• Wherein I save Edmonton $250MM

    by Tyler Dellow • October 5, 2011 • NHL • 21 Comments

    North American professional sport is a giant extortion scheme, designed to take money from people who work 9-5 jobs and transfer it to wealthy people who own teams, play professional sport or who can afford $150 tickets to sporting events. It’s an ugly process to watch play out, as we’ve seen over the past little while and it gets even uglier as you get towards the end.

    I was amused when I read Pat LaForge’s email to friends that got leaked to the Edmonton Journal the other day, which contained the following:

    The Edmonton Oilers play in the second oldest and, with the return of Winnipeg, the third smallest arena in the League. Winnipeg, where the Jets receive a $5.5 million annual gaming subsidy guaranteed for 20 years, is the only market smaller than Edmonton.

    Now, we all know that the bit about Edmonton being a small market is nonsense. Someone should ask Pat LaForge how many markets generate less revenue than Edmonton. The answer is going to be, in all likelihood, “More than twenty.” That’s because Edmonton is an awesome hockey market, which is the relevant thing here.

    But a subsidy for the Jets? LaForge is speaking too truthfully. The proper spin is as follows:

    The city of Winnipeg and the province of Manitoba’s initial investment in the MTS Centre, the new home of the Jets, will amount to $165 million over 20 years when you add up tax breaks and rebates, VLT revenue, and a $40 million upfront investment, reports Colin Craig of the Canadian Taxpayer’s Federation.

    In addition, Premier Greg Selinger just announced that as much as $4 million more per year will be reallocated from VLTs to pay off the arena’s mortgage, as much as $80 million more in total.

    That’s $5.5 million each year of government gambling money for the MTS Centre. Why not the province do the same here? Or do something else that is reasonable to close this deal.

    It’s not a subsidy for the Jets, you dummy LaForge. It’s an investment in the MTS Centre, a building that creates economic growth and better quality of life for Winnipegers.

    Except, of course, it actually is completely a subsidy to the Jets. The owners of the MTS Centre now have an additional $5.5MM to spend on other things. Like hockey players. Or profits. Or political donations (warning, pdf).

    Every time a city or province or state caves in and gives more money to these extortionists, they raise the water level, leading other teams to go and plead their case for more free money. “But…but…but…the Jets receive a $5.5 million annual gaming subsidy guaranteed for 20 years,” they say, with a quiver in their voice and a plane ticket to Quebec City in their hands. A dystopian future is forecast by the people who dine on their ice cream sandwiches: “Has anyone involved given any thought to what Edmonton will not only look like but BE to the world if this arena deal blows up? DEADmonton!”

    There’s so much public money in the NHL now that it’s effectively immune from competition – nobody’s going to build WHA2 a bunch of rinks so that they have the necessary cash to compete with the NHL for talent. This means that the NHL owners can now engage in fights with the players about the division of the excess profits every six or seven years. Every journalist, every voter, every politician and every fan who has supported this nonsense over the years is responsible for the continual demand for more money from government. They have enabled this pillaging.

    Speaking of pillaging…the release of this email that the President of Northlands wrote, apparently in response to a request for a number that it would take for Northlands to enter into a non-compete agreement is high comedy too. This from the email:

    Let’s say that for the sake of discusson the City were to ask for a 35-year “non-compete.” … this of course would need to be clearly defined. I can assure you we will not move at any speed towards agreement to shutting down our arena business without the following understanding:

    * Provision of a new and nicely refreshed facility on the site of our current Rexall facility.

    * Seating bowl of 8,000 seats minimum — focus on attracting small shows and convention support business.

    In addition, we would requite a CASH buyout in the neighborhood of $250 million.

    * start with this …. $175M cash (35 years X $5M annual net contribution) plus value related to inflation and interest.

    Now, I don’t like to agree with David Staples on the arena stuff – it’s people like him who are responsible for such a healthy percentage of North American GDP being diverted into the pockets of industrialists and athletes as well as the fact that actually attending live sporting events is basically for fat cats – but he’s right to find this outrageous.

    Northlands’ annual report contains a little bit of explanation about the company:

    Edmonton Northlands is incorporated under Part 9 of the Companies Act of Alberta as a non-for-profit organization. Edmonton Northlands’ purpose is to provide programs and facilities to benefit the residents of Northern Alberta in the fields of agriculture, racing and gaming, trade shows, exhibitions, entertainment and community service.

    A little bit of corporate law (this is literally the extent of my knowledge of corporate law): at law, corporations are people. Generally speaking, they have the same rights as people. They are creatures of statute though – the only reason that corporations can exist is because there are statutes that provide for their creation. Before the invention of corporations, people used to trade under their own name or in partnerships. Corporations are great, because they provide limited liability and some other advantages to persons operating businesses through them.

    The part of the Companies Act under which Northlands is incorporated is a part that permits incorporation of a non-profit corporation where “…it proves to the Registrar that it is formed for the purpose of promoting art, science, religion, charity or any other useful object.” You’ll note that Northlands expresses its purpose as being the provision of programs and facilities to benefit the residents of Northern Alberta in the fields of agriculture, racing and gaming, trade shows, exhibitions, entertainment and community service.

    Now, assume for a second that it was clear that Katz needed a non-compete agreement (why he needs a non-compete with a facility that is economically unviable is completely beyond me). Assume that the City, the politicians who are elected and accountable to the people of Edmonton had decided that this was a good and necessary thing for the future of Edmonton, something that does not yet seem to be the case. It is outrageous that a non-profit corporation, which has consumed tons of grants and subsidies and exists to promote art…or any other useful object is in effect saying “Hold on there…give us $250MM of public money or we’ll prevent you from doing this thing that you have determined to be in the public interest in order to provide trade shows, exhibitions and entertainment to Northern Alberta.”

    Remember though – corporations are creatures of statute. It strikes me that one easy way to deal with this, at a cost of $0, would be to simply legislate Northlands out of existence. There are no constitutional property rights in Canada, so I’m not entirely sure what would stop the provincial legislature from doing that. In the (less draconian) alternative, it strikes me that the province might be able to simply pass a law voiding the lease of Rexall Place to Northlands. There have been variants of this tried in the past that have run afoul of the law due to jurisdictional issues – the Churchill Falls thing between Quebec and Newfoundland comes to mind – but I can’t think of any reason off the top of my head why this wouldn’t work. Provinces have the right to legislate on these matters and there are no inter-jurisdictional issues.

    There are usually good reasons for government not to interfere with property rights – nobody wants to invest in a place where the government might take your stuff – but those policy rationales aren’t applicable here. Northlands appears to be what the British would call a quango in that it suckles at the public teat and exists to serve a public need and for such an organization to be looking to be paid off in order to go along with a democratic decision (if such a decision had been made, which it hasn’t) is outrageous. I’d never endorse such draconian steps from government if we were dealing with an actual private actor, but in this case, Edmonton isn’t.

    Of course, taking these draconian steps would be in service of setting up a publicly subsidized monopoly over the concert industry in Edmonton, something Daryl Katz apparently expected to get along with the Oilers when he slapped down his money. As causes go, this isn’t exactly liberating Europe from the Nazis.

    All in all, I find the whole thing pretty hilarious. And I’m glad it’s not my money. (Although I don’t get off myself: my money is taken from me to subsidize soccer stadia and practice rinks in Toronto. They bleed us everywhere.)

    About Tyler Dellow

    21 Responses to Wherein I save Edmonton $250MM

    1. Saj
      October 6, 2011 at

      I agree with the first half of the post. Regarding Northlands, however, I would argue that it’s anti-trust-like behaviour for the government to be legislating or even encouraging a monopoly of this sort. The government should encourage these venues to compete with each other for events, rather than the two scenarios in which the citizens lose: allowing a payment to get Northlands to back down or forcing Northlands to acquiesce through legislative means.

    2. The Other John
      October 6, 2011 at

      Your suggestion ignores all of the activities that Northlands currently does that benefits the citizens of Northern Alberta. So after voiding Northlands registration that would lead to setting up a second not for profit II to run those favored other activities.

      It would also lead to many years of litigation. Roncarelli v Duplessis part deux.

      Q:What was your purpose in revoking Northlands registration? A:Well we had a problem with their long term lease and their ability to host concerts in competition with our much preferred private businessman concert promoter in the downtown area.Q did you know they intended to run concerts when you signed the lease? A: Yes when we signed the lease with Northlands we knew they intended to host concerts and No we did not run the last election on the arena issue. In fact we said little or nothing about it. But once elected we took that silence to be an implied mandate. So we asked the Province who won’t give us any money for our selected project to revoke Northlands registration. Sure hope the current premier has no legal training or background. Wait Alberta just moved into the present

      I have a slightly different piece of provincial legislation in mind when it comes to Northlands concert business and the suggested Non-compete. I have not looked if it applies but the reasoning is similar.It is the Expropriation Act where the province or municipality believes it needs certain property for valid public needs it can expropriate that property and can either reach agreement on the value of the property on the specified date or go to the Land Compensation Board to have the value of the property set. Here Katz wants Northlands concert business for free and Northlands does not want to give up that profitable part of it’s business.

      If one assumes the $600 million DT largely publicly funded arena represents a legit civic need (and I do not) the City could quite easily expropriate the Rexall land and Northlands and the city could then agree on price or go before LCB. Only problem is LCB will value what that portion of the Northlands business is worth. It will, I am sure, in expropriation terms be worth much more than $100 million which the City would then be obliged to pay.

      Which results in the current $600million project now being worth $700million + and we will have a bigger shortfall but its all good because it will spur a thriving downtown. But I remain unconcerned because the City has repeatedly stated it will cap it’s exposure at $100 million and our taxes won’t go up

    3. Tyler Dellow
      October 6, 2011 at

      I don’t see this as a Roncarelli issue. In any event, I’m proposing to go about it differently – I’m not so sure an act of the legislature is open to challenge on the same basis.

    4. Mimi Williams
      October 6, 2011 at

      A Modest Proposal?

      • AZR
        October 6, 2011 at

        I didnt see any talk on eating babies…

    5. Pete.
      October 6, 2011 at

      Nothing to add, except that the following cheap-shot line is funny enough that I’m stealing it, and will be using it to distract people and derail their thought process in arguments about the arena:

      “…(why he needs a non-compete with a facility that is economically unviable is completely beyond me).”

      Heh.

    6. The Other John
      October 6, 2011 at

      If the legislature withdrew a corporate registration and allowed a similar entity to register and do all of the remaining functions, expect case would go to the SCC and I don’t like Alberta’s chances. Particularly after parties examined and the reason registration asked to be lifted was to get City out from under contract they signed.

      Very good law school exam answer though

      Would have said the arena deal would eventually get done. Now, not sure. some really peculiar moves by Oilers

      Will be good, though, to see issue reach closure so that Staples can get back to his real job

    7. Tyler Dellow
      October 6, 2011 at

      What’s the cause of action John? Roncarelli is, IIRC, effectively an admin law case: Duplessis exercised discretion in a manner not permitted in accordance with the Act. If the Registrar just struck their registration, I’d agree with you. That’s why I’m saying that it should be done by way of legislation – the SCC can only strike down legislation for constitutional violations. What’s the constitutional violation here?

    8. Tyler Dellow
      October 6, 2011 at

      To add – a smart friend of mine had the same instinctive reaction as you. He wasn’t able to come up with a legal argument though.

    9. David Staples
      October 6, 2011 at

      It’s been apparent for decades now that Northlands has a mandate to act in the public interest, but is conflicted and often acts in its private interest.

      This $250 million gambit clearly has woken up a few folks to this issue, which has impacted arena debates in Edmonton since things heated up between Pocklington and Northlands in the early 1990s.

      • speeds
        October 6, 2011 at

        Is it possible that Northlands thinks they are acting both in their interest, and the public’s interest, by using their leverage with the non-compete situation to possibly squash the deal?

    10. October 6, 2011 at

      Does Alberta or Canada for that matter have anti-trust laws? We don’t call them what the Americans call them because we have other government legislation in place to cover our butts.

      When will it click in with Canadians? “When will what click in?” you may ask. I say when will Canadians realize that the reason we were not as badly hit as the majority of the world during our recent economic crisis is because we are almost in de facto state of Socialism.

      Socialism used to be, essentially, where the state obtains ownership over most private industry and property and controls social and economic factors within it’s borders.

      Don’t believe me? Name me 10 organizations that would survive if the government (municipal, provincial, and federal) were to pull funding completely out of the system. One day the government just said, “we’re lowering taxes to .1% which we will use to pay off our debt but we will provide no more funding public works/services”. Our country would crumble. The reason we haven’t crumbled is because our government protects our jobs.

      “But I work for Rexall, my job is with a private company. I would be fine”. I chose Rexall because of that company’s relation to this story, but really, pick any private company out there. You don’t think Rexall would be hurt by Canada Health pulling their funding? No more subsidized prescriptions would significantly reduce the amount of money flowing through Rexall. Therefore, yeah, you will probably lose your job.

      This is the problem across Canada. Our largest union in Canada? CUPE – Public Employees union. And that doesn’t incorporate the CAW, UCFW, SEIU, OPSEU, etc that employee public employees on a part-time basis or through the education systems.

      This also doesn’t account for unionized employees who can thank certain governments for the jobs they do: Ford, Bombardier, etc. These companies rely heavy on some level of government for support.

      Those people pointing to retailers surviving: how do retailers survive when unemployment rises 80% and people cannot afford to buy anything?

      What does this have to do with a new arena in Edmonton. Well it comes back to my last point. 80% increase to unemployment means 80% less people paying taxes, which is ultimately the funding that is paying for this arena. Add in the private dollars, which are really the wages of the everyday working person anyways, and the team is ultimately subsidized 100% by the people. This means that the people should get to decide what to do with the Northlands agreement: it just so happens that politicians speak on behalf of the people.

      It’s voting day in Ontario, get out and vote if you don’t like what your spokesperson is saying for you.

      Isn’t this just the bestest reply to a blog entry ever?

    11. The Other John
      October 6, 2011 at

      If you could convince the province to pass legislation that deprives a single “person” of their contractual rights. I would, on the 5 minutes I thought about it, sue the Alberta government on the tort of inducing breach of contract. Sole purpose of your idea is pass legislation to circumvent lease. Nothing else. Would discover everybody and their dog on requests, cabinet memos, minutes of meetings etc and would, I think, assemble great evidence that only reason THIS person registration legislated out of existence is to circumvent lease. Also City and provinice have remedy to expropriate site, just have to pay fair value.

      Also do not think the courts would like the concept of legislatures taking away rights of some “persons” unless it applies to many. also do not think you could convince this case, with these facts would engage Province.

      Would make a GREAT law school exam Q

    12. Tyler Dellow
      October 6, 2011 at

      You’re talking about a common law tort. Common law is subordinate to statute. You could deal with that in the statute. There are lots of examples of provinces legislating away common law rights or altering them. I can’t see how that would work.

      If I was a legislator, this might not ordinarily be my thing, but I’d have very little time for a body that exists to serve a public purpose sitting in the way of the public purpose, as that has been identified by Edmonton’s elected representatives.

      • Carl Monday
        October 6, 2011 at

        An idle thought having no familiarity whatsoever with Northlands’ articles of incorporation or the AB Companies Act: if there is a suitably motivated city-affiliated person registered as a member of Northlands, he/she could bring an application to wind up Northlands under the Companies Act. That would probably be much faster and cleaner than trying to legislate it away. You’d still have to convince a judge that it would be fair and equitable to wind up the company.

        It ain’t going to happen either way. Remember that Northlands runs the Agricom, the horse racing track, CapitalEx, etc. If you look at their annual report, the majority of their revenue actually comes from Northlands Park (horse racing/gambling). Only 22% is from Rexall.

    13. David Staples
      October 6, 2011 at

      The provincial government isn’t going to take any action against Northlands, other than maybe cutting their $9 million per year overall Ag. Society grant, plus the $250 million over 10 years subsidy of horse racing. But those things were likely going to happen anyway, unconnected to arena situation.

      The province has no desire to stand up to Northlands. Northlands is connected with rural Alberta, has deep roots in city of Edmonton.

      Why would the province fight such a battle?

      • Tyler Dellow
        October 6, 2011 at

        Because the current alternative – bribing a publicly funded organization with taxpayer money not to compete with another public funded organization – is absurd? Of course, so is giving free money to billionaires, instead of, say, building a rink and charging a market rent. We’re through the looking glass already here.

        BTW, as I pointed out too, there’s a less draconian option of simply legislating the lease out of existence.

    14. The Other John
      October 6, 2011 at

      Rarely do I agree with Staples on anything related to arena but Conservatives would not eradicate a parties property right without compensation.

      Particularly in todays political landscape when they are facing a challenge from the right– Wildrose Alliance who would love to run part of their next campaign on the “Tories have shown they will expropriate your land without compensation” ….. How would that play at the coffeeshops in Pouce Coupe or Dawson Creek etc, because 45% of Alberta’s seat are in similar rural tidings where people think the gov’t really does want to confiscate their property

    15. Tach
      October 6, 2011 at

      Hmmm,

      the best I can do is that the Alberta Bill of Rights provides for “the right of the individual to liberty, security of the person and enjoyment of property, and the right not to be deprived thereof except by due process of law” in section 1.

      However, as I read Authorson v. Canada (Attorney General), [2003] 2 S.C.R. 40, 2003 SCC 39, such protections would not necessarily include a legislated expropriation without compensation.

      Of course, I still think that you would cause a major sh*t storm if the government basically settled a squabble between Northlands and the City by legislating Northlands out of existence.

    16. Mike
      October 7, 2011 at

      I think another question is whether it could be argued that Northlands is acting ultra vires its own constitution if it is taking actions that can’t be reconciled with the public interest.

      Not sure whether the average joe would have standing to make that sort of claim, however.

    17. David
      October 7, 2011 at

      If the Oilers want a new arena, let them build one. If they want a non-compete, let them buy one.
      “Keep the Oilers viable in Edmonton”? The subtle threat is a nice touch, but can I get some of that greener grass he’s smoking? Where exactly are they going to move?
      However, your argument seems a matter of bookkeeping.
      If Northlands is a “quango,” it is effectively paid for by Alberta taxpayers. The non-compete means Northlands will lose income and value. What has been pumped into Northlands and the Coliseum will be lost, and Northlands, having lost income, will require (and kid thyself not: will get) further subsidies to keep putting on the Ex and Rodeo and Farmfair and Indy.
      As for confiscation–assuming the province wins all the lawsuits paid for by every other non-profit fearing the same fate, it will own those same properties and events, with the same decreased revenue, only now they’ll both be managed by politicians. And of course they’ll do the job much more efficiently. Right? I mean, what could possibly go wrong with that?
      If taxpayers are going to pay for something–especially if they have no business paying for that something–it should at least be transparent. Paying the [actual] cost of the non-compete up-front tells taxpayers the true cost. Hiding it in the books or disguising it as a taking does not.

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