“It’s fairly apparent at this point that Daryl just isn’t that into us.” This wisecrack from Edmonton city Councillor Kerry Diotte concluded a chaotic Oct. 17 in city hall. Diotte has been a critic of the city administration’s deal with Edmonton Oilers owner Daryl Katz for a new downtown arena, but most of the council, including Mayor Stephen Mandel, thought the formula had been found. Katz was to supply just $100 million of the $450-million construction cost, providing maintenance over a 35-year lease. In exchange, the team was to get rent-free use of the building, revenue from all events, control of naming rights and other perks.
Last fall, Katz asked that his upfront $100 million be turned into an annuity of roughly $5.5 million a year over the lease period; the city acquiesced. It also agreed to pay the Oilers $20 million, supposedly to promote the city, over the first decade of the agreement. As the Canadian Taxpayers Federation pointed out, the naming rights alone would be worth somewhere between $3 million and $5 million a year. Katz’s net contribution to the building was already approaching zero.
Then last month the Katz Group informed the city that $450 million would no longer quite cover the building it wanted—and that, by the way, as arena operator it would need another $6-million annual subsidy. The city summoned Katz to an Oct. 17 meeting to explain. When he declined, council voted to suspend negotiations.
Anything is possible now. Before adjourning last week, councillors discussed building the arena according to the existing plan (which cost the city $30 million) or searching for savings. Renovating the existing Rexall Place for around $200 million, an idea long dismissed by Mandel’s bloc, is looking more attractive.
Either way, the Oilers’ lease runs out in 2014. Katz might choose to erect his own ice palace in the suburbs if he is liquid enough. Despite a net worth estimated at $2.4 billion, his miserliness suggests he may not be. (His retail pharmacy business is under regulatory pressure and he is known to have real estate in Vancouver’s flagging market.) If he can’t find a superior market for his NHL team—and no one knows of one—a fire sale may follow.