Give Public Clear Lansdowne Fiscal Picture: OPEN LETTER

 

This is an open letter from long-time Bulldog reader and community activist John Langstone to Capital Councillor Shawn Menard.

Langstone tries to make fiscal sense out of the documentation provided the public in Lansdowne 2.0. It was not easy:

 

Hi Shawn,

I’m trying to get my head around some of the financial information on the City of Ottawa-Ottawa Sports and Entertainment Group partnership, and frankly, despite hours of effort, I remain lost.


I transposed the spreadsheet, Document 11 on the city website, into an Excel spreadsheet (see attached). And note: It isn’t perfect. I keyed in numbers and used formulas to add things up – so there are rounding errors in the decimal point. The odd 0.1 kind of thing – in terms of looking at long-range forecasts (now 2066), is relatively minor to insignificant. But someone can use this to create scenarios and presentations for study. That’s what I’m trying to do.

First, the spreadsheet seems to go 43 years into the future. Is this agreement really a 50-year term now? If so, the financial forecasts 20 years or more into the future cannot be used with any confidence by a reasonable person. How many times has the football team gone bankrupt in 40 years? Yet the city is currently predicting significant financial returns for the Redblacks in 20 years and beyond. The 50-year predicted totals boggle the mind.

And unless I misunderstand it (and that may be the case), the city spreadsheet is pretty much about OSEG’s world. All of those cash flows and debt payments are things that only affect them directly. From what I understand, the only thing that affects the city is the waterfall payment.

I don’t see the debt repayment for the south stands in this. Perhaps that isn’t an OSEG issue. But it sure as heck is a city issue. There may be other revenue streams to the city, but the only one I’m aware of so far is the waterfall. According to the city website, we don’t get a waterfall distribution until the 2027 to 2032 period. It is shown as $6.5 million during that five-year period. So probably less than $1.5 million per year (a guess) to cover the debt for the south stands? Now, if the south stands cost in the order of $170 million (which is pretty close isn’t it?), the annual cost of covering repayment could be in excess of $7.5 million. So we get $1.5 million maybe, and we pay over $7.5 million for the debt. You have lots of smart people around you to verify whether this is a thing – but if it is anywhere near correct, the city is spending a lot of money to subsidize events in the stadium.

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Looking at the current situation, the Redblacks, 67’s, and the stadium are all losing money. Retail is positive.

And with all this, I don’t see any obvious blips in forecast revenues and expenses while the stadium, arena and retail is being torn down. Just an example is the retail revenue just keeps growing like nothing is happening between now and 2032 despite losing 41,000 sq. ft. of space during construction. Maybe it is there, but I don’t see it.

I’m hearing a lot about the condition of the stadium and arena, but it isn’t an immediate problem based on information I can find. I heard on CBC on Friday morning that the new, smaller, state-of-the-art arena would host the Brier. But didn’t the existing arena host the world’s last winter? OSEG seems to be basing its financial future success on smaller state of the art facilities, and a stadium without the current roof. I can’t for the life of me see how we will increase revenue in smaller facilities without more events and higher ticket prices. Please ask OSEG what future events won’t come here because of the current facilities. And if events won’t come, how much will it cost to upgrade to what the event organizers want?

So, the stadium isn’t great now, but isn’t expected to fall down soon, so not an immediate problem. Scanning the survey submissions on the city’s website, there is serious concern about OSEG’s financial issues. Is this not the immediate problem that needs to be addressed? How possible is default-bankruptcy? How much are we willing to pay to avoid this?

The city is finally acknowledging the debt repayment for 2.0 will be $16 million or so (assuming interest rates of maybe two per cent below today’s rate). Between 2032 and 2037 the waterfall payment would be $14 million. Based on the numbers I see, during that five-year period, the debt repayment for 2.0 could be $64 million for the new north stands and arena alone. And that does not include the finance charges for the south stands. If my number above is correct, we pay maybe another $37.5 million or so to pay the south stands debt.

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The numbers I have show waterfall revenue of $14 million between 2032 and 2037, and debt repayments of $101 million.

Now, there may be other revenue streams I haven’t been able to dig up. But that has to be a lot of money to cover expenses. And the taxation uplift shouldn’t be shown to pay for event facilities. The real estate deal is totally separate. That real estate could be built anywhere. The uplift is no different from diverting taxes from the tower at Carling Avenue and Preston Street to pay for the stadium. Taxes belong in the city coffers, and should not be diverted to event facilities under the guise of a revenue neutrality sort of thing.

And I am sharing this sincerely hoping it helps in some way to explain that the city needs to clarify these issues if you are interested in making a convincing financial picture that will assuage serious public doubts regarding what is actually happening. Right now the only conclusion that can be drawn is that there is a LOT of money getting tossed around with no guarantee it will lead to financial success.

And to get out of these weeds, we need a serious effort by someone to put together a clear financial picture that the public (and council) can understand in a three-minute presentation. Otherwise, I fear the city might have lost and will lose big time on this one.

Regards,
John Langstone

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1 Response

  1. Val Swinton says:

    I have heard that the reason Lansdowne retail appears to be profitable is because rents are down to 75 % of market value to keep tenants going.

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