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Do We Really Need To Replace Rexall?

Need - something you have to have

Want - Something you would like to have

The difference between a want and a need is relatively simple to understand on paper but in reality the two often get blurred because in order to justify the purchase we just made, saying we needed something is a lot easier than saying we just felt like spending frivolously. For example, I have an iPhone 3G, which doesn't do some of the cool things that an iPhone 4 does, and on top of that, it also has a cracked screen. I want to replace it. but it still works as well as it did when I bought it, and in reality, I don't need a new phone with fancier bells and whistles no matter how much I might want one.

My phone and its present condition is likely of little interest to you personally but it does illustrate the difference between a want and a need on a small individual scale. On a much bigger scale that probably is of interest to you, the City of Edmonton is working with the Katz Group on plans to build a new arena in downtown Edmonton. I won't for a second deny that a new downtown arena would be a nice thing to have, but is it something that the City of Edmonton and its residents actually need?

To figure out if we really do need a new arena, let's first identify what we know:

  • Rexall Place was built in 1974 and at nearly 40 years of age is in need of some repairs. This isn't exactly a surprise; any piece of infrastructure 40 years old is going to need some amount of maintenance. 
  • The cost of these repairs is estimated to be $31M. You might be more familiar with the figure of $200-$250M, but that is to bring the building up to current NHL standards and not what is actually required to keep the building operational.
  • The agreement framework between the City and the Katz Group sets the City's contribution for a new arena at $125M, an additional $125M come from a user-paid facility fee, and $100M will come from the Katz Group. There is still $100M in funding that needs be secured before the project can proceed.
  • The City's investment of $125M doesn't include over $50M in additional costs - $20M for the land and $32M in infrastructure upgrades - that the City will be responsible for.

I think it's safe to say that nobody wants to spend more money to upgrade Rexall Place when the contribution towards a new building would be less so that option can be dropped completely. That leaves a decision between $31M in maintenance or $177M towards the construction of an all-new building. From a pure cost standpoint it seems like a no-brainer that maintaining Rexall Place would be the preferred option. Much like my iPhone, Rexall Place is dated but it still does what it needs to do: provide a venue for entertainment events.

As far as I know the sight lines are great everywhere and there isn’t really a bad seat in the house. The lines for food, beer, and bathrooms could be shorter, but it’s not as if you simply can’t access these facilities during a game. In 2010 Rexall finished 63rd worldwide and 35th in North America in terms of revenue so clearly the building isn't keeping people away. Rexall Place may not be all that pretty, but it gets the job done and there is still value left in the building. By simply keeping up with maintenance there is no reason that it can't last for quite a while longer.

But a new arena wouldn't just be an arena, it would be part of an entertainment district that would help revitalize the downtown, so strictly comparing maintenance and replacement costs isn’t an apples to apples comparison. The Edmonton Arena District website provides us with a good description of the expected benefits:

An entertainment and sports district downtown would create jobs, spur investment, expand the City's tax base, help drive the economy and make Edmonton a better and more attractive place to live, work and play. It would bring more restaurants, shops, entertainment and performing arts venues, and new public spaces into the heart of our city.

As a person that lives downtown, works downtown, plays downtown, and is both an Oilers and Oil Kings season ticket holder that is a very appealing vision for Edmonton's downtown. The problem is that the evidence from other stadium developments doesn't support the claim. From Why Do Mayors Love Sports Stadiums?:

Studies demonstrating pro sports stadiums’ slight economic impact go back to 1984, the year Lake Forest College economist Robert Baade examined thirty cities that had recently constructed new facilities. His finding: in twenty-seven of them, there had been no measurable economic impact; in the other three, economic activity appeared to have decreased. Dozens of economists have replicated Baade’s findings, and revealed similar results for what the sports industry calls "mega-events": Olympics, Super Bowls, NCAA tournaments and the like. (In one study of six Super Bowls, University of South Florida economist Phil Porter found "no measurable impact on spending," which he attributed to the "crowding out" effect of nonfootball tourists steering clear of town during game week.)

Meanwhile, numerous cities are littered with "downtown catalysts" that have failed to catalyze, from the St. Louis "Ballpark Village," which was left a muddy vacant lot for years after the neighboring ballpark opened, to the Newark hockey arena sited in the midst of a wasteland of half-shuttered stores.

I think it goes without saying that Edmonton would benefit from a lively, thriving downtown core. But getting to that point won't happen overnight, it'll take time. Could an arena help revitalize downtown? Yes it could. Will a new arena/entertainment district alone cure all that ills downtown now? No it won't. 

So getting back to the two options from before, the decision is really between $31M for maintenance to Rexall Place, which functions adequately or $177M for a new building we don't really need and some minor economic impact that won't come near what we're being told. With that information, as much as I'd like a slightly bigger seat and a cup holder I'd give that up and fix Rexall Place. If revitalization of the downtown core is something the City is serious about making happen, and I hope that they are, then they can invest some of the savings directly into projects that the City controls as opposed to indirectly through an arena/entertainment complex.

No matter how you look at it, the City of Edmonton doesn't need to replace Rexall Place. Some of us may want to because we go to games or concerts and a new building would be more convenient but that isn't a need, that's a want. It might seems nitpicky to make the distinction but when public money is involved clarity on the underlying issues is important. If (more likely when) the City does chose to invest in a new arena, payments on the loans will come due long before the economic benefits are seen, if they ever are. When that happens the City will have no choice but to raise taxes in order to maintain service levels for things like road maintenance, snow clearing, policing, and fire services, all things the City actually does need.