Edmonton council breaks off talks with Oilers owner, says maybe they’ll go build their own damn arena

The Edmonton city council held its meeting that Oilers owner Daryl Katz declined to show up at yesterday, and voted unanimously to call a halt to all arena negotiations. The highlight was a totally awesome tirade by councillor Kerry Diotte, to wit:

“How can we even consider giving any tax money to a billionaire team owner when we haven’t seen detailed financials. That’s just not fair…”

“And we’re proceeding anyway to do a partnership with somebody and we don’t know how much money they make or lose? It’s ridiculous…”

“In Scottsdale [Arizona], when the Phoenix Coyotes first went there, they tried to sell [the city] on doing a deal without the financials and they told them to get lost. I suggest we do the same thing.”

For the record, Katz says the Oilers are currently losing money, while Forbes estimates they’ve averaged $11.3 million a year in profits over the last five years.

So what happens now? The Edmonton council also voted to direct the city to “explore potential avenues” and  report back on “the status of the City’s current, transferable investments in a potential downtown arena project,” which the Edmonton Journal translates as “investigate the possibility of cutting the Katz Group out of the deal altogether, and letting the city finance, build and operate the arena on its own.” That’s unlikely to go well — even without Katz demanding a ridiculous lease, it’d be tough for Edmonton to make back the upwards of $450 million arena cost from arena revenues alone. But at least for the moment, the city is now asking the right question — “Can a new arena work for Edmonton residents?” — in place of the old one, “How high do you want us to jump, Mr. Katz?”


36 comments on “Edmonton council breaks off talks with Oilers owner, says maybe they’ll go build their own damn arena

  1. Huh? Isn’t it the goal of every team, and the NHL, to get cities to pay for arenas? Why does Edmonton think that would work to their benefit? So the city builds the arena, and Katz offers them $100 a month in rent.

    I always thought the whole business model of professional sports involved getting the cities to build and own the arenas; otherwise, there’s nobody to extort when you want a better deal. I see this idea ending very badly for Edmonton.

  2. Two pluses for Edmonton trying thus plan:

    1) a new arena might not need to be “cutting edge” or “state of the art” or “iconic”. Something might give to make a pretty decent $325M arena that can have bells and whistles added later v

    2) edmonton can keep more of the revenue or at least have leverage for more revenue.

  3. I have absolutely no ties to Edmonton, so I’m sincere when I say how proud I am of that Council for growing a spine. They could have just agreed to disagree, but instead, they voted to tell the owner to take a hike. More cities need to do that.

    It remains to be seen how long it takes for either side to blink, but at this point, I have to think that Seattle is no longer a far-fetched idea. If Hansen brings the Oilers plus the Kings/Bucks/Bobcats, I really think you’ll be surprised at how quickly it all comes together. Key would work for a while.

  4. / / /
    Yeah, but what’s the difference between “decent without bells and whistles” and the somewhat-old-but-still-structurally-sound arena that they have now?

  5. The world’s a stage, etc. The Mayor and his chief council arena ally did the media talk show circuit this morning to let Katz know the door was wide open for the current proposed deal which sees citizens pay 100% for everything and Katz, not only pay zero up front but also get million dollar annual subsidies. (So far the city has agreed to give him $2M/yr for “promotional” purposes – no one knows what that means; now Katz wants $6M/yr to cover the operating expenses he previously agreed to pay). I suspect the whole thing was orchestrated so that when all these people have to be accountable for the horrible deal they negotiated for citizens (our elections are exactly a year away), they can say, “But we stood up to him. Remember? We only gave him the farm and the barn. And the horse. Look what we got to keep!”

  6. Slam the door on Katz, period – put him right out of the equation! Waaaaaaaaaay too far apart on every aspect, and I applaud not only your remarks, Kerry (which were BANG ON, as usual) but all of city council for ending the farce disguised as “negotiations”. If we want a new arena, there are other ways to go about it.

    So Forbes estimates 11.3M profit in 5 years – Oilers cost $200M – so he’s getting a decent return on this investment. Unfortunately, he’s a very greedy bastard and we don’t need this hanging over our heads. Let’s move ahead with a fresh slate and open minds. We could build a very nice arena for less, all by ourselves…and on our timetable.

  7. I think Brian’s question is an important one, though: If you’re looking at building a more modest arena for say $300m and then charging the team significant rent to pay for it, how is that better for anyone involved than just remaining at Rexall?

  8. Neil

    I think the question raised by Brian is missing a step…

    If the City did forge ahead and build their own project would Katz then be able to extort a sweetheart rent and revenue deal on a building looking for a tenant, or would the City negotiate with hardball tactics of their own? And which side would the League and their Board of Governor’s support? Katz would have to use the threat of moving the team as his hardball pitch and is that credible given the Glendale situation and Bettman’s backing of municipalities that have built facilities for their team?

  9. Press release from the Katz Group from earlier today:

    “We are concerned about the implications of the motion passed yesterday by City Council,” Katz said in a brief press release Thursday.

    “We do not yet have a view on what comes next, but we remain hopeful that there is a solution that achieves the mutual goal of securing the Oilers¹ long-term sustainability in Edmonton.”

    The release ends there saying, “There will be no further comment from the Katz Group.”

    Internal memo from City Manager and lead city negotiator Simon Farbrother:

    By now you have probably heard in the news that Council voted late yesterday to cease work on the proposed downtown arena and directed Administration to explore other options. This work has already begun.

    The City remains committed to the revitalization of our downtown and keeping hockey in Edmonton. As per Council’s direction we will now explore options to develop a world-class sports and entertainment facility in the heart of our city.

    At this time I would like to acknowledge the outstanding efforts of staff from across the City who have worked on this project in the past several years. This has truly been an example of staff from virtually every department in the City coming together with a common vision and goal of moving our city ahead. I will be sure to keep you updated on future developments regarding this project.

    Thank you.

    Simon

  10. Dave Boz,

    If the city built a new arena on their own that would absolutely give them more leverage, would it not?

    Katz’s only real bargaining chip involves moving the team, to do so he would have to convince the other 30 NHL owners that the team is not financially viable in Edmonton, and would need (I think) 2/3 of the owners approval to move the team.

    It’s absurd to think the NHL is going to allow one of the few teams that actually turns a profit to leave, nevermind if there’s a brand new arena for the team to play in.

  11. When you stay at the cap floor and sell out every night, of course you’ll make a profit. But is that what anyone involved wants? A team that has to watch all of its young players walk as soon as free agency hits and that is only kept in town because Canada is going through an NHL attendance boom the likes of which we’ll probably never see again? What happens when things turn and you can’t guarantee a sellout in every Canadian city every night? There’s no question the team will move at that point.

    Here’s the other thing to consider: nobody likes going to a dump. It just stinks living in a city where a night out to see a concert or WWE involves going to a sarcophagus.

  12. “If the city built a new arena on their own that would absolutely give them more leverage, would it not?”

    Exactly the opposite. If the city builds an arena, or even commits to building an arena, before they have a lease agreement with the Oilers, then Katz can go, “Take my offer or leave it, otherwise you’re going to have an arena with no team to play in it.” The only way the city has leverage is if it tells Katz: We aren’t going to even think about a new arena until you stop being ridiculous.

  13. If the city built a new arena without an Oilers’ lease, they would have less leverage, not more. They’d have no way to recoup any of the cost, and would face the prospect of having two empty arenas (and one with a whole ton of debt service) if the Oilers moved anyway. The Oilers would still have Seattle and KC to play Edmonton off against for lease concessions. And I don’t know that there’s anything stopping Katz from pulling an Al Davis and moving the team without league approval if it came to that (might not be in his interest, but neither is turning down a proposal where the city pays a majority of the cost of a new arena when the old one already sells out). Nope, like most things in life, you have the leverage before you write the check.

  14. Plus is Bettman really above playing the move card (as commissioners have done for decades) and feigning that he has the support of the other owners to extract favorable lease concessions for one of his bosses (a team owner)? Why wouldn’t the other owners support that, knowing that they might want the same treatment from their brethren someday?

  15. What’s Canadian antitrust law on that sort of thing? I know the U.S. situation, but as the Onion has reminds us, quirky Canada has its own laws.

  16. Ben Miller,

    There are no shortage of NHL teams that spend to the floor and still lose 20 to 40 million. If making a profit was as easy as you make it sound there wouldn’t be a lockout right now.

    You’re talking about a team with 4th highest average ticket price in the league ($20 higher than the Bruins) with a sellout streak approaching 200 and talk as it if will be dooms day if they miss a sellout. You should be asking what happens when the Panthers, Islanders and Coyotes have tickets on stubhub for 99 cents and can’t get 10,000 warm bodies through the gates? Dallas had several games with only 6000 last year. A third of this league can’t give tickets away.

  17. “A third of this league can’t give tickets away.”

    Really? I see a league where 26 out of 30 teams were at 85%+ of capacity last season, 21/30 at 95%+ and 25/30 averaged 15,000+. If you’re “spending to the floor” and losing $20-40M, you’re an idiot. Yet another labor conflict where the owners are looking for someone to stop them from acting stupidly.

  18. In Canadian anti-trust law, there’s nothing against a team moving, if that’s what you mean, Neil. The major conflict the NHL has with Canadian Competittion Act (or, in old timey language, anti-combine legislation) is the league’s stipulation that there’s an “exclusive zone” geographically for teams.

    The Nords and Jets both moved without any real contemplation of government action, though that had more to do with the rather acute economic crisis at the time.

  19. Exclusive territories is exactly what I was referring to. As in, if the Oilers were to move (or threaten to move), and Bettman threatened, “We’ll never let you have another team if you lose this one,” would he get his ass sued off if he tried to enforce it?

  20. “If the city built a new arena on their own that would absolutely give them more leverage, would it not?”

    That’s what Glendale, Arizona thought. Who knows, in the next round of musical hockey teams, maybe we’ll see the Seattle Oilers and the Edmonton Coyotes.

    (I enjoy going to Coyotes games when Edmonton is in town. The arena has lots of Oiler fans. They find it cheaper to fly to Arizona and buy a ticket than to try to get the same seat at Rexall.)

  21. The most expensive seat in Rexall is a little over $100 dollars ($114). A typical low cost airfare RT Edmonton-Phoenix is around $450 dollars (as Canada is involved you have to add in surcharges). I am sure they have had other airfare sales but it is not even close to being a true story (even if the Coyote tickets were free).

  22. http://www.ticketmaster.ca/event/1100490F4C34FAF3?artistid=805943&majorcatid=10004&minorcatid=9&brand=edmontonoilers

    Ticket prices range from 300 to 65 dollars…

  23. Keith,

    Your capacity numbers are not the appropriate metric to be examining because they don’t reflect the revenue that each attendee generates. In Edmonton, each person that attends a game generate significant revenue because they’re paying full price for their ticket. Many teams are not able to charge their full price, which is lower than Edmonton’s full price, for tickets and offer steep discounts or give tickets away in an effort to increase their attendance figures.

    Another problem with attendance numbers is that the figures given typically represent tickets sold or given out, not bodies actually passing through the turnstiles. If you give away a thousand tickets and most of those people don’t show up, they won’t be purchasing food, beer or merchandise.

    If you want to know how a team is doing financially, you need to look at the bottom line and it’s not pretty for many teams. http://www.forbes.com/nhl-valuations/list/#p_1_s_d6_

  24. Can anyone explain why cities do build stadiums and arenas and let teams keep all the revenues? If a deli owner demanded a new deli they would tell him to take a hike.

  25. Neil;

    It’s unlikely that Bettman would ever make a blanket statement like that. In practice he would smile sweetly (or as close as he can) and say “we will review any relocation application made on it’s own merit”, then instruct the governors – whom he works for – that their little shell game will fall apart if they even think of putting another team in the present arena in Edmonton.

    The bigger problem he would have if Edmonton did become “open territory” would be finding reasons to dissuade a half dozen of his present employers from applying to move there. Given that demonstrating the existing markets some of these guys are in are unsupportable would be easy, and that Edmonton is already a proven market that would then be available, it is not clear to me how the league could prevent such a “hostile” move, given that the criteria established in the league’s own bylaws could easily be satisfied.

  26. Ben:

    The Oilers are nowhere near the cap floor ($63m and counting, with only 23 players under contract). They have been within ten percent of the ceiling since their Stanley Cup final trip a few years ago. They are also consistently among the top ten earners in the league.

    They have just resigned a couple of their “young stars” to long term deals, so I don’t know what your reference to them walking away is about.

    No-one can predict the long term health of the Canadian economy, just as no one can accurately predict how long the US will remain in the doldrums (or freefall, as some would say). However, there is absolutely no truth to your conclusion that “there is no question that the team will move” once the arena isn’t full every night.

    Quite simply, there is nowhere presently for Mr. Katz to go to that will not result in him earning about $30m less and spending $10-15m more than he does now (Northlands presently pays more than 90% of the operating costs for the arena on Oiler game nights, Katz does not). Quebec city has a much smaller economy than Edmonton. Seattle can’t work for him, because he will not own or control the building and will be a paying tenant. He can’t get to Toronto or Hamilton without paying the leafs $500m for the privilege (assuming they are willing to name a price, which thus far they have categorically refused to do), and there are no other legitimate markets available.

    The present arena in Edmonton was heavily remodeled in the late 1990s (with public funds). While it may lack some of the niceties of the new buildings (casinos and bars built in, HD tvs on screens no-one can see from public areas etc), it is perfectly serviceable (and can be upgraded if necessary).

    The reason Katz wants out isn’t that the building doesn’t work for the Oilers, it’s that it is controlled by Northlands (which runs it’s own events). He not only wants an arena built for him, he demands that the present one not compete with him (thus forcing Northlands to transfer the very tidy concert business they have built up to him for $0). Since Northlands refused to do that, he has been looking for a way out of this deal (despite how favourable it is to him).

    Of the much lamented 16,800 seats approx, less than 2000 are available at the lowest ($55 in 2010) price point. The new building will have only 18,000 seats, so those suggesting it is a “size” issue are just plain wrong.

    Having visited the arena just two years ago, I can tell you it is far from a dump or sarcophagus. It is a very pleasant place to be (which is good, because the team that plays in it totally sucks as entertainment), easy to get to (unlike the new location “proposed”, which is a nightmare to get to now, let alone when an additional 5,000 cars are trying to get downtown on a workday…) and from. The light rail system in Edmonton gets you from the present arena to the very downtown district they are thinking of building a new one in in less than 10 minutes.

  27. Keith:

    I won’t quarrel with your figures. However, I will point out that it is dangerous to use “tickets sold” figures for a league that allows it’s owners to purchase their own tickets at less than face value solely for the purpose of meeting revenue sharing targets… something Nashville (and several others) have been doing for years.

  28. Sure, I understand the difference between sales and revenue and that attendance figures can be fudged. But my point was that it’s a league that’s a long way from not being able to give away tickets.

  29. Keith,

    I didn’t say the whole league. I said a third of the league which is pretty much true. I wasn’t making up the comment about 99 cent tickets on stubhub for the panthers, coyotes (plus free parking), and islanders. Look for yourself when the lockout ends. Dallas, Anaheim, New Jersey, Tampa, Nashville have tickets on stubhub for 5 bucks.

    There are this many markets where you can see NHL hockey for the price of a cup of coffee (essentially giving it away).

  30. @ John Bladden

    I pretty much agree with everything you said. The only points I’d differ are:

    1) From what I understand the NHL’s revenue sharing model as it’s currently used is based solely on casual tickets. Club seats and luxury boxes are exempt. The Oilers are in a prime spot where they are either paying into the revenue sharing plan or if they raise ticket prices more they will be paying into this. A brand new arena could offer loop holes with an increase in luxury boxes and club seats.

    It’s one reason, I feel, MSG has been so gung-ho on remodeling MSG. There might be something that they had to fix anyway, but if you look at the way they’ve configured the lower bowl it looks like a perfect loophole out of revenue sharing payments.

    Anyone – feel free to correct me if I’m wrong. This is how I’ve come to understand this so I might be wrong yet.

    2) As for the Coliseum in Edmonton (I will no longer call it Katz’s company name) the one problem I have when I go is that the concourse is too small. Although being in Vancouver’s GM Place and MSG I wonder how anyone goes to the bathroom and manages to get a beer in time to return to their seats. Nevertheless, one huge perk for me would be a larger concourse.

    I just don’t feel like paying hundreds of millions of dollars to get this privilege.

  31. @ Brian

    I tried replying to your question multiple times on my iPhone but the response didn’t stick. Sorry for the late reply but being back online I’ve wanted to check out the happenings here.

    Katz wants a $475M building. When I buy a car and plan to spend $35K I still shop around to see what else I can get. Is there a decent substitution to be had at $25-28K?

    It seems hell or high water Katz only wants a $475M building and the longer the city of Edmonton screws around the more that building needs to cost.

    I’ve asked this before – mostly elsewhere – what can one get for $400M? $375M? So forth. Is there a chance, an ever slight chance, that part of Katz’s $475M budget is rooted in the contractors and friends he wants to bestow with city money keeping the process uncompetitive? If the city were to build this couldn’t they be discriminating enough to make the bids competitive and that could drive the price down?

    Just a thought.

  32. @AndrewT I’m sure if Katz went with a more typical arena there would be many different configurations and prices to match. However he settled on this really elaborate Frank Gehry-esque arena design that encompasses an adjacent structure (it’s a kidney-shaped design), and has lots of external light panels and the whole nine yards. Looks like the Northern Lights, pretty much.

    I’m pretty sure the design has dictated the inflated price (sounds like it even raised the price tag $75M if I recall correctly), rather than be representative of a price range sought by the city.

    I have a feeling though they’ll be going back to the drawing board to get something cheaper, or they could plan the complex to be completed in stages (Like the Air Canada Centre and its adjacent complex of highrises).

  33. Andrew:

    If I remember correctly the club seats do not count, but luxury suite sales (percentage) are included as a qualifier for revenue sharing recipients (maybe not for “payers”, as you suggest).

    The concourses at Northlands are a tad on the small side, but as I recall that happened as a result of the renovations in the 90′s to accommodate suites (which the original building didn’t have). I remain unconvinced that the legitimate issues with the building will cost $300m to fix. I suspect that $100m invested wisely would do wonders for that building, including additional seats if desired (I’m not sold that the increased demand created by the 16,800 seats doesn’t outweigh the additional revenue potential from another 1200 cheap seats).

    Vis the arena design, I think you and I have discussed this before… there is absolutely nothing stopping any prospective arena owner from contacting Populous and saying “Build us a current version of the Xcel centre” (cost $185m or so).

    There would be minor changes needed for snowload and local engineering/design rules etc, and a new exterior to distinguish it from the other building (which the architectural firm owns the rights to, not the club), but there is no reason in the world that it can’t be done.

    It can’t be done for the same cost today as in 2000, but just as with houses, if everything you want is a one off, you pay through the nose. IF the owners were paying for these buildings themselves, you’d see a lot more “good enough” and a lot less “architectural marvel” – just as with factories and offices. You spend a little money to make them look shiny and happy. You don’t base the business model on a level of beauty that your customers can’t and won’t pay for.

  34. Katz’ changed tune in negotiations seems odd; what was good enuf (and more than good enuf in terms of other municipalities and owners) was not generous enuf. Perhaps his pharmaceutical distribution business is now bleeding his profitable hockey club.
    As to the NHL, never put it past Bettman and his greedy bunch to accept the cost of letting Edmonton starve while moving another Canadian team to some favoured southern clime, where the US tv money (which accounts to a pitence compared to most other pro sports) would be able to be bundled for an extra million or more.
    Then Bettman could state the obvious, that Canada is where hockey is king and some day Edmonton could have an expansion team (the real lucre in the NHL easy-money scheme)… because he and his US owners know that us canucks are rubes at heart, who after grumbling some would pack the house despite a sub-par product just to say we’re part of the NHL.

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