Oilers arena funding numbers don’t quite add up

I did a quick rundown of the new Edmonton Oilers arena deal yesterday, and included the publicly reported figure of $143 million to be provided by Oilers owner Daryl Katz. That prompted some questions in comments about whether Katz is really putting in that much money in today’s dollars, or just over time.

The Edmonton Journal provides a bit more detail today, but the new information only makes this whole thing more confusing. It reiterates the $143 million contribution from Katz ($115 million toward the arena, $28 million toward a new pedestrian bridge), but then adds:

Katz Group subsidiary Edmonton Arena Corp. will operate it and keep all the revenue over a 35-year lease, paying its share of the mortgage and interest as about $5.5 million in annual rent.

Let’s reverse-engineer this: Katz will borrow $143 million, and pay it off over 35 years in $5.5 million increments. That’d be an interest rate of just about exactly 1%, which isn’t too damn likely even in these crazy economic times. If we assume the $5.5 million a year would only pay off the $115 million for the arena, that’s marginally better — a 1.9% interest rate — but still pretty ridiculous.

So either 1) the Journal’s numbers are wrong, 2) Katz has access to an essentially interest-free line of credit, or 3) that $143 million contribution isn’t really worth $143 million. Except if 3 is the case, then there’s a hole in the budget, because that $143 million is needed to get to the $601 million in cost, which is in today’s dollars.

So, curiouser and curiouser. If anybody has access to the actual language of the Oilers arena deal and not just a press release describing it, maybe we can get to the bottom of this. But right now it appears that the numbers do not mean what the Edmonton media think they mean.


4 comments on “Oilers arena funding numbers don’t quite add up

  1. “Oilers arena funding numbers don’t quite add up”

    Indeed. But some day the numbers will add up. Two plus two doesn’t equal eleven? Two plus two plus seven from the taxpayer equals eleven.

    In the end, it always adds up. Taxpayer contribution = plug number.

  2. I was running similar #s in a sheet and get 1.75% for the 143 and closer to 3.2% for the 115. Those are on the lower end of loans but given Katz received somewhere around 700M cash in his last phama sale (was in January of last year I believe) he is probably just going to meet it from cash so the implied interest rates are moreso rates of return he needs to beat on his existing capital which given how low they are shouldn’t be too difficult…

  3. Thanks, Tony! So according to this, $5.5m a year is just to pay off the original $100m, and will be increased to accommodate the new $115m cost. As for the $28m for the pedestrian bridge, it says that Katz will pay for it, but doesn’t specify how.

    So it’s pretty much (1) the Journal’s numbers were wrong. Though it’s hard to blame them too much, since the agreement is written very confusingly.