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Taking A Bad Deal And Making It Worse

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If at the end of today there is an agreement in place on either of the outstanding items - the additional $100M or the ridiculous need for a non-compete agreement with Northlands - that sees the City investing additional money into this project it will have the distinct look of 30 NHL owners sitting down and bullying the City of Edmonton into a deal. I know some fans will be fine with a deal in any form, but that will leave a very bad taste in my mouth.

I wrote that a week ago in response to the meetings being held in New York between Gary Bettman, Daryl Katz, and Edmonton's Mayor Stephen Mandel. Scott, being the observant guy he is, immediately noted the use of "will" and not "would" in the last sentence, my way of saying that a deal would get done regardless of whether it was a good deal for the City or not.

Jump ahead a couple of days to the update provided to Council and wouldn't you know it, things got decided in New York and the deal got worse for the City of Edmonton. Consider me shocked.

The big "win" that came out of the meetings in New York was the Katz Group dropping their demand for a non-complete agreement with Northlands. Considering that the City has no mechanism to force an agreement between two parties, this makes sense. But even though it never should have been part of the negotiations the Katz Group still managed to get something for nothing. For dropping the non-compete the City agreed to kick in $20M disguised as a sponsorship agreement. Because without that sponsorship nobody watching an EDMONTON Oilers game would know that the team plays in Edmonton. That is a spectacular investment.

Oh but there's more. Do you remember when Katz' original $100M investment was clarified to be for the surrounding development and not the arena? And the uproar that followed until it was further clarified that there was $100M for the arena and $100M for the development? And just like that, problem solved, Katz is a great guy, return to what you were doing. Well as it turns out Katz' definition of an investment and mine differ just a little bit.

Under the new agreement framework the $100M promised by Daryl Katz for the building will now be a cost the City fronts and gets paid back over 30 years. So not only is Katz' $100M really only $80M but he's not putting that money in upfront. For those keeping score at home, the cost breakdown on the day the building opens is as follows: City of Edmonton $350M, Daryl Katz $0, other source (likely the Province) $100M. Not one penny of Katz' money gets spent to build the building. That is a hell of a deal. How can a team employing people capable of achieving a deal this good, also employ Steve Tambellini?

Some on the pro side of this deal would argue that since the City is still getting the full $100M (which is actually $80M remember) plus interest who really cares. Well, we should all care. The City has limited borrowing capability and this is $100M that we won't be able to borrow for another City project, basically because we have a new arena may mean we can't do other things we want, or need, to do. Limiting ourselves in the future is a bad deal for Edmonton.

And then there is the simple fact that a lot of things can change in 30 years. Ownership, the dollar, the economy could all change significantly and impact those annual payments. Say in year 11, after the annual $2M is sponsorship money runs out, Katz (or the current owner) comes to the City and says the team can't afford those $5.5M yearly payments and remain viable? At that point the City is stuck, they've got a building with money left owing and now we're trying to buy a dollar.

Does that seem far fetched? Maybe it is, but the Oilers have argued they're not viable in Rexall Place, a claim accepted by many, if not most, despite zero proof and there being 16,839 butts in the seats 41 times a season. I think history can teach us a lot about the future and if we bought that line this time around what's to say we won't buy a similar line down the road? By structuring the deal like this the City takes on all of the risk, allowing Katz to mitigate his completely. Taking on all the risk is a bad deal for Edmonton.

The process that has brought us to this point has been absurd and now the deal is getting worse for the City. Isn't that just wonderful.