When It Comes to a New Arena It's The City Not the Katz Group Who Has Leverage

If you're a frequent reader of this site, or you follow me on Twitter, then you know that I am not a big fan of the City of Edmonton investing millions of taxpayer dollars into a downtown arena that will serve as the new home of the Edmonton Oilers. I think the CRL that will be used to partially fund the project is a shell game and that taxes will be increased as a direct result of this project. I believe the revitalization that will occur as a result of the arena will be minimal at best. I think Mayor Mandel meeting with Daryl Katz and Gary Bettman in New York was a joke. And I think the agreement between the City and the Katz Group is a bad deal for the Edmonton taxpayer.

But, like it or not, I was willing to let that agreement from last October be. I'd said my piece, I'd outlined my arguments, and there was little more that I could do about it than that. A deal's a deal was more or less how I looked at it. There was of course still $100M of funding missing the cost overruns - we all know they will be cost overruns - to deal with but I'd moved on to doing everything I could to make sure that the final product was as good as the City could get.

But then the Katz Group got greedy asking for an annual subsidy of $6M to help offset costs associated with the maintenance and operations of the new arena. And then today the Katz Group decided to follow that up with a visit to Seattle and the threat to move the team if a new arena deal isn't secured. I'm not naive, this is something I expected because relocation is the only leverage the Katz Group has in these negotiations but that doesn't mean it's something that I have to like.

And the thing is, the leverage Katz is trying to use here isn't worth a damn. And where as I was willing to say a deal's a deal before all of this, now I want Council to yank the whole deal right off the table. If Katz wants to play hardball I say we play hardball.

The threat to move to Seattle, or any other city looking for an NHL for that matter, is an empty threat. Under the terms of the agreement that was reached between the Katz Group and the City last year Katz pays $0 towards the arena construction costs. That's not a typo, he pays nothing. His investment is a loan taken out by the City which he pays back. Katz also gets revenue from the building 48 weeks out of the year not just on hockey nights as is currently the case at Rexall. And this ignores the fact that he's already making money hand over fist in a small and outdated arena. There is no other way to put it: Katz is sitting on a gold mine in Edmonton right now.

By comparison he'd have to pay rent in Seattle and would only get 45 nights worth of revenue in exchange. Also there would likely be a relocation fee he'd have to pay to the NHL which would come out of his pocket. And, although it's a bigger market from a people perspective, I don't think the NHL market in Seattle is as strong in terms of fan support as Edmonton is. Relocating the Oilers there or anywhere else makes zero economic sense if there is going to be a new building in Edmonton. There is a better chance that Derek wins over Wild fans in the next month than there is of the Oilers moving.

In trying to negotiate a better deal for himself Katz can only threaten to relocate the team, he's got no other leverage, but because the City has stepped to the plate like they have and because they've committed to funding 100% of the construction costs they've taken his leverage away. The City holds all the cards here. Think about it for a minute: If Katz is investing nothing towards the construction of the arena what does the City need him for beside occupying the building 45 nights a season? The short answer is that they don't need him. His revenue streams could be our revenue streams.

Katz has made it clear he doesn't give a damn about the City of Edmonton or Oilers fans so I say Council makes it just as clear that they could care less about him. Give him a choice, either he agrees to drop his subsidy request right now or the City will pull the entire deal off the table and we build the whole thing ourselves and he can then either become our tenant or he can pack his bags and move on. If he choses the later I'll be disappointed because I don't want the Oilers to leave but I also know that there will be teams lining up to move from locations that lose money to one that doesn't. And I would rather have that than a deal that's good for Daryl Katz and not the City of Edmonton.

For the record, giving Katz the option to return to the original deal isn't the course of action I'd most like to see. Rather I'd prefer if Council just pulled the deal off the table and announced it tomorrow afternoon at a hastily called press conference along with their plans to proceed with the Screw You Katz Centre without any funding coming from the Oilers owner. But as fun as it would be to watch Katz scramble and to read the press release that would follow I don't think there is the political support for a move like this despite the fact that Katz's action have irritated all but the team's biggest and most delusional cheerleaders.

This isn't how all of this should have played out. As a local guy Katz had the opportunity, and the support of fans and the public, to set himself up as a hero who helped build a new arena and revitalize Edmonton's downtown. Whether that would have been deserved or not is a topic for another post. But instead he chose to try and bully the City into a deal that doesn't make sense for anyone other than him all in order to make a few more dollars on top of the piles he'll already be making. That was his choice. Now the City should use all the leverage they've got to make him pay for that choice.