keoadmin
02-18-2004, 11:51 PM
Citizens of Kingston - what price are you willing to pay for Civic pride? How much is it worth to you to have the Hip play Kingston?
Kingston Electors Guest Editorial - S. Levin
Like Kingston, London has an OHL franchise, the Knights. Like Kingston, it also had a shortage of recreational ice. For recreation ice, London tried to find a private partner at the site of its agricultural society, Western Fair. When London couldn't fine a private partner (not enough money in it for the private sector), the city entered into an agreement with Western Fair to lend $15 M, to build the recreational ice, as well as a contract to pay for ice time. The city has also borrowed millions to add or refurbish other recreational ice. But this is small potatoes compared to the money that went into the John Labatt Centre (JLC), the Knights new home, which also serves as a large venue entertainment facility for London. It is also a burden to London's tax payers and has not been a panacea for downtown.
The downtown remains pock marked with empty stores despite the JLC, a new central library and a new farmers market. Two restaurants right across the street from the JLC have failed since the arena opened. Roughly $3.5 million a year in tax money will be spent over each of the next 20 years to pay for having the JLC. How did this happen to London and what are the lessons for Kingston?
The Knights played in their own facility, the Ice House. The franchise and building owner at the time hinted the taxpayer had to pay for a new facility or he would leave town, (as if the second largest OHL market would forever lose a team). He made out like a bandit by quickly selling his franchise once the city committed to a new building. The city's cost went from what one member of council promised would only be $10 to $15 million for a smaller facility, to $33 million, plus $10 million for the land. The city has a private sector partner, LCCC, which is a limited partnership consisting of the builder, Ellis-Don, and the operator, Global Spectrum LP (Global). And they have a sweetheart of a deal. LCCC leases the JLC from the city for 49 years. The partnership only put up $2.5 million of its own money and a $7 million loan. The loan guaranteed by the city. And the loan and interest are paid first from the available cash flow from the operations of the JLC, reducing the available cash flow to the city. Given the terms of the lease, the city will never get its investment back (London City Council was told its return on investment would be negative).
Why would the city get into this kind of deal? A city is not set up to be in the entertainment business. This puts the private sector partner in the driver's seat. Global is a subsidiary of Comcast-Spectacor LP which is 66% owned by Comcast, the largest cable company in the USA. Because Global runs a number of facilities across North America, it has the market power to bring in major acts, something a small operator will have trouble doing and something a city won't be able to do well, if at all. Global is well paid for the privilege, too. The deal between London and Global is a case study in how to avoid taxes and flow funds from one subsidiary to another. Further, there are wonderful opportunities for internal transactions to maximize Comcast-Spectacor's profits and minimize the amount left for the city. The food service is run by Ovation, a subsidiary of Comcast-Spectacor. A Global subsidiary, Front Row Marketing, sells naming rights for all of Global's facilities. They got a percentage of the value of the naming rights for the John Labatt Centre. The fact that Front Row was the middle man in the deal with Labatt's was not revealed to London City Council, nor has the amount of the fee been reported.
What is the result of all this creative accounting? Less for the city. Under the terms of the deal, the City gets 20% of the remaining cash in each of the first five years, with an increasing share in future years. In the first year, the city got $75,000, the same amount it had received in property taxes before it bought the land, and much less than the debt repayment costs. When confronted with this net loss, Council took the attitude "hey, it's a nice building, why care about where the money goes?"
Others argue that the cost is recovered in new spending and tourism. However, a facility that is open for a few hours 80-100 days a year, (mainly in the winter as the OHL team is the main tenant) will not itself bring enough people to your businesses unless they have something consumers want and need when the facility is closed. There is a body of literature on the impact of sports and sports facilities on municipalities. The verdict? They don't increase municipal revenues nor increase spending in the municipality, merely move disposable income around. One of the best articles is by UWO economics professor, John Palmer, which you can find at http://www.cdhowe.org/pdf/PressReleases/english/commentary_161pr.pdf
Is it worth it for London? Taxpayers are facing an increase of 10% in their taxes this year. And yes, London will get the facility back in 49 years, but what good is a 50 year old building?
The moral of the story? Keep your eyes wide open, don't believe those who tell you new facilities bring vitality, and tell your elected officials that civic pride has an upside limit and you expect them not to pick your pockets too deeply!
Kingston Electors Guest Editorial - S. Levin
Like Kingston, London has an OHL franchise, the Knights. Like Kingston, it also had a shortage of recreational ice. For recreation ice, London tried to find a private partner at the site of its agricultural society, Western Fair. When London couldn't fine a private partner (not enough money in it for the private sector), the city entered into an agreement with Western Fair to lend $15 M, to build the recreational ice, as well as a contract to pay for ice time. The city has also borrowed millions to add or refurbish other recreational ice. But this is small potatoes compared to the money that went into the John Labatt Centre (JLC), the Knights new home, which also serves as a large venue entertainment facility for London. It is also a burden to London's tax payers and has not been a panacea for downtown.
The downtown remains pock marked with empty stores despite the JLC, a new central library and a new farmers market. Two restaurants right across the street from the JLC have failed since the arena opened. Roughly $3.5 million a year in tax money will be spent over each of the next 20 years to pay for having the JLC. How did this happen to London and what are the lessons for Kingston?
The Knights played in their own facility, the Ice House. The franchise and building owner at the time hinted the taxpayer had to pay for a new facility or he would leave town, (as if the second largest OHL market would forever lose a team). He made out like a bandit by quickly selling his franchise once the city committed to a new building. The city's cost went from what one member of council promised would only be $10 to $15 million for a smaller facility, to $33 million, plus $10 million for the land. The city has a private sector partner, LCCC, which is a limited partnership consisting of the builder, Ellis-Don, and the operator, Global Spectrum LP (Global). And they have a sweetheart of a deal. LCCC leases the JLC from the city for 49 years. The partnership only put up $2.5 million of its own money and a $7 million loan. The loan guaranteed by the city. And the loan and interest are paid first from the available cash flow from the operations of the JLC, reducing the available cash flow to the city. Given the terms of the lease, the city will never get its investment back (London City Council was told its return on investment would be negative).
Why would the city get into this kind of deal? A city is not set up to be in the entertainment business. This puts the private sector partner in the driver's seat. Global is a subsidiary of Comcast-Spectacor LP which is 66% owned by Comcast, the largest cable company in the USA. Because Global runs a number of facilities across North America, it has the market power to bring in major acts, something a small operator will have trouble doing and something a city won't be able to do well, if at all. Global is well paid for the privilege, too. The deal between London and Global is a case study in how to avoid taxes and flow funds from one subsidiary to another. Further, there are wonderful opportunities for internal transactions to maximize Comcast-Spectacor's profits and minimize the amount left for the city. The food service is run by Ovation, a subsidiary of Comcast-Spectacor. A Global subsidiary, Front Row Marketing, sells naming rights for all of Global's facilities. They got a percentage of the value of the naming rights for the John Labatt Centre. The fact that Front Row was the middle man in the deal with Labatt's was not revealed to London City Council, nor has the amount of the fee been reported.
What is the result of all this creative accounting? Less for the city. Under the terms of the deal, the City gets 20% of the remaining cash in each of the first five years, with an increasing share in future years. In the first year, the city got $75,000, the same amount it had received in property taxes before it bought the land, and much less than the debt repayment costs. When confronted with this net loss, Council took the attitude "hey, it's a nice building, why care about where the money goes?"
Others argue that the cost is recovered in new spending and tourism. However, a facility that is open for a few hours 80-100 days a year, (mainly in the winter as the OHL team is the main tenant) will not itself bring enough people to your businesses unless they have something consumers want and need when the facility is closed. There is a body of literature on the impact of sports and sports facilities on municipalities. The verdict? They don't increase municipal revenues nor increase spending in the municipality, merely move disposable income around. One of the best articles is by UWO economics professor, John Palmer, which you can find at http://www.cdhowe.org/pdf/PressReleases/english/commentary_161pr.pdf
Is it worth it for London? Taxpayers are facing an increase of 10% in their taxes this year. And yes, London will get the facility back in 49 years, but what good is a 50 year old building?
The moral of the story? Keep your eyes wide open, don't believe those who tell you new facilities bring vitality, and tell your elected officials that civic pride has an upside limit and you expect them not to pick your pockets too deeply!