The Calgary Flames are finally getting a new arena. After years of politicking, hand wringing, posturing, and the like, the Calgary Sports and Entertainment Corporation (CSEC), the City of Calgary, and the Province of Alberta have finally come to a tentative agreement on a new arena and more around the current Scotiabank Saddledome.
As exciting as it is that the Flames are getting a new arena, the big question is how it will all be paid for, and perhaps more importantly, how much of it will you and I be paying for through our tax dollars and other fees. The city has been adamant that the answer is zero, but let’s take a deeper look at the numbers.
How the original Saddledome was funded
The iconic Calgary landmark was originally built in 1981 as part of the city’s bid for the 1988 Olympics as well as for the newly arrived Calgary Flames, who were at the time playing out of the Stampede Corral. The cost for the arena was initially expected to be around $60 million (about $194 million in today’s dollars), but the project faced major cost overruns and finally ended up costing around $98 million ($317 million in today’s dollars).
The biggest reason for the cost overruns at the time was the design of the roof, which used prefabricated concrete blocks on cables in a unique design to ensure everyone could see the ice from anywhere in the arena and also reduce noise and light costs over the lifetime of the project. There was also a rush to have the project completed, and those two factors added major increases to the cost, which were footed by the city and province.
The arena is owned by the city, who entered into an agreement with the Saddledome Foundation to operate the arena. This lease runs for 50 years, and ends in 2033 with an option to renew for a further 50 years. In short, the Foundation pays no property tax and a nominal $1 per year to lease the facility. In return, they take care of all the operating costs for the arena and provide funding for amateur athletics in the city.
The Foundation then has an agreement with CSEC to operate the Saddledome. They take on the maintenance and operations of the facility and pay the Foundation $750,000 per year to do so, but in exchange have the ability to use the arena for their teams and events. This agreement also runs until 2033. There is a very good chance that this agreement will carry over in full to the new arena.
What is involved in the new arena project?
The major piece of the announcement was, of course, the new arena, which will cost $800 million of the anticipated $1,223.3 million project. Additionally, the project will see a new community ice rink being built for both the Flames to practice in as well as for rental. There will also be an attached parking structure, enclosed public plaza, and a “public realm” (unclear as to what this exactly is but it typically is a catch-all for improvements to make the space feel different from just another street).
This will be accompanied by major infrastructure improvements including an underpass under the train tracks at 6th Street SE, to create more access from downtown and East Village. There will also be road widening and other improvements around the area, particularly on 15th, 17th, and 25th Avenues SW—all major thoroughfares in and out of the arena area.
Finally there is $58.5 million for unspecified costs. This may be a contingency of about 4.7% of the total cost of the project.
The City of Calgary’s portion
As expected, the City is footing the majority of the bill for the arena, about 44% or $527.3 million dollars. The majority of this funds the non-arena part of the project: the “public realm, parking, and plaza. They will also cover 25% of the community rink. In return, they retain ownership of the building in full, like they do the Saddledome.
The city has been very adamant that you would see no increase in taxes as a result of this new arena, with funds coming from earmarked money from the original arena deal as well as money from the Financial Stability Reserve making up the balance. The original deal saw the City and CSEC splitting the cost of a $525 million dollar arena, but the city had earmarked $295 for the project initially. This means that $232.3 million would be coming out of the city’s reserves.
A reserve fund is basically a piggy bank for a capital projects (not operations), and for a 1.3 million person city with multiple assets under their control, the city constantly needs to ensure they have cash in the bank for major projects. The book value of the city’s reserves, according to their 2021 financial reports, is around $3.28 billion. This project would take a little over 7% of the city’s reserves out of the bank for this project alone.
This money will have to go back into the city’s reserves over time, and like everything else, this will come out of property taxes and city user fees. While it may not be a direct increase in your property taxes for funding this project, the city is going to need to rebuild their reserves and that will come out of your pocket.
The other part of this is as mentioned above, the City was initially prepared to only spend half of $525 million on the arena project, and is now spending more than the original project would have cost in full. Now they are absolutely getting substantially more value in this project than previously, but for the cost of the arena alone to balloon up to $800 million does raise eyebrows as to where other cost overrun issues could occur down the line. This may be an area of concern down the line.
The Province of Alberta’s portion
The province has provisionally agreed to pay $330 million dollars towards the project, the majority ($330 million) is for infrastructure upgrades to all the roadways as well as towards the demolition of the Saddledome. They were not expected to pay for anything in the original arena deal, so this is very much a win for all parties. Perhaps the biggest winner in this is the City and those that live in Calgary, who will benefit from infrastructure improvements on the east side of downtown and the beltline area regardless of whether you go to games or not.
The province did not directly contribute to the building of Rogers place, however $145 million came from a provincial community revitalization levy, which allowed the province to borrow money against future property tax income to redevelop an area of the city in need.
The wrinkle in this plan is that the provincial cabinet will need to approve this, and Premier Danielle Smith has said that this won’t happen until after this spring’s provincial election. This was a blatant vote-buying attempt by the Premier, putting Rachel Notley and the NDP’s in a position to either support the plan or risk losing votes in Calgary. Notley has responded claiming there is a secret deal in place between the province, CSEC, and City that is still under wraps that could cause major increases in taxes and give CSEC rights to develop further lands.
Because the agreement has not been fully released as of yet, there is a chance that there is more than meets the eye here, and is something to watch for as the coming weeks go on.
Perhaps the most interesting part of all of this is CSEC’s part, who have agreed to pay $356 million dollars. However, they are paying this over 35 years, with $40 million up front and $17 million per year with a 1% increase every year over the period.
They will pay towards most of the costs, but will pay for 25% of the new community arena. They are also on the hook for an annual payment of $1.5 million a year increasing by 1% annually.
By far, they are the biggest winner in all of this. They have very minimal to pay for up front, instead spreading out their amount owing over a longer period at minimal extra cost. While this is more than they would have been on the hook for in the initial agreement, their percentage of the new arena project went down dramatically for substantially more value. With an expected increase in the league’s television rights deal in the coming years and growth of the game across North America and around the world, the team should be able to cover these costs very easily.
What does it all mean for you?
There are a number of costs that are not being talked about that will hit fans hard in the coming years.
Impact on property taxes
The first is in property taxes and other levees that are not being discussed. This could be in increases in property taxes to cover the amount of reserves taken out for this project or for any cost overruns that have not been accounted for.
The arena project itself nearly doubled in cost from when it was first announced in 2019 to today. Global supply chain issues, rising material costs, and inflationary pressure could all cause major increases in the cost of this project, and with the city and province covering the lion’s share, the costs will be borne by taxpayers.
Ticket fees and surcharges
Second, nobody has mentioned any additional levees on ticket fees for the arena, but this is very much something to be expected. The initial deal gave the city a 2% facility fee on all tickets sold, which would absolutely be passed on to ticketholders. Both Toronto and Edmonton have additional ticket surcharges for the cost of the arena that are passed on when you buy tickets to the game. It’s a safe bet that those, as well as higher parking, food, and drink prices in the arena are going to come.
Change in the value of watching the game
Third, tickets at the Saddledome can currently still be scored for cheap, particularly on the secondary market. This is almost certainly going to change. When the Oilers opened Rogers Place, arena tickets increased in most sections quite dramatically, and while many were happy to pay to sit in a fancy new arena to watch Connor McDavid and Leon Draisaitl, it will make it harder to go out to a game in the evening as often for many people.
Fans in Toronto have seen how higher ticket prices have priced most casual fans out of the lower bowl and the impact that has had on the atmosphere in the rink, making the lower seats mostly businesspeople entertaining clients and spending less energy cheering on fans. The costs to go to the game are going to increase substantially with a new arena.
A new future for the Flames
It’s very easy to get excited about the city getting a new arena and the Rivers District getting a much needed facelift. It makes the city more interesting, revitalizes the neighbourhood, and provides a huge boost to the Flames’ organization with this new building.
However, the details surrounding how this will be paid for raise more questions than answers. It’s nice to see some provisional numbers, but I would be hesitant to cheer for the idea of no property tax increases or no new costs coming out of this press conference.
The fact of the matter is that we are all on the hook for this new arena, and the sooner we all have clarity on what the city and province’s true costs will be and more importantly how they will actually be funded, the better.