Patrons of new downtown arena will help pay CSEC's obligations

People buying tickets for events at Calgary's new downtown arena will be the ones covering a significant portion of the project's cost.

The agreements between the City of Calgary and the Calgary Sports and Entertainment Corporation (CSEC) — which owns the NHL's Calgary Flames — spell out the financial obligations of the parties. The city is spending $853 million of the event centre block's $926-million cost, CSEC is providing $40 million up front, while the province is contributing $33 million for the arena.

The city has touted the fact that CSEC has agreed to make $17-million annual payments for 35 years, which escalate by one per cent each year.

However, the arena agreements show the city is not only creating a 9.5 per cent tax for every ticket sold in the new Scotia Place, it's also allowing CSEC to use $10 million of revenue from the city's tax to pay its contractual obligations.

Over the course of 35 years, CSEC has agreed to give the city a total of $708 million for these payments.

Different payments

The $17-million annual escalating payments actually consist of two elements: a $7-million rental fee and a $10-million facility fee. The city has agreed that CSEC can use money collected through the city's ticket tax to cover the facility fee.

That means potentially $278.3 million of CSEC payments to the city over 35 years could actually come from CSEC, with the rest of the money it owes coming from ticket tax revenue.

Michael Thompson, the city's general manager of infrastructure services, said the city's focus was on realizing a repayment of funds, considering how much money it is spending on the facility.

But the city was also prioritizing the financial returns from the development of a much bigger project than just the arena, he added, including the creation of an entertainment district with new businesses and the development of several parcels of city land around Scotia Place.

"We're going to get our money back," said Thompson. 

"We are going to get money back from the development around the area, and then as the area develops out, we'll generate (property) tax revenue."

City comfortable with arrangement

When asked if he had any concerns about the optics of how CSEC is being allowed to use the city's ticket tax revenue to cover its obligations, Thompson said the city is comfortable the the way the deal is structured.

He pointed out that if anything in the future interrupts the flow of ticket tax revenue — for example, if there is an NHL labour dispute or a pandemic that prevents public gatherings — CSEC would still be obligated to make its annual payments to the city.

Jeromy Farkas, a former city councillor, has been a vocal critic of the arena deal's structure.

He maintains that public money will be responsible for paying 96 per cent of Scotia Place's costs, which CSEC will operate and turn profits from for decades to come.

Farkas, who is running for mayor in this fall's municipal election, said while the city's 9.5 per cent ticket tax will be paid by the building's users, CSEC should not have been permitted to use that money to cover its obligations to the city.

"CSEC cannot take credit for the people walking into the building and paying a tax. That is such a ridiculous argument to make," said Farkas.

"This really highlights that I don't believe that administration nor city council understands the agreement."

No deception

Under the terms of the arena agreement, any ticket tax revenue above $10 million — which CSEC can use to pay the city — must go into a fund to help cover the maintenance costs and Scotia Place upgrades in the future.

Farkas doesn't think there was any attempt by the city to deceive Calgarians about the structure of the deal, but he would like greater transparency about how much the ticket tax will raise on an annual basis. 

He suggested that city councillors should demand those details are made public over the life of the agreement.

Ward 1 Coun. Sonya Sharp said the city hired a negotiator to reach the arena deal with CSEC, and that council was briefed on its contents.

Council voted unanimously in favour of the deal.

She said it is appropriate that people who will go to the arena should help pay the cost of the building, likening it to fees that air passengers pay for using airports in Canada.

Sharp, who chaired council's event centre committee, said she understood the specifics of how revenue from the city's ticket tax could be used by CSEC. However, she agreed that the city could be clearer about explaining the fine details in the arena's financing arrangements.

"The narrative could have been explained a little bit better. The communication on it could have been better," said Sharp.

The arena agreements also specify that future property tax payments related to the arena can be used to repay $27 million of CSEC's initial payment of $40 million to build Scotia Place.

Construction on the arena started last year, and the building is set to open by fall 2027.

The city said Scotia Place is currently on time and on budget.