It’s a very dangerous endeavour from an economic perspective for municipalities to get in the game of building multiplexes and a “bit naive” to think it’s not going to impact taxpayers at all, according to Richard Powers, associate professor at Rotman School of Management.
On March 11, city residents will vote on borrowing $80 million for a proposed event centre, which the city’s website says will offer significant economic opportunities for Nanaimo as a tourism anchor on the waterfront and sport and cultural gathering place, and create jobs and draw visitors.
According to a feasibility study by BBB Architects, which is also poised to be the architect for the project, 114 events would be offered in the facility’s inaugural year, including 39 hockey games. Consultants also believe while the centre could see a subsidy in its first two years, by year three there would be a better than break even number in net profit with the centre grossing more than $3 million.
Economic benefits, from operations and with a Western Hockey League team, could be $10.52 million in economic output in the province. The hockey team itself, consultants estimate, would spend about $800,000 in salaries and benefits and $1.8 million on operations with about 69 per cent spent in the Nanaimo area.
But according to Powers, who specializes in sports marketing, the greater research says the centres do not generate economic benefits nearly to the extent they say they will and if the idea is to use the arena to kick start things there has to be other events several nights a week to bring people out.
The key to all of these centres is no dark nights.
“It has to be going every night.” “Can a community of … 90,000 people keep that place open every night? That’s the risk,” Powers said.
A public-private partnership offsets some of the risk the city would normally bear on its own, Powers said, adding it’s a much safer bet for the city and a much more palatable financial commitment as well.
Chilliwack built its facility under a public-private partnership with Chiefs Development Group. It was a $20.3-million arena with 5,000 seats for sporting events. The city pays the capital costs of the building at $1.2 million a year until 2020 and $400,000 a year subsidy for priority time in the arena and will own the arena at the end of the term.
Under this agreement, the development group also acquires the risk, so when a Western Hockey League team didn’t work out, there was no financial risk to the city.
“If they are losing money on that facility, we have a fixed price we pay. It was in their interest to bring a team back and they did, quickly,” said Chris Crosman, deputy administrative officer for the City of Chilliwack.
James Brander, professor at UBC Sauder School of Business, said there are lots of publicly funded sports facilities in cities around the world and in Canada. Some investments have worked out well, but the general consensus from economic research is the typical investment doesn’t. There’s a fair amount of public investment and not much in terms of positive returns.
“You can always fix up a city or part of a city to some cost to taxpayers at large, but the question is, is that a good expenditure of the money? Is it worthwhile? Some of these facilities have certainly worked out to be worthwhile, but on average, they haven’t,” Brander said.
He leans towards saying municipalities shouldn’t get into the game of building multiplexes, but said good signs are if private-sector partners want to get involved, like the potential owners of a WHL team, or if there are developers who will build a condo or shopping complex nearby.
Other municipalities do believe they’ve seen benefits from their event centres.
Abbotsford opened its new facility in 2009 with the Abbotsford Heat, an American Hockey League team, as its anchor tenant and after a referendum that included borrowing $66 million. According to the Abbotsford News, there were projections it would make $200,000 a year but it lost millions, including $2.6 million in 2010, $2.83 million in 2011 and $1.97 million in 2012.
The city had been paying millions to guarantee the Heat broke even. It’s since bought out the team for $5.5 million and has a new strategy to host profitable shows and more community events. In 2013, the News reported there were 33 such events in 2015, and its deficit was $1.24 million.
Abbotsford Mayor Henry Braun said there were growing pains in the beginning but overall he thinks the facility has been good for the community and a boost for the local economy. The spin off, he said, is hard to quantify and it can’t be prescribed to the arena, but when there are events, restaurants are full and people come from Kelowna, Vernon, Penticton and Kamloops for events.
With a major tenant, he expects the subsidy will drop to $750,000 but that the number will be as good as it gets because arenas don’t make money.
Prince George, which has the WHL’s Prince George Cougars, has an event centre owned and operated by the city. It was built for $21.7 million in 1995. Last year its operating subsidy was $900,000 and it saw 61 events, including 36 WHL regular-season games. Elton John to Keith Urban have also sung from the stage.
There are unquestionably economic benefits, according to Glen Mikkelsen, general manager for the CN Centre. The centre also schedules other hockey users around the Cougars and has three adjoining arenas.
While he says there should be no dark nights it’s nearly impossible. The CN Centre is busy and able to also host minor and recreational hockey, but to host an event every night or even twice a week for communities like Prince George or Nanaimo, the economic ability to support that entertainment is not there.
