September 18, 2012
Oilers owner Daryl Katz says downtown arena in jeopardySays construction costs are mounting as time wears on
By TERRY JONES, QMI Agency
EDMONTON - It’s not often Daryl Katz decides to talk. But the Oilers’ owner talked Monday and basically said ‘Listen up, Edmonton.’
Katz says the entire downtown arena deal is in definite danger of being derailed yet again. And not because he’s asking for an arena operating subsidy. And not because he’s throwing out a bunch of new last-minute demands.
“I need to clear the air on the whole idea of an operating subsidy,” he said of a reported $6 million a year he was supposedly asking to be given every year, in an alleged last-minute attempt to change the deal.
“It was a leak out of the city.
“And it’s totally counterproductive.”
Katz said if Steven Mandel thinks he’s “frustrated” from the city’s side of the negotiations, the mayor ought to try sitting on the Katz Group’s side of the table.
Katz spoke to your correspondent for 40 minutes on the phone from Vancouver Monday, in a rare response to a request for an interview.
“You know I don’t usually talk. I don’t like to talk. But right now I think it’s important for me to talk. There’s a lot at stake,” he said.
“People need to understand the full picture. I’m not sure they do.
“The fact is, I’m trying to find a way for the economics to work for both sides. To have those efforts to save the deal turned against me by a leak like that is really unfortunate.”
Katz says the perceptions are way off base when it comes from the costs projected to go over the original $450 million.
Indeed, he says he’s willing to put more money into the deal to help make it happen.
“We said we’re prepared to do our part. We’re trying to be flexible and work through all the issues fairly and reasonably.”
Asked specifically if that meant more money from the Katz Group, the Oiler owner said yes.
“That’s one of the things we could do if we get the things that would make it win-win. It has to be win-win.
“We think the deal is too important to fail.
“We are confident we can get it done if the city will work with us creatively and constructively.
“We’re not asking for something new and were not asking for something at the last moment. We’re still prepared to partner and resolve all outstanding deals in the New York City framework.
“Everything we’re trying to do is within the framework of the New York City agreement,” he said of the trip to New York with Mayor Mandel to get the project back on track in the office of NHL Commissioner Gary Bettman the last time it got derailed.
“Time is our enemy. Costs are mounting,” said Katz.
“Construction cost inflation in Alberta is out of control. The longer it takes, the more it will cost. Very quickly the costs are going to become prohibiive and we’re never going to be able to do it.
“This thing has taken 4½ years. Quebec City started two or three years after us, and they just broke ground. Both our group and the city has to get together and resolve this before incremental cost inflation makes this project unachievable.
“Our lease expires in less than 24 months. Costs are mounting daily. We need to come to terms in the next few months and break ground in the spring.
“This thing needs to get done. And we need to figure it out — not to be questioning my integrity.
“People aren’t thinking. Look at how we got here. I bought the Oilers. The Edmonton Investors Group was fractured and the team was at risk. The Oilers were in danger. I stepped up when no one else would with the goal of building a new arena and turning it into a huge revitalization of downtown.
“I’m still committed to doing that, in a manner that’s fair and commensurate to other small-market-arena projects in Winnipeg and Pittsburgh.”
Pittsburgh, he said, has been the model the City of Edmonton and the Katz Group have been working with, dating back to the New York City agreement.
“It’s right, appropriate and smart for the city to partner with us to invest in the arena, just as Pittsburgh did with the Penguins.
“Pittsburgh is considered a small market but it is about three times the size of the Edmonton market. The team put up no up-front capital investment. The Penguins put up $5 million in rent, just like we’re supposed to. No property taxes. And from their ticket tax, 100% flows back to the club to offset operating costs.”
Further, he said, a casino component is part of the Pittsburgh deal. To this point it hasn’t been secured in Edmonton, as was outlined in the New York City framework.
“The concept is to offset capital and operating costs just as all other markets have done. In the New York City infamous framework, that mechanism of casino gaming was to help the city facilitate that. It was always there.
“You’d have to ask the city what they’ve done in that part. But if you don’t have that mechanism, you need an alternative mechanism to fill that hole. It’s not a new concept, it has been in the model for our deal since the outset. I feel badly if several members of city council were caught off guard with that,” he said of the need for a mechanism to offset or “subsidize” operating costs as exists in both the Winnipeg and Pittsburgh deals.
Katz said city administration knows that has always been the purpose of the proposed casino arrangement and it is definitely not new.
“To suggest I tried to change the deal at the last minute is not true.”
It can be complicated stuff, and Katz said the keys are being lost on a lot of people because this isn’t a deal being done out there at centre ice.
“It’s about securing the Oilers future in Edmonton, developing a new arena and district to improve the quality of Edmontonians’ lives and improving the city’s tax base by well over a billion dollars, and fund a host of other important civic initiatives. That’s what it’s all about.”
And if you want to get complicated, bring the community revitalization levy (CRL) into it.
“The CRL is a critical element of this deal, and it is unique to Edmonton’s deal. and people don’t understand it,” said Katz.
The CRL is a municipal funding mechanism created by Alberta statute. It recognizes public investment in infrastructure can create private-sector investment, which creates new tax revenues which wouldn’t otherwise exist.
The municipality can take those new incremental tax revenues and use them to pay for the infrastructure over 20 years.
The Katz Group explains in this case, the arena would be in infrastructure and the CRL could be used to pay for the arena over 20 years. The city even has a short video on its website to explain it.
“The Oilers are the key to the arena and the arena is the key to a whole host of benefits to the city and the public. This project will generate a billion dollars of new investment downtown and sustain the Oilers and NHL in Edmonton for 35 years. It all drives the community revitalization levy,” said Katz.
“The city conservatively estimated the CRL to be $1.6 billion over the length of the deal — $1.6 billion over 20 years.
“And it is our information that the city’s current estimate is in excess of two billion. The arena is the catalyst project of the entire CRL.
“The CRL is an enormous windfall for the city, something that Winnipeg and Pittsburgh don’t have.
“Some could argue the CRL could pay for the entire cost of the arena. At this point, only $47 million of it is directed into the project.
“The Oilers are the key. The Oilers make the arena possible. The public doesn’t understand the enormity of the thing. The Oilers are the catalyst. Without the Oilers, nothing happens. None of it can happen if the Oilers aren’t sustainable and in Edmonton for the long term. That’s the key takeaway.
“We’re willing to partner with the city to do all this. We just want a deal, fair and commensurate with other small markets.”
Katz is essentially pleading for the city to embrace the fact that there’s a big upside here, and get past being focused on searching for a downside.
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