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Some interesting news on the Khabibulin front today, as it came out that he’s taking a trial by judge alone at the end of August instead of a jury trial that was tentatively scheduled for late September. His lawyer had previously indicated a preference for a jury trial but indicated that he would have to speak to the Oilers first.

A couple of things. It’s much easier to schedule trials with judge alone - juries slow everything down, so I’d bet the trial goes. I’m more interested in divining the Oilers’ position in all of this. I think we can safely assume that they told Khabibulin one of two things: either “We’re not going to cut you, just get the trial done with and serve your thirty days before the season” or “We offer you no advice in that regard and we reserve our rights fully.” I think that they can terminate his contract if he doesn’t show up at training camp because he’s in jail; that’s my reading of the Standard Player’s Contract anyway. Similarly, if he had an unexcused absence from training camp or an exhibition game for his trial, they might be able to cut him.

By going this route, Khabibulin preserves the possibility of missing no time because of his trial, the only situation in which he isn’t in jeopardy. If he ends up getting convicted, it’s going to be fascinating to see how the Oilers respond. Maybe, if they do cut him, Don Iveson can amend his list of questions to ask if the City’s financial contribution can be cut by $12MM to represent the savings on the Khabibulin deal.

If you aren’t reading Andy Grabia’s fine new website, “Why Downtown?” you should be. Andy’s doing some good work there and will, presumably, end up cutting the cost of concrete slightly when his corpse is used for filler in the foundation of the new arena. It will be his final service to the taxpayers of Edmonton. This is his transcript of Paul Marcaccio, EVP & CFO of Katz Group speaking to Edmonton City Council.

“Thank you, Ted, and good afternoon everyone.

I will be making some brief comments, which touch on two critical issues, sustainability and funding.

Now, there’s a lot of talk, and from our perspective much concern, about the long-term sustainability of the Oilers in Rexall Place.^1,2 This stems primarily from the revenue model which we are currently subject to. NHL hockey teams earn Hockey Related Revenues, and non-Hockey Related Revenues.³ The Oilers Hockey Related Revenues are limited, primarily because they play in the second oldest and second smallest arena in the National Hockey League, where revenue opportunities are lower than other NHL teams, and they’re effectively capped. The Oilers are located in the smallest media market in the National Hockey League.⁴ Size of market determines the pricing for broadcasts, advertising, and sponsorship revenue opportunities. Non-Hockey Related Revenues, which includes revenues from concerts, entertainment events, and other arena-based activities, which are ancillary to those generated by the anchor sports team tenant.

Not only do the Oilers earn no, non-Hockey Related Revenues, they are the only team in the NHL that does not receive the non-Hockey Revenues from the facility in which they play. For sake of a close to home comparison, in Edmonton, non-hockey revenues go to Northlands. In Calgary, they do not go to the Calgary Stampede Inc., they go to the Calgary Flames organization.⁵

It is for these reasons that we find ourselves talking about the Oilers long-term sustainability in Rexall Place. Currently, Daryl Katz has had to subsidize the team by several million dollars in each of the past two years in order for the team to break even. Under the Oilers current operating model at Rexall Place, a model in which we do not control the non-Hockey Related Revenues, that trend will likely continue in each year between now and 2014.⁶ Sustainability can only be addressed by a new arena, and having the same operating model as the Calgary Flames and all of the other NHL teams.

Now let me make a few comments on funding. We believe a new downtown arena can be funded with a mix of public and private investment in a manner that benefits the city of Edmonton without an increase in property tax rates as a direct consequence.⁷ What we hope to do is build on what you have heard from the city administration, and to communicate our optimism that, starting with their proposed funding model, and having the opportunity to work through the various elements with the city administration, we will arrive at a workable solution.

Picking up on Daryl’s comments, the Katz Group would invest $100 million dollars directly into the construction of a new arena that would be owned by the City of Edmonton.⁸ We agree with the city administration report that an additional amount of funding can be financed by the City of Edmonton using a CRL, with all of that amount being repaid over time.⁹ We hope to have the opportunity to assess and to agree with city administration on what this amount can be, based on all of the new development in and around the proposed arena district.¹⁰ The prospects of success for the CRL would be greatly enhanced by Katz Group’s plans to lead the development of the district, for which we have earmarked a minimum of an additional $100 million dollars of investment over time.¹⁰

We understand Mayor Mandel’s belief that there should be some element of user-pay, or a ticket-tax, in the funding model, and we are prepared to have that discussion with city administration, though for the reasons I touched on earlier, there is natural limits to what we can agree to as relates to revenue streams.¹¹ The balance of funds, including funds for related infrastructure, would come from other sources, including federal and provincial governments.¹² In summary, we are aligned with the direction set by city administration, subject to reaching agreement on the various financial estimates inherent in that structure, and the specific business terms of the arrangement. We believe this can work for everyone.

Thank you, and I’ll ask John to complete our closing remarks.”

^1. Pat LaForge was lying when he was quoted, four months after Katz bought the team, saying: ‘”Revenue sharing, at the time you write the cheque, is painful — and we’ve written some big ones in the last two, three years. I see it as a compliment to our business. We’ve come from the red to being in the black and we need to look at it as a point of pride. The CBA has been good for us, the [Canadian] dollar has been good to us, the fans have been good to us. Some sharing is required.’”

^2. Until this moment, I hadn’t heard anyone talking about it. Now I hear the people who burdened the team with a hundred million or so in debt saying so. Did someone screw up the pre-deal analysis? Or did you neglect to mention that Daryl Katz, proud Edmontonian, decided to play roulette with the future of Edmonton’s most significant cultural asset?

^3. Funny. I remember arguing during the last lockout that the owners of hockey teams use those teams to generate revenue outside of hockey and that, if the owner of a specific team thinks that investing in that team will pay dividends for his empire as a whole, there was nothing wrong with that. You couldn’t find an NHL owner who would say that then. Now, non-HRR (or, as the owners classified it when they did their deal with the players, “money that has nothing to do with hockey”) is revenue that hockey teams have. Congrats to the players by the way: the CBA completely destroys the incentive of the owners to actually grow the hockey business, where the money is taxed at a 57% rate by the players. The Oilers have little interest in growing that business by, say, hiring competent hockey executives or finding new revenue streams because you get a cut of that money.

^4. Mexico City has a “media market” of 8.5MM people and no NHL team. Maybe it’s the size of the hockey consuming media market that matters? Is Edmonton the smallest there?

^5. I can already see the Flames presentation to Calgary City Council in 8 years: “So Edmonton has a billion dollar pharmaceutical empire as part of their non hockey related revenue. Will you buy us one? We just want to be competitive with Edmonton! You’re as good as Edmonton, right? Right?”

^6. I guess they don’t have any faith in Tambellini and Lowe getting the Oilers to the playoffs before 2014 either.

^7. This is undeniable. It could also be funded by Daryl Katz without any city money and the city would still reap any of those benefits that are something other than smoke emitted by people who want to suckle at the public teat for a while.

^8. I’m a lawyer and even I have to admire their use of the word “owned” here. I’m willing to enter into a deal with someone whereby they get to own a condo in downtown Toronto to which I contribute a small percentage of the purchase price and am entitled to all of the revenue generated from it. We’ll buy a $500,000 condo, I’ll throw in $20K for the downpayment, you throw in $80K and pay the mortage and I’ll rent it out. For thirty years. At which point we’ll do the deal again. What? How will you profit? Umm…we’ll rent it to someone creative. I have a theory that they make property values skyrocket. No evidence of this but it’s a cool theory. Look, I don’t care if you already have a place that you’re making money off of. It’s north of the 401. I’m talking DOWNTOWN. Email address is on the sidebar - act fast.

^9. “We agree that you can make money in taxes to give to us.”

^10. That’s right. Katz is willing to invest an extra $100MM, provided that all of the property taxes from it are used to fund his empire. He’ll put in $100MM and the city will use the revenues it generates from the tax collected on this investment to benefit him.

^11. This whole thing is so disgusting on the part of the Oilers. It’s extortion. There’s no way to square “We won’t play in Rexall beyond 2014″ with anything other than a threat to leave town. You know what’d be fantastic? If the City did the whole thing, did a lease with Katz, made a deal on whatever terms he wants to make…and then, once a Phoenix type lease is signed, with like a billion dollars in penalties if the Oilers leave town, announced that they were imposing a tax on Oilers tickets, equal to the amount of the payments that the City is required to make. I honestly don’t know if cities are allowed to sign contracts preventing them from imposing taxes in the future, although it seems sort of contrary to public policy to me. This process is awful, even by the abysmal standards of the Oilers. Lock them in and then impose punitive taxes!

^12. This is, I would guess, news to the federal and provincial governments.

“The biggest motivation comes from what I want to accomplish here. The problems that we had in Edmonton … it wasn’t really my health. It was more just a situation where we had a bad team. It’s hard for anybody to look good in that situation.

The good news for Columbus fans: it wasn’t Ethan Moreau’s health that was responsible for the bad news. The bad news: it wasn’t 19 guys who were bad and Ethan Moreau. Scott Howson doesn’t look too smart here either, what with a ton of players still available. This money could have been better spent, even before Moreau tells Aaron Portzline next summer that it wasn’t his fault that the team sucked.

“Do you admire a criminal lawyer who gets a murderer off on a technicality? So why would there be admiration or appreciation for finding a loophole that somehow defeats the purpose of a collective bargaining agreement that’s designed to put teams on the same footing? I have no problem with long-term deals if they’re straight across the board, but not if the last few years are designed to reduce the cap hit and nothing else. I’m not being critical of other teams that do. But if a team has four guys on contract like that, they’re actually icing a team with false values on their players. And if another team is playing it square, then you’re losing ground.”

Brian Burke: the Plato of the NHL. I’d swear I’ve learned somewhere along the way that lawyer’s duty is to his client, not to his own peculiar interpretation of the purpose of an agreement. Also: saying that you’re not being critical of someone three seconds after you’ve compared them to a criminal lawyer getting a murderer off on a technicality (or, what that usually means: “because the government broke the law in gathering evidence”) is more than a little unconvincing. Remember Leaf fans: your franchise exists as an edifice to Brian Burke and his own rules of ethics. You may not win anything, but you’ll have the satisfaction that comes from knowing that your GM didn’t do everything he could to win while collecting his multi million dollar payout.

The moment when Bob Stauffer abandoned all pretense of being a journalist was at approximately 1:50 PM MST on July 26, 2010, when he asked a condo developer with a financial interest in the arena project going ahead if there’s anything wrong with businessmen making money. The developer almost seemed embarassed for him and paused for about five seconds before answering no and then sharing an anecdote about how much Daryl Katz loves the Oilers. It’s worth going to the Team 1260’s webpage and listening to - it’s that bad. Mark Spector wrote a trainwreck of a column on Sportsnet that I’m not linking to on the off chance that he gets paid for hits but it’s still a good 10-15 times more insightful than Stauffer was in interviewing this developer.

The developer was a bit questionable too - he threw out a stat that 91% of people want to live downtown, which I find highly dubious. There have to be a billion caveats on that. Nobody wants to live downtown once they have kids, even in cities that don’t have terrible downtowns - they want a yard and extra space. Spector happened to be a guest on today’s show and by the end of the first hour, he was making points against the rink just to provide some sort of balance to the discussion. The whole thing was like an infomercial without the quiet sense of dignity.

It’s also quickly becoming apparent that Stauffer’s response to the economics is going to just be to mock it and ignore it. He pays lip service to the argument and then sniffs it away without explaining why. The explanations that are out there - Edmonton needs more gay people to drive the economy and gay people are attracted to hockey rinks (or something like that; Richard Florida doesn’t make a lot of sense to me) - suck (in my view) but he can’t even be bothered to mouth them. Dan Tencer would be embarrassed if he was covering the arena story this poorly.

Memo to Spector: the Edmonton economy was, in 2007, something like 170% of the size of the Winnipeg economy. I’m not precisely sure how that’s calculated and whether it includes Edmonton’s bedroom communities but there’s probably also a lot more wealth within three hours of Edmonton than there is within three hours of Winnipeg. The Oilers are a top ten team in revenue in the NHL, despite being spectacularly mismanaged and doing without playoff revenue for four years. Maybe if Katz isn’t handed a pile of free money by the city, he’ll see if he can’t improve the hockey team’s financial performance by, oh, I don’t know - getting rid of the managerial and coaching failures he’s currently paying six figure to have hang around Rexall Place? If you can’t perform analysis that is somewhat more granular than “cold, prairie town”, you should probably stay well away from the business of hockey, something that was already evident from the work you’ve done on the NHLPA, which amounts do “They should do what the owners tell them.” I don’t know where you went to journalism school but, I assure you, the expression is not “Comfort the comfortable, afflict the afflicted.” Really. The compulsion to do whatever the man with money says is unbecoming.

(By the way - there’s some possibility that Stauffer is a precog, because he was kind of muttering during Lowetide’s appearance that I take mean personal shots, something I hadn’t done in a while (I don’t actually think I’ve ever been that hard on him), maybe since Joffrey Lupul left town which was pretty much the last time he was so absurdly myopic about something. It’s iike he knew this was coming.)

The comments thread on Don Iveson’s Oilers post is getting interesting. This, from commenter Craig (who is apparently somehow involved with Urban Jungle Marketing), is pretty funny:

If we look at the existing situation/location with Rexal Place, be it Oilers games, concerts, shows, etc.—it’s broken. Do you honestly mean to tell me that Edmontonians love to race home after work, then race to Rexal, then hoof it for 3 blocks in freezing cold temperatures through the dumpiest part of the city; all just to watch mediocre play whilst forking over way too much money for bad beer and worse food; then hoof it for 3 blocks back to their unheated cars in freezing cold temperatures again, trying to beat the rush, and finally race back home?

A new arena: it will fix the weather, make the Oilers good, reduce the cost of beer and food at the game, make the quality of said food and beer better and make it so that there is unlimited time between the end of the working day and the start of the Oilers game. I’m not in marketing but that sounds like a winning idea to me.

I was reading Don Iveson’s latest post on the Edmonton arena deal which includes a link to a document (warning: pdf) that Katz Group has provided to him. The document is a summary of what happens to Canadian teams that build their own arenas and includes the following passage:

Arthur Griffiths built GM Place (now Rogers Arena), which opened in 1995, for $160 million. The arena, the Canucks and the NBA’s Grizzlies were all sold in bankruptcy in 1997. The arena was sold for a loss of approximately $90 million.

The Oilers are, in effect, advancing an argument that you can’t expect small market teams to fund their own arena, because of what happened to the Senators, Canadiens and Canucks in the 1990’s. I don’t know that this is really a sensible argument - the pro sports craze in the United States in the 1990’s was fuelled by a lot of things, including a stock market boom that there doesn’t seem to be any reason to expect to occur again. The Canadian dollar was at historical lows, making it difficult for Canadian teams to compete. It’s not right, I don’t think, to draw these comparisons without examining and allowing for these factors.

More to the point though, GM Place, the Canucks and the Grizzlies were never sold in bankruptcy, as far as I can tell. First, I don’t remember it, which I usually do with major sports stories. It doesn’t show up in Google News’ archive or on the Canucks’ wikipedia page. It looks to me like Griffiths got himself overextended and there was then an orderly transition and the team was purchased by John McCaw in 1995, who was a minority partner to that point in time. There don’t seem to have been any bankruptcy proceedings. I assumed that this was just a gross distortion of something that actually happened but I can’t even find that.

Now I generally assume incompetence in these cases but in light of this, City Council really ought to be demanding that the Oilers throw open the (audited) books if they want to talk subsidies. At the very least, there ought to be some sort of an explanation. I don’t like to say that people are intentionally trying to mislead but I’m at a loss to understand how you’d come up with something like this about the Canucks. This is with respect to the stuff that’s easily checked too. The stuff that isn’t easily checked, like the Oilers’ financial claims…well, they’d just like you to take them at their word. I wonder if there’s a Ronald Reagan on Edmonton City Council?

If I was an Edmonton taxpayer, this would send chills down my spine:

The owner of the Edmonton Oilers wasn’t blackmailing the city when he told councillors that the team won’t play at Rexall Place past 2014, Mayor Stephen Mandel said Thursday.

Billionaire businessman Daryl Katz was just expressing a financial reality, Mandel said, amid heated discussions about whether to build a new downtown arena for the National Hockey League franchise.

“I didn’t take it as a threat. I took it as a reality check of the problems NHL owners face in small markets,” Mandel said.

Small markets? Small markets?!?!? Here’s Pat LaForge 21 months ago:

“Revenue sharing, at the time you write the cheque, is painful — and we’ve written some big ones in the last two, three years,” said Oilers president Pat LaForge. “I see it as a compliment to our business. We’ve come from the red to being in the black and we need to look at it as a point of pride. The CBA has been good for us, the [Canadian] dollar has been good to us, the fans have been good to us. Some sharing is required.”

I’ve read, although I can’t immediately find the link, that the Oilers paid another $3MM into revenue sharing this year. I really don’t want to care about the arena story but, as Matt Fenwick pointed out, I can see only two reasons that the Oilers might be losing money: 1) incompetent management (see the previous four years of posts) and 2) Darryl Katz paid too much for the team and is now faced with huge interest payments that the team doesn’t generate enough revenue to justify.

As far as the first point goes, if Katz wants to continue to rub shoulders with incompetent Old Boys, that doesn’t seem to me to be something that the City of Edmonton should have to subsidize. As far as the second point goes, I’m not exactly sure what he can do. Is there a city out there where he can make more revenue than he does in Edmonton? He’s not going to move to Hamilton without a hell of a fight and I’m not convinced Hamilton’s a better hockey market than Edmonton in any event. I don’t see that he’s got a better alternative to Edmonton in terms of generating revenue. If he can’t handle the costs of his mistake, let the Oilers go bankrupt. Is there reallly a more attractive hockey market available?

As for Stephen Mandel…anyone in the position to help transfer hundreds of millions of dollars to a private enterprise who offers up such an ignorant justification doesn’t deserve to have his job. If I lived in Edmonton, I’d consider violating my no voting policy in order to vote against him.

If you’ve ever wished you could listen to be talk, I did a podcast with the PPP guys last night that’s online now. My brain tends to wander so kudos to the guy who edited down my rambling thoughts and made me sound sort of coherent. It’s a different process than writing a blog post, where I can kind of work through what I think as I go. I’m sorely tempted to start doing this for the Oilers if I can talk Dennis into it; I’ll have to get a better microphone first.

Also: I’m going to be on the Team 1260 tomorrow morning at 7:35 MST/9:35 EST to talk about Kovalchuk and legal issues if you’re interested. Lowetide will apprently be doing Oilers Lunch, which I’m definitely going to be listening to. Check it out.

I’m working on some other things right now, which is part of the reason that posting’s been light of late. Internet hockey content seems to be drying up at the moment - Friedman just shut down for the summer but not before providing us with some quotes from scouts who were forced to remain anonymous.

As an aside - the use of anonymous quotes here is ridiculous. I don’t blame Friedman but none of the scouts who are quoted says anything the least bit controversial. The NHL should want people generating new hockey content over the summer and they should be doing what they can to faciliate it.

Scout number one said, “Fans should use Central Scouting rankings as a guideline,” not the definitive list.

(Several different scouts, all requesting anonymity, were contacted for this piece. Four of them will be quoted. To make it easier, each is given a number. I think I’m setting a record for most anonymous quotes ever. Unfortunately, that’s the way this business goes.)

“Everybody looks at Central Scouting or Red Line or other reports,” says No. 2. “In the end it’s what your guys see … not what they see.”

“(Central Scouting) focuses on physical ability - not mental ability, work ethic or character,” says No. 3. “It’s up to regional scouts to sort through rumours and innuendo. If something is said about a prospect, you need them to determine if this is real or a negative vendetta. That’s why these regional guys are so valuable.”

“They don’t look at character, or what guys are like in the room or on the bench,” adds Scout No. 1. “They have a different set of criteria.”

…

“Most guys sit across from the bench all the time so they can watch how a player reacts when the coach talks to him,” says No. 1.

This draft did have some examples of that. John McFarland, ranked 15th, went 33rd to Florida. Kirill Kabanov, the red-flagged bad boy of this class, was taken 65th, 34 spots above his North American ranking.

Meanwhile, Jeff Skinner went seventh overall to Carolina, “Exactly where I would have taken him,” according to Scout 1. Skinner’s Central ranking was 34. (That was an improvement from his mid-season position of 47.)

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This, from Jim Matheson, caught me by surprise the other day:

Oilers forward Gilbert Brule, who has filed for salary arbitration to get a significant raise over the team’s qualifying offer of $840,000, likely said a few thank-yous to Toronto Maple Leafs GM Brian Burke when he gave winger Nikolai Kulemin a new two-year deal for an average salary of $2.35 million.

Kulemin had 16 goals and 36 points in Toronto last year. Brule scored 17 goals and 37 points here.

Both are 23 years old. Kulemin had 30 five-on-five points; Brule 32. Kulemin played 127 minutes on the power play, Brule got 93.

“Really,” I thought to myself, “35ish points gets you $2.35MM these days?”

Before I turn to that, a brief aside - Brule has all of the red flags that were there for Shawn Horcoff and Robert Nilsson in terms of their offence when they signed their deals. He was in on 85% of the goals scored with him on the ice at even strength this year. The on-ice shooting percentage was high. He shot 14.5% at ES. All of the things that we’ve learned are indicators of outlier seasons are there. I would happily bet the under if someone wanted to bet on him repeating his rates of last year. He’s got some pretty decent cards to play with the arbitrator though. His points/60 at ES is actually significantly better than Kulemin’s, because he got less ice time. There are a lot of reasons, I think, to expect that Brule won’t match his numbers next season.

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