Flames CEO says city recouping its arena cost via taxes means “us paying for everything”

As promised, on Friday the city of Calgary released its proposal for funding a new Flames arena that team owners rejected, and it looked pretty much exactly as previous reports had had it: Costs would be split one-third/one-third/one-third between the city, the team, and a new ticket surcharge, and the city would recoup its third via a combination of property taxes on the building, team rent, and revenue from non-hockey arena events:

Sounds simple, right? Split the costs, split the revenues. Unless you’re Flames CEO Ken King, who immediately fired back that this would leave his team paying “120%” of the costs:

“Their proposal has us not only paying for everything, but more, when you consider incremental taxes,” he said. “Flames’ cash comes from Flames’ revenue—I think we all agree on that. User fees comes from Flames’ revenue, I think we can all agree on that. And in whatever form they want this payback, that comes from Flames’ revenue, as well.

What’s going on here is a fundamental disagreement over the nature of “our money.” I could explain this in economic terms — King wants to count every scrap of arena income, and even taxes they’d be paying just as everyone else pays, as Flames revenue — or in metaphorical terms — as I told the CBC on Friday, the Flames’ position that they should get to pay off their costs with arena revenues but the city shouldn’t is like asking someone to dinner and saying, “Let’s split the check, but then I get to eat both meals.” But I’d prefer to direct you to the ultimate authority on this matter, which is the Odd Couple’s “casino night” episode. If you don’t want to sit through the ads, here’s a transcript of the relevant part, which starts at around the 11:00 mark and comes after one of Oscar’s friends has won big at the casino night fundraiser for Felix’s opera club:

Felix: What have you got there? Where’d you get all that money?

Oscar: From Arnold, he owed it to me.

Felix: What?

Oscar: Yeah. He owed it to me since the year one.

Felix: The “let it ride” guy owed you money?

Oscar: That’s my Arnold.

Felix (reaching for a pile of cash): Well, that’s wonderf—

Oscar: Don’t touch the money, Felix.

Felix: But what a—

Oscar: Don’t touch it, I told you not to touch it.

Felix: But now the opera club gets its money back. Yay!

Oscar: I don’t think I heard you.

Felix: We’re saved! We get our money back!

Oscar (hastily gathering up his money): Now I know I didn’t hear you.

Felix: Surely you’re not thinking of keeping that money?

Oscar: Why not? It’s my money!

Felix: No, it’s not! It belongs to the opera club!

Oscar: How do you figure that?

Felix: Well, Arnold got it from us, you got it from him, you give it back to us! Then everybody’s even!

Oscar: That can’t be right. See, I’d be out all this money.

Felix: No, you wouldn’t! You’d just be back where you started from!

Oscar: Yeah, but only Arnold wouldn’t owe it to me anymore. See, I had this money coming to me.

Felix: But it came from the opera club! From them to him to you to me! It’s like an isosceles triangle!

To his credit, Calgary Mayor Naheed Nenshi was calmer than Oscar about the whole thing, replying that “our argument is that the city needs to share in the upside, if we’re going to share in the cost,” and that he was open to any and all ideas for achieving this: “If it makes more sense for the city to own and the [Flames] owners to pay rent we can absolutely look at that. If it makes more sense for there not to be rent, but a revenue-sharing agreement we can look at that.”

As for what the Flames ownership were asking for, meanwhile, the Globe and Mail reports (citing unnamed city sources) that the team wanted not only to pay no property taxes and share no arena revenue, but to have taxpayers foot the bill for police presence at games and give Flames fans free public transit rides on game days:

The requests would put a multimillion-dollar dent in the city’s finances and could result in higher taxes. Waiving transit fares on game days, for example, would mean giving up about $10-million in revenue annually, according to one of the sources. Calgary would then have to fill this gap, perhaps by cutting transit services to other parts of the city or raising property taxes, the source said. Covering the cost of extra policing would also amount to an operating subsidy, according to the source who provided the detail about security expenses to The Globe and Mail.

What we have here, folks, is a good old-fashioned impasse, though only one of the two parties has math (or geometry) on its side. I’d suggest Nenshi and King settle this by trying to double their money at the pool hall, but I’m not sure the showrunners would go for it.

 


32 comments on “Flames CEO says city recouping its arena cost via taxes means “us paying for everything”

      • Thank you, Marty. I’m surprised that, in this era of fake news, Neil would publish such a misleading narrative while reporting on an issue that he is personally passionate about.

        • I never said the Saddledome currently pays taxes, only that a new arena would if owned by the Flames. (And that whether via taxes or other revenue streams, it’s reasonable for Calgary to want to recoup its costs, just as the Flames want to do.) I am honestly baffled what’s supposed to be “misleading” here, unless you mean it in the Breitbart sense of something you personally disagree with, in which case whatever.

          • Neil,

            It is misleading to act like Calgary is offering to contribute to an arena, list Calgary’s supposed contributions, then ignore the fact that Calgary is asking the Flames to pay a new tax.

            And I am honestly not trying to exploit a loophole or attack you. I am attacking the idea that the city is offering to pay 1/3 of new arena costs.

          • They’re not asking them to “pay a new tax.” They’re asking them to pay taxes on a privately owned property, the same way anyone else would.

            If the Flames owners don’t like that, there’s a perfectly good tax-free arena owned by the city that they can use.

        • And I really have to add: The only rule on this site for comments is “no personal attacks,” which I’ve tried to stick to because it’s simple and clean and evenhanded. And it’s the one rule that is necessary to keep this from turning into a Twitter cesspool of insults and counterinsults, which I think the evidence has shown has worked well.

          Ben, you have managed to do an excellent job of undermining the intent of that rule – no starting fistfights – while toeing the line of the letter of it. This is not the first time you have argued by innuendo, trying to implicate someone else as a fool or a dupe without directly insulting them, and having met you I know you’re smart enough to know what you’re doing. Yes, gold star for finding a loophole in the rules, but you’re doing your best to turn a forum for debate into a feces-throwing contest, and it’s not pretty.

          I don’t want to have to amend the commenting rules to say “and no trolling,” because that’s way more of a judgment call than personal attacks. But when one person is consistently sucking all the air out of the room, I have to at least consider it.

        • Hmm, I thought we’d reached the point where everyone understood that inflicting the term “fake news” upon a discussion was the equivalent of saying “I don’t really have a valid argument”.

  1. Calgary has no affluent suburbs to hold ransom, and there’s hardly a place which would be a better market than Calgary for NHL games (other than TOR & MTL which are taken). If the cheapskate owners won’t pay for winning teams, then they’ll wait it out for a new mayor probably.

      • They are bigger cities, but you’d be starting from scratch in two cities that have never fielded an NHL team for longer than two years. Whereas in Calgary, you have an established base that will sell out a large arena for any team that can win close to half it’s games.

      • Please provide data to support your contention that Kansas City and Seattle would be better NHL markets than Calgary in terms of “league revenue/exposure/stability”.

        The NHL has already failed in Kansas City, though this was in the mid 1970s when sports franchise collapses were quite a bit more common than they are now. Other major sports franchises have failed there also. Were it not for the deep pockets of Lamar Hunt and Ewing Kauffman, would the Chiefs and Royals have survived?

        By trading Calgary for KC, the NHL would be abandoning a city of 1.1m people, many of them rabid hockey fans, with a large corporate base (which could fund an arena directly if it wanted to) for a middling midwestern US city with little hockey history (most of that bad) and no apparent interest.

        The arena the city built years ago has generated no interest from NHL owners, save when it is time to try and extort money from their present host city by playing an exhibition game or two there. It has also been losing massive amounts of money on operations since opening, so there is little evidence that it could be any sort of financial panacea to Flames owners.

        Seattle is a more interesting argument as it is a much bigger centre. However, an NHL team would be somewhere between 6th-9th as far as sporting attractions in that community, and would very much be second tenant in any combined NBA/NHL venue. Both these facts make the NHL in Seattle a proposition of questionable viability. It might work, it might well not. And we’ve not yet broached the subject of whether a Seattle NHL team would have to pay territorial indemnity to the Vancouver Canucks, for example.

        The current national NHL tv deals (locked in long term) in the US and Canada generate about $20m per team annually in total (assuming the Rogers deal was for $5.2Bn USD over 12 years, not C$. The NBC deal was for $2bn over 10 years). That is a lot better than the $6m they used to generate, but it’s nowhere near the level that the major sports generate. For that reason, the NHL is still very much a game day revenue driven league. Fans in seats matter much more to the NHL owners bottom line than they do in other sports.

      • Business journal did a market feasibility study and found that capacity in KC and Seattle (in 2015) don’t merit expansion.

        https://www.google.com/url?sa=t&source=web&rct=j&url=http://www.seattletimes.com/sports/nba/study-seattle-not-quite-ready-financially-to-take-on-an-nhl-team/&ved=0ahUKEwjG8PCOqLDWAhXl7oMKHfJWCCUQFgiUATAJ&usg=AFQjCNHFIdtellsqnb6adFbfaszn7zrktA

        https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.bizjournals.com/bizjournals/news/2015/04/09/sportmain.html&ved=0ahUKEwjG8PCOqLDWAhXl7oMKHfJWCCUQFggoMAA&usg=AFQjCNGUIoXR57F2rlmeVom9mYjspIS6Cw

        Also, NHL teams own “rights” within 50mi of one another. I presume to keep every team from moving to Toronto. I don’t think the Canucks will easily allow a team to show up on their doorstep while they are selling out and barely meeting the salary floor! LoL

      • Revenue: The Rogers deal is locked in until 2026. The NBC deal expires five years earlier. The league needs a boost in AMERICAN TV viewership. The Predators; playing in a market similar to KC, boosted Playoffs viewership far more than larger markets like SF Bay Area and LA have in recent years. The NHL needs AMERICAN markets with HOT CROWDS (which I think the KC Flames will have) to maximize NBC viewership, which maximizes League revenue.

        Exposure: America is a hell of a lot larger than Canada. I don’t think I need to explain that.

        Stability: The Canadian dollar simply has not been stable. It rises when Canadian energy production is hot and it craters when fossil fuel prices dive.

        People have short memories. Fifteen years ago, the only strong Canadian franchises were Toronto and Montreal. The country has gone hockey-mad over the last ten years, but that doesn’t mean that the Canadian NHL revenue bubble won’t burst. Calgary doesn’t have the size or demographics to justify an NHL team “going it alone” without any help from the local government. It’s not Toronto, Montreal, Vancouver, New York, Los Angeles, Chicago or the handful of other cities that can “stand up” to local sports ownership and still keep their team.

        • While I agree with your premise, and a larger American presence would be nice.
          And admire your enthusiasm for US hockey.
          Let me counter your argument two ways.
          The Atlanta Flames
          The Atlanta Thrashers.

      • Oh my goodness, really? I was born and raised in Seattle and spent nine years working for hockey teams in the area. I can GUARANTEE that the level of interest in the sport there is nowhere near what you’ll find anywhere in Canada (where it has been a national passion for over a century…think Japan and baseball and you start getting the picture).

        Even now, when people in Seattle talk about getting an NHL team, it’s almost always in the context of a rivalry with Vancouver, as though the Canucks would fill all 40 home dates on the schedule. I never hear anyone say, “Boy, I’ll sure buy tickets when the Columbus BlueJackets.”

        Just because a city has a lot of people and money doesn’t mean that they’ll support everything that comes their way. If that was the case, the Chargers first season in LA would be sold out in that 27,000-seat placeholder they play in.

  2. I run a successful business, and sadly I don’t get 100% of my revenues either. The government has the nerve to charge me for the police an fire I use, and charge me taxes on my earnings to pay for things like roads and education, and healthcare, and security.

    I too like the Flame demand a utopia where business owners are free to realize the benefits of their hard work. To paraphrase the good Mr. King

    “This relationship has me not only paying for everything, but more, when you consider incremental taxes,” he said. “Omnicorp cash comes from Omnicorp revenue—I think we all agree on that. Sales and Property taxes comes from Omnicorp revenue, I think we can all agree on that. And in whatever form they want this earning/income taxes, that comes from Omnicorp revenue, as well.”

    It is just not fair. Other people should have to pay for all those things, not me!

    • What was last year’s revenue from sales of your company’s merchandise, from non-employees? What was the average daily local bar & restaurant on days/nights when your business was having a party (or other large scale company function), compared to days/nights when your business was performing its normal activities?

      • You can’t honestly believe any entity (let alone a professional sporting franchise) is entitled to incremental revenue that frankly is a displacement from an existing source do you? If that’s the case, the casinos in Las Vegas should pay no property taxes, keep all the sales tax revenues from their hotel rooms, restaurants, shows, events, bars, etc.; while having taxpayers pay for providing security to their venues. I’m a business owner too and even I know where the taxes I pay (which I don’t care btw) is allocated for public and social services.

      • Probably roughly proportional to what the Flames do honestly in terms of the amount of subsidy I would demand.

        The payoff is that shitty in these sports demands.

      • Unsurprising that nobody in the FoS comments has a retort to the undeniable fact that sports franchises create ancillary economic activity in the local market in a way that no other type of business can match.

        • Ben,

          There are positive externalities all around and I’d be hard pressed to think of any that flow back to the creators.

          Do my neighbours pay me when I improve me house or yard? No. Does the trendy coffee shop take a fee from the businesses around it? No.

          Sports teams also benefit greatly from the services provided by the city that they so strongly resist paying for: roads, transit, policing, etc.

          There is no reason for any city to subsidize sports teams.

          • Further, there aren’t any studies showing sports teams creating huge economic benefits. Those benefits are a myth.

          • Here is an article about the negative affect of the 2012 lock-out on downtown San Jose.

            http://www.mercurynews.com/2012/09/26/hockey-lockout-affects-sharks-fans-san-jose-businesses/

            While there is indeed a loss in parking revenue and bar, restaurant traffic when the Sharks don’t play, it is really a substitution. People spend their money elsewhere.

            Additionally, IMO, if it was known that there was going to be a long-term lock-out, the Arena management (also the sharks) would have filled up the calendar with concert dates. Hence why no one downtown complains when the season is over – the arena is used all the time.

            I wonder if anyone in St. Louis or San Diego is complaining about quiet Sundays with no local games. I don’t think Oakland is complaining much about losing either the Raiders or Warriors — they want the area for development. Granted, none of those venues are in downtown, but that also disproves a blanket statement that that sports franchises create ancillary economic activity in the local market.

            Finally, I would argue that here in San Jose, the upcoming Google expansion into downtown will bring far more ancilliary revenue than the Sharks ever did because they are bringing people who will live downtown and be there 5-7 days a week, morning, noon and night.

            They aren’t coming down here because of the Sharks. And the city is giving very little away to get Google.

  3. If the argument put forward by sports owners in relation to incremental taxation (namely that any tax revenues a new building they may contribute to the construction of should be considered “new money/profit” for the host city and thus redirected to pay for their project, or just into their pockets generally) was reasonable every single taxpayer could make the same argument.

    “The income tax I pay is predicated on me working and generating revenue with which to pay that tax. Therefore, the government should refund this money to me, as the income that they are taxing would not exist if I chose not to work”.

    The same (pathetic) argument should hold true with any purchase made by the individual… why should I pay sales tax of any kind on any purchase I make? Haven’t I done “enough” for the economy by just purchasing?

    Or interest on loans or credit cards? All these things are efforts to usurp some of “my” money, and act (just like taxation in general is argued to do) to draw money out of the “real” economy.

    The sad thing is that there are actually people in our society who convince themselves that such statements are true and rational, and that they should be exempted from paying their share of publicly funded services and infrastructure.

    I’ve said it before, but it bears repeating:

    Property taxes are not “profit” for a host city/government. Property taxes represent the prorated cost of providing government services to all residents and commercial property owners in a community.

    When a building is added to any given municipality, the cost base for gov’t service is diluted, while the overall total services required expands (in theory, an equivalent amount). Redirecting (or waiving) taxes on a new development means the share of gov’t services not being covered by the new development now has to be paid by the remaining tax base.

    One can certainly argue that taxes are wasted on stupid things that should never have been funded. However, that is very much a separate argument from whether taxation should be applied.

    • Exactly. This is one of the main problems a city like Atlanta is having regarding the continued use of infrastructure relative to the amount of property tax revenue they are able to generate. People work, dine and party there but live elsewhere; taxing resources they personally are not subject to pay outside of taxes on purchases made. Some would think that should be sufficient since that revenue would not be realised anyway. Yet looking from a cost-benefit standpoint, I’d argue the extra money isn’t worth the escalation in hard fixed-costs.

  4. From what I have read (and heard on the radio and TV), those that support the Flames’ proposal of getting free tax-payer dollars, ignore all facts (and balance sheet information) to support their position.

    The arguments:
    – increased revenue is based on the assumption that there is no arena available, but there is a current perfectly suitable arena.

    – no taxes (or counting it as revenue or payback) is just silly…..if the location is occupied, taxes are due… so if it isn’t the Flames, the land will be sold or leased which will result in revenue to the city.

    – if ‘I/we” don’t get our own way, we’re going to take our sticks and pucks and go somewhere else”….. good luck with that …. you will be paying rent and sharing the revenue with the developers or municipalities, unless you are willing to go into a non-hockey market and take your chances. BTW, Seattle would charge the Flames rent/lease and likely take a profit from revenues.. the consortium building the arena is not a charity.

    – expecting tax payers to foot the bill…. at the current price of tickets, not everyone can attend games, so why would they be expected to subsidize the Flames when they personally do not get any benefit from it. There are a lot of other deserving places for the tax money to go.

    – “the city is being uncooperative and not bargaining in good faith”…. only means that the city is looking out for the taxpayers and not being a doormat to a group of billionaires who want to make more money. Don’t get me wrong, they deserve to make profit or why else would they sponsor an NHL team, however, using blackmail tactics is tacky in my opinion.

    The Flames are using emotion to fuel their side, and the city is using logic…. making it very difficult to come to an agreement. Think of any argument you’ve had where the other person is totally emotional…..there is no winning because their judgement is impaired and they can only see things their way. I’m not a big fan of the current city government – this is one of the first times that I am in total agreement with their position.

  5. Love the City of Calgary’s proposal format. Pretty much lays it out:
    – You build the building, you get to keep revenues.
    – We’ll dig some trenches, lay pipe and cable, and build roads and get the property taxes we would assess on anyone else.
    – And people who attend event can help pay, just like people who pay tolls on bridge.

    Would like a clean copy to put up a poster at home.

    Question: Who is front loading the $185M ticket surcharge? Is the city taking out bonds?

    • I believe the City suggested that the Flames take out the loan….. and comments I’ve heard suggest that the City should take out the loan because they get a preferred interest rate… who knows. Likely this will all change once the Flames announce their expectations for a deal this week.

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