Will Calgary taxpayers fall for the sports arena shakedown?

Residents of Calgary, Alberta, are in the midst of a stadium-sized civic drama, the same one that’s been played out across North America many times before.

And while “To build or not to build,” is certainly one of the going concerns for Calgarians and their hockey team, the Flames, the more burning question is, of course, who will pay for it? More appropriately, despite heaps of evidence saying that building arenas on taxpayer dollars doesn’t make economic sense, why do municipalities continue to fall for it?

This week at a business luncheon at the Canadian Club in Calgary, Flames president of hockey operations Brian Burke launched the latest salvo in the war of words over the arena issue, saying that without proper public backing for the project, the team might up and quit Calgary altogether. Citing Quebec City as one viable option for their new digs, Burke said, “We’re not going to make the threat to leave. We’ll just leave.”

And while Burke’s belligerent tone was countered soon after by Ken King, president and CEO of the Calgary Flames, who said that the team is still committed to working with the city of Calgary to get a deal done, it was the predictable appeal to economics from both Flames representatives’ that deserves attention.

Burke, for instance, is reported as saying, “It’s discouraging when you hear someone from the city say that we have zero economic impact. We think it’s hundreds of millions of dollars.”

Tons of research (mostly from the United States, where pro sports arenas are often fully paid for with public funds) has found that there is no economic boon for a city attached to having a sports team, let alone putting hundreds of millions into a new arena.

Yet anyone who’s poked their nose into the issue even just a fraction could tell you the “someones” from the City of Calgary are right and Burke is out to lunch.

Tons of research (mostly from the United States, where pro sports arenas are often fully paid for with public funds) has found that there is no economic boon for a city attached to having a sports team, let alone putting hundreds of millions into a new arena. In fact, studies show that cities that have put significant investment into sports complexes have, on average, ended up with slower income growth than cities that put their money elsewhere.

“In terms of indicators like increases in personal income for residents or more sales tax revenues, there isn’t good evidence that having professional sports teams, even winning sports teams, for that matter, is an overall benefit for a city,” says Davin Raiha, assistant professor of Business, Economics and Public Policy at the Ivey Business School of Western University in London, Ontario, in conversation with Cantech Letter.

“On average, Canadian municipalities have been reluctant to invest for that very reason,” says Raiha. “[Building arenas] seems to be a more viable option for cities in the United States but that’s because of different constraints on spending down there for municipalities than what we have in Canada,” he says.

Indeed, an analysis by the US National Conference of State Legislatures found that since the early 1960s, 91 sports stadiums were built in the US with public money, 22 of them fully paid for with public funds, and all of them worked out through measures such municipal bonds, extra hotel taxes and sales taxes. The New York Mets’ Citi Field, for example, opened in 2009 with an $850 million USD price tag, $616 of which came in public subsidies, while over in the Bronx, the new Yankee Stadium was completed that same year for a jaw-dropping $2.3 billion, $1.2 billion of which was public financing.

Pro sports teams are not public goods. They are private businesses that people profit from and so funding them means playing favourites. Lots of businesses could use tax breaks, why should pro sports teams be treated any differently?

So what’s so bad about using tax money, government loans and subsidies to foot the bill?

Cantech Letter spoke to Aaron Wudrick, federal director of the Canadian Taxpayers Federation, who said that public funding of sports arenas sets a dangerous precedent. “Pro sports teams are not public goods. They are private businesses that people profit from and so funding them means playing favourites,” says Wudrick. “Lots of businesses could use tax breaks, why should pro sports teams be treated any differently?”

Yet a quick glimpse at the big arena projects in Canada over the past decade and a half shows that the practice is commonplace. Toronto, Vancouver, Winnipeg and Ottawa all have had major sports complexes built with tens and often hundreds of millions in public financing. The Videotron Centre in Quebec City, for example, cost a relatively thrifty $370 million but all of it was public money, half from the province and half from the city — and they’re still in waiting for an NHL team to set up shop.

Three hours north of Calgary, of course, Edmonton’s Rogers Place opened last fall to much fanfare. And while debate over who would foot the bill raged for years at City Hall and in coffee shops across town, when the dust settled, the agreement had taxpayers on the hook for $313 million, twice as much as what the Oilers and team owner, Daryl Katz, agreed to pay (which, at $166 million, is to be paid in rent over upcoming decades).

In Calgary, however, so far mayor Naheed Nenshi hasn’t appeared worried about the Flames quitting Cowtown. Instead, Nenshi seems steadfast in his resolve to keep public financing out of the picture for their new arena, saying that “99.999997 per cent” of calls and emails to City Hall have been against the idea of public funding.

Is it really a good idea for governments to cave in to blackmail from a business? Suppose they do it for a sports team and then another business that employs hundreds of people does the same thing? At what point do you stop?

“Certainly we’ll be good partners on this,” says Nenshi, to CBC News. “We will have an open and honest discussion about what might be possible, where there might be a win-win.”

But the pressure tactic shouldn’t sway any municipality, says Wudrick. “The precedent issue is a problem here,” says Wudrick. “Is it really a good idea for governments to cave in to blackmail from a business? Suppose they do it for a sports team and then another business that employs hundreds of people does the same thing? At what point do you stop?”

And yet, cave they do, in part because of the squeaky wheel truism, here represented by the hockey fan base. Raiha says, “There are strong incentives for municipalities to address the wishes of perhaps smaller but more vocal segments of society. Spreading out those costs, the other residents who might not care so much about the issue are not going to complain too much by comparison.”

At the same time, just because there is no economic gain (or even a loss) connected to having a sports team in town and occasionally having to plunk down a couple hundred mil on new facilities, it still might be the right thing to do — that is, once you factor in the less-quantifiable civic goods like the involvement and sense of community that can come from having a pro sports team to call your own.

“You can’t make the economic argument, and people are just wrong when they do,” says Raiha, “but there are other reasons why a sports team and an arena may be a good thing. The civic pride that comes with having a team, having a common identity or rallying point, these aren’t as measurable but they are certainly important,” he says.

Thus, for mayor Nenshi and his councillors, they may end up thinking back at how crazy Calgary was during the Flames’ last Cup run in 2004 and of how much Calgarians in general, lots of them, love their Flames. And then, like so many other municipalities, they may just find themselves holding their noses and signing the cheque.

Below: Burke: Flames don’t need new building, Calgary needs new building