Checked Against Delivery

28 Jul

For interest’s sake, the transcript of Paul Marcaccio’s (EVP & CFO of Katz Group) speech to Edmonton City Council on July 21, 1010. Transcribed by me, using video from the City of Edmonton (click on item 5.4 in the minutes to see the video).

“Thank you, Ted, and good afternoon everyone.

I will be making some brief comments, which touch on two critical issues, sustainability and funding.

Now, there’s a lot of talk, and from our perspective much concern, about the long-term sustainability of the Oilers in Rexall Place. This stems primarily from the revenue model which we are currently subject to. NHL hockey teams earn Hockey Related Revenues, and non-Hockey Related Revenues. The Oilers Hockey Related Revenues are limited, primarily because they play in the second oldest and second smallest arena in the National Hockey League, where revenue opportunities are lower than other NHL teams, and they’re effectively capped. The Oilers are located in the smallest media market in the National Hockey League. Size of market determines the pricing for broadcasts, advertising, and sponsorship revenue opportunities. Non-Hockey Related Revenues, which includes revenues from concerts, entertainment events, and other arena-based activities, which are ancillary to those generated by the anchor sports team tenant.

Not only do the Oilers earn no, non-Hockey Related Revenues, they are the only team in the NHL that does not receive the non-Hockey Revenues from the facility in which they play. For sake of a close to home comparison, in Edmonton, non-hockey revenues go to Northlands. In Calgary, they do not go to the Calgary Stampede Inc., they go to the Calgary Flames organization.

It is for these reasons that we find ourselves talking about the Oilers long-term sustainability in Rexall Place. Currently, Daryl Katz has had to subsidize the team by several million dollars in each of the past two years in order for the team to break even. Under the Oilers current operating model at Rexall Place, a model in which we do not control the non-Hockey Related Revenues, that trend will likely continue in each year between now and 2014. Sustainability can only be addressed by a new arena, and having the same operating model as the Calgary Flames and all of the other NHL teams.

Now let me make a few comments on funding. We believe a new downtown arena can be funded with a mix of public and private investment in a manner that benefits the city of Edmonton without an increase in property tax rates as a direct consequence. What we hope to do is build on what you have heard from the city administration, and to communicate our optimism that, starting with their proposed funding model, and having the opportunity to work through the various elements with the city administration, we will arrive at a workable solution.

Picking up on Daryl’s comments, the Katz Group would invest $100 million dollars directly into the construction of a new arena that would be owned by the City of Edmonton. We agree with the city administration report that an additional amount of funding can be financed by the City of Edmonton using a CRL, with all of that amount being repaid over time. We hope to have the opportunity to assess and to agree with city administration on what this amount can be, based on all of the new development in and around the proposed arena district. The prospects of success for the CRL would be greatly enhanced by Katz Group’s plans to lead the development of the district, for which we have earmarked a minimum of an additional $100 million dollars of investment over time.

We understand Mayor Mandel’s belief that there should be some element of user-pay, or a ticket-tax, in the funding model, and we are prepared to have that discussion with city administration, though for the reasons I touched on earlier, there is natural limits to what we can agree to as relates to revenue streams. The balance of funds, including funds for related infrastructure, would come from other sources, including federal and provincial governments. In summary, we are aligned with the direction set by city administration, subject to reaching agreement on the various financial estimates inherent in that structure, and the specific business terms of the arrangement. We believe this can work for everyone.

Thank you, and I’ll ask John to complete our closing remarks.”

——–

The Katz Group’s presentation text, including remarks from Paul Marcaccio, found  here. There are some differences between what was written and what was actually said, including this doozy from the written remarks:

“As a result, hockey is a business where the operator does not have much discretion over its most significant cost item.”

The whole section around that line is one that needs proper dissecting, but I’ll leave it for others to discuss. I’m a bit tired from transcribing. You wouldn’t believe how many times I had to hear the Coldplay song at the end of AEG’s “Corporate Sizzle” presentation. I may never recover.

***Update*** The Annotated Paul Marcaccio, via mc79hockey.

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4 Responses to “Checked Against Delivery”

  1. cna training August 23, 2010 at 12:12 pm #

    Great site. A lot of useful information here. I’m sending it to some friends!

Trackbacks/Pingbacks

  1. Waste Not, Want Not « Why Downtown? - September 30, 2010

    […] the presentation to Edmonton’s City Council on July 21, Mr. Marcaccio claimed that “Daryl Katz has had to subsidize the team by several million dollars in each of the past two […]

  2. …And The Puns For Free « Why Downtown? - August 11, 2010

    […] Marcaccio, speaking notes from presentation to City Council, July 21, […]

  3. Doubleplusungood « Why Downtown? - August 2, 2010

    […] Katz Group requested that the City join them in asking both the Federal and Provincial government for infrastructure […]

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