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The peculiar economics of sports team ownership

Pursuing urban development in North American cities

Daniel Mason Faculty of Physical Education and Recreation, University of Alberta, Edmonton, Canada

Stacy-Lynn Sant School of Kinesiology, University of Michigan, Ann Arbor, Michigan, USA, and

Brian Soebbing Faculty of Physical Education and Recreation, University of Alberta, Edmonton, Canada

Abstract Purpose – The purpose of this paper is to examine how North American professional team owners are engaging in broader urban development projects that have their teams as anchor tenants in new sports facilities, by examining the case of Rogers Arena in Edmonton, Canada. Design/methodology/approach – Approached from a constructionist perspective, the study employed an instrumental case study strategy as it facilitates understanding and description of a particular phenomenon and allows researchers to use the case as a comparative point across other settings (with similar conditions) in which the phenomenon might be present. Findings – Using urban regime theory as a framework, the authors found that in Edmonton, the team owner was able to align his interests with other political and business interests by engaging in a development strategy that increased the vibrancy of Edmonton’s downtown core. As a result, the owner was able to garner support for both the arena and the surrounding development. Research limitations/implications – The authors argue that this new model of team owner as developer has several implications: on-field performance may only be important insofar as it drives demand for the development; the owner’s focus is on driving revenues and profits from interests outside of the sports facility itself; and the team (and the threat of relocation) is leveraged to gain master developer status for the ownership group. Originality/value – This paper adds to the understanding of owner interests and how franchise profitability and solvency can be tied to other related business interests controlled by team owners. Keywords Urban development, Sports franchises, Team ownership Paper type Research paper

Professional sports leagues in North America provide an interesting context through which the motivations of ownership can be explored, stemming from unique characteristics that distinguish leagues from other business models. First, each of the four major North American professional sports leagues – Major League Baseball, the National Football League, National Basketball Association, and National Hockey League (NHL) – acts as a de facto monopoly which allows it to restrict the number of available franchises in its respective league. One consequence of this structure is the ability of individual team owners to threaten to relocate in order to gain concessions from their host communities, which take the form of subsidies and reduced facility rents (Rosentraub, 1999). This behavior by clubs and cities spawned a wealth of research contesting the value of professional sports teams and facilities to the communities that host them (e.g. Coates and Humphreys, 2008; Propheter, 2012). As this paper will show, owners are in a unique

Sport, Business and Management: An International Journal Vol. 7 No. 4, 2017 pp. 358-374 © Emerald Publishing Limited 2042-678X DOI 10.1108/SBM-10-2016-0067

The current issue and full text archive of this journal is available on Emerald Insight at: www.emeraldinsight.com/2042-678X.htm

This research was supported by the Social Sciences and Humanities Research Council of Canada.

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negotiating position where they can control the infrastructure development that may occur in the area surrounding the team’s home facility (Mason, 2016).

Second, the production of the league product requires two separate organizations (franchises) to combine to play a game, and a series of franchises to play a league schedule and determine a league championship (Mason, 1999). As a result, a significant body of research has explored the uncertainty of game outcomes, competitive balance, and the implications of these core principles for attendance and team profitability. Seminal research by Rottenberg (1956), Neale (1964), Sloane (1971), El Hodiri and Quirk (1971), and Quirk and El Hodiri (1974) provided the groundwork for understanding these issues in professional sports leagues around the world. More recent research expanded on these early foundational studies while also providing insights using empirical evidence (e.g. Borland and MacDonald, 2003; Coates et al., 2014; Fort and Quirk, 1995; Vrooman, 2009, 2015).

Third, it is apparent the owners of these franchises are often motivated by varying degrees of profit and utility maximization. Quirk and El Hodiri (1974) argued the assumption that:

[…] the actions of franchise owners are motivated solely by profits from operation of their franchise is admittedly somewhat unrealistic. Owning a major-league franchise carries with it prestige and publicity, and a wealthy owner might view it simply as a type of consumption; for such a “sportsman”-owner, winning games rather than making money might be the motivating factor (p. 42).

Fort (2000) further noted that while North American professional sports owners are generally considered profit maximizers and European sports owners are generally utility (win) maximizers, there are examples where this does not hold true. For example, some owners may want to win within a certain threshold of profitability, or others may enjoy ownership because of the public profile that team ownership engenders (Zimbalist, 2003). Thus, research examined the extent to which owner motivation effects on- and off-field behaviors such as winning, ticket pricing, and talent acquisition (e.g. Késenne and Pauwels, 2006; Yilmaz and Chatterjee, 2003). Finally, changes to the nature of the industry have made leagues and their clubs more reliant on media revenues, resulting in research looking at how media companies influence league operations and use sporting content as a platform to further the interests of media companies (Mills and Winfree, 2016; Winfree and Rosentraub, 2012).

However, with some notable exceptions (see Greenberg, 2004; Rosentraub 2010), the aforementioned research has disregarded how team owners are now leveraging franchise ownership for another purpose: to leverage the on-field and brand value of the franchise to further a broader facility-anchored real estate development. Unlike other solutions to addressing differing owner motivations (which involves aligning owner interests within a league or creating league-wide rules to curtail certain team behaviors) (Mason, 1997), this process involves aligning the interests of team owners and local political and business elites, who control access to resources and development opportunities in a given city. This paper explores the issue, using a recent arena-anchored urban development project as a case study. To do so, we borrow from urban regime theory (URT) (Stone, 1989), which examines the manner through which local elites develop the capacity to allocate resources in order to reach common goals. The paper is organized as follows. First, an overview of URT is provided, along with a brief discussion of our method. The case is Edmonton, AB, Canada, is then examined, and discussed in terms of URT in order to help to explain how and why team owners are now exploring large-scale urban development projects. Based on this analysis, we discuss the implications for team ownership in the North American context; we argue that: on-field performance may only be important insofar as it drives demand for the development; a focus is placed on driving revenues and profits on interests outside the sports facility itself; and the team (and the threat of relocation) is leveraged to gain “master developer” status for the ownership group. In doing so, we reveal a new context through which team ownership may be pursued and how this may impact ongoing league operations.

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Urban regimes and sports franchise ownership URT has emerged as a useful tool to understand how cities are “managed.” Developed in a North American urban context, early regime theorists sought to understand and articulate how public officials and local business leaders were able to come together in order to foster an economic growth agenda that met the interests of both groups (Elkin, 1987). Thus, regime theory can be viewed as a theory of networking; however a key to understanding the relationships within regimes relates to the informal nature of those relationships (Davies, 2002b). Research has focused on how regimes are able to form and how governing coalitions are able to function over time (DiGaetano and Klemanski, 1993), and regime theory has emerged as a dominant theory within the urban affairs field; its intuitive appeal lies in how it enables one to understand how cities can be governed, particularly over extended periods of time. The theory helps to explain how seemingly disparate groups (such as local community organizations, political leaders, and the business community, including team owners) are able to develop the capacity to work together in a governing capacity (Tretter, 2008). In this way, URT can be viewed as a combination of several theoretical approaches, including urban political economy and a community power structure paradigm (DiGaetano and Klemanski, 1993; Davies, 2002a).

It is important to note that the presence of certain actors within an urban setting does not guarantee the presence of a regime. Further, regimes do not form themselves; they must be developed, managed, and sustained by their members (Davies, 2002b). As a result, there is an important strategic element to urban governance. Clarence Stone (1989), widely considered a founder of regime theory, first developed his notion of regimes in his seminal study of the City of Atlanta. He proposed that regimes featured three elements: a capacity to do something, a set of actors to do it, and a relationship among the actors that enables them to work together (Stone, 1989).

As the theory gained traction within the urban affairs literature, he later suggested that five elements were required for regimes to exist (Stone, 2002). The first was what he described as an identifying agenda. An identifying agenda is the common interest that links the seemingly disparate groups that form the regime in a given city. The second element relates to stability. What distinguishes a regime from other forms of urban governance and control – such as Logan and Molotch’s (1987) growth coalition – is the enduring and ongoing persistence of a regime joined together by an identifying agenda. A third element is that regimes are cross-sectoral. In other words, regimes cannot be described simply as groups of wealthy, powerful, and influential elites – regime members share an identifying agenda but may represent many different groups within a community. A fourth and key element relates to the nature of regime interactions. According to Stone (2002), “no power of command directs the overall arrangements – hence some form of cooperation plays an important role” (p. 21). Thus, regime members may not always be distinguished by their levels of formal interaction – regimes by nature represent informal arrangements amongst their membership. Finally, the arrangements that exist between members have a productive character. In other words, regime members will allocate resources that serve to support and enable the identifying agenda that would not necessarily occur in the absence of the regime.

Stone (1989) described the set of actors that possess the capacity to make governing decisions as the governing coalition; these are the various groups and individuals that are brought together in order to govern a city. Thus, regime theorists argue that the politics of urban growth is not simply the process of powerful business elites manipulating public officials; a key here is the mutuality of interests shared by groups within the city (Elkin, 1987). As a result, regime analyses have focused on how informal arrangements occur and coalition building develops in order for regimes to develop the capacity to engage in strategic behaviors that further the regime’s identifying agenda (Kilburn, 2004). Research on urban regimes focused on US-based contexts, and evolved to include cross-case

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analyses and cities in other contexts[1]. Much of the early work on regimes in the USA falls within three themes: the process through which regimes are formed, how and why regimes form and/or fail, and the characteristics or regimes (Ward, 1996). Research on the latter focused on the identification of ideal types. Research using URT to examine sport has examined cities hosting sporting events (e.g. Henry and Paramio-Salcines, 1999; Misener and Mason, 2008, 2009; Pelissero et al., 1991; Sack and Johnson, 1996; Schimmel, 2001). For example, Misener and Mason (2008, 2009) demonstrated the existence of symbolic urban regimes in the cities of Edmonton, Melbourne, and Manchester.

In order to explain how resources are allocated in the process of civic cooperation Stone (1989) introduced the notion of “small opportunities”: “Urban regimes and civic cooperation are less shaped by ideology than by the ability to allocate small opportunities. These opportunities include selective material benefits that are important in solving the free-rider problem in collective action and in providing a means to apply discipline” ( p. 232). In other words, small opportunities represent the point where resources are allocated and regimes are able to engage in actions that both support the broader identifying agenda, but also serve to engage different regime members and/or signal to others the identifying agenda and the support of specific groups.

When examining cities, there is perhaps no clearer example of how networks of political and business elites converge and align their interests than with the construction of a new sports facility (Friedman and Mason, 2004). Few North American professional sports team owners today are limited in their business interests to franchise operations; many have amassed wealth in other industries, or see teams as opportunities to leverage their other interests in areas that align with operations, such as media ownership (Cousens and Slack, 2005; Harvey et al., 2001; Winfree and Rosentraub, 2012). Harvey et al. (2001), for example, found that close to one-third of professional sport owners were from the entertainment industry sector as defined by the North American Industry Classification System. As a result, owners who are from the same cities that their teams perform in are already embedded in the network of business and political elites that constitute the local regime. Thus, the issue of new sports facility construction provides regimes within cities with the “small opportunity” to align their interests and further the regime’s broader identifying agenda.

So who does one expect to be part of this regime? First, land developers benefit, even if they are not directly involved in the project. This benefit derives from the increasing real estate values due to gentrification in the surrounding area, and they may be able to create ancillary developments linked to the project. Others include public officials, who hope that land values (and taxes) are increased due to the infrastructure development. Political leaders also hope to benefit from the political capital associated with the ribbon cutting opportunities tied to these types of projects. The local media also support the opportunity, as the newspapers benefit from growth of the economy through an increase circulation rates and advertising revenues (Buist and Mason, 2010). Thus, one can see how different stakeholders benefit in different ways while in support of a singular identifying agenda. However, the issue becomes whether the regime can agree upon the choice of small opportunity. As we discuss below, the decision to build a new arena in Edmonton provided one such occasion.

Methodology The current study was based on part of a larger research project investigating the fit between isolated sports infrastructure development projects, specifically NHL arenas, and broader urban development initiatives. Approached from a constructionist perspective (Guba and Lincoln, 2004), our study employed an instrumental case study strategy. This case design was chosen as it facilitates understanding and description of a particular

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phenomenon and allows researchers to use the case as a comparative point across other settings (with similar conditions) in which the phenomenon might be present (Stake, 1995). Accordingly, we use this case to examine how political and business elites’ interests aligned with a team owner to further a regime’s agenda. For the purpose of this paper, the “small opportunity” is identified as the construction of a new sport and entertainment complex in Edmonton, Canada. We provide a description of our research context and explain our data collection and analysis in the following sections.

Research context In Edmonton, construction was recently completed on Rogers Place arena. Developer/team owner, Daryl Katz, is a Canadian businessman, investor, and founder of the Katz Group of companies. The privately owned company has operations in sports and entertainment, film, and real estate development. The Katz Group formed the Oilers Entertainment Group (OEG) which owns Edmonton’s NHL franchise – the Edmonton Oilers – the Edmonton Oil Kings of the Western Hockey League, and the Bakersfield Condors of the American Hockey League. The OEG also operates Rogers Place, the new home of the Edmonton Oilers, which opened in September, 2016.

In 2005, the previous Oilers’ ownership group expressed a desire for a new facility on the grounds that the franchise’s revenue-generating capability was severely hindered by the out-of-date facility it was occupying. Its existing arena – Rexall Place – was one of the oldest in use by an NHL team, and considered antiquated in terms of its revenue-generating amenities. The team was eventually sold in 2008 to the Katz Group. Shortly thereafter, the City of Edmonton and the Katz Group entered into talks regarding a proposed new arena. After a prolonged negotiation that included a relocation threat, the parties reached an agreement in early 2013.

The new arena cost an estimated CAD$480 million, CAD$604.5 million when including associated infrastructure. The City of Edmonton contributed $200 million to the facility and $279 million in total, of which $199 million would be repaid through a Community Revitalization Levy (CRL), whereby increased tax revenues generated from the area surrounding the facility would be used to service the debt (a similar funding model to Tax Increment Financing). The CRL would be in place for 20 years. Additional infrastructure included land, a pedestrian walkway, a connection for the local light rail transit system, a community ice rink, and a pedestrian overpass that would serve as a meeting area and entrance to the new arena. The Katz Group contributed $130 million in cash and future lease payments for the facility plus an additional $31.5 million in additional cash and lease payments for other infrastructure. Finally, $125 million is to be repaid through the implementation of a tax on event tickets, making the total contribution from the team owner $286.5 million. The remaining $39 million would come other forms of government, including $25 million from a regional collaboration funding allocation, and $7 million each provided by the provincial and federal governments toward the community rink.

According to the website (www.icedistrictproperties.com), the ICE District will be anchored by Rogers Place and will be Canada’s largest mixed-use sports and entertainment destination. It is a 25+ acre development combining 1.3 million square feet of office space, approximately 1,300 multi-family residential units, a public plaza, sports, entertainment, and 300,000 square feet of retail space in one location. The ICE District is located in the heart of Edmonton and will link the four quadrants of the city to the downtown area. It is estimated that there is $2.5 billion in development projects planned or scheduled within the ICE District as well as additional projects in the downtown core, including: Edmonton Tower, a 27-storey building that will house more than 65 percent of the City of Edmonton’s downtown employees; Stantec Tower, a 60-story commercial and residential tower; and Grand Villa Casino, a $32 million, 60,000 square foot facility attached to Rogers Place.

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Data collection The data were collected from two main sources – newspaper articles and documents – to increase the reliability and validity of the findings (Creswell, 2007; Yin, 2013). In order to explore how team owners seeking broader real estate development opportunities are able to leverage their franchise and align their interests with business and political elites, we opted to examine local newspaper articles. Since public officials, politicians, and business leaders are the most cited and greatest suppliers of news items (Gans, 1979; Hess, 2000), these articles would identify members of the regime as well as provide insight into their broader agenda. Thus, newspaper articles were collected from the Edmonton Journal. Owned by Postmedia Network Inc., the Edmonton Journal is consistently the highest circulating daily newspaper in the city. In 2015, the paper had an average daily print and digital circulation of 92,542 and a weekly total circulation of 555,252 (Newspapers Canada, 2016). Articles were sourced for the period 2005-2016, which encompassed a time frame spanning the emergence of the new arena in local newspaper coverage to the year the facility (Rogers Place) became operational. Using the Canadian Newsstand and LexisNexis databases, articles were collected and identified through a search for keywords related to the construction of the downtown arena. We limited our results to articles appearing in the following sections: News; Citiplus; Opinions; Sports; and Business. This search yielded 346 articles and after each was read, 306 were deemed relevant for analysis.

Documents were also collected and included: the City of Edmonton’s Strategic Plan; the Master Agreement between the City of Edmonton and the Edmonton Arena Corporation (EAC); sponsorship agreements; and the tax agreement between the city and the EAC. These documents provided information relating to the city’s strategies and plans, the network of local actors involved in establishing the agreements, and evidence of the city’s broader agenda as it related to the new arena. In order to supplement our media and documentation data, a 90-minute, semi-structured interview was conducted with the executive director of the Downtown Arena Project on January 5, 2017.

Data analysis Qualitative content analysis was used to analyze the data. This method of analysis involves a systematic, theory-driven approach to texts and examines both manifest and latent content of the materials (Mayring, 2000). We adapted our process of analysis from guidelines provided by both Mayring (2000) and Denis et al. (2001) who incorporated both deductive and inductive approaches to coding. The first phase of analysis began with coding each newspaper article for basic characteristics such as: date, staff reporter, and section. We then developed a set of deductive coding categories which were based on URT (Stone, 1989, 2002) as well as prior research which employed the theory to examine sport (Misener and Mason, 2008, 2009; Henry and Paramio-Salcines, 1999). For example, categories were developed for the identification of stakeholders/regime members, their interests, and motivations for involvement in the project. We assigned definitions, examples, and coding rules for each deductive category, in order to determine exactly under what circumstances a text passage could be coded with a category. In the final stage of analysis, we employed inductive coding to identify an initial set of themes in the data related to the decision to build a new arena in the city. The data were analyzed to identify words, phrases, and ideas that repeated as patterns (Fink, 2009). Patterns which emerged were analyzed in the context of the paper’s purpose and theoretical and conceptual framework. The themes were then grouped together and used to develop inductive coding categories (Mayring, 2000).

Aligning interests in Edmonton: results and discussion The issue of building (and funding) a new hockey arena for the Edmonton Oilers presented a “small opportunity” (Stone, 1989) for key stakeholders to align their interests. In this section,

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we identify the key stakeholders who coalesced around the arena development, highlight the broader identifying agenda and the expected benefits of the project, and discuss how these stakeholders communicated their agenda to the general public.

Key stakeholders Examination of the newspaper articles and documents identified a set of actors (see Table I) involved in the discourse surrounding the new hockey arena. Although this list is not exhaustive, it highlights those local stakeholders who featured most prominently in the newspaper coverage.

The stakeholders identified comprise a variety of local political and business elites, as well as several organizations who championed the project. Notably, the city’s then-Mayor, Stephen Mandel, as well as executives from the Oilers organization, were involved from the onset in discussions regarding an arena-anchored real estate development. As plans for the project progressed and the City Council vote drew near, real estate developers, city councilors, and the team owner began to feature prominently in the news coverage. In addition, the Downtown Vibrancy Task Force was established as an extension of ONEdmonton Leaders Forum – a group of local leaders whose aim was to make Edmonton one of the world’s top 5 mid-sized cities – after the organization decided that the city’s urban core was a top priority. The Downtown Vibrancy Task Force was made up of business executives, members of community organizations, and other city officials (see Table II). Several members of this task force were frequently quoted in the newspaper coverage of the issue as the group’s main task was to lobby the City Council (and by extension the public) in favor of the arena project.

As evidenced by prominent stakeholders in the discourse, supporters of the development came from a variety of groups within the community. In URT terms, when viewing the arena project in Edmonton as a small opportunity, one can see how supporters cross many different sectors and represent varying interests in the city, confirming the presence of a regime in the city (Misener and Mason, 2008, 2009).

Name Role Date emerged in arena discourse

Stephen Mandel Mayor of Edmonton (2004-2013) October 2005 Patrick LaForge Former CEO, Edmonton Oilers; Former President and COO, Oilers

Entertainment Group October 2005

Cal Nichols Former Chairman, Edmonton Investors Group (previous owner/s of the Edmonton Oilers)

October 2005

Jim Taylor Executive Director, Downtown Business Association April 2007 Bryan Anderson City Councilor December 2007 Kim Krushell City Councilor December 2007 Daryl Katz Chairman, Katz Group of Companies; current Owner, Edmonton Oilers July 2007 Don Iveson Former City Councilor (2007-2013); Mayor of Edmonton (2013-Present) March 2008 Ken Cantor Former Commercial Manager, Qualico (Real Estate Development company) March 2008 Bob Black Executive Vice President, Katz Group of Companies and Edmonton

Arena Corporation; Spokesman for WAM Developments (local developer and Katz Group partner)

December 2009

Simon Farbrother City Manager July 2010 Simon O’Byrne Stantec Consulting, Managing Principal, Practice Leader – Urban

Planning; Chairman Downtown Vibrancy Task Force January 2011

Terry Paranych Local Realtor/Developer January 2011 Rick Daviss Executive Director, Downtown Arena Project January 2012

Table I. Prominent stakeholders identified in newspaper coverage

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Edmonton’s regime and downtown development Our analysis of the data revealed several key terms and phrases which were repeated as patterns. From a regime perspective, this signals the underlying identifying agenda for the regime in Edmonton, and the role of the development project as an opportunity to further regime interests. Early media coverage of the issue focused on funding for the project, in that the city was effectively subsidizing a new arena for a team that was owned by a local billionaire; the arena was often referred to by proponents as a ‘catalyst project’ aimed at achieving downtown development. For example, Mayor Mandel stated that “People see this as a great opportunity for additional rejuvenation of downtown, that the city can put an icon downtown” (Kent, 2007). Oilers’ owner Daryl Katz was quoted as saying, “I don’t know if I would have had the same enthusiasm for the transaction but for the opportunity to build a new arena and to revitalize downtown” (Staples, 2009). Further, the master agreement between the City of Edmonton and the EAC emphasized that “the construction and successful ongoing operations of the Arena Area Facilities will provide a catalyst for further development” (City of Edmonton, 2013, p. 18). This commentary provides evidence that the broader identifying agenda was not the prospect of a new sport facility for the city, but rather, the “revitalization” associated with an arena-anchored real estate development. In other words, the arena development was the small opportunity that could further the regime’s interests in developing the downtown core of Edmonton.

It is this agenda that seemed to bring together support from disparate groups of stakeholders. In one article, Reporter David Staples (2016) referred to Daryl Katz and the City as “Edmonton’s Odd Couple,” highlighting the reason for their cooperation as a common goal of “a desperate need for a win on this career-and downtown-defining project” (p. A6). Although current Mayor Don Iverson initially opposed the arena project as a City Councilor, prior to declaring his candidacy for Mayor in June 2013, he voted in favor of the arena, citing that it would be beneficial for the city’s downtown (Stolte, 2013). Key stakeholders agreed that Edmonton suffered from an image problem which was directly attributed to its “long-neglected city centre” (MacKinnon, 2011, p. C1).

Name Company/title

Paul Allard DIA Holdings Ltd, Project Manager Bob Black Katz Group, Executive Vice President, sports and entertainment Carolyn Campbell University of Alberta, Associate Dean, Executive Education Simon Farbrother City of Edmonton, City Manager Brad Ferguson Edmonton Economic Development Corporation, President and CEO Randy Ferguson (Vice-Chair) Strategic Group, Chief Operating Officer Alyson Hodson ZAG Creative Group, Partner Kim Irving ATB Financial, Vice President Terry Kilburn Avison Young, Partner David Majeski RBC, Vice President, real estate and construction Mack Male Paramagnus Developments, Owner Doug McConnell Dialog, Principal Hon Anne McLellan Bennett Jones, Corporate Counsel Simon O’Byrne (Chair) Stantec Consulting, Managing Principal, Practice Leader – Urban Planning Ian O’Donnell Downtown Edmonton Community League, Development Chair Darin Rayburn Melcor Developments, Executive Vice President Andrew Ross Clark Builders, Executive Vice President Keith Shillington Stantec Consulting, Vice President Michael Smith WAM Development Group, Senior Vice President, Multi-Family Jim Taylor Downtown Business Association, Executive Director Sheila Weatherill EPCOR Board of Directors, Vice-Chair Source: www.edmonton.ca/documents/PDF/Downtown_Vibrancy_Task_Force.pdf

Table II. Downtown vibrancy task force committee

members (as of July 2013)

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Thus, a vibrant downtown core was a key feature in the arena discourse. For example, Former CEO and President of the Edmonton Oilers, Patrick LaForge, stated that “[Edmonton needs] a city centre that’s alive and vibrant and entertaining and good enough to attract the best in the world and entertain them and keep them here” (Staples, 2008, p. A1). Executive Vice President of Sports and Entertainment for the Katz Group, Bob Black, reiterated this sentiment by stating that “The Edmonton arena district will be a vibrant, walkable and environmentally sustainable mixed use development that will create a hub of commercial, social and cultural activity in the heart of our downtown” (Sands and Gordon, 2012, p. A4). The importance of a vibrant downtown was also reflected in the City’s Tax Agreement with the EAC which highlighted that the city wished to encourage Edmonton’s economic growth and a vibrant downtown community. This would be achieved by supporting public-private partnerships and embracing new sports and entertainment concepts in the downtown core (City of Edmonton, 2014).

Team owner motivations and the Regime As evidenced by the discourse in local media coverage of the project, the development (or revitalization) of Edmonton’s downtown core was central to the interests of key stakeholders. After Edmonton City Council declared approval of the arena in 2013, a series of real estate projects were announced for the Edmonton Arena District (see section on Research Context). The arena district was expected to attract over CAD$2.5 billion worth of real estate development in the downtown core. This estimate reemphasized the stakeholders’ claims that the project would indeed generate development and revenue for the city in the form of property taxes which would in turn pay back the CRL introduced to fund the arena. Katz stated that “we planned this before we bought the team […] we were active in the real-estate market, relative to where we saw the arena (being built)” (MacKinnon, 2014, p. D2). Thus, the prospect of being the developer provided the impetus for purchasing the Edmonton Oilers and ultimately solidified the relationship between the team (owner) and the city.

The team and the facility were, therefore, considered valuable assets as they both increase the attractiveness of the district, and provided the opportunity for the Oilers’ owner to insert himself into the real estate development opportunity. Executive Director of the Downtown Arena Project, Rick Daviss, reiterated this point by stating “if you’ve got the same owner with the same real estate development opportunity […] chances are that it will […]. Because he sees that there are mutual advantages there, like the real estate will flourish because of the arena and the arena will flourish because of the development” (Executive Director, Downtown Arena Project, personal communication). Moreover, Daviss believed “the real estate play is big […] [Katz] is so much bigger than hockey, getting out of the drugstore business and into the entertainment business” (personal communication). In this case, Katz leveraged his ownership of the Oilers and its need for a new facility to pursue control of the development, along with partner WAM Developments. Commenting on Katz’s arrangement with the City, Rick Daviss stated that “[the project] turned out to be a very, very profitable deal for the private sector and the city” (Staples, 2015, p. A4).

To review, the case of Rogers Place in Edmonton reveals a clear desire for political and business elites in Edmonton to align their interests to engage in a large-scale, real estate development project in downtown Edmonton. From an URT perspective, the broader identifying agenda was to further develop the city’s downtown core in order to make Edmonton a more attractive place to live, work, and visit. In the discourse surrounding the arena project, the construction of Rogers Place functioned as a “catalyst” providing an opportunity for further real estate development that would benefit the city. The owner of the Edmonton Oilers, Daryl Katz, was able to leverage his ownership of the team by aligning his own interests in real estate development with that of other key stakeholders

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in the community. In regime theory parlance, the small opportunity of arena development became a key point through which a regime in Edmonton was able to further its identifying agenda by making the downtown core more vibrant. As owner of the team, Katz furthered his own interests along with the interests of broader regime.

Implications The Edmonton case reviewed above reveals the significant investment by the franchise owner into real estate surrounding the arena the team plays in. While the use of public funds to finance the arena was a contentious issue in Edmonton (and remains one in cities considering similar projects), there are several key outcomes that benefit both the team owner and the city itself. First, the scarcity of franchises often results in team owners threatening to relocate should their demands for subsidies not be met (Foster et al., 2015). However, once the surrounding development occurs and the owner has a substantive financial stake in it, the likelihood of relocation diminishes considerably. Even if the owner sells the team and maintains a financial interest in the development, there is still an incentive to keep the team as an anchor tenant to make the surrounding area more attractive to residents and visitors. Second, having the ownership stake in the development provides a key means to align the interests of the city and team. In Edmonton, the city’s interest was to increase (relocate) economic activity to the downtown core. With the team owner’s investment in the surrounding district, the owner benefits from any increase in activity in the area (over and above those attending events at the arena itself). Thus, the interests of the team and the regime in the community align. We feel this new model of operations has some important implications for the operations of professional sports leagues as a whole, and introduces another rationale for ownership that builds on the existing arguments for team ownership (win vs wealth maximization). These implications are discussed below.

On-field performance is important insofar as it drives demand for the development A unique dynamic emerges when considering the competitiveness of teams and franchise revenues. All things being equal, the more competitive a team is, the more likely it is to draw fans to the stadium (e.g. Coates et al., 2014), television viewers (Tainsky, 2010; Tainsky et al., 2014), and increases revenues and profits (e.g. Gustafson and Hadley, 2007). However, the likelihood of winning also should increase when additional resources are spent on player and non-player inputs (Scully, 1974). Thus, franchises are always interested in winning, albeit profit maximizing owners will want to win insofar as it maximizes their profits (El Hodiri and Quirk, 1971).

Research presented evidence that a new facility may influence revenues and the need to win (e.g. Brown et al., 2004; Rascher et al., 2012). Brown et al. (2004) looked at NFL team revenues between old and new facilities. Results from their analysis found significant differences in a variety of revenue streams such as ticket sales, luxury seating, advertising/ parking/other, and total local revenue. They also found new NFL venues increased the league’s gross operating revenues. Later research by Rascher et al. (2012) found new NFL stadiums lessen the impact of winning on attendance and revenue and this decreasing reliance on winning provides teams with a better ability to accurately forecast attendance and revenues, thus providing increasing financial certainty in an industry setting that relies on the uncertainty of game outcomes and, by extension, the uncertainty of the race to crown a league champion. With this in mind, owners may be able to focus more on making the district more attractive as a destination than worrying about fielding a competitive team to ensure that facility revenues are maximized.

For those teams in leagues that play a series of playoff rounds and where owners are wealth maximizers, there may also be less of an incentive for the team to make the playoffs. For example, setting aside dates for playoff games in the venue may preclude other popular

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entertainment acts from being hosted in the facility; one cannot assume that the facility would be empty in lieu of the playoff games played. Where the team owner only controls revenues from the team itself, there is strong incentive to play these games. In contrast, as long as there are other entertainment acts that can use the facility (and drive traffic to other team-owned amenities in the district), the owner can still profit from the overall development. As a result, there is now less incentive for owners to have teams make the playoffs to access lucrative playoff dates, if the facility and surrounding area will continue to see a number of events that ensure that area will be busy.

This suggestion does not undermine the value of the team to the overall development; in many cases it will be clear that the team is the anchor tenant and will factor heavily in residents’ willingness to live near the venue and access the other amenities in the vicinity. However, teams will not necessarily need to win in order to ensure the success of the development, the demand for events, or the profitability of the team owner/developer. Quinn et al. (2003) examined the impact of new venues on team on-field performance for North American professional sports leagues. Comparing on-field performance in the old and new venue, they found no real difference in team winning percentages. In fact, they conclude that conditions exist within new facilities that “[…] apparently impede a poor team’s improvement” (Quinn et al., 2003, p. 180). Research by Clapp and Hakes (2005) supported earlier findings by Quinn et al. (2003). Furthermore, they concluded that team owners who are profit maximizing do not use the increased revenues from the new stadium to improve team quality (i.e. team performance). Rather, these increased revenues are used by the owner to either pay off debt or retain for profits. Depken (2006) found that franchise values increased substantially in the first ten years of a new facility. In addition, Depken (2006) concluded that teams “artificially increase operating expenses in order to downplay their profitability” (p. 468). Thus, one cannot expect the team to improve or the owner to use additional revenues to improve the team’s performance. However, revenues should increase and there should be less sensitivity to team performance on revenues, which should ultimately benefit the success of the broader development (where fans/consumers continue to use other amenities in the stadium or arena district).

Owner focus on driving revenues and profits from interests outside of the sports facility itself There is a tendency to evaluate teams and the facilities they play in on an isolated basis, rather than in terms of their contributions to a broader bundle of amenities that a given city might possess (Clark, 2004). While research on amenities and amenity theory examined the role of the arena in the broader development from the perspective of the public funds provided to finance facilities (Rosentraub, 2010), where team owners own or control the surrounding development, the key to the owner’s interests is not the profitability of the team or the competitiveness of it, it is the extent to which the team contributes to the overall capacity of the development to generate revenues for the owners’ business holdings (Mason, 2016).

Thus, owners invested in the surrounding development will be interested in putting a team on the court, field, or ice that maximizes overall revenues. As a result, winning and profit maximization for the franchise itself will be secondary to the attractiveness and revenues of the entire development. We argue that there are several key implications for this. First, a competitive team will be useful, but an exciting (competitive) team may be even more important. The desire for an exciting, competitive team may lead to franchises assembling rosters that not only are meant to win, but to do so in an entertaining fashion. This behavior may result in attempts to acquire “marquee” players who are attractive to fans. The second is that owners can sometimes take advantage of the league’s revenue sharing agreements (e.g. Mason, 1997) for their own self-interest. In most North American professional sports leagues, teams share other teams’ and overall league revenues under the auspices of maintaining competitive balance (Vrooman, 2015). For example,

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all North American professional sports leagues equally share national broadcast media rights. Local revenues, however, are shared differently (see Peeters, 2015; Vrooman, 2015 for an overview). Within each league, certain revenue streams are excluded from revenue sharing agreements. The revenue streams that are excluded may be revenue streams that directly correspond to new stadiums and surrounding development. For example, the NFL excluded luxury box revenues from the football-related revenue that is shared amongst the clubs (Larsen et al., 2006). Thus, not only do team owners not have to share the revenues from the surrounding district, certain revenue streams from the sports facility itself may not have to be shared with other league clubs. Seen in this manner, the value for the team will be to drive revenues outside of the facility (that are not under the purview of current league revenue sharing agreements) where the owner will profit but not have to share with other league clubs. It is important to note here that this phenomenon will benefit the regime, as there is a greater likelihood that other stakeholders (including the City) will benefit from ancillary consumption in the nearby area.

Team leveraged to gain “master” developer status for ownership group Due to some historically unique circumstances, North American professional sports teams have been able to operate largely free from the antitrust and anti-competition scrutiny that other industries face. This freedom allowed leagues to limit the availability of franchises, which in turn created a competitive market for cities seeking to host major league franchises. Although cities and their residents are becoming more sophisticated in their understanding of the benefits (or lack thereof) that teams and facilities provide, there appears to be no end in sight to the use of public subsidies to lure or retain teams through the construction of new or substantively renovated venues to host them.

Because franchises are scarce, the leverage that the team owner possesses may allow him/her to become the primary developer in the area surrounding the arena. This will allow the owner to profit from more than the operations of the team itself. In attaining “master developer” status, the owner is able to leverage the key asset – the team – which is the anchor tenant of the centerpiece of the development (the sports facility) in order to gain control over the development of the surrounding district (Rosentraub, 2010). For this reason, real estate developers may view franchises simply as assets to access development opportunities they might otherwise not have the opportunity to pursue.

A repercussion of this is that the team will be viewed by the owner/developer as secondary to the facility itself; it is the fact that the venue can drive attendance and visitors to the area that is a key; it matters less what these people are coming to see as long as they are coming. In Columbus, OH, Nationwide Realty did not even bother to become a team owner; instead they used Nationwide Arena as an anchor for the development project in that city. The fact that it is a NHL team (the Blue Jackets) that serves as the major tenant is secondary to the overall development and revitalization of that city’s downtown.

Conclusion While having a stake in the broader development represents an important and potentially lucrative business opportunity for the franchise owner, there are several issues that may arise that can complicate issues facing North American professional sports leagues. As mentioned earlier, team owners have traditionally operated clubs with the complementary and, at times, conflicting aims of winning and maximizing wealth. With team owners like those in Edmonton investing more financial resources in the district surrounding the new arena than in the team itself, a question now arises at as to

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whether or not such owners will distinguish between maximizing revenues from the club itself, or the overall development.

Historically, the need to implement restrictions on player mobility and salaries has been rationalized by leagues in the context of maintaining competitive balance and protecting smaller markets that may not be able to generate revenues comparable to larger ones. However, team owners may be able to generate substantial revenues from the surrounding development in such a way as to buffer smaller markets from a lack of revenues from the team itself. This may allow teams in smaller markets to remain more viable in the long run, and also reduce the expectations team owners have for the public’s financial contributions to the facility.

Conversely, win maximizing owners who control the surrounding development may overspend on playing talent and drive down team profitability, knowing that losses can be recouped by the profits from the surrounding district. This would have the opposite effect of making it more difficult for other league clubs seeking to build their own competitive rosters. This may result in changes to collective bargaining and intra-league revenue sharing policies between league clubs. This paper has revealed that team ownership in North American professional sports leagues continues to be a complex phenomenon; future research should explore the implications of this ownership model on overall league profits and competitive balance.

Note

1. Debate over the applicability of regime theory to non-US contexts has been waged in the urban affairs literature. This has focused on the degree of influence that the business community has in the policy process in other cities in other countries, and the degree of autonomy that local regime arrangements have to govern. However, we feel that this debate is not central to our use of the tenets of regime theory as developed by Stone’s work.

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