Abbotsford Heat! Fraser Valley Sports & Entertainment Ltd ., and Global Spectrum As Agent for the City of Abbotsford

COUNCIL REPORT

Report No. CM04-2010 Regular March 15, 2010 File No. 0760-20-05-01

To: Mayor and Council From: Frank Pizzuto, City Manager Subject: Supply Agreement Finalization - Abbotsford Heat! Fraser Valley Sports & Entertainment Ltd ., and Global Spectrum as Agent for the City of Abbotsford

RECOMMENDATION(S)

1. THAT Report No. CM04-2010, dated March 15, 2010, from the City Manager, regarding the Supply Agreement Finalization - Abbotsford Heat! Fraser Valley Sports & Entertainment Ltd. , and Global Spectrum as Agent for the City of Abbotsford, be received;

2. THAT the City of Abbotsford approve the Supply Agreement with the Abbotsford Heat! Fraser Valley Sports & Entertainment Ltd., and Global Spectrum as Agent for the City of Abbotsford ; and

3. THAT the Mayor and Corporate Officer be authorized to execute all documents related to this matter.

BACKGROUND

In 2005, the City of Abbotsford made the important decision to build an entertainment and sports centre. This visionary undertaking by residents and Council was an important decision in moving the City forward and bringing to the Fraser Valley an important dimension of entertainment, a community gathering place, vision , and visibility to the City. A growing City needs this type of facility as it becomes an influential centre in the Fraser Valley. The Abbotsford Entertainment and Sports Centre (AESC) was subsequently completed in the spring of 2009.

Since its initial decision to build the centre, it was envisioned that the AESC would house a hockey team as its major tenant. At first it was discussed that an (ECHL) team might be attracted to the facility. The vision of Council , the community, and staff however began to see a broader vision. The community and the City began pursuing an American Hockey league franchise (AHL). AHL is the farm team for the National Hockey League (NHL) and the players, all drafted by the NHL, are one phone call away from the NHL. This task would not be easy work. The AHL is an eastern North American based league with its most westerly outpost being Winnipeg.

The City in its quest to attract an AHL franchise completed a market research study, an economic impact study, and gathered a group of local investors to spearhead the acquisition of a team . After three years work and courting many AHL and NHL teams the City was able to attract an AHL franchise.

To summarize, the AESC was a significant investment for the City. To ensure its long term success and profitability a major tenant was required. The acquisition of an AHL Report No. CM04-2010 Page 2 of 4

franchise was the best opportunity for success as it is a high caliber hockey league that will attract fans, economic development opportunities, and community pride.

REPORT

On March 2, 2009, Abbotsford City Council was presented with a ''Term Sheet" (attached as Schedule A) that would see the Calgary Flames AHL franchise relocate to Abbotsford based on the terms and conditions outlined in the term sheet and subject to a formal agreement being signed. The start up date for the AHL franchise would be the fall of 2009.

The key elements of the relocation proposal, and the Term Sheet included:

• Cost neutral for the AHL Team • Calgary Flames and Abbotsford based ownership group form a partnership • Calgary Flames maintain control of the franchise • A 10 year agreement • Building managed by Global Spectrum • Team and Global (as the City's agent) enter into a Supply Agreement whereby the team is supplied to the building for a mutually acceptable fee • Profit sharing by the Team and the City on profit generated

On March 2, 2009, Council approved the staff report (EDM2-2009) and the conditions of the Term Sheet subject to AHL approval of the franchise and the conclusion of a supply agreement. On April 28, 2009, the AHL Board of Governors approved the relocation of the Calgary Flames AHL franchise based on the Council approval.

THE SUPPLY AGREEMENT

City Staff, the local ownership group (Fraser Valley Sports & Entertainment Ltd. and the Abbotsford Heat) and the Calgary Flames have negotiated a supply agreement based on the conditions of the Term Sheet. The Supply Agreement (attached as Schedule C) is presented today for Council approval.

The highlights of the Supply Agreement include:

• An agreement between Global Spectrum (as the agent for the City of Abbotsford), the Abbotsford Heat, and Fraser Valley Sports & Entertainment.

• A ten year agreement with financial review after five years.

• Terms and conditions of costs and responsibilities of the Abbotsford Heat and Global Spectrum.

• A supply fee for the ten year period to a maximum of $5.7 million (Canadian) per year; the supply fee is based on actual expenditures and is drawn from revenues generated by the hockey team. The Supply fee includes ongoing reconciliation and year end reconciliation.

• A payment of $200,000 per year for facility rental once the $5.7 million revenue mark is reached. Report No. CM04-2010 Page 3 of 4

• A profit sharing formula on profit generated with 60% of profit going to the Abbotsford Heat and 40% of the profit going to Global Spectrum (as agent of the City).

DISCUSSION

The City of Abbotsford built a sports and entertainment centre to generate economic activity, provide enhanced entertainment and sports opportunities, provide a community gathering place, advance community pride and increase visibility of the City. Building the facility has done that. Attracting an AHL franchise has solidified the vision and the goals of the City.

The significant benefits of attracting the AHL to Abbotsford include:

• The AHL positions Abbotsford in Canada and the entertainment market with a premium product to build on. This will pay economic and community benefits on the short to long term .

• The Supply Agreement and the relationship with the AHL and the Abbotsford Heat provide short term stability and long term rewards . At 3,000 fans per games, which will be achieved in its 2010-2011 season, the supply fee is met through hockey revenue without any cost to the taxpayer.

• The Abbotsford Heat generates approximately $20 million in economic activity in the City yearly. The indirect economic activity on a city-wide scale is significant.

• The AESC and the Abbotsford Heat provide for a people gathering place and a community centre for families. The Centre will, for many residents, be a social outing at reasonable prices. This is community building at its best.

• The City of Abbotsford is an emerging City' we honour our past and look forward to the future. Our success will be based on these values. The AESC and our relationship with the Abbotsford Heat is a small piece of this success and we treasure and value the partnership.

FINANCIAL IMPLICATIONS

The financial overview of Hockey Operations for the Abbotsford Heat as a result of the Supply Agreement is attached as Schedule B. 2009/ 2010 is the inaugural year for the Abbotsford Heat. Because of a short time line from league approval, late marketing efforts and late starting commercial rights sales a deficit of $275,000 is projected for the 2009/2010 hockey season. This is based on paid attendance of 3,278 per game.

The hockey season for 2010/2011 is projected to provide a contribution of $283,070 to the Entertainment and Sports Centre based on attendance of 3,645 per game.

It is apparent that in season two there is a significant improvement from the inaugural year. All concerned believe that these forecasts are very conservative and that actual results for 2010/2011 season and beyond will be greater. This success will lead to long term success of the Abbotsford Heat, the Entertainment and Sports Centre, and the City.

The Supply Agreement provides for a supply fee up to a maximum of $5 .7 million, on a yearly basis to be generated from revenue. The Supply Agreement also includes a $200,000 ice rental fee to the City. Finally the agreement has a profit share provision Report No. CM04-2010 Page 4 of 4 whereby the Abbotsford Heat retains 60% of profit and Global Spectrum (as agent for the City) receives 40% of the profit.

COMMUNICATIONS

All agreements will be publicly released. A media release and media conference will be held to outline the terms of the agreement.

Frank Pizzuto City Manager