 35 years?