It’s the investment opportunity of a lifetime (II)

I should start with a confession: when I wrote that really long post slamming governments for getting into the NHL arena-building business, I hadn’t yet read the Ernst & Young feasibility study (summary here; full report here) about the project. Had I read the report, my opinion would have been different. I would have hated the idea even more.

Here’s why:

-The management of the arena would be the responsibility of a Crown corporation (because you can never have too many of those), which, according to the report, could be expected turn a $1-1.1 million annual profit. Sounds pretty good, right? Only this estimate includes neither the financing costs, which the report admits would have to be borne by the government, nor does it include the $4.5 million the Crown corporation would be expected to spend in annual maintenance costs. Most rational people would therefore consider that “profit” to in fact be a minimum annual loss of $3.4 million.

-The financial model also excludes property taxes, which could reach $4 million a year, the report admits. While it optimistically notes the current tenants at the site don’t pay taxes, it also says there’s no guarantee the new arena would be exempt. If taxes are added to the actual cost of running the place, annual losses would figure to be about $7.4 million, not including financing costs.

-The total market for the arena is estimated to be 9.1 million people, more than 18 times Quebec City’s population of 491,140 people (2006). Tourisme Québec’s own numbers pegged the total number of tourists to the provincial capital region in 2007 at 4,481,000. If you add those two figures up, you get about 5 million people, well short of the 9.1 million people who’ll be flocking to the Nordiques’s fancy new digs. To get up to that 9.1 million person figure, the study’s authors added what they termed “neighbouring” cities to the tally. These include, among others: Cape Breton, N.S. (a brisk 1,228 km drive away); Charlottetown, P.E.I. (923 km away); New Glasgow, N.S. (984 km away); and Truro, MA (809 km away).

-The report anticipates that, with an NHL team in place, the number of bookings at the new arena would be 41 per cent higher than they are at the Nordiques’ old home, the Colisée Pepsi: 178 days a year vs. 126 days a year; according to the estimates, it’d be booked 191 days a year without hockey. I honestly can’t say whether this estimate is out of whack or not. But at 178 days booked a year, the arena would be on the cusp of the major leagues as far as venues go: Madison Square Gardens and the Staples Centre, both of which are home to other professional sports teams outside hockey, not to mention the fact they are located in NYC and Los Angeles respectively, are booked between 200 and 250 days a year.

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