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Edmonton should pass on Oilers’ arena deal

No economic case can be made in support of the deal

October 1, 2012

CALGARY, AB, Oct 1, 2012/ Troy Media/ – For those who might have missed what’s happening in the city where Wayne Gretzky first made his mark in professional hockey, another round of taxpayer subsidies might soon be delivered to for-profit professional hockey in Edmonton.

The background: In 2011, Edmonton Oilers’ owner Daryl Katz convinced city council to deliver up taxpayer cash for a new $450-million arena.

More recently, Katz demanded more tax dollars and then visited Seattle to drop hints that he may move the Oilers to that west coast city if Edmonton City Council doesn’t agree to his latest ‘request.’

Before detailing the new demand, here’s the breakdown of last year’s deal between Katz and the City of Edmonton.

$125-million was to come from a new facility improvement fee (a ticket tax imposed on other events in the new facility once built).

Some existing taxpayer support for the Oilers’ present home, Rexall Place (formerly Northlands Coliseum), would be redirected to the new facility along with some parking revenues. That would be worth a total of $80 million. Another $45 million is to come from a tax-shell game known as a ‘Community Revitalization Levy’ in downtown Edmonton.

A further $100-million was presumed to come from federal and provincial governments, both of which initially balked. But for those who care to gamble, bet that such money will come from the provincial government through ‘infrastructure’ funding. If that happens, the total taxpayer contribution to the new $450-million arena will be $350-million, or about 78 per cent of the cost.

Katz has agreed to chip in $100-million, by paying $5.5 million per year over 35 years (which includes interest on borrowed money).

But on top of the almost 80 per cent taxpayer subsidy, Katz now wants another $6 million each year from Edmonton’s taxpayers to defray maintenance costs at the proposed facility.

Funny how that $6-million taxpayer subsidy would cover Katz’s annual $5.5 million payment for his $100 million share. If Edmonton gives in to Katz’s latest demand, taxpayers will, in effect, pay 100 per cent of the cost of building the almost-half-billion dollar rink.

Even if Edmonton doesn’t give Katz an extra $6 million annually, Edmonton city council has already agreed to spend $20 million over 10 years on advertising and sponsorship in the new Katz arena.

That’s $2 million annually. And that means the Oilers’ owner will, on a net basis, only pay $3.5 million every year for a brand-new half-billion hockey rink for the next 10 years.

All this should be dejà vu for Edmonton taxpayers.

Back in 1994, Edmonton city council agreed to a demand from then-Oiler’s owner Peter Pocklington that a ticket tax be imposed on all events in that city’s coliseum. That money was then forwarded to Pocklington’s operations to help pay the Oilers’ annual rent at the then-named Northlands Coliseum.

In 1998, new team owners asked Edmonton to forgive that annual rent altogether (OK, they paid $1 per year) and with this catch: They still wanted all ticket tax proceeds that came from Oilers’ ticket sales. Edmonton city council said “yes.”

The script from Pocklington, the pre-Katz owners and Katz is familiar: tell local politicians to ante up. If that doesn’t work, threaten to move the team. Also, tell the public and politicians that major league sports will act as an economic stimulus. Claim it will revitalize their downtown. Then publish studies that claim additional tax revenues will accrue that more than make up for the initial taxpayer subsidies.

But do taxpayer subsidies for sports teams produce a beneficial net economic effect at all? In 2008, University of Maryland professor Dennis Coates and University of Alberta professor Brad Humphreys reviewed the academic literature on the economic impacts of professional sports franchises and stadiums. They found the following:

‘No matter what cities or geographical areas are examined, no matter what estimators are used, no matter what model specifications are used, and no matter what variables are used, articles published in peer-reviewed economics journals contain almost no evidence that professional sports franchises and facilities have a measureable economic impact on the economy.’

It’s no great mystery as to why net beneficial effects in the local economy never materialize (or in tax revenues, another claim from proponents of taxpayer-subsidized professional sports). If a for-profit sports team leaves a city, fans who previously spent $1,000 on tickets and beer every season won’t throw such money into the fireplace in the team’s absence.

Instead, they will spend it somewhere else: on minor hockey, football games, movies, more suds, or on something else. Economic activity and tax revenues still result. If Edmonton City Council continues to fall for junk economic claims, taxpayers in Alberta (if the province chips in) but especially in Edmonton will make another very expensive installment on corporate welfare for professional sports.

Mark Milke is the Alberta director for the Fraser Institute.

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