Guest Post by Ron Penney
“If something seems to be good to be true, it usually is.”
The Sale of Mile One.
I’ve been following with interest the continuing war of words between Dean MacDonald and the City about his wish to “purchase” Mile One, add additions to the building, and eliminate the public subsidy.
I’ve been often asked about my thoughts on this given my involvement with the building of Mile One and the Convention Centre and its operations, during my tenure as the City Manager with the City of St. John’s.
Most people think that the sale of Mile One is a no-brainer. What’s not to like about it? Getting rid of a “white elephant”, eliminating the subsidy and revitalizing the building. Who could be opposed to that? As I will demonstrate it is a lot more complicated than it appears at first and it shouldn’t be sold.
Like so much of what happens here, there is very little informed public debate about the proposal. Muskrat Falls. I rest my case.
The KPMG report on the potential sale of the building contains a lot of important facts and analysis, with a full listing of the possible positives and negatives. Here is the link. Well worth a read.
A little history:
When the City had the AHL franchise for the St. John’s Maple Leafs starting in 1991, there was considerable pressure to provide a modern facility with increased seating. When I joined the City in 1993, the replacement of Memorial Stadium was starting to become an important issue for the City but it did not have the fiscal capacity to replace it and also build a Convention Centre on its own.
At the time the City didn’t have a large Convention Centre to support the building of a convention business. Large conventions also require exhibition space, which is where Mile One Stadium comes in. It’s not just for hockey, other sports and concerts. It is a multipurpose building which provides space for the trade shows associated with conventions. Mile One and the Convention Centre is a fully integrated facility and needs to stay that way.
There were two important initiatives which allowed it to happen. One was the decision by the province to cost share the project. The second was the agreement to bring in an accommodation tax which would support the City’s borrowing to pay for its share. The federal government also contributed to the Convention Centre; they wouldn’t contribute to the Stadium.
There was considerable debate about where it should be built. Some felt it should be outside of downtown in an area with lots of surface parking but the City’s view is that it needed to be downtown, close to hotels and other amenities and that is what happened and it has been good for the downtown.
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| Ron Penney |
It so happened that construction was just completed and ready to be officially opened in September of 2001. The first event wasn’t what was planned. 9/11 happened and Mile One became the staging area for our response to the 4000 passengers diverted to St. John’s and the Convention Centre was used to accommodate some of the passengers.
The St. John’s Maple Leafs became the major tenant but that turned out to be short lived as they decided to abandon St. John’s in 2005 much to our annoyance after we had built this new facility in large part to convince them to stay here. Professional sports teams are ruthless in their business decisions as we found out.
We then had a series of short lived hockey teams. A Quebec Junior franchise, the St. John’s Fog Devils for three years, the Icecaps from 2011 to 2017 and now the Growlers. Plus a basketball team.
It’s a transitory business and that is important to remember in this debate. Hockey fans in this market are very fickle as the City and privately owned franchises have found out. Average attendance for the Growlers is reported as 3600. I suspect the paid attendance is considerably less but those figures aren’t reported.
I had advocated internally for a stadium which could be expanded to 8000. Boy was I wrong!
The other issue is that over time the lease arrangements for successive teams have resulted in the shift of the share of revenues to the teams from St. John’s Sports and Entertainment. As the recent KPMG report noted “the current unsigned lease agreement with Atlantic and Deacon largely provides for revenue sources that are typically owned by the arena operator and not the tenant.” This has a negative impact on the level of subsidy.
I was heavily involved with two of those negotiations, with the Maple Leafs and the Fog Devils, and they were tough. I understand that the revenue split has shifted over time more to the teams, starting with the Icecaps. This was reported in the press at the time, and, of course, subsequent teams took advantage of that. News reports in the fall of 2019 were that the rental costs would be cut in half.
Right from the beginning the City decided to have it run as a separate company with Directors appointed by the City and the hospitality industry, with the Chair appointed by the City. The Chair was initially a member of Council but that changed to be a private member of the Board, although I note in recent years the Chair has again become a member of Council, which I think is a mistake. During the time I was with the City I was on the Board, representing the City.
The big public issue is, and has always been, the level of the subsidy. This was the case with Memorial Stadium and it has continued to be the case to this day.
But we are looking at the subsidy issue in the wrong way.
Almost everything the City does requires a contribution from the taxpayer. Our recreational facilities only recover a small portion of the costs from the users. Metrobus received a “subsidy” of almost $14 in million in 2019 and Gobus, $4 million.
Much of what the City does gets no revenues from users at all. The Grand Concourse is free to all as are our parks. Their rate of subsidy is 100%.
So the right way to think about Mile One is that it is an important asset of the City, just like our recreational facilities, and our trails and parks.
But the subsidy for Mile One and the Convention Centre is a subsidy with a big difference. It generates a large economic return to the City and the Province as demonstrated in the 2006 Economic Impacts Study. Calling it a subsidy is a misnomer. It’s really an investment. Once conventions start up again likely in 2022, we will see that effect. Large conventions bring in hundreds of thousands dollars to the City and the Province. And we now have the room base and an expanded Convention Centre to support them.
That’s not to say that it shouldn’t maximize its revenues and minimize its expenditures and keep its demands on the taxpayers to the lowest possible amount. The same is true of the Paul Reynolds Centre, which gets a tiny portion of its costs from users.
As we have seen from the latest KPMG report municipal stadiums are almost all owned by municipalities.
So far as I know there are no other jurisdictions in Canada where the private sector is clamoring to buy municipal stadiums. There is a good reason for that - it’s just not possible to operate them without a public subsidy.
We haven’t seen a business plan from Mr. MacDonald to show how it would be possible to do so and he hasn’t told us what he is prepared to pay for it. I suspect it will be a dollar plus an operating grant.
A most unusual aspect of Mr. MacDonald’s ECHL involvement is that he will own not one but three teams. How can that not be a conflict of interest? Imagine if the Molson Family not only owned the Canadians but also the Maple Leafs and the Ottawa Senators. It doesn’t say much about a league which allows that to happen. Who would he root for if two or three of his teams were in the playoffs? How would players be allocated among the various teams?
But setting all that aside there is a bigger reason why it should remain in public hands. The City of St. John’s has been in existence since 1888 as an incorporated body and will be around for many years to come. We even survived Commission of Government!
That won’t be the case with a private owner, even one with possibly deep pockets. Already low fan interest will most likely decline if past experience is any guide, and will be exacerbated by the predicted economic decline, matched by the decline in discretionary income necessary to buy tickets to sporting events. The private owner may tire of the business, or his or her successors. There is no guarantee of continuity.
If, as is highly likely, a sale doesn’t work out, the building won’t be properly maintained and it will fall back into public hands as a much diminished asset.
And just as important, once the pandemic ends and the Convention business returns, business critical to the survival of our hotels and restaurants, we would have a bifurcated asset, with the City owning the Convention Centre through St. John’s Sports and Entertainment and a private company owning Mile One. How could that ever work?
I chaired the organizing committee for the annual meeting of the Federation of Canadian Municipalities held in St. John’s a number of years ago, the largest convention ever held in St. John’s. Mile One hosted the trade show plus the closing dinner. If Mile One is owned by a private business it makes it much more complicated to organize with Mile One being owned by a private operator.
And meetings and conventions is where the economic impact is, not only for the City but for the province as a whole, as delegates often extend their visits.
As pointed out in the KPMG report “the economic literature on arena and entertainment facilities ... indicates much of the economic activity generated by sporting events is considered recirculated where minimal new or incremental economic activity is produced.” And goes on to make the point that “with a finite amount of disposable income, St. John’s residents who choose to spend their money on Growlers hockey of Edge basketball do so at the expense of not spending that amount of disposable income elsewhere in the community.”
This isn’t true of meetings and conventions which “generate incremental revenues for hoteliers, restaurants, public transportation, etc.”
KPMG described Mile One as an “aging” facility, which I found surprising as it is only 20 years old. With proper maintenance and upgrades it can last a long time. This is where the accommodations tax comes in. As the report points out the debt for Mile One and the original Convention Centre are almost paid off. The debt for the expanded Convention Centre hasn’t been paid off and no doubt the revenues from the accommodation tax have severely declined over the past year as a result of the pandemic. But that will start to improve and there should be sufficient revenues down the road to pay for upgrades as required, funds not available to a private company.
Memorial Stadium was built in 1952, was used until 2001 for its original purpose and then repurposed as a supermarket. (There are still East Enders who haven’t forgiven me to this day for the sale of stadium, the proceeds of which were used to help build Mile One!)
If I had my time back I would have recommended the refurbishment of Memorial Stadium, and the building of an exhibition hall where Mile One is at a far cheaper cost.
The Coca- Cola Coliseum in Toronto, the home of the Marlies, once the Ice Caps, was built in 1921. A hundred years old.
Mr. MacDonald also proposes an expansion of the Stadium at an estimated cost of $25 million. I’d treat that estimate with a big grain of salt and given the difficulties of shoehorning Mile One into the site in the first place there will be significant technical challenges to the proposal, aside from the question as to where the money is going to come from. I suspect it is envisaged to be from the public purse.
And don’t forget amenities in the proposed expansion, such as bars and restaurants, will compete with already existing businesses in the downtown.
This
is a gift horse that we should carefully look in the mouth. Keep Mile One in
public hands.
