A ticket tax for events held at the proposed new Calgary arena falls short of the threshold that would be needed for the city to recoup its investment in the facility, one economist says.
Council is expected to vote Tuesday on whether to ratify the deal struck between the ownership of the Calgary Flames, the City of Calgary and the Calgary Stampede, which would see a $550-million arena built to replace the Saddledome.
Calgary Sports and Entertainment Corp. and the city would each kick in $275 million to cover the building’s construction costs and split the difference on any potential overruns. But the city projects more than $400 million in returns over the 35-year lease of the arena to the Flames, including $155.1 million from a “facility fee,” or ticket tax.
The city would retain two per cent of ticket revenue for all events hosted at the arena, including hockey games, concerts and Stampede events. The city’s total revenue generated from the fee would be capped at $3 million per year for the first five years of the lease.
But University of Calgary economist Trevor Tombe questioned why city officials and the Flames settled on a ticket tax rate of two per cent. For the city to break even on returns from its investment, that tax should be in the range of six per cent, according to Tombe.
“The higher that ticket tax is, to the extent that it’s borne by the people attending events, which I think is the case, the lower the public’s contribution needs to be,” said Tombe.
“It does seem like that balance between the public contribution and the ticket tax needs further explanation.”
Tombe noted that the city’s 2017 proposal to the Flames included a higher ticket tax; $185 million in revenue from a user fee that would have covered one-third of arena costs.
“My impression is that the Flames view the ticket tax as the burden on them and not on the patrons of the events themselves,” Tombe said.
“So the question really does come down to how much (burden) of the ticket tax would be borne by the patrons rather than the Flames. That’s a complicated question. It really depends on how sensitive consumers are to prices. I think for an event like this, like hockey games, people are not overly sensitive to the price.”
The fee is notably smaller than the ticket tax applied to events at Rogers Place in Edmonton, which opened in 2016.
The rate of that tax is set annually, according to terms set out in an agreement between the City of Edmonton and the Edmonton Arena Corp., a private company headed by Oilers owner Daryl Katz.
The tax, which stood at 9.5 per cent last season, must cover the repayment of $125 million to the city over a 35-year term. Tombe said the rate is likely re-evaluated each year based on factors such as attendance levels and the total number of events held at the arena.
But he said the City of Calgary hasn’t provided enough information on how it settled on a two per cent levy to rationalize such a major difference.
“That is a discrepancy that I cannot explain,” said Tombe. “It is absolutely a good question.”
Coun. Ward Sutherland, vice-chair of council’s event centre assessment committee, said it was a figure decided on by the team that negotiated the deal with the Flames’ owners, headed by Barry Munro.
Sutherland said that projections released by the city would represent the arena’s lowest possible usage during its earliest days, or a sort of worst-case scenario.
He said it will take time for events like concerts to build up and keep the arena busy throughout the year in between Flames, Hitmen and Roughnecks games.
“The modelling was on very, very low usage,” said Sutherland. “I anticipate once it gets kicked in and they start doing stuff — that should happen over a period of time — it should generate significantly more money than the current modelling does.”
Asked why the ticket tax is so much lower than the one up north, Sutherland pointed to a more balanced agreement between the Flames and the City of Calgary.
The $483.5-million agreement to build Rogers Place included a $226-million contribution from the city and $132.5 million from Katz’s company, before the ticket surcharge.
“Let’s be honest. The Edmonton deal’s not very good,” said Sutherland. “The Edmonton Oilers didn’t give $275 million.”
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