Markham, Ontario, held a public meeting on its plans for building a $325 million arena on Wednesday night, and local residents seem to be asking the same question that’s been puzzling me:
“What I have seen so far, everything is wonderful, actually it’s grandiose, and that’s not my concern at all. The only issue I have is who‚Äôs paying for it. And I don‚Äôt like the answers there,” said Donna Bush, vice president of Markham Village City Ratepayers Association.
Moving past what may be the first-ever use of the word “grandiose” as a positive, what do we know about who’d be paying for the arena? The city and a private developer (GTA Sports and Entertainment) would each put up half the construction cost. Of the city’s half, “most” of it will be funded by “surcharges on new condominiums and apartments,” according to the Globe and Mail, with the rest coming from lease payments, parking fees, and a share of ticket sales.
That sounds like a rather stupendous (not meant as a positive) amount of money to be raised by fees on new housing development — as Openfile notes, it’s about $2,000 per city household, and only new ones would be paying the fee. And what happens if development slows, or arena revenues are less than expected with two arenas competing for events in the same market?
If any answers were provided at Wednesday’s public session, they didn’t make it into the press reports. Any FoS readers who were there and can provide an eyewitness account, by any chance?
Canada today is the US in 2006. They are at the peak of a real estate bubble and just like in the US in the mid 2000s many youngish growing communities are financing lots of expensive unsustainable projects/programs/infrastructure off of developer fees.
This leads to a self reinforcing crash where once development slows, there are no fees, so then you need to raise actual property taxes, so development slows further, so then you need to make funding cuts to local services and infrastructure, so then development outright stops. Then the real wailing and recriminations begin.
Canada somehow ducked most of the housing crisis the US has been suffering through for the last 7 years, but it is headed for one itself very soon. Expect to hear a lot of wailing about budget cuts and increased taxes in a few years from communities who really really should have seen this coming.
Joshua;
While there are similarities between the US housing bubble and Canada’s, there are also important differences (mainly to do with bank regulation and both internal and external limits on the amount of equity that can be withdrawn on homeowner loans – something US banks chose not to employ). Many people here used their home equity to fund discretionary purchases also. However, they were not able to borrow more than 75% of the market value of their home.
The way “we” avoided the crisis the US has been in was to not allow the type of predatory lending practices that the US did. That said, we have some of the same contributory causes (people buying more house – and toys – than they can afford, an influx of foreign investors/economic citizenship qualifiers that will pay anything to get into the country etc).
Canada may well see a housing correction in the near future. Because of the banking controls we have stuck to, it will be less severe than the US’s. I’m not “crowing” about it, as many Canadians are still living beyond their means – which is bad. But we did not allow to develop the kind of wild west banking/lending environment that the regulation averse US did.
Your point regarding municipalities living beyond their means and using one time (or at least inconsistent) fees as a method of funding is entirely correct, though. Our countries share that particular brand of stupidity…
Neil;
Markham/Vaughn is quite a way from downtown Toronto (where the ACC is located). I don’t live in the GTA, but it is not impossible that a second arena in an area of 7-8m people could be profitable. Whether rural Markham is the right location for it is another question.
Having said that, I agree that the details provided on funding are at best idealistic and could more accurately be described as poorly developed. The most significant impediment to a second NHL team in “Toronto” was never building an arena or convincing the NHL itself that Toronto could support a second team.
It was, and remains, the existence of the richest NHL team of them all in that market, and the lengths MLSe will go to prevent the split of that market. As I’ve said since day one of the whole “Coyotes to Toronto/winnipeg/quebec/hamilton/saskatoon” farce, if the goal of prospective arena builders/owners is to make money off an NHL team in Toronto, the simplest and cheapest way to do that will be to buy the Toronto Maple Leafs. The present owners (even though they are “new” owners) will make sure that the price of splitting the market is so high that any prospective purchaser would have to pay more to own the “second” team than they would to own the primary sports property.
Only a fool would buy the Clippers for more than they would have to pay to own the Lakers.
Interesting info on the Canadian lending environment John. What do you think will happen when Canadian housing prices drop in the next few years?
The players union wants another team in the GTA, CBC/TSN want another team in the GTA and I’d imagine that several other teams wouldn’t mind forcing the Leafs to share some of that gold mine.
The Leafs will probably get a nice portion of whatever relocation fee is charged for a Coyotes/Islanders/Devils/etc. move, but the cost of the relocated team + relocation fee will surely be far less than the value of the Leafs.
As far as the financing of the arena, goes, I’m expecting the residents of Markham to foot a large portion of the bill. There is just so much more demand for live NHL games than there is supply right now that I’ve got to imagine that the stadium builders will get away with asking for a lot.
Joshua;
I would imagine we are in for some pain in the housing market here. My hope is that the correction will be a correction, and not a collapse.
Ben;
The league has already said (during the Coyotes bankruptcy in 2009) they believe a second franchise in Toronto might be “worth as much as $500m”. That in itself is more than the value of the Leafs. Add to that the cost to indemnify MLSe (which won’t be included in any expansion or relocation fee for the Toronto market) and any ‘owner’ contribution to the building of a new arena. Suddenly, buying the Leafs (even at a significant premium to Forbes valuation of $470m or so) looks like a bargain.
One of the biggest challenges with getting another team in GTA is with the MLSE but not really related to the leafs. The leafs have the most expensive ticket in the league and have continued to sell out the building with horrible performance on the ice. A second team will not change those figures. The impact will be to all of MLSE’s other teams, namely the Raptors and the Toronto FC. I saw an estimate by TSN that a ranchise moving to the area would need to pay the leafs 1Billion. That seems crazy expensive and probably would prevent a team from ever going ther but who knows…
Question for the Canadian Peeps: Is Telus or Shaw big enough to maybe bring a team there? They could tie in a TV contract to offset some of the expense. (Although Telus might be just western Canada if I am not mistaken)
Someone can correct me if I am wrong, would the Sabres complain if the propsed arena in Markham is built and the area comes close to getting an NHL franchise. I recall hearing something that if the Sabres arena was built a few more miles westward, then territorial issues wouldn’t be an issue.
@ JB,
Telus has cell phone service nationwide. They also have cable service in one (Alberta for sure) or two western provinces if I am not mistaken.
Matt,
Markham would not be a problem for Buffalo. It’s Hamilton that they’re dead against.
Practicality is the only concern regarding the Sabres. Hamiltion is about an hour’s drive from Buffalo even in rush hour, meaning that if there is a team there, there will be an impact on the Sabres. Markham is irrelevant, people there couldn’t make a 7pm-730pm Sabres start after work, barring a helicopter over the QEW.
John is, with respect, wrong in calling Markham “rural.” While not on the TTC grid, it’s within a shot of Toronto, and would qualify as about 2-3 major US average-sized suburbs to a major city combined together in one unit. A good deal of major businesses relocated there during a municipal tax hike in Toronto proper. I’d say, as someone who doesn’t care either way whether they get a team, they would sell out every game.
The big issue is whether any territorial rights are actually legal under Canada’s anti-combine (monopoly) legislation. This probably won’t be tested, as the NHL would probably come to an internal compromise on indemnities to the Leafs, but the indemnity wouldn’t approach their purchase price.
Even as a proud resident, Southwest Ontario is too spread out between Windsor, London, Kitchener-Waterloo-Cambridge, Hamilton, and all the communities therein to have a team. Suburban Toronto is really the best bet if the NHLPA/NHL want another Ontario market.
Problem is, there are also about 10 communities that could support a commuter team that will bet public funds on the prospect.
Ty;
Sorry, perhaps I wasn’t clear. I was not calling all of Markham “rural”. I was noting indirectly that the site selected for the facility is, I have been told, in a near ‘rural’ area of the city… on the fringe, as it were. Images of the proposed site appeared to show an empty field on the edge of the city.
I agree that the NHL will not allow it’s territorial rights (which the league claims don’t exist, though it’s member clubs disagree…) language to be tested in court. It didn’t during the Islanders or Devils moves, nor when the Ducks were added as an expansion team (into the territory of the then-chair of the expansion committee, Mr. McNall, who pocketed half the expansion fee as a result).