Katz Group Looks for a Better Arena Deal, It's Time for Council to Call Their Bluff

Over the last few years the Katz Group has been actively working on securing a new downtown arena for the Edmonton Oilers. As is usually the case with stadium projects in North America, a big part of the funding for this project is intended to come directly from the City of Edmonton and given the scale of the project, costs currently sit at $485M although the agreement in place is for only $450M, there have been a number of questions about that funding model. Despite what the get-it-done/build-it-at-all-costs crowd thinks, nearly half a billion dollars isn't an insignificant amount of money and is worth some discussion.

Both sides have made good points and both sides have made ridiculous points along the way and the debate around the arena has really been a roller coaster for those on both sides of the issue. Interestingly, at least to me, 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.

There was the $100M that was initially allocated for the for the arena, that was later clarified to be for the surrounding development, before there was $100M for both the arena and the development debacle that kicked off the process. There were veiled threats to relocate the team to Hamilton where the Rexall Sports was looking to take over the lease of Copps Coliseum. Or maybe instead of downtown, the Oilers would build their new arena on the City's outskirt near the River Cree Casino. And then there was the news today that, just days before the NHL is set to lockout the players over how to divide billions in revenue, the Katz Group is looking to sweeten an already sweet deal with additional concessions from the City.

How there is still public support for this project I do not know.

The problems today arose from a report to City Council on the status of negotiations with the Katz Group. Because the arena project is being worked on with in conjunction with a third party the update was done in private but we do know that following the update Council passed a motion to not provide additional funding for the project, choosing instead to stick to the agreed upon $450M. Thanks to David Staples at the Cult of Hockey we have an idea of what exactly the Katz Group was looking for.

What I do know from various sources is that at least two major stumbling blocks have come up in the negotiations and were presented to city council by Farbrother and Rosen. They are:

1) The Katz Group’s concerns about the annual operating profits of the arena, which has pushed it to ask for a multi-million subsidy to run the building.

2) The Katz Group’s desire to build an office tower to drive business in the arena and district, and its wish to have the city government as the new tower’s major tenant.

For those who might have forgotten the arena agreement framework includes $0 up front from the Katz Group. The entire $100M investment is actually a loan taken out by the City (another subsidy) that is paid back over 30 years by the Katz Group with revenues that are expected to be generated by the building. And there is also another $20M from the City that will be used for advertising whatever that means exactly. So if you're keeping score at home, Katz pays nothing up front, gets $100M for $80M, gets all the revenue from the building, and pays back City's loan, which has an lower interest rate than he would otherwise be able to receive, with revenue taken directly from the building. And despite all that he's concerned about the operating profits. In other words, his free arena won't make him enough money.

Today's issues weren't about the $35M cost over runs. As far as I can tell, today was almost entirely focused on the deal already in place and nothing has changed on that front since the City and the Katz Group reached an agreement on funding in late October of last year. So even if the stupidity of "my free arena doesn't make me enough money" is ignored I'm still left wondering how the Katz Group could suddenly have concerns about the operating profits considering they agreed to this deal almost a year ago. What's different now? All I can come up with is that this is nothing more that a grab for a few more dollars.

And then there is the office tower issue. I have no idea what the Katz Group is thinking here. This is something that the City would never be able to give as part of negotiations. The City doesn't rent office space in private deals like this and I can't imagine that any other city does either. This is something that the Katz Group and their consultants had to have to known; if not they aren't worth the money that they're being paid to be honest. The only logical reason for including this request is to make the first issue seem less idiotic by comparison and to give Council an out where they can say "Well, we didn't give in to all his demands."

When it come to funding the arena I've never faulted Katz for asking for public money, it doesn't hurt to ask and if some wanted to give me free money I'd certainly take it. Instead my criticism has been focused on Council who has, in my opinion, negotiated a terrible deal for the Edmonton taxpayer by taking on far too much risk for minimal reward. Seeing them not simply cave to another request for additional funding was refreshing to say the least. Of course not all feel the same way I do and when Council refused to give Katz everything he desired one person employed by the Oilers felt the best option was to hit the panic button.

Enter Bob Stauffer who, on his radio show yesterday, repeatedly made mention of the possibility that the Oilers could relocate as soon as 2014 if a new arena isn't in place. Relocation is a threat that's been dangled over the heads of Oilers fans for years. Katz isn't the first, Pocklington beat him to it decades ago. And while in the longer term relocation might be a possibility (none of us can know for sure what the dollar will do) it isn't going to happen in the next two, three, or even five years. So if that's how long it takes to get the right deal for an arena in place, one that works for the City of Edmonton and not just the Katz Group, then so be it, the team will still be here.

How can I be so sure of this? Well lets look at the numbers.

For starters the Oilers are sold out every night. 16,839 tickets are sold each and every night, 45 times a season. If the playoffs weren't a myth in this town it'd be more that that. On top of that they've got a waiting list for people wanting season tickets that numbers in the thousands. And the team is terrible. Honestly the fan support for this team is ridiculous considering the product on the ice. My brother lived in Sweden for the past three years and he didn't give up his tickets because a) he knew he'd never get them back and b) he knew people would line up to buy them off him. The NHL is not going to just walk away from a market like this.

And all those fans mean the team makes a boat load of money. According to Forbes the Oilers had the fifth highest operating income in the NHL last season at $17.3M. In a league where 18 teams out of 30 posted a loss, the idea that one of the most profitable might be a candidate for relocation is at best laughable. At its worst it's blackmail. Look at the effort being put into keeping a team in Phoenix and tell me honestly that you think the Oilers are going anywhere. Might there be a market that would be excited about NHL hockey that could compete with the revenue Edmonton generates for a year or two? Sure but when the shine wears off Rebuild IV somewhere around Tambellini's 11th year as General Manager I'd bet Edmonton will be a much the better option.

And this is what Council needs to understand. The only leverage the Katz Group has isn't worth a damn. The team is not going anywhere. It's profitable here right now. It'll be profitable with the arena deal already in place. And all the issues that came up today are just about making the team a little more profitable. Katz has every right to ask for more but that doesn't mean he should necessarily get more. Council needs to make it clear that the deal in place is the deal and if they don't like it they can look elsewhere. They won't because it's a bluff. Call the bluff.