Guest Post by Ron Penney
“If
something seems to be good to be true, it usually is.”
The
Sale of Mile One.
I’ve
been following with interest the continuing war of words between Dean MacDonald
and the City about his wish to “purchase” Mile One, add additions to the
building, and eliminate the public subsidy.
I’ve
been often asked about my thoughts on this given my involvement with the
building of Mile One and the Convention Centre and its operations, during my
tenure as the City Manager with the City of St. John’s.
Most
people think that the sale of Mile One is a no-brainer. What’s not to like
about it? Getting rid of a “white elephant”, eliminating the subsidy and
revitalizing the building. Who could be opposed to that? As I will demonstrate
it is a lot more complicated than it appears at first and it shouldn’t be sold.
Like
so much of what happens here, there is very little informed public debate about
the proposal. Muskrat Falls. I rest my case.
The
KPMG report on the potential sale of the building contains a lot of important
facts and analysis, with a full listing of the possible positives and
negatives. Here is the link. Well worth a read.
A
little history:
When
the City had the AHL franchise for the St. John’s Maple Leafs starting in 1991,
there was considerable pressure to provide a modern facility with increased
seating. When I joined the City in 1993, the replacement of Memorial Stadium
was starting to become an important issue for the City but it did not have the
fiscal capacity to replace it and also build a Convention Centre on its own.
At
the time the City didn’t have a large Convention Centre to support the building
of a convention business. Large conventions also require exhibition space,
which is where Mile One Stadium comes in. It’s not just for hockey, other sports
and concerts. It is a multipurpose building which provides space for the trade
shows associated with conventions. Mile One and the Convention Centre is a
fully integrated facility and needs to stay that way.
There
were two important initiatives which allowed it to happen. One was the decision
by the province to cost share the project.
The second was the agreement to bring in an accommodation tax which
would support the City’s borrowing to pay for its share. The federal government
also contributed to the Convention Centre; they wouldn’t contribute to the
Stadium.
There
was considerable debate about where it should be built. Some felt it should be
outside of downtown in an area with lots of surface parking but the City’s view
is that it needed to be downtown, close to hotels and other amenities and that
is what happened and it has been good for the downtown.
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| Ron Penney |
At
the time it was budgeted at $36 million for both buildings but the final cost
was almost $50 million. The City’s share was paid for by the accommodation tax.
So it was all built without any investment from City taxpayers.
It
so happened that construction was just completed and ready to be officially
opened in September of 2001. The first event wasn’t what was planned. 9/11
happened and Mile One became the staging area for our response to the 4000
passengers diverted to St. John’s and the Convention Centre was used to
accommodate some of the passengers.
The
St. John’s Maple Leafs became the major tenant but that turned out to be short
lived as they decided to abandon St. John’s in 2005 much to our annoyance after
we had built this new facility in large part to convince them to stay here.
Professional sports teams are ruthless in their business decisions as we found
out.
We
then had a series of short lived hockey teams. A Quebec Junior franchise, the
St. John’s Fog Devils for three years, the Icecaps from 2011 to 2017 and now
the Growlers. Plus a basketball team.
It’s
a transitory business and that is important to remember in this debate. Hockey fans in this market are very fickle as
the City and privately owned franchises have found out. Average attendance for
the Growlers is reported as 3600. I suspect the paid attendance is considerably
less but those figures aren’t reported.
I
had advocated internally for a stadium which could be expanded to 8000. Boy was
I wrong!
The
other issue is that over time the lease arrangements for successive teams have
resulted in the shift of the share of revenues to the teams from St. John’s
Sports and Entertainment. As the recent KPMG report noted “the current unsigned
lease agreement with Atlantic and Deacon largely provides for revenue sources
that are typically owned by the arena operator and not the tenant.” This has a
negative impact on the level of subsidy.
I
was heavily involved with two of those negotiations, with the Maple Leafs and
the Fog Devils, and they were tough. I
understand that the revenue split has shifted over time more to the teams,
starting with the Icecaps. This was reported in the press at the time, and, of
course, subsequent teams took advantage of that. News reports in the fall of 2019
were that the rental costs would be cut in half.
Right
from the beginning the City decided to have it run as a separate company with
Directors appointed by the City and the hospitality industry, with the Chair
appointed by the City. The Chair was initially a member of Council but that
changed to be a private member of the Board, although I note in recent years
the Chair has again become a member of Council, which I think is a mistake.
During the time I was with the City I was on the Board, representing the City.
The
big public issue is, and has always been, the level of the subsidy. This was
the case with Memorial Stadium and it has continued to be the case to this day.
But
we are looking at the subsidy issue in the wrong way.
Almost
everything the City does requires a contribution from the taxpayer. Our
recreational facilities only recover a small portion of the costs from the
users. Metrobus received a “subsidy” of almost $14 in million in 2019 and
Gobus, $4 million.
Much
of what the City does gets no revenues from users at all. The Grand Concourse is free to all as are our
parks. Their rate of subsidy is 100%.
So
the right way to think about Mile One is that it is an important asset of the
City, just like our recreational facilities, and our trails and parks.
But
the subsidy for Mile One and the Convention Centre is a subsidy with a big
difference. It generates a large economic return to the City and the Province
as demonstrated in the 2006 Economic Impacts Study. Calling it a subsidy is a
misnomer. It’s really an investment. Once conventions start up again likely in
2022, we will see that effect. Large conventions bring in hundreds of thousands
dollars to the City and the Province. And we now have the room base and an
expanded Convention Centre to support them.
That’s
not to say that it shouldn’t maximize its revenues and minimize its
expenditures and keep its demands on the taxpayers to the lowest possible
amount. The same is true of the Paul Reynolds Centre, which gets a tiny portion
of its costs from users.
As
we have seen from the latest KPMG report municipal stadiums are almost all
owned by municipalities.
So
far as I know there are no other jurisdictions in Canada where the private
sector is clamoring to buy municipal stadiums. There is a good reason for that
– it’s just not possible to operate them without a public subsidy.
We
haven’t seen a business plan from Mr. MacDonald to show how it would be
possible to do so and he hasn’t told us what he is prepared to pay for it. I
suspect it will be a dollar plus an operating grant.
A
most unusual aspect of Mr. MacDonald’s
ECHL involvement is that he will own not one but three teams. How can
that not be a conflict of interest? Imagine if the Molson Family not only owned
the Canadians but also the Maple Leafs and the Ottawa Senators. It doesn’t say
much about a league which allows that to happen. Who would he root for if two
or three of his teams were in the
playoffs? How would players be allocated among the various teams?
But
setting all that aside there is a bigger reason why it should remain in public
hands. The City of St. John’s has been in existence since 1888 as an
incorporated body and will be around for many years to come. We even survived
Commission of Government!
That
won’t be the case with a private owner, even one with possibly deep pockets.
Already low fan interest will most likely decline if past experience is any
guide, and will be exacerbated by the predicted economic decline, matched by
the decline in discretionary income necessary to buy tickets to sporting
events. The private owner may tire of the business, or his or her successors.
There is no guarantee of continuity.
If,
as is highly likely, a sale doesn’t work out, the building won’t be properly
maintained and it will fall back into public hands as a much diminished asset.
And
just as important, once the pandemic ends and the Convention business returns,
business critical to the survival of our hotels and restaurants, we would have
a bifurcated asset, with the City owning the Convention Centre through St.
John’s Sports and Entertainment and a private company owning Mile One. How
could that ever work?
I
chaired the organizing committee for the annual meeting of the Federation of
Canadian Municipalities held in St. John’s a number of years ago, the largest
convention ever held in St. John’s. Mile One hosted the trade show plus the
closing dinner. If Mile One is owned by a private business it makes it much
more complicated to organize with Mile One being owned by a private operator.
And
meetings and conventions is where the economic impact is, not only for the City
but for the province as a whole, as delegates often extend their visits.
As
pointed out in the KPMG report “the economic literature on arena and
entertainment facilities … indicates much of the economic activity generated
by sporting events is considered recirculated where minimal new or incremental
economic activity is produced.” And goes on to make the point that “with a
finite amount of disposable income, St. John’s residents who choose to spend
their money on Growlers hockey of Edge basketball do so at the expense of not
spending that amount of disposable income elsewhere in the community.”
This
isn’t true of meetings and conventions which “generate incremental revenues for
hoteliers, restaurants, public transportation, etc.”
KPMG
described Mile One as an “aging” facility, which I found surprising as it is
only 20 years old. With proper maintenance and upgrades it can last a long
time. This is where the accommodations tax comes in. As the report points out
the debt for Mile One and the original Convention Centre are almost paid off.
The debt for the expanded Convention Centre hasn’t been paid off and no doubt
the revenues from the accommodation tax have severely declined over the past
year as a result of the pandemic. But that will start to improve and there
should be sufficient revenues down the road to pay for upgrades as required,
funds not available to a private company.
Memorial
Stadium was built in 1952, was used until 2001 for its original purpose and
then repurposed as a supermarket. (There are still East Enders who haven’t
forgiven me to this day for the sale of stadium, the proceeds of which were
used to help build Mile One!)
If
I had my time back I would have recommended the refurbishment of Memorial
Stadium, and the building of an exhibition hall where Mile One is at a far
cheaper cost.
The
Coca- Cola Coliseum in Toronto, the home of the Marlies, once the Ice Caps, was
built in 1921. A hundred years old.
Mr.
MacDonald also proposes an expansion of the Stadium at an estimated cost of $25
million. I’d treat that estimate with a big grain of salt and given the
difficulties of shoehorning Mile One into the site in the first place there
will be significant technical challenges to the proposal, aside from the
question as to where the money is going to come from. I suspect it is envisaged
to be from the public purse.
And
don’t forget amenities in the proposed expansion, such as bars and restaurants,
will compete with already existing businesses in the downtown.
This
is a gift horse that we should carefully look in the mouth. Keep Mile One in
public hands.
