More on the Proposed Changes to the Arena Deal: Is the Project in Trouble?

The Baccarat Casino might be on this corner a little longer than expected. via upload.wikimedia.org

There has been just one constant throughout the process: the Katz Group's almost uncanny ability to shoot themselves in the foot from a public relations standpoint at almost every turn.

I wrote that yesterday in my post about the Katz Group's request for additional concessions from the City of Edmonton as part of the deal for a new downtown arena. When I re-read the post later in the day I realized that statment isn't entirely accurate. Yes, the Katz Group has repeated taken aim at their own feet in this process but there is a second constant as well: that the project never really seemed to be in doubt. There have been hiccups along the way but it's always seemed as if sooner or later the deal would get done and the arena would be built.

Even with the project still $100M short of meeting the original $450M budget; and the project already over budget with no funding available for the cost overruns; and the Katz Group asking for more from the City I still never doubted that it would get done. That doesn't mean I liked it, just that I was realistic about the political will in this city to make the project happen come hell or high water. On Wednesday Mayor Mandel said he was more frustrated than optimistic at his point but I still felt that unless the request from the Katz Group was absolutely ridiculous there wasn't any way that the project wouldn't happen. As it turns out the request was ridiculous.

Last night the Journal reported that the subsidy the Katz Group had asked for was in fact a "$6-million annual subsidy to help pay for maintenance and operations." Now that we know what the request was I'm surprised Council wasn't more upset on Wednesday following their vote to reject the request for additional funding. This isn't a small request not in terms or money or what it means for the project. This request changes the entire dynamics of the agreement the two sides reached in October and for the first time makes me wonder if this project will actually happen.

Ignoring for a moment the money aspect of the request, I would have to imagine that the request to subsidize maintenance and operation of the new arena in any way left a bad taste in the mouths of Council. I can't remember a time when the Katz Group covering 100% of these costs wasn't part of the deal. We've been told repeatedly that one of the major benefits of this deal has been that while Katz gets all the revenue but he also covers all the ongoing maintenance and operations costs. Now I guess that's up for discussion.

What I find most puzzling about the request is that it was made in the first place. We all know that the project is over budget and construction costs are rising but this, as far as we know, isn't connected to those issues. This is simply a request to subsidize an aspect of the original $450M agreement that's been in place since October. David Staples says that "it’s understandable that the Katz Group is anxious. Oilers owner Daryl Katz will be paying many millions more each year in the new arena compared to his current deal at Rexall Place." The cost part of that statement is absolutely true but these costs were all known when the agreement was reached 11 months ago, if they weren't a concern then why are they a concern now? And even if they are why should I care?

I guess it never hurts to ask. After all Council had yet to use the word no at any point in negotiations so perhaps Katz thought he'd get lucky and get to pocket a few more million. But the downside of a request like this is that you come off looking greedy and you lose some of the support for the project.

And then there's the dollar amount of the request; $6M a year for the duration of the 35-year agreement. That is enough to completely offset the $5.5M payments Katz would be making on the City's $100M loan that constitutes his investment in the construction of the building. An investment that's already been subsidized by $2M a year for advertising during the first ten years of the agreement. Again, Katz can ask for whatever he wants but I can't believe anyone has the nerve to ask for this much.

So where do things go from here? As I said yesterday the answer to this request should be a flat out no. The deal already in place is very generous and there is no good reason to make any changes now. Taking it a step further, if I was in charge at the City I'd be bringing the design process to a full stop. As it stands now about half of the $30M design budget has been spent but with the two sides this far apart it seems to me that continuing to spend money on design is a waste until everyone is talking the same language again. This should also help make it clear that the City is not going to be pushed around when it comes to requests for more handouts.

On Oilers lunch yesterday Mayor Mandel said negotiations are at a stand still. He's still dedicated to making this project work but you could tell he was very frustrated by the turns the project has taken. From the projects biggest cheerleader to be that blunt about the situation was refreshing but it also made it quite clear that the arena project is very close to going completely off the rails. I can't say I ever thought we'd be at this point.

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