8/7/2019 Potential Downtown Arena: Alternative Funding Methods

http://slidepdf.com/reader/full/potential-downtown-arena-alternative-funding-methods 1/2

 

ROUTING - City Council | DELEGATION – L. RosenWRITTEN BY – L. Rosen/A. Giesbrecht | April 6, 2011 – Finance and Treasury Department 2011FT2902

Page 1 of 2

Potential DowntownArenaAlternative Funding Methods

Recommendation:

That the April 6, 2011, Finance andTreasury Department report 2011FT2902be received for information.

Report Summary

This report provides information onthe seat condominium/mortgageproduct as a potential funding modelfor the development of a downtown

arena.

Previous Council/Committee Action

At the January 17, 2011, City Councilmeeting, the following motions werepassed:

• That Administration in regards tothe Potential Downtown ArenaDevelopment prepare a report onthe potential models for seat

licensing/condominium sale of seats in a new arena (referenceAttachment 2 of the January 17,2011, Finance and TreasuryDepartment report 2011FT7366).

• That the City Manager meet withthe Stadium Capital FinancingGroup, LLC and discuss whatinformation would be requiredshould the Stadium Capital

Financing Group LLC wish toprepare a formal written proposalto the City of Edmonton.

Report

Prior to the March 2, 2011, City Councilmeeting, Administration met with

representatives of Stadium CapitalFinancing Group to discuss thecondominium sale of seats as a methodof financing a new arena.

On March 2, 2011, Administrationprovided an update on Personal SeatLicenses in report 2011FT4062 andcommitted to City Council thatinformation addressing the seatcondominium model would be presentedto City Council on April 6, 2011. Thisreport addresses thecondominium/mortgage product as apotential funding model for thedevelopment of the downtown arena.

Condominium/ Equity Seat RightsRepresentatives of Stadium CapitalFinancing Group have indicated thepotential to finance the entire capitalcost of a new arena through Equity SeatRights sometimes referred to as seatcondominium sales or seat mortgages.

Equity Seat Rights are not the same asPersonal Seat Licenses. Equity SeatRights is an actual purchase of the

rights to a seat in the arena thatincludes access to events and istransferable.

The owner of the Equity Seat Rightsbuilds equity and value as the admissionprice to the facility increases.

The funding source for the purchase of the equity seat rights is the users of thefacility. In this way, it is not a new

funding source, but rather is a financingtool. If this tool was utilized for thedevelopment of a downtown arena itwould result in a 100 percent user paymodel.

64

8/7/2019 Potential Downtown Arena: Alternative Funding Methods

http://slidepdf.com/reader/full/potential-downtown-arena-alternative-funding-methods 2/2

Potential Downtown Arena – Alternative Funding Methods

Page 2 of 2

OperationsAn issue that arises with this product iswhether the operations of a newdowntown arena would generatesufficient revenue to pay all operatingand capital costs, and provide a returnon investment to the operations.

At this time, this model has only beentested at the University of Kansas andthe University of California-Berkeley.The product has not been utilized tofund any facility for a pro-sportsfranchise.

Media reports have a representative of Stadium Capital Financing Group stating

in 2009 that: “one challenge would bestructuring a financing program that allows enough revenue for aprofessional sports franchise that hashigher operating costs than a collegeteam.”  

This model is a financing tool that usesfuture operating revenue to pay for theinitial capital costs of the facility. A keyissue when considering this model for a

pro-sports team is that it requires theparty or parties otherwise entitled to theon-going revenues from annual ticketsales to give them up.

Potential Funding FrameworkAdministration had previously providedCity Council with a potential fundingframework for a downtown arena. Thepotential framework Administration wasdirected to negotiate does suggest a

user pay component of $125 million anda franchise owner’s contribution of $100 million to fund 50 percent of thecapital cost. The Equity Seat Rightmodel raises that user pay componentto 100 percent so that all would comefrom private sector funding.

Funding a $450 million arena indowntown Edmonton from totally privatesources would be difficult. Assuming anowner equity contribution of $100 million, the mortgage on$350 million would amount toapproximately $23 million annually for 30 years at a 5 percent interest rate.The mortgage payments would need tocome from the operational revenue of the facility. Given the costs of operatingsuch a facility and the costs of operatingan NHL franchise, the business case toproceed with 100 percent privatefunding may not be positive.

To put an Equity Seat Rights program in

place to fully finance the cost of adowntown arena would not require theparticipation of the City. It would,however, require the agreement andparticipation of the Katz Group if therewas an expectation that the EdmontonOilers would be tenants of such afacility.

The Equity Seat Rights program couldbe considered to cover to a portion of 

the cost of financing the facility.However, it would still require theagreement and participation of KatzGroup.