Phoenix LXXII: Send in the Clowns

[Dado]

On a napkin, without interest, the subsidy comparison is roughly QC $270MM CAD vs Glendale $590MM USD; all figures in 2013 dollars.

The total arena cost in QC is going to be around $1.2B ($500M build, 30 years @ 4% financing, 1%/year maintenance, on average, over 30 years).

That's about $40M/year benefit, over the same 30 years, to whoever is going to drop a team in there. Back out the $5M to $15M, depending, money flowing back from Quebecor, and we're left with a net benefit of approx $750M, that taxpayers will be responsible for.

And if that's how they want to spend their money, that's totally cool with me...

Look, at the end of the day, the only question that really matters is this: would Quebecor pay $170M for a team if they also had to provide their own arena? If the answer is "yes", then it's a more viable market than Phoenix, no question. But if the answer is "No", then it, too, is an non-viable market, and all we're arguing about it degrees of non-viability.

And the answer is clearly "No".

 

[MNNumbers]

I'd be interested to see Dado provide the analysis. After all, it is his claim that the subsidies are similar. I don't think we will be seeing that though, since it will only further demonstrate that his comparison is laughably inaccurate.

FYI: the team didn't pay out of pocket for the arena. Also, Glendale has refi'd their debt obligations several times so the interest costs are going to be a complex equation. On a napkin, without interest, the subsidy comparison is roughly QC $270MM CAD vs Glendale $590MM USD; all figures in 2013 dollars.




Must be a really big ballpark

CF - I am well aware that the team did not pay out of pocket for the arena. But, if we are going to call the Arena part of a subsidy, we need to assume all building costs were paid out of pocket. It doesn't matter that the city re-financed a bunch of times. The only thing that matters is the cost of the arena * the interest cost on that. That is the subsidy. How the city gets that doesn't matter. Now, if you want to argue that the team would have to finance, too, then that's a different equation. I would argue, however, that that is the team's business.

The only thing that matters here is:
How much did the arena cost? How much is that worth in today's dollars? Convert CDN to US?
And, then, in the Jamison lease, who got the naming rights? And, since we know from QCB that the city has rights to use the arena a few times a year, how much rights for use did Glendale have in the Jamison lease.
And, then, since again, QCB says Quebecor is paying all maintenance, including utilities, is that included in the Jamison lease also.
And, then, the right calculation for the rent, which is:
for QC, 4.5M Cdn (again, convert to US) NPV'd for 25 years from the team to the city
vs. Whatever NPV is for the Jamison lease, paid from the city to the team.

 

[Major4Boarding]

Sticking my neck out here but are we sure we're framing this within the true definition of subsidy?

 

[Dado]

Well, as long as we're framing it in terms of a True Scotsman, I think we're cool.

 

[MNNumbers]

Sticking my neck out here but are we sure we're framing this within the true definition of subsidy?

This is why I am insisting on using the cost to build, M4B, not the financing costs. My definition is: Money from the city that the team would have to pay otherwise.

If they build a building, the bldg is the gift, not the finance package. If the team built the building itself, it would be responsible for its own financing, either cash, or some financing itself, but that would be the teams' issue.

So, by that definition, the following things seem to be involved:
1) The arena cost. Dado seems to want to use 500M. QCB would say 400M. Please convert CDn to US. I am interested in the what the apparent 180M for the Job was, NPV'd to today. The financing doesn't matter, again, because the team would have to supply that in its own market. It would be the teams responsibility.
2) Naming rights. Jamison would have gotten them in the Glendale lease, right? QC gets them from this new bldg there.
3) Use. Quebecor is paying 4.5M CDN/yr for 25 years. NPV that to today. Glendale was paying Jamison 15M/yr for 20. NPV that, too. Of course, these 2 things go in opposite directions.
4) Maintenance. I understand Quebecor is responsible for all of that. Was Jamison going to be in Glendale?

Anything else?

 

[Dado]

This is why I am insisting on using the cost to build, M4B, not the financing costs. My definition is: Money from the city that the team would have to pay otherwise.

I could accept that definition in the case where the recipient is actually in a position to do whatever the activity is without help. But that isn't the case here - there will be no arena or team at all without taxpayers footing the bill. Therefore, in cases like this, the entire cost, including financing, must be considered as part of the subsidy.

Same applies in Glendale as well, of course.

 

[MNNumbers]

I could accept that definition in the case where the recipient is actually in a position to do whatever the activity is without help. But that isn't the case here - there will be no arena or team at all without taxpayers footing the bill. Therefore, in cases like this, the entire cost, including financing, must be considered as part of the subsidy.

Same applies in Glendale as well, of course.

I feel kind of bad to be taking over the thread here, but then the next question is:

Do you have all the information required to work through what Glendale has actually paid and is paying on their financing of the Job? And, do have access to the actual cost, including overruns? The Jobing.com site says 180M, but that is as believable as 400M in QC right now. Again, apples to apples, right?

 

[Dado]

Do you have all the information required to work through what Glendale has actually paid and is paying on their financing of the Job?

Nope. Ditto for the various relo options - it's all approximate using published numbers and vanilla assumptions. I'm comfortable with the GBS level of accuracy, so that's as far as my interest takes me.

If someone wanted to work through it all in excruciating detail, I would be happy to read, though!

I don't have the final number for Jobing (I'm sure it's available, since it was actually built) and I assumed $100M over budget for QC, which is probably optimistic, if anything.

 

[aqib]

Dado, Blizzard, CF --

Can we do this calculation please? I see on the jobing.com arena website that the arena cost $180M in 2003. Let's assume the team paid that out of pocket, ok? What number should we use for interest so we can compare it to the new QUE arena? And, how should we compare currencies? I would like to see this settled, so can we actually do this?

Thanks.

IIRC correctly Ellman constructed the arena and then Glendale bought it for $180 million. I think the actual construction cost was higher. I'm not sure though

 

[CasualFan]

Do you have all the information required to work through what Glendale has actually paid and is paying on their financing of the Job?

Nope.

So, you repeatedly post this comparison and call it approximately equal without doing any actual diligence on what you're saying?

I think your point about Quebec construction is spot on. Quebecorp is enjoying a massive benefit on arena construction. Trying to compare that to the JIG lease in Glendale after Glendale already provided the same type of massive benefit from arena construction is where your comparison falls apart completely.

But since the JIG deal also fell apart completely, this entire subject is pretty much moot.

IIRC correctly Ellman constructed the arena and then Glendale bought it for $180 million.

Glendale bonded about $182MM for construction (via MPC in separate bond series, if you want to start to go into the excruciating detail). Once you convert to today's dollars and account for CAD/USD, it's going to be proximate to the amount that Quebec is spending on construction.

 

[aqib]

Glendale bonded about $182MM for construction (via MPC in separate bond series, if you want to start to go into the excruciating detail). Once you convert to today's dollars and account for CAD/USD, it's going to be proximate to the amount that Quebec is spending on construction.

right I was just curious what the total cost was.

 

[Killion]

Sticking my neck out here but are we sure we're framing this within the true definition of subsidy?

Yes & no. The numbers already spent in Glendale, from the costs of debt financing on the $180M arena construction costs through bonding pushing the total costs included subsequent refi's north of $600M. When you then breakdown all of the rest of the goodies provided to Ellman for the rest of the Westgate development, what Glendales paid the NHL to date & was prepared to pay earlier to Hulsizer and of course more recently Jamison, the numbers are truly staggering, and well over a billion dollars all in even absent a sale as in not including a $300M+ AMC etc.

Socializing debt (arena construction costs) and the risk of pro (ongoing taxpayer funded subsidies of one kind or another) sports while privatizing profit is the name of the game as we all know. Nothing shocking, revelatory about it, north or south of the border. Just varying degree's. The Teams & leagues self regulated monopolies with pretty much carte blanch carriage to pursue their own profit driven agendas at the expense of the taxpayers & fans, best interests of the game itself. Clubs crying poverty while refusing to open their books, what they do provide customized to fit, sliced n'diced numbers worthy of Wall Streeter's in re-packaging & bundling sub-prime mortgages as AAA low risk investments. And then when it all craters as inevitably it will, back at the public trough, demanding more "or else".

Not enough that Glendale or elsewhere build these guys their own private Xanadu's, 19,000 seat ATM's then receive next to nothing for "the honour". Nope. Gotta then pay almost whatever larcenous demands a league or owner makes because by now your over a barrel & totally screwed if the team leaves, or so they'd like you to believe. So the cities cough, dig deep. Gotta pay for the Holographic Instant Replay Machine from Spielberg's Dreamworks & MIT; tasteless statutes & artwork throughout the arena promenade that looks like it was put together by the interior design & event marketing team behind Chuck E. Cheese. The platform is paid for by the taxpayer, but its brought to you buy Dollar Store, Amway, those revenues as well straight into an already multi million if not billionaire owners pockets, who in a whole lot of cases doesnt even need the frikin money...

so ya, its all subsidized M4B. One way or another, large or small. Some temporarily, others ongoing, forever.

 

[Stanley Cup]

The total arena cost in QC is going to be around $1.2B ($500M build, 30 years @ 4% financing, 1%/year maintenance, on average, over 30 years).
That's about $40M/year benefit, over the same 30 years, to whoever is going to drop a team in there. Back out the $5M to $15M, depending, money flowing back from Quebecor, and we're left with a net benefit of approx $750M, that taxpayers will be responsible for.

And if that's how they want to spend their money, that's totally cool with me...

Look, at the end of the day, the only question that really matters is this: would Quebecor pay $170M for a team if they also had to provide their own arena? If the answer is "yes", then it's a more viable market than Phoenix, no question. But if the answer is "No", then it, too, is an non-viable market, and all we're arguing about it degrees of non-viability.

And the answer is clearly "No".

-400M building, not 500M. The 400M figure includes a 80M safety belt in case of cost overruns, which should be enough.

-Only 180M out of the number will be financed as 200M comes from the provincial infrastructures budget and 20M is from the J'ai ma place program

-4% financing? Where did you get that number? Source please.

-1%/year maintenance? See above, maintenance isn't computed as a percentage but rather as a fixed cost

-30 years? Source please.

Now substract to these numbers the fact that the current Colisée costs the city roughly 900K/year for maintenance with the city getting little to no benefits out of it. Also substract the 10% revenues from every non NHL-related events plus 4$ per ticket tax from every NHL ticket sold.

Also worth mentioning that there is a decent to great marketing value in having an arena that supports a professionnal sport team in a city.

You wanna play the accountants' game, at least use the IFRS.

 

[Killion]

... the current Colisée costs the city roughly 900K/year for maintenance with the city getting little to no benefits out of it.

... so what are the plans for the Colisee once the new buildings open? I like that old place, got character, soul.

 

[Stanley Cup]

... so what are the plans for the Colisee once the new buildings open? I like that old place, got character, soul.

Initial plan was to keep it for the 2022 Olympics bid. Not sure what's happening on that front, I think the city (mayor Labeaume) would rather go for 2026. Lots of speculation, but odds are it will be demolished.

 

[RAgIn]

Did anybody else see what John Shannon had to say tonight on Sportsnet Hockeycentral? Apparently Doan's agent (Terry Bross) is working hard behind the scenes trying to broker a local deal. He mentioned a name, but I didn't quite hear it. First I hear of it. He goes on to say there are 3 groups bidding for the Phoenix Coyotes. Interesting.

http://www.sportsnet.ca/hockey/hc-insiders-few-sellers-at-deadline/

 

[Killion]

Initial plan was to keep it for the 2022 Olympics bid. Not sure what's happening on that front, I think the city (mayor Labeaume) would rather go for 2026. Lots of speculation, but odds are it will be demolished.

Ya, I would suspect so (demolished). Rather redundant having it sitting there next to a brand new building. What happens to the Quebec Pee Wee Tournament & the Remparts?... where will you stage the Downhill if the Olympics are awarded?... so many questions.... and here were on the wrong thread....

 

[TheLegend]

This franchise has never been viable and honestly the CoG backers on council writing the checks , that want the team to stay, don't care if its viable either. All they want in something in the arena that they can point to and say " see, we have an anchor tenant" , so Westgate doesn't implode in their opinion.

Some 30,000 posts ago I posted an article that was in the Arizona papers, where all the players in this deal said the same thing... This is a real estate deal and having a successful hockey team on the ice or at the bank makes no difference, as long as the team stays. This is not about winning the Stanley Cup, it's about Westgate.

Been without internet for a few days so I just going to scan through to catch up but saw this and felt I comment since I'd said the same thing not long ago.

Ellman bought the franchise for one purpose..... to build a massive sports entertainment project that eventually ended up being Westgate. It wasn't about becoming a pro sports owner, it was about having a hook to something that he envisioned was bigger than that.

Where I disagree... is with the notion that hockey wouldn't be viable in this market. Granted it hasn't been very rosy the past 15 years here. And it'll never have a chance to be viable unless it has a solid ownership that's 100% committed to it.

 

[Mightygoose]

The Yotes have released a new player of the game award. A Wrestling Champtionship belt! Love it!

http://sports.yahoo.com/blogs/nhl-p...t-spectacular-quite-shiny-121537168--nhl.html

Looks like an old school WWF Intercontinental Championship belt

An interesting quote in the article.

(Oh, and how optimistic: No mention of the name “Phoenix” on the belt. As you know, when their sale is closed, the team will become the Arizona Coyotes.)

Or if the team does end up moving, keep the same name and logo and the belt can stay intact.

 

[GuelphStormer]

Im curious if Dado would consider Penn Station and Union Station as subsidies to the NYR and TML.

Not their entire costs, of course, but if public money being spent on a venue used to play hockey games sometimes is a subsidy then isn't money spent on the public transportation system that gets fans to those games (and literally inside the venue) also a subsidy? or, at the very least, the hallways constructed solely to access the venues from the stations?

I just want to be clear where subsidies begin and end.

 

[CasualFan]

You wanna play the accountants' game, at least use the IFRS.

Great post. Looks like the OP was misrepresenting quite a few details about the Quebec arena.

So much for THE COMPARISON. Off to the shredder, right next to remains of THE LIST.

 

[aj8000]

You wanna play the accountants' game, at least use the IFRS.

The only problem with using IFRS is that we would need 60 threads just for the required note disclosure.

 

[BuffaloAZ]

Did anybody else see what John Shannon had to say tonight on Sportsnet Hockeycentral? Apparently Doan's agent (Terry Bross) is working hard behind the scenes trying to broker a local deal. He mentioned a name, but I didn't quite hear it. First I hear of it. He goes on to say there are 3 groups bidding for the Phoenix Coyotes. Interesting.

http://www.sportsnet.ca/hockey/hc-insiders-few-sellers-at-deadline/

He mentioned a Scottsdale businessman...perhaps the owner of Go Daddy? I believe he is worth over a billion $$?

 

[cheswick]

He mentioned a Scottsdale businessman...perhaps the owner of Go Daddy? I believe he is worth over a billion $$?

Honestly where have these 3 bidders he mentioned been for the past 3 years.

 

[barneyg]

Where's Evil Doctor's rotary JPG when we need it? (no, this isn't the first time I've asked for it)

The total arena cost in QC is going to be around $1.2B ($500M build, 30 years @ 4% financing, 1%/year maintenance, on average, over 30 years).

That's about $40M/year benefit, over the same 30 years, to whoever is going to drop a team in there. Back out the $5M to $15M, depending, money flowing back from Quebecor, and we're left with a net benefit of approx $750M, that taxpayers will be responsible for.

And if that's how they want to spend their money, that's totally cool with me...

Look, at the end of the day, the only question that really matters is this: would Quebecor pay $170M for a team if they also had to provide their own arena? If the answer is "yes", then it's a more viable market than Phoenix, no question. But if the answer is "No", then it, too, is an non-viable market, and all we're arguing about it degrees of non-viability.

And the answer is clearly "No".

No offense Dado, but you're clearly better at providing qualitative analysis than quantitative analysis. It seems to me that you don't need the numbers at all to make your general point, and we both agree 100% on the conclusion that Quebecor will be getting a subsidy as well (i.e. they'll be better off than if they had financed the whole thing themselves). However, your back-of-the-envelope calculations don't compare to the more formal analysis I made a few months ago when we last discussed it (or was it the time before?). Quite frankly I'm tired of having to link back to it. The conclusion:

Quebecor will get a subsidy that will be roughly half of what Glendale would have paid. The overwhelming majority of that smaller subsidy will be supported by the province (i.e. 8 million people), with a much smaller part supported by Quebec City residents only (i.e. ~500k people). Compare that with Glendale's 230k population... per capita subsidy calculations are left to the reader.