Much opinion surrounds the potential government investment in the proposed new stadium project. Winnipeg Men investigates the real financial and cultural impact of the new facility.

The ancient Romans had them. So too the ancient Egyptians, Persians, and Chinese. It’s believed the first was constructed in Greece in 776 BC for the first Olympic Games. The Mayans used theirs for ball games – and subsequent sacrifice of the losers.

Practically every major civilization over the past 3,000 years has had these at the centre of public life. Politics, religion, justice and, particularly, sport came to life within their confines. They are public assembly facilities. For over 3,000 years, the public assembly facility has been the scene – and cause – of high drama, emotion, excitement, and controversy.

And the story of the public assembly facility (PAF) in Winnipeg has not been without its fair share of controversy. From the saga of the Winnipeg Jets and Barry Shenkarow’s insistence on a new arena, to the building of the MTS Centre, to the ongoing debate over the future of the Winnipeg Stadium, this mid-sized city in the middle of the Canadian prairie has engendered major-league polemic when it comes to the issue of the PAF.

The reasons for the discord are many, and beg the question: What do PAFs (and the events held in them) contribute to a community? Most urban dwellers would agree that a city’s image is enhanced by the idea of a successful professional sports team playing in a state-of-the-art facility. A facility that, when it isn’t being used by that particular team, is nonetheless kept busy with concerts, monster truck shows, the Harlem Globetrotters, etc. But is that where the benefits end? Is there real value in the warm and fuzzy generated by living in a city that can support a successful PAF? What about the issue of taxpayer money being put towards PAFs? In turn, what are the economic outcomes? Do these facilities contribute to a community’s bottom line, or are they merely white elephants?

Sports Are Big Business

North Americans love their sports. And North American cities, particularly smaller centres, rely heavily on the image and cachet these teams provide for their communities. Imagine Buffalo without the Sabres, Green Bay without the Packers, or even Edmonton without the Oilers. These teams have become inextricably linked to the identity and psyche of these centres. These cities all have history and import beyond that contributed by these particular
sports business sectors, but for many North Americans in today’s world, a city’s ability to support a world-class sports franchise is what defines it as a success. And as the ability of any particular city to support a team is in many ways further defined by the presence of a PAF–and in particular, how state-of-the-art that facility is–the issue of the necessity and utility of the PAF comes to the forefront.

However, constructing and running a PAF is an undertaking too expensive for most private interests. In the vast majority of cases, public funding is a requisite component of building and maintaining a PAF. But besides the cost concerns, these facilities become immediate sources of revenue for government (through user-paid taxes on a basic level), and as such, the assumption of public money forms part of the initial business plan in many cases.

Given this, what role should the various levels of government take in funding or otherwise supporting arenas, stadiums and the like? Further, once funding has been provided, how is it determined what these levels of government expect as a return?

There aren’t any hard and fast rules when it comes to a specific and measured return on public investments into PAFs (as is the case with most discretionary government spending). Rather than precise percentages, business plans are developed that measure returns in timelines. As a senior official with the City of Winnipeg put it, “When government gets involved in these types of public amenities, the federal and provincial governments are the first ones to get their money back through PST and GST.” He continues, “That doesn’t mean that government shouldn’t put their money in a project unless they get it back in the form of PST or GST, but it’s a good way to sell the project.”

PAFs in Winnipeg

The last 10 years in Winnipeg have been an important period for the public assembly facility in Winnipeg. We have seen the construction of both the Canwest baseball park and the MTS Centre, and the development of the ongoing discussion over the future of the Canad Inns Stadium. This level of sports facility development has been unprecedented in Winnipeg’s history.

In all cases, public money has been used–and not without significant controversy. But has it been money well spent?

MTS Centre

Perhaps the most controversial project in recent memory was the MTS Centre. Opened in late 2004 at a total cost of
just over $130 million, the project was constructed with $40 million provided by the three levels of government. Compounding the controversy, the project required the demolition of the Eaton’s store–a fixture of Winnipeg’s downtown since its construction at the turn-of-the-last-century. However, with the collapse of the department store chain in 1999, Winnipeg was left with a vacant eight-storey, 21-acre building contributing nothing to an already declining downtown.

Jim Ludlow, president & CEO of True North Sports & Entertainment Ltd., the company responsible for building the MTS Centre, says, “There were people who didn’t want the Eaton’s building demolished. But the reality is that we had a 100-year-old boarded-up warehouse dressed up like a department store. The City had to make a decision–do we spend $2 million to $3 million and demolish it so that we are left with a parking lot the size of a city block in the hub of Winnipeg? Or, do we incent somebody to build a world-class entertainment facility?”

Demolition of the Eaton’s building began in the summer of 2002, and construction on the new MTS Centre began in early 2003. Concerns over the investment of public money abounded, but according to a press release dated June 18, 2003, “The total tax collection during the construction period means that the $40.5 million public sector contribution will be more than 80 per cent repaid in tax revenues before the facility even opens.” According to John Olfert, chief operating officer of True North, this prediction fell short of the actual numbers. “When GST, PST, federal and provincial income taxes, and building permits are considered, 85 per cent of the public contribution had been repaid by opening day,” he says.

Since opening, the MTS Centre has become one of the busiest PAFs in North America. Olfert states that, from an incremental standpoint, and in comparison to the Winnipeg Arena, the MTS Centre is realizing the following:

· 145 ticketed events compared to 80;
· $22 million in ticket sales compared to $10 million;
· 900,000 ticketed patrons compared to 400,000; and
· 85 permanent staff compared to 65.

When the tax implications alone are considered, it can be seen that the MTS Centre is providing substantial return on public investment. And as downtown development continues–arguably spurred on by the buzz created by the MTS Centre–this public assembly facility will only continue to generate revenue and contribute to Winnipeg’s image
as a city to be considered on the world’s stage.

Canwest Park

Another brick in the rejuvenation of the downtown–and an example of successful public investment–is Canwest Park, home of the Northern League’s Winnipeg Goldeyes. Built in 1999 for the Pan Am Games, the park cost $32 million to construct. According to sources from the Goldeyes, this included $6 million from the federal and provincial governments and approximately $379,000 from the City of Winnipeg. The rest was provided from the private sector. As a privately owned entity, specific financial information isn’t available; however, the team is an unqualified
success. According to Andrew Collier, the Goldeyes’ general manager, the ballpark has seen more than 300,000 fans pass through its gates in each of the last six years and has averaged more than 6,500 per game over each of the last five seasons. The total attendance number is the best in the Northern League, and the average attendance is the best in all of independent baseball. Last year the team ranked 19th out of 265 minor league baseball teams in North America for average attendance.

Numbers like that are a strong indication that Canwest Park is making a substantial contribution to the city in both economic and emotional terms. Regardless of the fact that it hosts a minor league team, in a few short years, the park has established a reputation as a destination for Winnipeggers and tourists alike. It provides strong
evidence that Winnipeg is a city that takes its sports seriously, and that when compared to other similar-sized centres, the benefits to the image of the city support the economics–and vice versa.

Canad Inns (formerly Winnipeg) Stadium

The saga of the Canad Inns Stadium (and the Winnipeg Blue Bombers) has been ongoing for several years. Originally constructed in 1953, the stadium has undergone extensive renovations over the years, and now finds itself at a crossroads. There has been a call for a new facility for years. However, the notion is controversial.
More often than not, the Bombers are in the red. The team has done well in those years in which it has hosted a Grey Cup, but it’s more common for it to run a deficit. Despite the team’s financial issues, it has deep roots in the community, and concerns are great that the Bombers not only perpetuate, but that they prosper.

In early 2007, businessman David Asper put forward a proposal that would see the federal and provincial governments contribute $40 million each towards the building of a new stadium. Asper has since committed $40 million of his own towards the project as well as another $25 million for a retail complex to be built next door. The project has met with some resistance, as it involves a fairly substantial public investment, and would transfer ownership of the club to Asper, however support is growing.

The plan projects tax revenues from the construction alone of $23 million (to the federal government) and $17 million (to the provincial government.) As for the longer term returns, Dean Schinkel, senior manager with Deloitte & Touche LLP, the company that prepared the financial projections, business plan and the economic impact assessments for the project, indicates that, “The analysis we did shows that the governments will have their $40 million investments paid back in roughly four to five years.” As David Asper says, “The viability of this plan depends on the new business that can be generated through the proposed retail and added revenue generation out of the facility itself.” Schinkel adds, “David could get a better return elsewhere. He’s making this investment because of his love for the community and his love for the Bombers. He’s willing to put up this money based solely on that. If you look at the history of the Bombers, they’ve had some lean years. The government has had to step in and the taxpayers have had to help out. There’s no guarantee that couldn’t happen again. So, the whole premise behind the retail concept is that it will offset and support the Bombers. One of the key things to remember is that this plan will free the taxpayer from this financial worry.”

Economic and Emotional Spin-Offs

These three examples are strong indications that public investment in such facilities results in financial spin-offs that contribute substantially to bottom-line economics. Besides that, the success stories that are the MTS Centre and Canwest Park and the growing public support for the Asper proposal for the stadium are indications that sports are big–and lucrative–business in this city.

A brief consideration of the recent major sporting events in Winnipeg–the Brier, Women’s World Hockey Championships, the Grey Cup, Pan Am Games, etc., depict a city that, despite its relatively small size, is more than able to hold its own when it comes to hosting major, national and international events. And as that pertains to the image and economics of this city, this is invaluable. Sport works here.

How Does Government Recoup Its Investment?

According to a spokesman for Andrew Swan, recently appointed Minister of Competitiveness, Training and Trade, the provincial government contributed $13 million to the construction of the MTS Centre. By the time the facility opened, the province had almost completely recouped that investment. But how did it do so? What about the feds? And the city? How do the three levels of government realize these returns?

When it comes to the provincial and federal governments, the majority of their returns come in the form of direct taxes (PST and GST) on the raw materials used in the construction. In addition, the workers on the site provide income tax revenue to both levels of government. Indirect tax revenues come in the form of secondary work the project would create, for instance, suppliers (steel, lumber, cement, etc.), transportation and utilities. Depending on the scale of the project, the tax revenues on the construction alone can be significant.

As for the city, its investment is returned in the form of building permits during construction, and through business tax once the business is up and running.

Substantial sources of revenue for all three levels of government are peripheral businesses that are developed to take advantage of the increased traffic these facilities create. These businesses are usually within close proximity of the facilities and can consist of things like parking facilities, hotels, specialty retail and restaurants.

Rob Suski, an entrepreneur from Saskatoon, is hoping that the buzz generated by the MTS Centre will contribute to his latest venture. Suski and four Winnipeg-based partners are in the process of converting the old Salisbury House location on Portage Avenue – just down from the MTS Centre – into Rinkside Restaurant & Bar, a sports-themed pub and eatery. “The MTS Centre is a huge success,” says Suski. “On event nights, it is responsible for bringing thousands of people downtown who would otherwise be sitting at home. Developing a local business that can tap into that market just makes sense.” As for Rinkside’s contribution to the Winnipeg economy, Suski says, “We’re investing about a half-million dollars just in construction. When the doors open this May, we’re going to be employing over 40 people. For a relatively small scale venture, I’d say the economics are significant.”

Whether it’s from the sale of a ticket, a beer or two before the game, a hot dog afterwards and a cab ride on the way home, tax dollars are generated. PST, GST, income tax, business tax, permit fees and so on. All three levels of government recoup their investment. And making money is exactly the intention behind the initial investment, isn’t it?