Arena Financing / Economics

Discussion in 'Fugu's Business of Hockey Forum' started by LeftCoast, Mar 16, 2011.

  1. LeftCoast

    LeftCoast Registered User

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    The NHL has quite a mix of private, public and private/public funded arenas. I'm of the opinion, that most professional sports venues should be privately funded and owned. I'll probably give a pass to football stadiums because the cost of 60,000 - 100,000 seat facilities - particularly covered stadiums is now in the $500M to $1B range. But IMO hockey, basketball and even baseball arenas/stadiums should be privately funded.

    We have seen the trend over and over where a city/county/province fronts anywhere from $100M to $1B or more of taxpayer dollars to build a "state of the art" facility for a professional sports team. The bonds that pay for the facility are amortized over 30 years and the facility is expected to have a useful life of 30 - 50 years. 15 years later, the team is back pressuring the city/county/state/province to fund improvements that generally total almost as much as the original construction costs or the team will move.

    Currently, 4 of the 6 Canadian teams have privately owned arenas.

    Rogers (formerly GM) Place was built by Frank Griffiths, but he was forced to sell it (along with his interest in the Canucks) to Craig McCaw at a loss. Cost was $160M in 1996.

    Air Canada Centre (ACC) in Toronto was privately financed and owned by MLSE after acquiring the unfinished arena and the Raptors. Cost was $265M in 1999.

    Scotia Bank Centre (Ottawa) was privately funded, but financing issues caused the bankruptcy of the initial owner and sale of the team and arena to Eugene Melnyk. Cost as $170M in 1996.

    Bell Centre (formerly Molson Centre) was privately funded. Cost was $270M in 1996.

    The Saddle Dome in Calgary and Rexall Place in Edmonton are publicly owned. Darryl Katz is seeking public funding for a new arena.

    In the US, Madison Square Gardens (Ranger), Wells Fargo Center (Flyers), TD Gardens (Bruins), St. Pete Times Forum (Lightning), The United Center (Hawks), the Staples Center (Kings), Pepsi Center (Avalanche) - and maybe a few others are privately owned/funded. I think the American Airlines Center in Dallas was partially public. The rest of the US teams have publicly funded/owned arenas. I'm not sure if the new arena that Mike Ilitch is looking to secure for the Red Wings would be privately or publicly funded. Charles Wang is seeking to privately fund at least the arena portion of his moribund Lighthouse Project.

    As far as potential NHL cities go, the MTS Center in Winnipeg is privately owned, Quebec City is looking to build a private/public facility, the Rose Garden in Portland is privately owned and Seattle just lost an NBA franchise because the city/county refused to build them an new arena. Copps Colosseum in Hamilton is publicly owned.


    One observation is that there seems to be a fairly good correlation between financially stable franchises and team ownership of the arena.
     
  2. TCNorthstars

    TCNorthstars Registered User

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    I wouldn't even give a pass for football stadiums.
     
  3. danishh

    danishh Registered User

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    i'm of the belief that:
    - arenas should be privately funded
    - cities should provide all the infrastructure
    - cities should have long-term tax deals that make owning the arena more palatable for the private builders.
    - depending on the situation, cities can provide land if it makes sense in their overall growth plans.


    i think ottawa was done almost perfectly, if not for the fact that the Ontario government forced the sens to pay $25M for the interchange off the highway. That infrastructure is the government's burden, and they will receive benefits from that over time through growth in the area.
     
  4. LeftCoast

    LeftCoast Registered User

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    I am willing to concede that there are some cases where public funding or ownership is warranted. In Canada, the CFL is treated as a cultural icon and the game simply doesn't generate enough revenues to pay for stadiums that cost almost as much as their NFL counterparts. In other cases, where teams like Green Bay are basically community owned, public funding is essential.

    However I lived for 12 years in San Francisco and watched the City build the Giants a new home, and then taxpayers balked at the terms the 49ers wanted for a new stadium. Now it looks like the 9ers will be in San Jose (and will likely end up sharing a facility with the Raiders). I also watched the city of Seattle spend over $1B on Quest Field and Safeco Park and then lose the Sonics because they didn't also build them a new arena.

    While SBC Park in SF and Quest Field and Saftco Park in Seattle are beautiful facilities, the blackmail / ultimatums coming from team owners has reached epic proportions (the Sonics move was botched by everyone involved).


    I can understand the argument that sports are every bit as cultural as the arts and that citys own other cultural venues (libraries, galleries, concert/opera halls, museums, etc.). But for the most part, libraries, museums etc. are non-profit. It could also be argued that these lasting edifices are a part of the city's architectural and cultural heritage on their own. So if the community wants to own the team and operate it on a non-profit basis (which none of the professional leagues support going forward) by all means, build a stadium, but if a wealthy owner wants a to own and run a pro-sports team (at a profit or loss) he can build his own cultural edifice.
     
  5. kdb209

    kdb209 Registered User

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    Minor nit - the 49ers new stadium will be in Santa Clara, not San Jose.

    If you're familiar with the South Bay - it's located next to Great America (and consumes one of their overflow parking lots), across the street from the Santa Clara Convention Center, and adjacent to the 49ers existing team offices and training/practice facility.

    [​IMG]

    [​IMG]

    [​IMG]

    Santa Clara voters approved $114M in public money in a June 2010 election - which passed with 58% of the vote.

    The total project costs are ~$937M - $900M for the stadium and $17M for a parking garage (to replace the lost Great America parking) and $20M to relocate a city owned electrical substation.

    Funding sources:

    $493M - from the 49ers and NFL
    $330M - from a new Stadium Authority, raised from naming rights and PSLs
    $35M - from a CFD consisting of 8 nearby hotels, funded by a 2% increase in the hotel tax
    $42M - from the Santa Clara Redevelopment Agency

    $17M (to construct a new parking garage) - from the Santa Clara Redevelopment Agency
    $20M (to relocate an electrical substation) - from SVP, the city owned/operated electrical utility.

    The 49ers are on the hook for any cost overruns.

    The $42M + $17M from the Santa Clara Redevelopment Agency is currently threatened by Gov Brown's plans to abolish Redevelopment Agencies statewide (and redirect the local tax dollars from the RDAs to the cities/counties). The city of Santa Clara is currently scrambling to transfer redevelopment funds to the City before the RDAs are terminated.

    I don't see the Raiders moving to Santa Clara - at least not until Al dies. I just can't see him coming hat in hand to play second fiddle to Jed York.
     
    Last edited: Mar 16, 2011
  6. Metzen

    Metzen Registered User

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    Team ownership of the arena's drove 50% of your private examples into insolvency and they were forced to sell them. Lucky the teams weren't relocated ;) Not sure your correlation works out with that.

    I don't care whether a arena is public or private funded as long as a business plan makes sense to recoup the costs without driving towards insolvency. If the public funds it, then a ticket surcharge/parking surcharge/arena rent charge or some other tax on the venues that go on at the facility would be fine if it covers the cost of the structure. If the owner funds it, then he can do whatever he wants to recoup costs (obviously).

    Edmonton and Calgary I would argue, are good examples of publicly funded buildings doing well. Rexall was built for $17M back in '74 (~$73M in 2011) and it has recouped that cost over and above what it cost to build it since then. I assume the same for Calgary but I am not sure.
     
  7. Roughneck

    Roughneck Registered User

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    I wouldn't give a pass to football stadiums. You can justify an arena being a catalyst for foot traffic and development because they can be used a hundred nights a year or more. Even in warm climates how many non-game days are the things really used?

    In Canada's case I'm dead-set against federal money being used for arenas and strongly opposed to provincial and municipal funds being used. It depends on the situation (and most importantly how much money is being used) but I'd much rather see them invest $100M+ into community rinks than a single 19,000 seater for an NHL team if they're dead set on building an arena.

    To take Calgary as an example the Saddledome was part of an Olympic bid and considering what the Olympics did for the city, as well as what they continue to do for sport in Calgary and Canada the costs were completely justified and have more than paid off. But you can't justify the city footing the bill for a new arena for the Flames now, even if you were talking about the same cost. While the Saddledome is on the Stampede grounds and the CS gets the parking revenue it isn't vital to the success of the Stampede or is it all that important for business on 17th or Stephen Ave. The development in Victoria Park isn't there because nobody lives around there, and nobody lives around there because there's no business development. While the Saddledome and a new arena do provide lots of traffic (at least 41 for the Flames, at least 35 for the Hitmen, concerts etc.) its not enough to sustain any sort of nightlife. Nobody's going out on weekdays and restaurants aren't going to bank on hockey fan business when there would be better locations to be had for similar cost.

    I'm rambling a lot about a fairly specific area without actually getting to any sort of point, but I feel that local governments should indeed help in the building of arenas but more when it comes to tax relief or land deals and the like rather than direct investment. It keeps the risk to the taxpayer low while still providing benefit if things work out. If you're looking for revitalization and it doesn't work out, the city is just out losing some money on a land sale or some property tax or whatever for an area that wasn't doing well anyway. You invest $X on a project and it doesn't work out and not only are the taxpayers losing directly out of pocket but you still lose out on the lost potential of the revitalization like the previous example...if you understand what I'm saying.
    And I don't mean to pile onto the situation any more but if you look at Glendale with Jobing and Westgate and then look at Winnipeg with the MTS Centre and the entertainment district that has grown around it you have far more than just two cities who want the same hockey team, you have two polar examples of the outcomes varying amounts of government intervention can have on dealing with pro sports and arenas developing areas. (EDIT: If I could have picked a different example off hand I would have, but given the goings on it seemed rather appropriate).


    So in short, not all situations are alike, avoid public $ whenever possible but the government shouldn't make things more difficult and can indeed find a way to contribute that is beneficial to all involved.
     
  8. Confucius

    Confucius Registered User

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    The days of privately owned arenas are over. If a city offers an arena to a team, I kinda think the team owner would rather move than build his own. For example, Bettman didn't tell Katz he needs to build a new arena. He told the city of Edmonton they need a new arena. I'm sure if push comes to shove, Bettman will allow Katz to move his team to any city that has a suitable arena to offer. Too bad but that's the way this arena thing has evolved and there's no turning back.
     
  9. Seanconn*

    Seanconn* Guest

    I seriously just don't understand why some people in Calgary or the Flames organization want to replace Saddledome.

    It's modern enough. It looks awesome, and is just an all around very nice arena that seats close to 20,000 people. just seems completely useless to spend 200 million + on a brand new arena, when Saddledome is one of the nicest arenas in all of Canada still.
     
  10. seanlinden

    seanlinden Registered User

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    There definitely is correlation, but that doesn't neccessarily mean that it's causation. If anything, its more of the fact that the financially stable franchises aren't in a bargaining position to get a publically funded arena -- whereas rinks for teams that aren't so financially stable require public funding in order to get built.

    We've gotta rememeber, arenas get public funding because without public funding, the team and arena would not exist. In Toronto for example, Maple Leaf Gardens was falling apart and Skydome was a horrific venue for basketball. There was enough money in the arena operation itself to get private financing. Did the city benefit from the construction of the new rink? Absolutely, the key was that they weren't required in order to get it done.

    On the flip side, you take a look at Quebec City -- that arena just isn't going to happen without public funding. People love to throw their ill-informed opinions out how "arenas should only be privately funded" or the other way around, but then aren't prepared to accept the fact that public funding will often be the difference between getting the team / arena and jobs associated with it, or not.

    There is no simple answer to whether or not arenas should be publically funded, it's really just a matter of how much. The fact is -- they should be funded to the extent of the benefits the project brings to the city. In many cases, public funding is something that governments have to offer in order to be competitive.
     
  11. Roughneck

    Roughneck Registered User

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    I know it seems ridiculous that an arena that will be just over 30 years old by the time the lease is up in 2015 is "too old" but it missed out on the 'next-gen' arenas that can make more money. While the number of seats is nice for the common man in a city with the second-largest corporate base in Canada is has less corporate boxes than every arena in Canada but Rexall which limits the earning power. From a strict business perspective it would definitely be worth it to replace. The Flames would probably be #3 in revenue for the Canadian teams if they could better tap into the money in the city, an ability the 'Dome limits.
     
  12. Ernie

    Ernie Registered User

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    And how do you quantify those benefits?

    Not saying they don't exist. For example, Vancouver businesses definitely benefit from having 20K people downtown 40-50 times per season for every Canucks game, plus other events at the stadium throughout the year. In a city that only has about 30% of the metropolitan population, they're pulling significant cash from outside areas.
     
  13. Metzen

    Metzen Registered User

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    The Saddledome is very important to businesses in the surrounding area (17th Ave especially).

    During the lockout 17th ave businesses were losing $5K-$7K/week. I know that's more towards the NHL not playing -at all-, but if the Saddledome were located elsewhere it would impact 17th ave pretty significantly as well. Once the ~20K of people leave the Saddledome after the game, a portion of them go to 17th ave to continue socializing/partying. I assume you've been to a pub during a game and then experienced the influx of people after the game? I think it's a pretty good sized impact should those people take their business elsewhere if the Saddledome was somewhere else.

    http://slam.canoe.ca/Slam/Hockey/NHL/2004/11/03/699044.html
     
  14. Major4Boarding

    Major4Boarding 1944 - 2018

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    Respectful correction, LC. The St Pete Times Forum is owned by Hillsborough County, but the management/operations are done by TBS&E (Tampa Bay Sports and Entertainment) LLC which is controlled by Mr. Vinik.
     
  15. Roughneck

    Roughneck Registered User

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    The example used is a pub that certainly wouldn't depend on Saddledome traffic but did depend on people coming into watch hockey which is why it would be affected by the lockout. The bars on 17th (Uptown 17th that is, Bottom's Up is indeed on 17th Ave but not the trendy/"Red Mile" part) that are successful are busy all the time and you'd probably have a tough time getting into them on a Saturday night if you left from the game.

    I wouldn't say that the Flames traffic have no effect on those areas, but they're certainly not dependent on that traffic for their survival.
     
  16. Metzen

    Metzen Registered User

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    I didn't mean to imply that a stadium at a different place would impact whether the area can survive or not.

    But I would purpose without that additional traffic that section of the city would not be as successful. Thus implying that the location is important for the surrounding businesses.
     
  17. LeftCoast

    LeftCoast Registered User

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    Thanks - I guess that's what you get for relying on Wikipedia. Wiki says it's owned by the Tampa Bay Lightning.
     
  18. LeftCoast

    LeftCoast Registered User

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    On the surface it looks that way, but there are other factors.

    In the case of Frank Griffiths and GM Place, it was not building or financing the facility that forced him to sell the Canucks, Grizzlies and GM Place, it was the cost of the expansion NBA Grizzlies and the on-going losses as a result. He simply didn't have deep enough pockets to finance the Canucks (who were losing money at the time), the Grizzlies (who were losing even more money) and GM Place (which was making money).


    In the case of Scotiabank Place in Ottawa, it was similar, but became more complicated because the provincial government and the (then) City of Kanata (now a part of Ottawa) put up multiple obstacles and additional costs to the project. The original owner of the Senators, Bruce Firestone, gave up and sold to Rod Bryden. Rod Bryden managed to privately finance the arena, but 2 factors forced him to sell. 1. He was forced by the province to pay an additional $25M for a highway interchange and could only get financing from this from the federal government. 2. His primary lender for the arena development, the Ogden Group, went insolvent and called his loan. Unable to find financing, and by this time, personally in debt, he sold to Melnyk.

    So in both Vancouver and Ottawa, it was a case a local team owner with a big dream, trying to take on a project that was too big for them. In each case they sold to an owner with deeper pockets who did well.

    So the lesson I take from these examples is that it takes a billionaire not a millionaire to own a team and finance an arena.
     
  19. Kimota

    Kimota ROY DU NORD!!!

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    Habs are losing their shirts every year because they have a privately-owned building because of the taxes. That's a big reason why Grandfather Molson sold the team way back in the 90s, he said it had been the biggest mistake he had ever done. It's just not feasable for a private company to do this.
     
  20. jumptheshark

    jumptheshark Rebooting myself Sponsor

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    it is a ying-yang thing

    With Edmonton needing a new arena--The Flames group wants to be in a position that any public money that goes to the city of Edmonton, Calgary will get a buck to buck equal payment as well. It is one of the many problems Edmonton is facing.

    It is not so much calgary want to replace the saddledome--they are just lining themselves up to make sure anything Edmonton get--they get
     
  21. HabsByTheBay

    HabsByTheBay Registered User

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    If you lived in San Francisco so long you would have surely known the Giants paid for AT&T Park themselves.

    Also there is no stadium that is as completely unjustifiable in terms of using public money as a football team. At the very least a baseball or basketball/hockey facility (especially if you have both as tenants) can be used to regenerate a wider area since you'll have 15-40,000 people flowing in and out of a certain area night after night. 81+ times a year for baseball and somewhere between 45-100+ nights a year for an arena. It's not a great investment but it is an investment.

    With football you get them ten times a year. It sits basically empty the rest of the time. Only a few musical acts are capable of playing stadiums and MLS is moving towards smaller sized stadiums of their own. The entire culture of going to a football game - firing up a BBQ in a parking lot - discourages people from spending their dollars in the wider community. And they're the most expensive because they require the most land and because owners insist on hundreds of perks for rich people like club sections and boxes. It's arguably the worst scam going in American political life.
     
  22. HabsByTheBay

    HabsByTheBay Registered User

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    Well, Grandfather Molson's kids went and bought the team again, which suggests they disagreed with his business sense on that one.

    Also, two things:

    1) Nobody forced them to get rid of the Forum.

    2) They still make a ton of money. Probably more than if they played in the Forum.
     
  23. seanlinden

    seanlinden Registered User

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    Completely agree. Sure, Football stadiums may need the most financing (because they are the most expensive to build), but they provide the least value to a city and that's how governments have to make their financial allocation decisions.

    Like you said, Baseball stadiums have a guaranteed 81+ home dates. Arenas have 41+ (82+ if you can get dual anchor tenants) and their ~20,000 capacity makes them the right size for mainstream acts. They can also be used year round. Football stadiums have 9+ home dates and no other practical use.

    The interesting thing though -- it all comes down to bargaining position. An arena with 2 anchor tenants is a huge boost to a city's revenue stream, but if you've got 2 anchor tenants, the cities know you can afford to build it yourself.
     
  24. LeftCoast

    LeftCoast Registered User

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    I did live in San Francisco at the time, I recall there being a ballot issue but it was just to approve the project and zoning (I wasn't able to vote on the ballot as I wasn't a US citizen at the time). I think the city did kick in some $15M in Tax Increment Financing (basically future tax revenues based on redevelopment of China Basin and Mission Bay) and built the Muni Station, light rail extension and Embarcadero promenade improvements around the park.

    But you're right, PacBell/SBC/AT&T park is probably a better example of what can go right, rather than public largess.


    Jacobs / Progressive Field in Cleveland is another good example of a joint public/private funded park that became the cornerstone for urban redevelopment. I'm not sure how much private money went into the adjacent Quicken Loans Arena - but the public portion of the Gateway Development was funded by taxes on liquor and cigarettes. Gund (Quicken) kicked in $15M for naming rights. 52% of the funding for Jacobs Field came from Richard Jacobs.

    Downtown Cleveland was desperately in need of redevelopment (I worked for Ernst & Young at the time and must have been in Cleveland a dozen times in the 1990's), so, I suppose as an instrument of redevelopment public money is appropriate, but even in these cases, I prefer to see public/private developments rather than 100% public projects that leave the city open to blackmail in 15 or so years when the team wants fancier digs.

    Yeah - clearly Candlestick didn't do much for Hunter's Point. That place was scary. I recall going to the U-Haul location to get a trailer hitch installed on my car and having to wait around for 2-3 hours in that area while they did it. My wife, our baby at the time and I took a walk up 3rd Street to try and find a restaurant and as dinner time approached were advised by a local resident that it wasn't so safe to walk in that area.

    In Seattle, Qwest Field also pretty much ends the Pioneer Square area with all the shops, bars and restaurants. After Qwest, it's just parking lots, freeways and railway tracks.
     

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