It’s the investment opportunity of a lifetime (II) -

It’s the investment opportunity of a lifetime (II)


I should start with a confession: when I wrote that really long post slamming governments for getting into the NHL arena-building business, I hadn’t yet read the Ernst & Young feasibility study (summary here; full report here) about the project. Had I read the report, my opinion would have been different. I would have hated the idea even more.

Here’s why:

-The management of the arena would be the responsibility of a Crown corporation (because you can never have too many of those), which, according to the report, could be expected turn a $1-1.1 million annual profit. Sounds pretty good, right? Only this estimate includes neither the financing costs, which the report admits would have to be borne by the government, nor does it include the $4.5 million the Crown corporation would be expected to spend in annual maintenance costs. Most rational people would therefore consider that “profit” to in fact be a minimum annual loss of $3.4 million.

-The financial model also excludes property taxes, which could reach $4 million a year, the report admits. While it optimistically notes the current tenants at the site don’t pay taxes, it also says there’s no guarantee the new arena would be exempt. If taxes are added to the actual cost of running the place, annual losses would figure to be about $7.4 million, not including financing costs.

-The total market for the arena is estimated to be 9.1 million people, more than 18 times Quebec City’s population of 491,140 people (2006). Tourisme Québec’s own numbers pegged the total number of tourists to the provincial capital region in 2007 at 4,481,000. If you add those two figures up, you get about 5 million people, well short of the 9.1 million people who’ll be flocking to the Nordiques’s fancy new digs. To get up to that 9.1 million person figure, the study’s authors added what they termed “neighbouring” cities to the tally. These include, among others: Cape Breton, N.S. (a brisk 1,228 km drive away); Charlottetown, P.E.I. (923 km away); New Glasgow, N.S. (984 km away); and Truro, MA (809 km away).

-The report anticipates that, with an NHL team in place, the number of bookings at the new arena would be 41 per cent higher than they are at the Nordiques’ old home, the Colisée Pepsi: 178 days a year vs. 126 days a year; according to the estimates, it’d be booked 191 days a year without hockey. I honestly can’t say whether this estimate is out of whack or not. But at 178 days booked a year, the arena would be on the cusp of the major leagues as far as venues go: Madison Square Gardens and the Staples Centre, both of which are home to other professional sports teams outside hockey, not to mention the fact they are located in NYC and Los Angeles respectively, are booked between 200 and 250 days a year.


It’s the investment opportunity of a lifetime (II)

  1. It's a sad truth that consultants (even accountants) will usually give the client the report the client wants – and will use arguments and assumptions as fragile as a guilty defendant's barrister.

  2. You could make the argument that an arena, stadium, etc., is a kind of psychic public good, like a museum. (No one, to my knowledge, justifies 3-level-of-government funding of the Royal Ontario Museum on the basis of its bottom-line contribution to the Toronto/Ontario/Canada GDP.) But if it is that kind of psychic public good, then federal funding of such a thing will trigger the Bernier maxim – and a government ostensibly devoted to reducing the reach of the federal treasury will be spending a billion dollars (easy) on sport palaces a mari usque ad mare.

    • I really don't have a problem with public (government) funding of institutions like museums (or hospitals or parklands, etc.) where both the benefits as well as the costs accrue to community-at-large, however defined. I have a real problem with the public underwriting the capital costs of a facility whose benefits (aside from some nebulous "feel-good" factor) will end up mostly in the coffers of corporate pirates like Quebecor.

  3. Lordy, it's truly insane.

    There is no way in heck that someone in PEI is gonna drive or fly to Quebec city for a hockey game. 9 million people? Insane. No way.

    I thought Ernst and Young were an accounting firm. Exclude property taxes? Exclude maintenance? Exclude financing? This is voodoo accounting. This is worse than Enron accounting.

    • Are you suggesting the client didn't approve (as in, insist on) the assumptions?

      • Maybe so, but there comes a point where basic standards should apply.

        If a politician walks up to a journalist and pays him to say positive things about the politician, then I wouldn't call that journalism anymore.

  4. In the case of the SK Roughrider stadium in Regina, I am told the consultant that did the feasibility study is the same group that builds the stadiums.

  5. To get up to that 9.1 million person figure, the study's authors added what they termed “neighbouring” cities to the tally. These include, among others: Cape Breton, N.S. (a brisk 1,228 km drive away); Charlottetown, P.E.I. (923 km away); New Glasgow, N.S. (984 km away); and Truro, MA (809 km away).

    Don't be so silly/worried about it, Philippe. The upcoming E&Y feasibility report "High-Speed Rail in Eastern Canada: All Aboard!" will address that just fine. You should speak with Paul Wells since he'll probably get the scoop.

  6. so did the CPC or Libs read the report before they started talking/posing?

  7. Charest is many things, many of them bad, but he certainly isn't stupid.

    He wholly applauded the whole thing and immediately said his gov. implication was conditional to the feds equivalent implication. Equivalent meaning a percentage of the total cost, not just some cash amount (in case there are, y'know, "unforseen expenses").

    Charest, who currently is in the dumpsters and need any kind of good will possible, knows full well the feds, at worst, won't oblige and, at best, will oblige. Either way, he is out of the way and has the early adopter benefit (with Labeaume) of blaming it all on the feds if it goes wrong and getting a large pie of goodwill if it works.

    He basically threw harper under the bus on this one by jumping the gun. Dude knows how that kind of stuff works. As I wrote about Bellemare, if you want to play with Charest, you better be good at faustian deals.

  8. Please is there an English version of the Ernst report that you could post. Remember not all of us speak FRENCH!

    • No need for hysterics. I'm perfectly aware of the language I'm writing in. I doubt there's an English version of the report. Feel free to post a link if you find one, though.

  9. I would love to see the Nordiques back in Quebec City. But can you explain to me why I, a resident of rural Ontario, should pony up to make it happen? I had a fierce debate with a relative in Ottawa when, similarly, I objected to Manley's plan to subsidize the Sens.

    I'm generally OK with government support for grassroots amateur (especially juvenile) sport if it can be demonstrated to enhance fitness and participation. On the other hand, government has no business laundering tax-derived revenues for use by a fraternity of oligarchs who want sports franchises as toys or write-offs.

    I do hope you get your team back…just not on my dime.

    • Ditto, couldn't agree more. Carol Anne: why should I in Saskatchewan and Brooster of rural ON pay for your arena?

      • Because I would be happy to pay for yours

        • That's very thoughtful, Carol Ann, but such reciprocity could quickly get out of hand, with all the actual and prospective franchises of every sporting ilk having their hand out for similar treatment.

          In any event, even though I'm a hockey fan, I (and many others) don't have a team I care to support…certainly not the Toronto Make Believes, who belong to the acme of corporate privateers.

  10. Packed every night? Which was why attendance declined from a high of 15K to about 13,600 from 89-90 to 91-92, and never topped 15K again until the move to Colorado.

    So, um… yeah. Quebec couldn't sell out the old building. Even granting 15,000 fans / game due to some growth in area population, that's not really enough to make a $40,000,000 payroll sustainable. I frankly don't know if 18K / game would make it work. And that's not even taking into consideration that Quebec would face the same problem as Edmonton, namely that no player would want to sign there as a free agent unless all other options were exhausted.

  11. Je veux juste dire que Patriquin est un ostie de trou de cul