July 21, 2010 City Council Meeting Item 5.4 – Sports and Entertainment Facility Supplemental Questions from Mayor and Council Questions for the Katz Group
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2010FTB013 – Attachment 2 July 21, 2010 City Council Meeting Item 5.4 – Sports and Entertainment Facility Supplemental Questions from Mayor and Council Questions for the Katz Group Councillor Anderson: The precise terms of an agreement between the Katz Group and the City of Edmonton remain the subject of negotiation. Accordingly, what follows below is the subject of ongoing discussions and cannot be considered final. 1. Who will own the new arena? (Katz Group) Answer: We are presently working with a model where the City would own the arena. 2. Who will operate the new arena? (Katz Group) Answer: It is a central part of achieving a sustainable financial model for the Edmonton Oilers that we operate the arena. 3. Who will pay the operating costs? (Katz Group) Answer: We have yet to develop a proposed operating model in our discussions with City Administration. However, in principle, we would consider it appropriate that we would be responsible for operating costs. 4. Who will pay the maintenance costs? (Katz Group) Answer: This is to be settled. One must distinguish between routine maintenance and capital maintenance requirements. We expect that both will be considered as our discussions with City Administration advance. 5. Is the $100 m Katz dollars cash or land? (Katz Group) Answer: There are a number of ways to deliver $100m in value, but we recognize that this will have to be done in a fashion that is acceptable to the City. 6. Has a detailed analysis of the Katz lands been done (architects, planners, engineers, transportation experts, parking consultants, etc), to determine compatibility with the facilities program? (Katz Group) Answer: We have worked closely with developers, urban planners, civil engineers, traffic consultants and arena programming experts. This process has reinforced our view that the subject lands are an optimal location for the arena district. July 21, 2010 Sports and Entertainment Facility Questions from Council to Katz Group Page #2 7. Can an NHL team in Edmonton generate enough revenue on its hockey operations to support itself? (without public assistance?) (Katz Group) Answer: No. However, with revenues from a new downtown arena, we are confident that we can establish a model that creates long term financial sustainability for the Oilers. Councillor Batty: The Katz Group is a private company and in that they could not reasonably be expected to make their affairs public, there should be an acceptable process whereby independent professional financial advisors (legal, audit, investment bankers) to the City could review the Katz Group data on a confidential basis in order to provide “comfort” to the City that there is appropriate financial resources. 8. Who are the investors in the Katz Group? Is it just the family or are there other Answer: Daryl Katz is the controlling shareholder of the Katz Group. His parents also have an interest. 9. Who are the major creditors of the Katz Group and what security do they have? Answer: As you have observed, the Katz Group has a right to privacy in respect of the details of its financial affairs. However, we are prepared to work with City Administration to satisfy the City that we are able to meet our financial commitments to this project. 10. What is the assurance of 100 million – how would the money be raised? Answer: The Katz Group has the wherewithal to honour this commitment. 11. Does the NHL have to sign on to a relocation agreement? Answer: Subject to concluding a mutually acceptable agreement for funding for a new downtown arena, the Katz Group is prepared to sign a long term lease which includes a location agreement. We are advised by the NHL as follows: “Location agreements, which are intended to bind a franchise to a particular market for a stipulated period of time, are typically a term of a lease between the franchise and the building owner. The NHL would not expect to be a signatory to such an agreement. However, the NHL expects all franchises to honour the terms of their valid leases. The NHL recognizes that, in many cases, government entities commit significant public funds for arena construction and infrastructure and that they do so with an expectation of the NHL's and the franchise's long term commitment to the local market. Franchise relocation may make other cities less likely to invest in arena facilities and accompanying infrastructure. This harms not only potential NHL expansion but also those existing franchises seeking municipal participation in building new arena facilities and infrastructure. July 21, 2010 Sports and Entertainment Facility Questions from Council to Katz Group Page #3 Any franchise seeking to relocate to another market must have the permission of the NHL Board of Governors. While the first priority would be to keep franchises in their existing markets, a relocation application may be considered if the franchise does not have a binding lease. Such an application involves the consideration of some 24 factors, as set forth in the NHL Constitution and By-Laws, and is subject to a majority vote of the Board of Governors. The prevailing rules emphasize current local market viability first and foremost. Franchises whose markets are not viable due to the absence of a state-of-the-art arena and a sustainable financial model for the franchise may be considered candidates for relocation, again assuming there is no binding lease obligation. An important component of the analysis of local market viability is the assessment of the willingness of local government to participate in helping to establish the franchise's long term viability. In circumstances in which an NHL franchise is relocated, history indicates that a lengthy period of time is likely to elapse before another NHL franchise may be placed in that market, especially where the relocation was due to a failure of local support for the team from fans and/or local government authorities." 12. Should the Katz group suffer financial challenges does a relocation agreement ensure the team stays in Edmonton? Answer: We are advised by the NHL as follows: "The NHL has a critical interest in maintaining the viability of franchises in their home markets that have been assigned and approved by the Board of Governors. Should ownership of a franchise fail financially, all efforts would be made to find a viable local buyer to keep the franchise in the market and uphold the commitments made by the failed ownership. Alternate ownership candidates must, however, establish that they have the financial ability and wherewithal to support the team and make it successful in its current location, as well as otherwise meet the NHL’s criteria for transfers of ownership under the review standards and processes set forth in the NHL Constitution and By-Laws." 13. Should other strategic partners become involved in either the financing a possible arena or in the running of the project would the City of Edmonton be required to give approval? Answer: As to financing, yes, if the City is to own the arena, its agreement would be required in respect of all financing terms. As to operating the arena, any limitations on the Katz Group would have to be sorted out in discussions with the City Administration. We recognize the need to work with the City to best ensure that the arena development meets the needs of Edmontonians. Councillor Caterina: 14. What was the specific offer to Northlands by the Katz Group in terms of being involved in a new arena? Answer: Our discussions with Northlands took place over a period of about 18 months. They also took place within a context of a mutual expectation that the specifics of the discussions would remain confidential. We last made a written offer to Northlands in July 21, 2010 Sports and Entertainment Facility Questions from Council to Katz Group Page #4 September, 2009 which we thought would have given them a significant role in the arena but would also have allowed the Oilers to be competitive and sustainable. Councillor Gibbons: 15. Arena operations: If the Oilers operate the arena and receive all revenues from the arena: a. Who will have responsibility for such things as maintenance and repair, replacement of mechanical systems, structural repairs and maintaining financial reserves for major replacements and repairs? Answer: Please see Answer #4 above. This has yet to be determined. b. Do you have an estimate of the annual fixed operating costs for this type of facility? Who will pay these costs? Answer: Please see Answer #3 above. As we are still in the design stage for the arena, we have yet to develop an operating pro forma. c. Will the Oilers pay rent for the Arena? Will the Oilers pay Operating Costs for the Arena? Answer: The matter of rent remains the subject of further discussion with City Administration. We anticipate that we will pay operating costs. d. Will the Oilers pay real estate taxes on the Arena? Answer: the matter of property taxes applicable to arena operations is another matter to be discussed with the City Administration. Councillor Henderson: My questions are about the non hockey revenues and probably are best answered by the Oilers and Northlands may also want to answer. 16. It is my understanding that in the old deal with the Oilers they had the non hockey business. At that time they chose to give it up, I presume because it was not lucrative. Answer: It is our understanding that the EIG gave up control over the non-hockey revenues as part of an agreement with the City. We are not aware of all of the details and rationale that went into that agreement. 17.