Economist Humphreys: I warned Markham against building arena with no tenant

The National Post ran a long article on the Markham arena plan on Saturday, and while the headline was about how the Toronto suburb’s new building could end up a stalking horse for teams’ arena demands in other cities, I’m more interested in the revelation that our old friend Brad Humphreys was one of the economists who drew up the economic impact study that predicted “substantial intangible benefits” from the project — and that that wasn’t the main finding of his report:

“I think they wanted to take some of my advice, but not all of my advice,” he said. “They wanted to cherry-pick it.”

The sticking point, he says, is that the city wants to proceed with the arena — half of which would be paid for by a private-sector group led by businessman Graeme Roustan and half of which would be funded through money raised by Markham — even though it lacks an anchor tenant.

On the question of economic viability, Humphreys said, you can’t evaluate an arena without taking into account its tenants, or lack of same. “Without an anchor tenant, it’s a lot more difficult to make an economic case,” he said. “I certainly told them in my report that it’s not a good idea to build the arena without a team in place.” He said he hasn’t heard from anyone with the city since April.

Humphreys indeed warns that by building an arena on spec, “you set yourself up to be the place everybody threatens to move to,” citing St. Petersburg’s relationship with MLB in the 1980s and ’90s as an example. (Kansas City would be another good one from the 21st century.) But he also points to another suburban arena that hasn’t gotten nearly as much attention:

Humphreys noted the more analogous case for Markham, located about 40 kilometres from downtown Toronto, is that of Hoffman Estates, a suburb about 40 kilometres from downtown Chicago. Sears Centre Arena — it even has the Canadian spelling for some reason — was built there in 2006. At a more modest 11,000 seats, it had plans to lure concerts and host minor-league sports — about the same business case as Markham’s proposed GTA Centre, even though the latter will be much larger and more expensive to build.

Sears Centre Arena lost boatloads of money and, according to The Chicago Tribune, was on the verge of foreclosure in 2009 before the village of Hoffman Estates stepped in to keep it afloat. Its roster of former tenants includes the Chicago Hounds of the United Hockey League, the Chicago Storm of something called the Xtreme Soccer League and the Chicago Bliss of the Lingerie Football League. An ECHL team, the Chicago Express, played there in 2012 but was last in league attendance at fewer than 3,000 fans per game. The franchise folded in April. Sears Centre Arena’s current tenants are the Chicago Slaughter of the Indoor Football League and the Chicago Soul of the Major Indoor Soccer League. The latter is an expansion team, and so far its first coach resigned before the team began play.

Other scheduled Sears Centre Arena events include the state “Cheerleading and Poms Competition” and a bull-riding championship. A Markham arena might do better — it’ll be bigger than the Hoffman Estates venue, and while Toronto is roughly the same size as Chicago, it doesn’t have an equivalent to the Allstate Arena to suck up events that don’t go to the Air Canada Centre. But Humphreys’ warning is still a useful one — as well as a good reminder that even legitimate economic impact reports can end up turning into PR documents in the hands of government officials.

3 comments on “Economist Humphreys: I warned Markham against building arena with no tenant

  1. Actually, Toronto also has the Ricoh Centre, where the AHL Marlies play, to soak up some of the business that might go to Markham.

    Realistically, there is no way they won’t try to get an NHL team. The Islanders’ lease ends about the time the arena would be ready and would have Toronto-area star John Tavares to help pack the place (if that’s needed). Any owner would have to pay a fortune in fees to the Leafs, but there would be lots of Canadian TV money (to offset the loss of the Isles’ large TV deal with MSG in New York — the only thing keeping the franchise afloat).

    Hard to picture any arena, especially one in a major market that already has rival facilities, not wanting/needing an anchor tenant to take 45-50 dates a year.

  2. Ricoh is barely half the size of Allstate, so not a great analogue. If anything, Allstate:Markham::Sears:Ricoh, which would imply that it’s Ricoh that should be sweating if the Markham arena is built.

  3. We have a similar situation in nearby Youngstown,Ohio. About ten years ago, a now disgraced Congressman got a 26 million dollar earmark to build a 40 million dollar arena. With dreams of minor league hockey, basketball, Cleveland Browns training site, plus big name concerts and events, the city shopped it around to businessmen to see if anyone wanted to complete the financing in return for the managing rights and profits. They got no takers.The private sector saw that it wasn’t commercially viable. Instead of scaling the project down, the city went ahead and borrowed the 10 to 15 million and built it.

    So what happened? The 6000 seat arena was built. It hosts semi-pro hockey, B list concerts, home and trade shows and barely covers its operating costs. Youngstown pays hundreds of thousands yearly on debt service,(which it could be better used to pay cops) and still owes about 10 million on bonds. Taxpayers, in effect, have shelled out 40 million dollars so suburbanites and out of towners can watch amateur hockey, has-been rockers, and Bob Villa. Nothing to be proud of.