Kids And Seniors Subsidize Millionaire Spits' Owners In Arena Deal

Wouldn't that have been a great headline in the Windsor Star when they reported on the Arena deal between the City and the Spitfires.

Don't be mad at me or think that I am being mean. I didn't say this. That's effectively what the City's Jan Wilson, Executive Director of Recreation, said as you will read below.

Or the Headline could have read:

• "Arena Deal: Spitfires, PCR and Farhi Win Big!
  City Taxpayers Losers"

PCR did alright since they were able to dust off plans for an arena that they were going to build for a Port Huron project that went broke. Mr. Farhi was able to sell part of his land for the arena that he purchased only a short time before at a nice price. Luckily, it was just before the Lear Plant was going to close down. Moreover, he also received a prime piece of real estate in downtown Windsor which he does not have to close for several years yet. I wonder if he will redevelop the rest of the Lear site now.

As for the Spits....after taking into account the rent free status given to their office space and Retail Store (4,600 square feet of space in a prime location) and calculating the value of the 2 suites in the arena and 50 car parking they are given as part of the deal, they effectively pay nothing for rent while reaping huge payments. Can you imagine how much money they will make as you read on if they do well in attendance and how much the City can lose if they do not!

I wonder how tough the City was in negotiations. I recall that in one of the Administration Reports, it is said that, if the Project Ice Track proposal is selected, then Administration would try to bring Project Ice Track and the Spitfires together to negotiate a deal. Yet at the same time the Report also states that the City and the Spitfires have been talking about the East end arena and "through preliminary discussions with the Windsor Spitfires, a framework for a new agreement with the city has been reached." In other words, the City undercut Project Ice Track it seems!

I also wonder if there are any "side letters" or other agreements relating to the Spits that may technically NOT be part of the Arena deal but which Taxpayers should know about. As an example, were there any upfront monies paid to the Spits or their owners to tie them into the Facility or for Leasehold Improvements? It would be nice if the traditional media found out the answer. A good negotiator could ask for millions easily since the City set a precedent at Canderel.

There's a news tip of the week for an investigative journalist to follow-up on to see what the facts are!

Why is it that whenever something is controversial, especially if one might be able to point the finger of blame, the Mayor "was said to be unavailable for interviews Friday." I guess I know why. I would be embarrassed to answer some questions about the Agreement.

Let me deal with one issue right off the top... Confidentiality. Remember that was the excuse given for not revealing the terms of the Agreement and forcing Chris Schnurr and the Windsor Star to go to the Privacy Commission. I'd like to know where the Mayor/lawyer thinks that there is a confidentiality obligation on the City to prevent the release. Here is the only clause that dealt with confidentiality that I could find:

• "Section 19.5 The Team and the City shall use their best efforts to ensure that those for whom the Team and the City are in law responsible and their professional advisors, keep confidential the provisions of this Agreement. "

Where in this clause is there any obligation on the parties to keep this transaction confidential? There is none. There is nothing that prevented the City from releasing this Agreement a long time ago. Why didn't the City do so? The reasons will be obvious as you read this BLOG.

I like reading the end of the Windsor Star stories. That's where the real juicy stuff comes out. Monica Wolfson's piece is no different:

• "In interviews with four arena operators in Ontario, it was widely agreed that few arenas break even or make money. Most are subsidized by the municipality.
  
  "Some lose half a million one year or make a profit of half a million," Hamilton said. "Did you have a hard winter or summer when utilities went through the roof? Being profitable is a problem worldwide."
  
  Wilson, who didn't know what the WFCU operating costs would be, said the WFCU Centre will make an annual profit of $300,000 to $400,000.
  
  "If this was a stand-alone spectator arena, I'd say the same thing," Wilson said. "But we have more revenue streams. We have the rental fees from the (three) community rinks, the senior centre and community centre activities."

Ms. Wilson is telling us that but for the kids and seniors the complex would be losing money. If we never built a palace for the Spitfires, then the City would probably be making a profit. Instead, and contrary to what Eddie first said when he ran for Mayor when he wanted a public/private partnership with the City's liability limited, the risk is now on City taxpayers.

More than that, how can Ms Wilson claim there will be a "profit" when she does not know the WFCU operating costs. Canderel and MFP here we go again!

This whole arena deal is so curious. The City had to wait until the very last second before releasing the documents. Even when they did so on their website, the website did not work. I wrote a nasty e-mail to the City since this was not the first time that documents could not be downloaded from their website:

• "From: Ed Arditti
  Sent: May 2, 2008 4:04 PM
  To: Vlachodimos, Steve
  Cc: Critchley, Valerie
  Subject: Why doesn't your damn website work
  Importance: High
  
  What is the excuse this time!!!!
  
  I cannot download the WFCU agreement."

More importantly, before the documents were released:

• "Windsor's FOI co-ordinator Chuck Scarpelli said Tuesday that it was "the city's prerogative" to wait until then and that staff is preparing a report to council and a "media package" to coincide with the document's release...
  
  City council approved the agreement with the Spits in the fall of 2006, but councillors themselves were not shown copies of the deal. Council endorsed it based on an administration report that was then taken away following in-camera discussions.
  
  "I couldn't tell you what's in there," said Ward 5 Coun. Percy Hatfield, one of several councillors who will be seeing details of the multimillion-dollar deal for the first time this week.
  
  "I look forward to seeing it," said Ward 1 Coun. Drew Dilkens. "We had a discussion (on the arena deal) many moons ago ... but I don't recall that discussion."

Can you believe it... a transaction of this size and the Councillors never saw the agreement. Do you understand why I am troubled by the Tunnel deal with Detroit. If the Administration Report is like the media package, then someone has some explaining to do!

The media package is very interesting claiming an Operating Annual Gains/Savings of $735,200 and a Capital Gains/Savings of $900,000. Of course, that is playing with numbers as I shall demonstrate.

This transaction strikes me as being very similar to the funky bus terminal deal with Greyhound. Effectively for merely paying operating costs, Greyhound obtained a 50% interest in the terminal. It is just as if you paid rent in an apartment and the landlord gave you an interest in his building. I've never heard of that before.

There is a variation in the arena deal... for paying rental, the Spitfires receive a huge package of goodies from the City that more than makes up for the rental that is paid out in the first place.

And just like the deal with the Credit Union, the big number for the naming rights is set out but you have to read through the fine print of the Agreement to see how that amount is significantly reduced. In the same way, one sees a big amount for Spitfire rental but the takeaways are not publicized.

Let's go through the Agreement so that you will see what I mean. What is important to note is that many of the fees and revenues are paid to the Spits on the basis of the Entire Facility and not just the Spits' arena. That means that the City does not get those revenues but that they are given to the Team:

1. The Term of the deal is 20 years and the Spitfires have the right to renew. The Agreement provides that "Any renewal shall be on substantially the same terms and conditions as set out in this Agreement, save and except that the Rent and other amounts herein shall be based upon the then current market rates for similar premises in the OHL." The only problem is that this clause is not workable. In the Star story it was said "Every arena deal is different, said Mike Hamilton, manager of the Mississauga Hershey Centre, home to the St. Michael's Majors."



2. The Spitfires don't just get to play hockey at the arena, they get additional facilities including office space up 2600 square feet and a Retail Store of 2000 square feet at no additional fee. This is an offset to the team putting in improvements to the Dressing Room (NOTE: The City claimed "In addition approximately $100,000 in upgrades to the dressing room area is being funded by the Spitfires.") That is a very nice rental rate over a period of 20 years when one compares what it would cost to rent all of that space commercially. Not only that, the City will make available these facilities on a "finished" basis comparable to that located in the Labatt Centre in London.



3. As part of the deal, the Spits get to use the arena for its Training camp and if it is not available, then the City has to pay the costs at another site. It also gets to use the facilities for all of the Team's practices



4. A big deal is made about the Jumbotron being paid for by the Spits. It is valued at $800,000 although my recollection is that the Spits were going to buy it on eBay, believe it or not! I wonder what price they actually paid for it rather than its "Valuation." I don't feel so bad for them however since they get all the advertising revenues for it as the owner and can remove it at the end of the Term.



5. The Spitfires get exclusivity on the arena for professional hockey. If therefore the Spitfires have a lousy team for years, and attendance drops, the City is stuck.



6. The Spitfires get "50 permanent parking spaces located on the Property in the closest possible proximity to a private entrance to the Facility for use by the Team" not only that, 20 of those spots will have a security fence around them with controlled access at no charge to the Team.



7. The Spitfires receive two complementary Suites or private boxes, not just for hockey games but for any event and does not have to buy tickets for them. The value of those suites range "in price from $27,000 to more than $41,000 annually." In addition, "Playoff tickets are extra. Suite holders are also required to buy between four and 14 tickets to other arena events which draw in excess of 1,500 spectators. " Those extra tickets could cost a Box holder additional tens of thousands of dollars annually. Assuming that the Spits get the most expensive boxes, then the price of the boxes alone almost equal the cost of the rental! Remember that the Credit Union also got a box as part of their agreement that would offset the amount that it paid for the naming rights.



8. The Team is the exclusive agent to rent the Suites and makes a 50% commission annually on the fees paid. What real estate agent makes that much?



9. The Team has the right to be the exclusive operator of a Pro shop for the entire Facility at some reasonable amount of rent, whatever that means.



10. For doing nothing, the The Spitfires get 8% of all of the gross revenue of food and beverage sales in the entire Facility for the entire year, and not just the area where they play hockey during their season, for the Restaurant, Catering and Concessions with a few exceptions. Strangely, the City also gets a percentage of the gross revenues "that is to be determined." Who gets the balance... Global Spectrum?



11. The City generously pays all Taxes "including those areas within the Facility to which the Team has exclusive or non-exclusive possession or rights"



12. The City also pays for all utilities including those of the Spitfires as well as security for their area as well



13. The big deal is that the Spitfires are to pay $150,000 per year in rental compared with what the City claims it receives today, $40,000 based on a rental per hour of usage. Of course, the rental should be higher since the seating capacity is over 60% greater and in a brand-new spanking building. After all, we have a $65 million facility to pay for. The Spitfire arena has a cost doesn't it? Is the $150,000 a fair price to pay off that cost? To be direct about it when you calculate in the value of the takeaways, the Spitfires pay little or no rental at all!



14. There is a rental escalator but there is no requirement on the City to actually charge the increase. The increase is based on the Consumer Price Index and there is a maximum 12% increase over a five-year period. Not a bad way for the Spits to minimize their increase. I wonder if other commercial facilities have such a generous rental terms.



15. The Spits are also the exclusive provider of ticketing services at the Facility, not the just their section of it, and get a fee of $500 per event for all other events that take place at the Facility. That fee is subject to increase but there is no maximum unlike the rental.



16. The ticket surcharge is set to bring in more money for the City. I think it is based on the 4700 tickets being sold per game but I'm not sure. However, there is no obligation on the City to put one on. Somehow it is said that the surcharge is a "Gain to the City." Here's the fun part though. The surcharge is to be used first to pay for the costs of fixing up the private boxes. Clearly the City had no money in its budget to pay for the cost of the suites. Any monies left over don't go to the City but rather go into an Arena reserve account to fund improvements and maintenance of the facilities! Isn't this the way to hide the increase in the cost of the Arena by not including it in Capital. There goes Councillor Mahatma Brister's career!



17. Ticket revenue... it all goes to the Spits. Can you imagine how much money the Team will receive if they sell out the arena for their entire year. And the City receives nothing extra for building their palace.



18. The Spits are also immune from increases in Hydro, water levies and sewage charges since the City is responsible to pay all utilities and realty taxes.



19. While there is a sharing of costs for Game Day Staffing, the cost to the City increased dramatically



20. The Spits are given exclusivity in the entire Facility to sell hockey merchandise, the right to all revenues from the sale of game promotions, advertising and sponsorship for the entire Facility less a fee to the City of $25,000. Of course, the City gets the revenue from the Naming Rights except that the Spits get a commission of 6% of all such revenue if the Team was involved in obtaining such rights. I wonder if they got 6% of the Credit Union fees. Not a bad deal for doing very little.



21. The Spits get all the revenue for the Pouring rights i.e. the fee paid to provide alcoholic beverages including advertising and promotion fees.



22. The Team has the right to all media revenues



23. A big deal was made about funding by the Spits of their Dressing Room. What was not said was that but for fixtures, everything else can be removed

The Spitfires did very well on this transaction as I am sure that you will agree. Effectively, they pay very little to rent to play hockey in the newest arena in the League. I must admit that I don't see a benefit for taxpayers but I do see us taking all of the financial risks on the Arena.

What was the need to build an arena for a private hockey club? Why didn't we just replace the public facilities with others? Interestingly it would appear that the rest of the Facility will subsidize the Sports Arena rather than the other way around.

I don't know about you, but this Arena lease just opens up more questions for me about everything to do with the whole Arena transaction from start to finish especially because of the so-called confidentiality that does not exist. I wonder if someone on Council will have the guts to demand a full and proper audit of the entire process from start to finish. Don't hold your breath.

Oh well, since we are in the airport business, the Tunnel business, the redevelopment business, one may as well add in entertainment and Sports Arena businesses too. Do you think I am kidding? There is one final term that I almost forgot to mention:

• "the Team hereby grants to the City a right of first refusal to purchase the Windsor Spitfires Hockey Club to be exercised upon notice in writing from the City that another party wishes to purchase the Windsor Spitfires Hockey Club."

When the millionaire Spits owners decide to sell out, you can bet on the fact that the City will buy the Franchise because we have to protect our investment in the Arena. I can just picture that headline in my mind now too.