Quebec’s new arena to leave taxpayers at least $250m in hole, with no guarantee of NHL team

The city of Quebec announced yesterday that construction of a new $400 million hockey arena will begin in September, and be complete in time for the 2015 season. The announcement was a long time coming: It was more than a year ago that Mayor Regis Labeaume announced the arena would be built, and six months since he declared that communications company Quebecor would pay to operate the arena.

While it was originally announced that the public cost — split evenly between the city and province — would be repaid by arena revenues, “repaid” has turned out to be a slippery concept. The final agreement calls for the following:

  • Quebecor will pay $2.5 million a year for operating rights to the arena, plus an additional $2 million a year if it lands an NHL team. In exchange, it will get all revenues from events at the building.
  • Quebecor will pay $33 million in cash for naming rights to the building, plus an additional $30.5 million in an NHL team is present. (It’s not entirely clear what happens if a hockey team arrives halfway through the lease.)

So add it up, and the public will be putting up $400 million for the arena (or about $25 million a year) and getting back between $70 million and $130 million in present value (roughly $5 to $10 million a year) from Quebecor. Plus, maybe it’ll get a hockey team, if Quebecor decides it’s worth giving up an extra $5 million a year in rent and naming rights money in order to lure an NHL franchise — something that arena operator AEG hasn’t deemed worth it for Kansas City’s Sprint Center, and they don’t even have to pay added millions if they get a team. It’s possible, of course, that Quebecor thinks that the added value of having its name on an NHL arena instead of just a concert venue would make it worthwhile, but still, you have to worry about the disincentive it creates to actually bring in a team, especially considering that most NHL franchises are going to be looking at paying little to no rent, and sharing little to no arena revenues with the arena manager.

And even in the best case scenario, we’re looking at Quebec taxpayers taking more than a $250 million loss on the deal. For that kind of money, the nouveau-Nordiques had better win boatloads of Stanley Cups.


17 comments on “Quebec’s new arena to leave taxpayers at least $250m in hole, with no guarantee of NHL team

  1. But the plan is to use it as a hanger for all the F-35 Fighter jets we are buying which won’t have engines or weapons systems…

    Wayne

  2. Neil:

    With the Nassau Coliseum lease set to expire in 2015 this will put more pressure on Nassau County to build a new arena for the Islanders.

    The first sporting event in the Barclay’s Center will be a Islanders-Devils exhibition game on 10/03/12.

    How realistic is it that the Islanders might move to Brooklyn in order to prevent a sale and relocation of the team to Quebec?

  3. For non-Canadians, who might miss the delicious irony, it’s worth pointing out that Quebecor is much more than a “communication company” in Canada. It is more accurately described as a right-wing propaganda network consisting of newspapers, magazines, book publishing, Internet and television holdings. Most notoriously, in English Canada, it operates the Sun News Network which is, for good reason, referred to as the “Fox News of the North”. It is even fronted by a man best described as Rupert Murdock’s evil twin: Pierre Peladeau. The sole reason for the existence of this company, it often seams, is to ceaselessly rail against government intervention in the holy sanctity of the “free market”.

  4. Sean:

    Except when that intervention comes in the form of a massive subsidy for their own business, of course.

    Neil:

    Quebecor owns several television stations/channels which require content. The Newdiques would provide that at relatively low cost (given the staggering subsidy mentioned above). My bet would be PKP won’t flinch at the the thought of buying an NHL club (and paying the extra millions for naming rights) should the NHL agree to sell him one.

    The only “up side” to this is that no federal tax dollars are going to this arena… it will be funded by provincial and city tax dollars only. Of course, Quebec gets net transfer payments of something like $8Bn annually from the rest of Canada… so it would be fair to say that they aren’t really spending their own money. But the flip side would be that they are getting that welfare anyway, so whether they use it to fund hospitals or arenas is their business.

  5. I think he meant having Quebec as an option puts pressure on the Islanders to either get something done in Nassau or arrange something in Brooklyn. That assumes however that the NHL doesn’t just announce the Coyotes sale and move after they’re knocked out of the playoffs (which is really what they should do).

  6. @ Dan –

    That or just mothball the Coyotes for a few years until there’s a slam dunk buyer/market to move it to.

  7. I understand why Quebec being an option would put pressure on Nassau, but why would it put pressure on the Islanders? If they had any interest in moving to Brooklyn, they could do so right now.

    Meanwhile, buying a team as a loss leader for TV rights is an interesting concept, especially considering where TV rights prices are headed these days. Though the NHL/Wang/whoever will know that too, and drive a hard bargain … I wonder what the price point is where it’s worth Quebecor’s while.

  8. The Coyotes are moving to Quebec after they miss the playoff/are knocked out. The Glendale city council isn’t going to pay 25 million dollars next year like they did the past 2 years to cover the Coyotes losses. Glendale in the past year had to cut police/fire fighters because they couldn’t afford them due the paying the Coyotes to stay. The NHL has no other option but to move to Quebec. Without a payoff from Glendale the NHL would lose 30-40 million dollars per year to stay due to 0 fan support. Seattle isn’t ready to host a team yet because the new arena hasn’t been approved and Chris Hanson has said recently that they need the NBA 1st to make it work and he didn’t expect a NBA team for 2 to 7 years.
    Another factor in the move to Quebec is the success of the return of the Winnipeg Jets this year. Leaked financial documents show that Winnipeg was 13th in the league in gate this year. The Jets have sold out the luxury boxes at the MTS Centre for the next 10 years and season tickets the next 5. There is a waiting list of 8,000 for season tickets and that would have been higher but the Jets owners capped it at 8,000. By the way the Winnipeg Jets have the 2nd highest ticket prices in the league at 82 dollars per ticket.
    I see no reason why the new Nordiques can’t be more successful. Quebec City is bigger than Winnipeg metro wise and has more people just outside the metro compare to Winnipeg and Quebec City is growing faster than Winnipeg.
    The first time around the Nordiques were above league average in attendance 10 of 16 seasons. The reason they left wasn’t fan support but they wanted a subsidized arena(that they finally just got# and the Canadian dollar was around 67 cents per US dollar. Now the Canadian dollar is above the US dollar and from everything I heard the Canadian dollar is never going to drop anything close to that low again anytime soon.
    Pierre Peladeau is going to be the owner of the team and the team will make money on its own, not just off the TV rights #especially since the taxpayers are footing the bill for the arena unfortunately#. Given the success Winnipeg I predict a 200 million dollar sale price #counting the relocation fee# for the Coyotes. Winnipeg paid 110 million for the team and 60 million in relocation fees.

    Here is a question worth asking. Is the arena in Glendale now the worst sports subsidy of all time assuming the Coyotes leave? They paid 185 million for the arena plus 50 million the past 2 years to cover the Coyotes losses and still most likely they won’t have a team next year. At least with the other arena, stadium rip offs you get the intangible benefits #not the millions worth the supports claim exist) of having a team everyone loves. So unlike other cities Glendale loses not just once but twice. They pay a ton of cash and less 10 years after the arena opens they have an empty arena with no team.

  9. “Is the arena in Glendale now the worst sports subsidy of all time assuming the Coyotes leave? They paid 185 million for the arena plus 50 million the past 2 years to cover the Coyotes losses and still most likely they won’t have a team next year.”

    It’d be a finalist, certainly.

  10. And it ain’t over yet. Glendale still has one last chance to try to sneak an enormous taxpayer subsidy past the local watchdogs, in hopes being able to say “We’re number one!”

    Their icon will be an upraised middle finger, in front of a taxpayer’s face.

  11. Neil:

    Dan is correct-moving to Brooklyn would mean that C. Wang would give up potential advertising and suite revenue from an arena in which he would not be the primary tenant.

    Obviously, the 10/03/12 exhibition game is intended to send a message.

    Since staying in the Coliseum is not an option Brooklyn is his only real alternative at this point.

    However,he would be able to recoup a substantial portion of his losses on the team if it is sold and moved to Quebec.

    Nassau County now really has little time to decide what to do-the NHL desperately wants to keep the Coyotes in Phoenix and since they in effect “own the team” they do not have to sell it to Quebec interests at this time-but can continue to hope that a buyer can be found to keep the team there.

  12. It’s true that the league owns the Coyotes. The City has been paying about $25m toward losses for each of the past two seasons, but that does not come anywhere near covering the club’s operating losses. Last year, the league announced the loss at $36.6m for the season (to May 1st, just after the team was knocked out of the playoffs by the Wings).

    Thus far, the CoG has said it will not cover another $25m in losses for 2012-13, so the NHL would be billing the other owners for the full loss if they chose to keep the team there next season (at least as things stand now).

    The league clearly wants the club to stay there. They bought it for $140m, paid more than $10m in legal fees, and have thus far absorbed about $30m in unfunded operating losses to do so. But I don’t see how Bettman convinces the other 29 owners to each cough up about $1.5m just to operate the team there next season.

    He can sell them on the idea that they’ll get most of what they’ve invested already back when the club is sold (assuming it’s sold for relocation, the mkt value of it in Phx is close to zero). There’s just no way they get any more than what they are presently “out”… so I doubt very much that the club will be there next year if the city doesn’t cover even more red ink.

  13. So long as we can all agree that an additional relocation option = pressure on Nassau County, not on the Islanders. Wang may choose to use the leverage before the Coyotes move to Quebec and he no longer has that option, but really, there’s no downside for him here.

    I still don’t see the Islanders jumping to move to Quebec, though. With the cable rights fee explosion, even being the third team in NYC is a potential cash cow it’s got to be hard to give up. Quebec vs. Phoenix is a much more attractive swap, if Bettman can admit defeat on his Southern strategy.

  14. I agree, Neil.

    No doubt Wang will go through all the appropriate motions to indicate interest in moving almost anywhere to get a better deal in NY. But in reality, he has the same problem as Darryl Katz: There really isn’t anywhere he can move to that would be a net win for him. It’s unlikely he’ll ever give away his NY territory, IMO.

    If he had thrown in the towel on his ridiculous Lighthouse project at a more sensible time, he could have partnered with Ratner in Brooklyn. Failing to recognize that the county didn’t have the money to give to him was a huge error. The fact that Nassau operates under an appointed financial administrator should have been at least a clue… but then, he doesn’t have a long history of having a clue, frankly.

    I still wonder if a different/better owner might not have a chance to get something done either in Hempstead or elsewhere. It’s a different political and financial landscape today… he may have missed his chance to build.

  15. Quebecor will not be looking to lease out the arena to somebody else’s team, they want to acquire their own franchise.

    When questioned about the sweetheart arena deal, Pierre Karl Péladeau, Quebecor’s CEO, kept a straight face when saying that their contribution will be more than it appears on paper because they’ll be spending at least another 170 million in order to purchase a team.

    I am going to try that when house shopping. I’ll tell the sellers to take 85% off because, after all, I’m going to have to fork over cash for furniture and appliances. That would make more sense because my household goods would immediately depreciate, unlike an investment in an NHL team.

    Oh, by the way, you can tack on 33 million 2007 dollars in hidden costs to the 400 million price tag. An adjoining gaming salon (video poker/slots) built by the province just five years ago is being demolished and the property being given to Quebecor in order to build a TV studio. The provincial government is paying to rebuild the facility elsewhere in the city under a separate budget.

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