Edmonton City Council report on downtown arena

Response to Council’s Questions
Sports and Entertainment Facility Update
Recommendation: That the December 10, 2010, Finance and Treasury Department report 2010FTB013 be received for information. Report Summary This report’s attachments include responses to formal written questions submitted by Council, and directed at Administration, The Katz Group of Companies, and Edmonton Northlands, with respect to the potential sports and entertainment facility and downtown arena district. Previous Council/Committee Action At the July 21, 2010 City Council meeting, the following motion was passed: That Administration provide a report to Council containing Administration’s, The Katz Group of Companies’, and Edmonton Northlands, responses to the questions submitted. Report • Following presentations by Administration and the Katz Group of Companies on July 21, 2010, Council submitted formal written questions on the potential sports and entertainment facility and downtown arena district, covering topics such as: Rexall Place, community revitalization levy, location, and other financial and legal considerations.

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In their responses, Administration have included information from external consultants Mark Rosentraub and Dan Mason who have the expertise that Administration lacks with respect to the hockey business and similar developments in other jurisdictions. As noted in the attachments, some questions cannot be answered fully at this point in the process.

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Focus Area The development of a sports and entertainment facility within a downtown arena district has the potential to support a number of Council’s 10 year goals, specifically: Improve Edmonton’s Livability, Transform Edmonton’s Urban Form, and Diversify Edmonton’s Economy. Public Consultation While public consultation was not a major focus of Council’s written questions, it was part of another motion at the July 21, 2010, Council meeting. Formal public consultation on the sports and entertainment facility and downtown arena district took place in November 2010. An update of this public consultation will be provided in a separate verbal report to Council. Attachments 1. Responses to Council’s Questions of Administration 2. Reponses to Council’s Questions of The Katz Group of Companies 3. Responses to Council’s Questions of Edmonton Northlands Others Reviewing this Report • M. Koziol, General Manager, Capital Construction and Acting General

ROUTING – City Council | DELEGATION – L. Rosen WRITTEN BY – T. Burge | December 10, 2010 – Finance and Treasury Department 2010FTB013 Page 1 of 2

Responses to Council’s Questions Manager, Asset Management and Public Works Departments R. G. Klassen, General Manager, Planning and Development Department D. H. Edey, General Manager, Corporate Services Department L. Cochrane, General Manager, Community Services Department

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2010FTB013 – Attachment 1

July 21, 2010 City Council Meeting Item 5.4 – Sports and Entertainment Facility Supplemental Questions from Mayor and Council Questions for Administration Mayor Mandel: 1. How many parking stalls are in downtown Edmonton that are within 8-10 blocks of the new proposed arena site? Data from a parking study prepared as a background report for the Capital City Downtown Plan (Capital City Downtown Plan) in 2008 and recent calculations indicate approximately 46,100 total parking stalls exist within a 10 block radius from the proposed arena site. Of these, approximately 2,700 are on-street metered parking, 17,300 are off-street surface parking, and 26,100 are located within a parkade (i.e. structured parking). 2. What is Rexall Place’s current capital cost budget that is paid for by the City? The City contributes to capital maintenance projects that meet the terms of the support agreement between the City and Northlands. Under this agreement Northlands is required to submit annual capital budgets and any long term master plans to the City for consideration. Northlands presented its 2010-2012 capital plan on July 21, 2010 to City Council. That plan contained Northlands proposed capital expenditures of $165,000 in 2010, $715,000 in 2011 and $660,000 in 2012 for Rexall Place. The plan also included City of Edmonton funded capital expenditures of $1,705,000 in 2010 and $475,200 in 2012. The projection for 2010 expenditure for the City of Edmonton is $471,000 with deferral of some project costs to 2012-2013. This funding comes from the reserve established from the revenue shared with The City from Northlands Rexall Place operations. Question #20 elaborates on the reserve. Over the past 5 years Northlands has completed the following capital rehabilitation work at Rexall Place: Project Name Arena Lighting (design) Fire Alarm System Chiller Retrofit South Concourse/Plaza Ice Plant Replacement Boiler Replacement All Star Elevator Total Year 2009 2009 2009 2008 2008 2008 2007 Amount $ 11,939 $1,123,389 $ 221,659 $ 452,373 $ 449,993 $2,088,899 $ 414,090 $4,762,342

The Capital Plan for Rexall until 2023 is $31 million or an average annual spend of approximately $3 million. 3. What are the taxes charged at the current building against the Oilers and Northlands, if there are any, and what is the anticipated impact if there were to be a building downtown? thing that is happening currently at Rexall Place? Rexall Place – Master Taxroll Account 3185683 The above property is owned by the City of Edmonton with two lease accounts. The property assessment on the master account 3185683 for 2010 is $38,022,500. The taxroll account is exempt under the Municipal Government Act, R.S.A. 2000, c. M-26 (MGA), Section 362(1)(b) by virtue of ownership by the City of Edmonton.

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Lease tax roll account 9976437 (“Edmonton Northlands”). Edmonton Northlands is a nonprofit organization that acts in an official capacity on behalf of the City of Edmonton as managers of the facility and is an agricultural society, as such is exempt under the MGA s. 362(1)(n)(i) and (v). However, Edmonton Northlands holds a number of Class A and Class B liquor licenses for their facilities and the areas that are liquor licensed become taxable as per section 365(1) of the MGA. Tax liability for liquor licensed areas are estimated on a time/space calculation. The assessment on taxroll account 9976437 is $762,500 and is taxable in the amount of $11,863.57 of which $9,504.86 is the municipal portion. An additional $750 (approximately) will be added to the municipal levy when business tax is phased out in 2011. Lease tax roll account 4254900 (“the Oilers”) are taxable as a professional sports franchise and have an assessment of $4,376,500. The account generates total taxes in the amount of $68,093.07, of which $54,554.82 are the municipal portion. An additional $4,350 (approximately) will be added to the municipal levy when business tax is phased out in 2011. When the Oilers are no longer using Rexall Place the leased tax roll account 4254900 would be cancelled and the revenue from the Oilers would end at this site. Under the lease tax roll account 9976437 Edmonton Northlands would continue to be liable for taxes for the time and places that are liquor licensed. 4. Ticket tax is an important part of the proposal. Can you breakdown what money the Oilers and Northlands receive (asked of Katz and Northlands), as well as what opportunities the City might have for a ticket tax? How might that work and what revenue might be generated from it? The City allows both the Oilers and Northlands to collect revenues generated in Rexall Place through admission surcharge bylaw C10841. All tickets for events at Rexall Place are subject to the ticket surcharge. Northlands collect the revenues for all non hockey events and the Oilers retain revenues for Oiler Hockey related events. The admission surcharge breaks down as follows: a) No Primary Admission Surcharge shall be charged for Tickets with a Ticket Price of less than seven ($7.00) dollars; b) two dollars ($2.00) shall be charged for every Ticket with a Ticket Price between seven ($7.00) dollars and twenty eight dollars ($28.00) dollars; and (S.2, Bylaw No. 11336, September 24, 1996) c) Seven (7%) percent of every Ticket with a Ticket Price over twenty eight dollars ($28.00) shall be charged. (S.3, Bylaw No. 11336, September 24, 1996) There is also a Supplemental Coliseum Admission Surcharge of $.25 per ticket. In 2009, Northlands generated $2,400,000 from the admissions surcharge. estimated $4,100,000 from the admissions surcharge for the Oilers. We have

A similar bylaw could be implemented in a new arena for a ticket surcharge. Revenue generated from this user pay surcharge could be directed to contribute to the capital construction costs of a new arena and eventually to future capital rehabilitation. In the July 21, 2010 report the example used was based on a ticket tax of $5 per ticket and sales for all events of 2 million tickets. This would annually generate $10 million to service debt. Based on today’s borrowing rates $125 million in capital could be funded.

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5. How long has that land sat vacant after it was sold from CN to private enterprise? The CN-owned component sold from CNR to Canada Lands in 1994. The land is partially improved (with the Casino and the parking lot), but the portion that is vacant has been vacant since 1994. There have been several attempts to rezone and redevelop the site in recent years (e.g. food-anchored retail). 6. How much tax have we generated from that land? The area from 101 Street to 105 Street and 104 Avenue to 105 Avenue is comprised of three tax roll accounts. The north 2/3 (approximately) is vacant and comprises of two tax roll accounts. The area identified as C is owned by the City and is exempt from taxation. The approximate 2010 tax levy information is provided in part A below. The south 1/3 (approximately) of the area is one tax roll account number and includes the improvements associated with the casino. The 2010 tax levy information (excluding local improvement charges) is included in part B below.

Part A Municipal Tax - $115,000 Education Tax - $ 28,000 Total - $143,000 An additional $9,000 (approximately) will be added to the municipal levy when business tax is phased out in 2011. Part B Municipal Tax - $139,000 Education Tax - $ 35,000 Total - $174,000 An additional $11,000 (approximately) will be added to the municipal levy when business tax is phased out in 2011.

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Councillor Anderson: 7. Do we need a new arena? (COE Admin) There has been a business decision made by the Katz Group to propose a new sports and entertainment district including an arena to meet the growing demand for a larger and modernized facility, one that will generate additional revenues beyond those created by the arena component. The Katz group has also indicated that they do not intend to continue to be a tenant at Rexall Place. The committee of community representatives that researched and wrote the 2008 report titled City Shaping concluded that a new sports and entertainment district is feasible and desirable, and it presents a unique opportunity to rejuvenate Edmonton’s downtown and provide benefits to citizens throughout the city and region. Council would need to weigh these and other considerations to determine if an arena is a priority. 8. What is the best site for a new arena? When factoring in the location criteria as identified in the HOK Study, the proposed location is the best site for a sports and entertainment district including an arena as it aligns with the HOK Study’s recommendations and takes a more holistic approach to redevelopment. By attracting more people and investment to the downtown, the proposed sports and entertainment district would act as a catalyst for the redevelopment of the area, including, the North Edge, Downtown, McCauley, and The Quarters neighbourhoods. The Capital City Downtown Plan was approved by Council on July 7, 2010. The plan supports the location of a sports and entertainment facility as noted in Capital City Downtown Plan Policy CC 3.5 entitled Potential for a Sports and Entertainment District. The policy reads: “Support the development of a Sports and Entertainment District in the Downtown located on lands within the Station Lands Area (Sub Area 3b), and on part of the Commercial Core (Sub Area 1) north of 103 Ave and west of 102 Street. Work with applicants to ensure the overall impact of a large facility on the public realm is positive. Apply the following planning and urban design principles in the review and approval process for proposed development within the Sports and Entertainment District.” There are 9 principles which include design; open space; pedestrian routes; design for Edmonton’s climate; parking and loading; retail and restaurants; major streets; streetscapes and sustainable design to create a best fit for Sports and Entertainment District development. There are certainly other locations that could or do meet the location criteria, however, the Katz group has been able to assemble the land required in this location. a. Does the Katz site support Jasper Avenue redevelopment? Arena development will increase overall pedestrian numbers, activity and demand for amenities and services within the downtown core – including Jasper Avenue. Given Jasper Avenue’s proximity, direct access to LRT, and status as Edmonton’s signature main street, it is expected that the development of the sports and entertainment district will compliment and support the continued revitalization of Jasper Avenue. Implementation of the Capital City Downtown Plan and application of design principles in the review and approval process for the proposed development within the Sports and Entertainment District will ensure the further integration with and connection to Jasper Avenue.

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b. Does the Katz site support the redevelopment of the Quarters? (COE Admin) While the sports and entertainment district is anticipated to be a catalyst for overall redevelopment in the downtown, Administration is working through the affects of the site on the Quarters. A report will be coming to Council that addresses this. 9. Does a funding plan exist that doesn’t access current property taxes? (COE Admin) The conceptual funding plan outlined in the July 21 report does not intend to access current property taxes. The potential funding of a $125 million towards a City held arena may be possible through a Community Revitalization Levy (CRL) for the CRL area and a user pay ticket surcharge fee. 10. Do the Calgary Flames pay the operating costs of the Saddledome? (COE Admin) According to the Calgary Saddledome foundation annual report, the Calgary Flames have responsibility for the physical operation and management of the Saddledome. The Calgary Flames have operated and controlled all revenues and expenses for the Saddledome since 1994. Prior to the Flames, the facility was operated by the Calgary Exhibition and Stampede Association. The Flames paid as reported in the media, $20 million to the Calgary Exhibition and Stampede Association to buy out the rights of the unexpired lease. The Calgary Saddledome Foundation was established in 1982 to provide oversight to the facility and to represent the City of Calgary as owner of the facility. The foundation is also responsible for the collection of rent and naming revenues from the Flames. It is then distributed in the form of grants to other sports agencies in Calgary. The last information published that indicated financial information was the 2006-2007 annual report of the foundation. This report identified that in 2006-2007, $1.258 million was redistributed. 11. Do the Edmonton Oilers pay the operating costs of Rexall Place? (COE Admin) According to the Northlands 2009 annual report Rexall Sports Corporation (“the Oilers’) under agreement receives all Oiler game revenues, including net food and beverage contributions. The Oilers are also entitled to all building advertising and sponsorship revenues, suite rental revenues, Oiler ticket surcharge revenues as well as Rexall Place parking revenues North of 118th Avenue. Northlands is responsible for building operating and capital costs, including the building event costs related to the playing of professional hockey. Under agreement, Northlands receives rent of $1 per annum plus a contribution towards operating costs of $73,180 per month or $878,166 per annum for the period July 1, 2004 – June 20, 2014. Adjusted annually based on the Consumer Price Index, the 2009 contribution was $1,182,089. Northlands pays remaining expenses using revenue generated from non hockey events. 12. If a new downtown arena goes ahead what happens to the current Rexall Place – can it produce some revenue to cover capital costs? (COE Admin) Rexall Place is currently under lease to Northlands until 2037. Northlands and the City will need to work collaboratively to determine the future of the Facility. This question will be addressed more fully in the report to Council from Administration and the presentation from Northlands on the anticipated impacts.

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13. Does the current economy make front end load of the CRL difficult? (COE Admin) The current economy presents opportunities and challenges. On the positive side, interest rates are low, the recession has officially ended (although with a slower recovery than expected) and construction costs are stable. The desire for additional hotels, downtown housing and retail appear positive as well. On the negative side, there are rising office vacancies in the downtown and lease rates are declining making the business case for new construction less positive. A significant component of the Katz Group proposal is the construction of new office and commercial space. This type of space would contribute considerably to the front ending of a CRL area, however, the current market conditions suggest that there is considerable risk if anchor tenants are not committed to the space before construction. The Katz group intent is to attract new business to the City that currently does not have a place in the market. If this is not possible it may result in existing businesses moving from other parts of Edmonton to the new development. Councillor Batty: 14. In normal business transactions, no one would get into a deal of this magnitude without proper due diligence to determine the financial capacity of the proposed “partner”. In negotiations can Administration ensure that the Katz Group has the financial stability and capacity to enter into an agreement? Through negotiations it will be possible to ensure that the Katz Group has the financial capacity to enter into the agreements and meet the contractual obligations. Councillor Caterina: 15. Why was the 5th best location chosen rather than #1 - Jasper Avenue, #2 - Northlands, etc.? The confidential HOK Study does not prioritize the proposed locations. Rather, it identifies the essential components required to attract major sporting and entertainment events and identifies location issues and the criteria necessary for a successful facility development. The proposed location for the district is a viable choice when factoring in the various criteria identified in the HOK Study, particularly related to the challenges/opportunities of land assembly. 16. What is the estimated cost of all the infrastructure that will be needed and who would pay? To date the submission by the Katz group is a rezoning proposal, with associated road and reserve applications. Until a design concept has been submitted with an appropriate amount of detail to show the potential building envelope and associated land uses, access to parking/loading and on onsite vehicle and pedestrian traffic circulation the cost cannot be fairly estimated. 17. Who specifically decided that a new arena is needed? The City shaping report developed by the Leadership Committee studied the feasibility and desirability of a downtown arena. The Katz group has brought forward a zoning plan and a proposal to develop a downtown sports and entertainment district in the spirit of the City Shaping Report. Any decision to involve the City in the funding of the construction of a downtown arena would be made by City Council.

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18. How will all the social agencies that will be displaced be accommodated? There is no indication that social agencies will be displaced by the development of a downtown arena in the current proposal. Agencies have expressed their concerns about future development and its impact on them and the residents of these areas through the Public Consultation. The City, through the Great Neighbourhoods Program and partnerships with these agencies, will continue to work with the residents and various agencies to address their concerns. 19. Specifically who in the Provincial Government has supported their involvement in this project with a commitment to fund? Administration has not had any discussions with the province regarding funding support for a new arena project. No funding commitment has been made from the province. If a CRL is approved by the Province for this area then the Provincial school taxes on the assessment lift would go towards funding municipal capital projects. 20. What is the total dollar amount under the present lease agreement that the City has subsidized the Oilers? (Start of lease to end of 2014) The City has provided support for Rexall Place to Northlands. This support agreement has been in place since 2004 and expires at the end of 2013. It exists to assist Northlands with the operating and capital costs of Rexall Place. The total payments to Northlands under this agreement since 2004 are $16.352 million. As part of this agreement the City shares in the operating profit of Rexall Place. That sharing is such that the City receives 20% of the profits earned in excess of the previous five year average of the actual net income of Rexall Place, adjusted for inflation. The City’s share of profit since 2004 is $2.752 million in total. This amount is reserved and provided back to Northlands for capital projects. Total capital funded from the reserve in the same period is $1.799 million.
Northlands Payments under Support Agreement Support Payment Profit Sharing Payment to City contributed to Reserve $ 652,738 423,584 895,396 391,835 388,491

Year to Northlands 2004 $ 2,200,000 2005 2,241,800 2006 2,291,120 2007 2,336,942 2008 2,388,355 2009 2,443,287 2010 2,450,617 Total $ 16,352,121

Capital Funded From Reserve $ 1,799,881

$

2,752,044

$

1,799,881

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Councillor Iveson: 21. I assume that the value of an NHL franchise would be higher if it had a long-term inexpensive lease in hand which guaranteed all Hockey and Non Hockey revenues as compared to the value of the team today. Can that increase in value be estimated – if so what might it be? The City of Edmonton has consulted with Dr. Dan Mason, Associate Professor, Facility of Physical Education and Recreation University of Alberta and Dr. Mark Rosentraub, Professor of Sports Management, University of Michigan. On the issue of franchise values, the research that Mark and Dan have provided concludes that: “The impact that a new arena (which comes with a new lease arrangement) will certainly impact franchise values. The eight NHL teams moving into new arenas since 1999 saw their franchise values increase by $37M from the year prior to the arena opening to the year after (Forbes estimates). We are not sure if it is necessary to try to distinguish between other possible effects on franchise values, as this increase is substantial enough. In other words, regardless of how the final agreement works out between the Oilers and the City, the franchise will appreciate in value with a new arena.” 22. Please explain exactly how a Location Agreement works from the City perspective. A Location Agreement is an agreement between the City of Edmonton and the team owner that would include covenants from the team owner to ensure that the team remains in Edmonton for a period of time. It could include things like the following: a) The team will not take any action to relocate from the City of Edmonton for a period of time; b) The team will continue to use the word, “Edmonton”, in the name of the team; c) The home hockey games will be played at the venue identified except as otherwise permitted; d) The team will take all actions to maintain its NHL Franchise; e) The team could only be voluntarily sold or transferred to a new party/owner if identical covenants and security are given to the City. f) The City would be entitled to seek all equitable remedies and obtain equitable relief to compel specific performance or prevent the breach or anticipated breach of any or part of these covenants

Security such as the following could be provided for in a Location Agreement: a) A Preferred Share could be issued to the City or its nominee to provide veto rights with respect to any action by the team to move from Edmonton. (We don’t believe the City can hold this share as it wouldn’t comply with the City’s Investment Policy C-212D); b) The City or its nominee could have a Right of First Refusal to find a buyer if the team were to be sold as a result of any proceedings commenced by a third parties or a creditor;

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23. Can Admin estimate the lifecycle costs for a new arena as proposed, and which revenue streams might be available to operate and renew the facility over time? Yes. Once a detailed design is complete it can be assessed to determine the capital replacement lifecycle of the various components. Determination of how the facility revenues can be used to support the replacement would need to be part of the operating agreement negotiations with the Katz group. 24. Air Canada Centre in Toronto was cited as one example of a viable private arena development – is it possible to establish whether it was in part paid for with the proceeds of surrounding development? Air Canada Centre was built by Maple Leaf Sports and Entertainment (MLSE-Toronto Maple Leaf and Raptor owners) in 1999. The area around the Air Canada Centre was developed by MLSE in partnership with Cadillac Fairview and Lanterra nearly 10 years after the arena was constructed. As these are private corporations it would not be possible to establish whether or not the development was used in anyway to support the new arena construction. Councillor Leibovici: 25. a. Has the Administration reviewed the 2007 HOK report and do you agree with its findings? HOK Site Selection - This study was commissioned to inform the City Shaping Report on the potential for a new downtown arena. The study showed potential sites for a downtown arena and identified positive and negative attributes for each site. The conclusion of the City shaping report is that there is value to the City in having a downtown arena district. Administration agrees with these findings. HOK Northlands Analysis - HOK performed an analysis for Northlands on the opportunity of a renovated Rexall Place to meet current arena standards, identify logistical issues associated with the type of change required and estimate the cost. HOK then presented the findings to Northlands and the Arena leadership committee. A report was not issued rather a powerpoint presentation of the findings was made. HOK presented a concept that included increasing the number of luxury suites, reduced the number of general seating by approximately 200 and expanding the concourse around the rink at a cost of $225 - $250 million. This cost has recently been updated to reflect current scope and economic conditions and is now estimated at $197 million. The analysis for Rexall Place was carried out on the basis that the Oiler’s would remain as the principal tenant of the facility and that the improvements would also meet their programming needs. Given the position of the Katz group that they do not intend to remain a tenant of Rexall Place the assumptions and findings of the HOK report may no longer be relevant. b. Who commissioned the report and why? Two studies were commissioned. The 2007 HOK report on potential downtown arena sites was initiated by the leadership group that developed the City Shaping Report. The second study commissioned by Northlands was a conceptual analysis of the potential to renew Rexall Place to meet new standards for arenas built in 2007, logistical issues of a change and the cost.

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c. Does the report indicate that a renovated Rexall Place ($250M) would result in decreased revenue? Even though Rexall Place met (and continues to meet) basic NHL standards for arenas, Edmonton Northlands asked HOK to look into the potential renovation of Rexall Place from the point of view of determining what changes could be made to the arena to meet the new standards of arenas being built in 2007, the timing and logistical issues related to such changes and an estimate of the cost of such changes. HOK was not asked to provide any estimate of what effect such changes may have upon potential revenues from a renovated Rexall Place. d. Has the Administration reviewed whether there is a need for a new arena and if yes, where the most appropriate location is? The Administration has taken into account three major factors regarding the need for a new arena. First, the 2008 report, City Shaping, concluded that a new sports and entertainment district is feasible and desirable, and it presents a unique opportunity to rejuvenate Edmonton’s downtown and provide benefits to citizens through the city and region. Second, the confidential HOK Study, which identifies the essential components required to attract major sporting and entertainment events and identifies location issues and the criteria necessary for a successful facility development. Third, there has been a business decision made by the Katz Group to propose a new sports and entertainment district including an arena to meet the growing demand for a larger and modernized facility, one that will generate additional revenues beyond those created by the arena component and become a sustainable source of revenue for the Oilers. The final proposed location for the district was deemed a viable choice when factoring in the various criteria identified in the HOK Study and the challenges/opportunities of land assembly. 26. a. If the City is the owner of a new arena, who would be responsible for any potential capital cost overruns? If the decision to construct a new arena is made, this issue would need to be addressed during negotiation of the construction agreement with the Katz group. b. What revenues can the City expect from a new arena and who would be responsible if operating revenues are not sufficient? Revenue expectations from the facility and responsibility for on-going capital costs would be dependent on the operating model of the facility and should be determined by the City role in its role as Landlord. The Katz group position has been that all operating revenues and expenditures would be the responsibility of the Katz group as operator. This would have to be negotiated as part of an operating agreement.

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c. On an ongoing basis who would be responsible for on-going capital costs to maintain the arena? Capital responsibility has been shared with Northlands at Rexall Place. The responsibility for capital would need to be negotiated as part of the operating agreement. 27. Has the City undertaken a cost/benefit analysis of a renovated vs new arena; different operational options; different forms of development either on the existing Northlands site or with a new sports and entertainment districts? The City Administration has not undertaken to perform a cost benefit analysis of new arena versus a renovated Rexall. If Council directed Administration to develop this analysis it would require significant effort and expense to update the previous studies on Rexall. The Katz group has indicated that they will not be the major tenant of Rexall place beyond the expiration of the current agreement in 2014. The expenditure required to do the cost benefit analysis may not be prudent, if a major tenant is not occupying the facility beyond 2014. The Katz group has brought forward a proposal for a downtown Sports Entertainment District. That proposal includes the partial City funding of a new arena that the Katz group would design, build and operate on the City’s behalf. Alternatives to this plan have not been considered as the position of the Katz group is that a downtown Sports and Entertainment District is the only option that they are pursuing at this time. 28. Can a condition of a CRL be a guaranteed revenue stream? In other words if projected development does not occur as anticipated can the City require that the Katz Group provide a guarantee to cover debt servicing costs? A risk assessment is part of the requirement for the CRL. The CRL plan must identify expected and alternative funding sources in the event the development does not occur. Alternative revenues to make up any shortfall in expected revenues from a CRL would be discussed as part of a negotiation with the Katz group. 29. If a guaranteed revenue stream is not possible how will payment be made on the loan provided by the City? The City would be building an asset that the City owns. If the revenue stream from CRL, ticket tax or other funding does not materialize and there is no alternative funding source, the City would need to provide the funding from its revenue streams. Separately from the statutory Community Revitalization Levy (CRL) process, an agreement can be attempted to be negotiated between the parties with respect to the issue of a guarantee to cover debt servicing if projected development does not occur in the CRL area. Prior to Council making a decision with respect to the funding of a portion of the area costs, Administration would provide Council with an evaluation of the risks of any funding sources being proposed. 30. Does the City have access to the Katz Group and Northland/Rexall financial statements? What analysis has been undertaken to ensure that projects proposed to finance the CRL are achieved and that projected operating revenues and debt servicing can be met? The City does not have access to the Katz Group's financial records. The City does have access to the Northlands financial records through the public annual report.

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The analysis undertaken by the City to determine whether or not the projects proposed to finance the CRL are reasonable included using the services of Colliers International to examine the market potential for absorption of residential over the next 20 years. That information along with the Commercial/Office forecast from the Edmonton Downtown Plan is being reviewed in relation to the Katz group plans for commercial, retail and casino development. The development generally proposed by the Katz Group is consistent with the Downtown Plan. The timing of construction is contingent upon market demands for which neither the City nor the Katz Group are able to control. The conceptual model used to estimate the CRL uplift in assessment for the July 21, 2010 report made the following assumptions about the pace of development and absorption: • Residential – The model currently shows 1200 units of new residential development in the CRL or a total of 1,800,000 sq ft and is reasonable within 15 years. The Katz Group does contemplate more units for student housing, although this is generally assessed at a lower rate. Retail – The model contemplates that most retail development happening will coincide with residential. Based on a general rule that for every 1,000 square feet of new residential, 100 square feet of new commercial would be developed that would imply that 120,000 square feet of retail could be attributed to the residential development. The overall model contemplates a total of 300,000 sq ft of retail as the Katz Group is suggesting 300,000 square feet of retail as the nature of the development does include a more entertainment-based retail that may have a City wide attraction. Office absorption has been modeled based upon 75,000 sq ft of need per year within the district. That is an average of three stories per year of a typical new office tower. Government/public would be tax exempt and, therefore, would not contribute to the CRL. Hotel – the Colliers report identified the demand now for one new hotel, or perhaps two. The model does contemplate two hotels in the district over the 20 years. Casino – There is a strong desire to redevelop the existing casino.

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These assumptions will change as the CRL area is defined, market information is updated and as the Katz group development plans become clearer. There are no assurances that the projects proposed to finance the CRL will occur. The CRL requires development projections looking 20 years into the future. Although there are no guarantees, the conceptual model developed suggests that $160 million (net present value) in incremental taxes could be garnered. From the incremental tax uplift a total of $125 million could be dedicated to the arena development and $35 million to other public infrastructure. Debt servicing of $125 million requires approximately $10 million at 5% over the 20 years. A faster assessment lift would occur if the Katz Group was to construct certain developments (i.e. in advance of natural demand) that could increase incremental taxes within the boundary. Unless new tenants are coming from outside Edmonton that otherwise would not locate here, then these incremental taxes (in advance of natural development) may only reflect a shift in tenants from one area of downtown to the other. A strong business case reflecting development projections and risks is a major component of a CRL plan. If Council gives direction to pursue a CRL for this development, a complete CRL area and uplift projections will be developed in conjunction with the Province and with input from the Katz group.

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31. Are the Katz Group timelines for both the building of the arena and the projected build out of the sports and entertainment district achievable? Outline the scenarios considered by the administration re: the amount of the CRL interim financing required, debt servicing ($25-30 million?) and repayment schedule? How does the administration propose to service the debt at the outset? Is the debt proposed $120m? Are the Katz Group timelines for both the building of the arena and the projected build out of the sports and entertainment district achievable? The Administration at this point has not seen the actual construction plans or designs for the arena and office tower. We have only seen a programming plan for the arena. The Katz group has identified that if an arena project goes ahead it will happen concurrently with development of an office tower in the district. The expected construction window for both the office tower and arena is 18 – 24 months. This schedule for concurrent development is aggressive. For comparison, the current EPCOR office tower project is scheduled to be constructed over 36 months. With a plan for concurrent development there will be additional coordination challenges associated with labour and space. In addition, rezoning applications, servicing, building permits, transportation requirements and building design all take time, in addition to the construction schedule. Completion of the project to be ready for the 2014/2015 hockey season would be challenging. Outline the scenarios considered by the administration re: the amount of the CRL interim financing required, debt servicing ($25-30 million?) and repayment schedule? How does the administration propose to service the debt at the outset? Is the debt proposed $120m? Based upon the preliminary modeling for the CRL (attached), it is estimated that it could fund debt servicing for $120-$140 million depending on the discount applied for risk. The estimated interim financing of $25-$30 million is based upon timing differences in expected development and the need to repay the debenture costs equally over the 20 year period. The Katz group has suggested that some development would happen concurrently with the arena construction. This would change the basis for the CRL funding from the scenario presented as the City has presented a more conservative pace of development. Several alternatives in debt financing exist to meet the timing differences that will occur with the development using a CRL for financing. ACFA allows for the use of debt servicing approaches such as back end loaded, interest only borrowings that can aid with the timing differences in cashflows. 32. Has the City been involved in any discussions with the Katz Group and post secondary institutions re: potential student housing requirements in the sports and entertainment district? The Administration has not been directly involved in discussions with the Katz Group and post secondary institutions regarding potential student housing. The Administration is aware that the Katz Group has had discussions with the various post secondary institutions. Media material shown at various consultation sessions indicates student housing concepts. 33. a. Has the City engaged expertise or does the Administration have information regarding NHL requirements re: arrangements between other municipalities and NHL teams; location agreements and options available if teams are sold or moved before the CRL is repaid?

July 21, 2010 Sports and Entertainment Facility Questions from Council for Administration 2010FTB013 - Page #14

The City has engaged Dr. Dan Mason, Associate Professor, Facility of Physical Education and Recreation University of Alberta and Dr. Mark Rosentraub, Professor of Sports Management, University of Michigan. Attached is a team by team summary of the available information on arena arrangements in other NHL cities. There are legal options to ensure that the commitments of the CRL are met in the event that a team is sold or moved. These options would need to be negotiated as part of the agreement to construct a new arena. b. The comment was made at the City Council meeting that every city that has an NHL team needs a new arena. Can administration provide information on the status of the other NHL arenas? Dr. Mason and Dr. Rosentraub have provided Administration with a summary of arena information they have gathered. That summary is attached (Attachment 1A). 34. Will the Sports Hall of Fame be considered if negotiations occur for a new arena? The Sports Hall of Fame or other non profit uses could be considered, although property held by non-profit organizations do not assist the CRL in raising revenue. The location within an entertainment complex and the potential traffic would provide some synergies for a facility such as the Sports Hall of Fame. Administration is currently gathering data on the historic archives and pieces of history that could be integrated into a City museum before consideration of a location. The sports hall of fame could be integrated with this type of facility as well. The decision on the location and programming of these types of facilities would need to consider lease rates, space requirements, and precedent. Ultimately, the decision on any municipal concepts such as the Sports Hall of Fame will be Council’s decision to make. 35. If a new arena is built will the City provide for a design competition to ensure that there is an excellent downtown design and that the needs of the community and Edmontonians are met? Will the City determine how the arena will be built, i.e. design built; construction management, etc. Design of a new arena will be guided by the policies and urban design principles of the approved Capital City Downtown Plan along with appropriate input at key stages from the Edmonton Design Committee. Agreement would need to be reached on the building and design approach. 36. What is the City’s contractual responsibility to ensure the viability of Northlands? What analysis has the administration undertaken to determine whether Northlands is viable without Rexall Place revenues? The City has several agreements with Northlands which speak to this: • The Master Agreement provides that at the time of the expiry/termination of the Northlands Site Lease, Northlands shall transfer or quit claim all of its right, title and interest in the “Demised Premises” (which includes Rexall Place) to the City, and that nothing in the Master Agreement or the Northlands Site Lease shall have the effect of making the City liable for any of the debts or liabilities of Northlands. The present term of the Site Lease is until July 31, 2034, with a 15 year right of renewal until 2049.

•

July 21, 2010 Sports and Entertainment Facility Questions from Council for Administration 2010FTB013 - Page #15

• •

The Site Lease provides that Northlands is responsible for all repairs and maintenance during the term. In the Revised Support Agreement between the City and Northlands, the City expressed a desire to assume responsibility for replacing certain defined major building components at Rexall Place ("Facility Capital Replacements"), subject to Council's decision to allocate grant funds for that purpose during the budget process. Under the Revised Support Agreement: o o The City pays $2.2 million dollars per year to Northlands, adjusted for inflation; The City shares in the "Operating Profit" of Rexall Place after a certain threshold is reached, and the City must hold this money in a reserve to assist in funding the Facility Capital Improvements; This agreement expires at the end of 2013, or if there is a Material Change in the financial status of Northlands or Rexall Place, being defined as: a 30% decline for 2 consecutive years in the utilization rate; loss of a major tenant or event at Rexall Place; or a 30% or greater change in the accumulated operating surplus or deficit for 2 consecutive years.

•

o

The City does have a financial interest in the viability of Northlands as a lender. The City would want to ensure that Northlands can support the debt servicing related to borrowings done on behalf of Northlands for the score clock at Rexall Place and for the Northlands Expansion. At the end of 2009, the score clock at Rexall Place had debt supported by the City of $2,226,918 outstanding, with an expiry date of 2021 and annual payments of $270,272 per year. Northlands has an agreement with the Oilers that includes annual contributions to support the score clock debt repayments until the City loan is repaid. Should the Edmonton Oilers cease to play hockey in Rexall Place before the score clock loan is repaid; terms exist for the Oilers to make a payment of a lesser amount in support of this debt. The City also has a borrowing and loan to Edmonton Northlands for the Expo Centre development. At the end of 2009 that outstanding balance was $58,231,983. Only $1,811,157 expires in 2014 and the balance of this loan does not expire until 2034, with annual debt repayments of just over $2,022,984. 37. What due diligence is the City undertaking to ensure that in the long term the Katz Entertainment Holdings Group is viable especially given its proposed venture in Hamilton? The Financial viability of the Katz group needs to be determined as part of negotiations. 38. What is the status of the Katz Group planning application, i.e. rezoning, road closure, municipal reserve disposition, new downtown special arena zone; transportation requirements especially re: traffic and pedestrian requirements, i.e. pedway required for 104 Avenue. How will the Administration ensure that the City of Edmonton will receive maximum benefit from the proposed Arena District? Administration anticipates the proposed bylaws will be ready for Council’s consideration at a Public Hearing in January. Administration is investigating both business and land use options and will provide Council with the best information available to make an informed decision.

July 21, 2010 Sports and Entertainment Facility Questions from Council for Administration 2010FTB013 - Page #16

39. Will the CRL include the proposed Aurora project; new casino and new EPCOR tower? If yes, what are the anticipated tax revenues that would have been generated by these developments? Does a CRL shift the need for municipal revenues from the downtown arena district to citizens throughout the City? The conceptual CRL boundary as presented to Council is currently under review. That boundary included the Aurora project, new casino, EPCOR tower and other surrounding lands. Determining the detailed amount of increased tax revenue that could be realized from within the CRL is a challenge given many unknown factors that can affect property assessment at this time. However, below are estimates based on the assumptions as noted; 1. Aurora – Information on the developer’s website indicates a mix of residential and some commercial development. The site also indicates the entire project will cost in excess of $500 million to build. Assuming the construction cost is in current year dollars, and the construction cost will equate to the market value of the site as fully developed, and 90% of the cost is attributable to residential development and 10% commercial, the following is an approximate tax revenue estimate in 2010 tax dollars: Residential Assessment = $450 million Municipal Tax - $2.1 million Education Tax - $1.2 million Total - $3.3 million Commercial - Non-residential assessment = $50 million Municipal Tax - $0.6 million* Education Tax - $0.2 million Total Tax - $0.8 million * includes remaining revenue required from business tax shift 2. Casino - The estimate is based on preliminary discussions with the developer that include the following. As a Casino exists on the site now any increase in assessment as a result of reconstruction would be incremental. The size of the property is 8,400 square meters (90,000 square feet) and the estimated cost to construct is approximately $6,600 per square metres ($600 sq. ft.) (assumed to be in 2010 construction costs). Assuming the construction costs equate to what the market value of the building will be, then the assessed value would be as follows (tax revenue estimate in 2010 tax dollars); Commercial - Non-residential assessment = $50 million Municipal Tax - $0.6 million* Education Tax - $0.2 million Total Tax - $0.8 million * includes remaining revenue required from business tax shift 3. EPCOR Tower - Based on the information available on the building and associated parking, the approximate tax revenue estimate in 2010 tax dollars is provided as a range. EPCOR Tower and associated parking facilities - Non-residential assessment = $300 million to $400 million Municipal Tax - $4.0 million* to $5.5 million* Education Tax - $0.9 million to $1.3 million Total Tax - $5.0 million to $6.8 million * includes remaining revenue required from business tax shift

July 21, 2010 Sports and Entertainment Facility Questions from Council for Administration 2010FTB013 - Page #17

The estimates provided for both the Aurora and Casino projects are preliminary and are only provided to indicate a degree of magnitude. Significant differences are expected from what is estimated at this early juncture to what will actually be realized if/when the project is completed. In the context of this question, it should be noted that depending on timing, not all the estimates provided above would be incorporated in the CRL lift. For example, the EPCOR tower is partially constructed and could be completed before a CRL could be implemented for the area. The result would be that none of the estimated tax dollars from the EPCOR Tower would go towards calculating the CRL lift in taxation. Only new construction/development, after the implementation of the CRL, is what significantly contributes to repayment of the infrastructure costs incurred within the CRL area. The CRL shifts municipal tax revenue (including provincial education portion) associated with the lift in assessment created by the new improvements (a lift would not arguably occur without the new improvements), and the overall market value increases on existing properties in the CRL area to pay for the cost of the municipal improvements until they are paid for, until the Province ends the CRL or for a maximum of 20 years, whichever comes first. 40. Will the Administration be able to determine the potential financial impact to other trade shows, conventions, and entertainment venues like Shaw Conference Centre, Winspear, Shocter should the proposed sports and entertainment district be approved? Administration does not anticipate a negative financial impact on these operations. 41. As the arena will be owned by the City what third party options other than Northlands, AEG, Katz Group are being considered to operate the arena? The Katz group has expressed a desire to operate the facility as part of their sports entertainment operations and as part of the sustainability model for the Oilers. Third Party options that can still achieve the sustainability of the Team would be considered as part of negotiations with the Katz group. 42. As 3 out of 4 Canadian arenas, which have been re-built have declared bankruptcy, what reassurance do we have that public capital is not at risk in this proposal? Administration is aware of only one financial issue that resulted in bankruptcy for an NHL team in Canada. Several team sales have occurred over the last 15 years due to financial issues of the ownership. The following information has been obtained from media sources that reported on the sales. The bankruptcy of the Ottawa Senators is well documented. Bruce Firestone purchased the expansion team in 1990 and the first season was 92/93. The team and start of the arena construction were heavily debt financed and Firestone sold the team in 1993 to Rod Bryden. Bryden was also heavily debt financed. The team entered bankruptcy with a reported debt of $350 million in 2003 and was purchased by Eugene Melnyk for a reported $102.5 million ($27.5 for the arena and $75 million for the team). The Montreal Canadians were sold by George Gillett to Molson’s in 2009 (he had owned the team since 2001). The sale included the Bell arena and was done in an effort to “optimize” Gillett’s corporate holdings. Molson’s had previously been a minority shareholder in the team and acquired the remaining 81% in the deal. Gillett had invested a reported $187 million to purchase the team and arena and sold the team for an estimated $300 - $400 million. Some reports (ESPN) had the sale as high as $575 million.

July 21, 2010 Sports and Entertainment Facility Questions from Council for Administration 2010FTB013 - Page #18

The Griffiths family purchased the Canucks in 1974 for $9 million and held the team until 1995 when it was bought out by minority interest holder John McCaw. Arthur Griffiths needed to sell his interest as he had overleveraged (at a time of high exchange rates) to build GM Place arena and for the purchasing of an NBA franchise. John McCaw purchased the teams and arena for an undisclosed price. He sold the NBA team and in 2007 he sold the hockey team and arena to the Aquilini family for a reported $250 million. The common theme in each of the team sales was the use of debt to finance business activities of the owners and their ability to service that debt. The City may take steps under the arrangements with the Katz Group to ensure that creditors of the Katz Group would not have the ability to take control of the facility in the event of "bankruptcy" of the team. For example, any lease or occupancy agreement could contemplate that if the team did not honour any of it's commitments then they could either be evicted from the Arena or be required to only continue in occupancy in the event that either the trustee or successor to the team honoured the arrangements with the City." 43. What are the projections for the Edmonton Convention Market? From Mike Fitzpatrick, VP & General Manager of the Shaw Convention Centre: The Shaw Conference Centre is routinely turning away convention business due to a lack of downtown convention space; when that happens these events are almost always forced to select another city. In the nine months from January to September 2010 we have already turned away 13 future convention bookings. EEDC commissioned an extensive market demand study for the SCC in early 2008 to examine this question. The findings were generally very positive and included: a) "The analysis determined that unaccommodated convention demand currently exists in Edmonton. Further, primary and secondary research indicated that convention demand in Edmonton will continue to grow." b) "The potential 2020 event load for the SCC indicates an increase in the absolute number of events as well as an increase in the number of medium and large events." c) A facility review conducted by Conventional Wisdom (Corporation) determined that the projected event load could not be accommodated by the current SCC. Many of the large events projected for 2020 would not fit in the current exhibit and meeting space. A larger venue able to accommodate concurrent convention events would be required." Edmonton's potential in this market is very positive both for larger convention events and for concurrent events if we have the right-sized facility in the downtown. A downtown convention centre increased by 75% in size will attract more than double the existing delegate count by 2020. This report is currently under review and updated projections will be available before the New Year. 44. Will the Administration provide assistance to communities to enter into a community benefit agreement like the one at Staples Centre in Los Angeles? The City will need to consider the extent to which grants might be provided to the benefit of the surrounding community organizations and as such a form of “community benefit agreement” might be considered as part of negotiations and public consultations.

July 21, 2010 Sports and Entertainment Facility Questions from Council for Administration 2010FTB013 - Page #19

Councillor Sloan: 45. Please provide a copy of corporate analysis utilized to substantiate financial business model for adjacent development to the downtown arena. A copy of the conceptual CRL analysis has been attached (Attachment 1B). 46. What is projected timeline for full build out in terms of residential, commercial, government/public and hotel? We are not sure what full build out will be until zoning has been established. The Katz Group’s development concept is evolving and will drive the timelines. The conceptual model used to estimate the CRL uplift in assessment for the July 21, 2010 report was based on a report from Colliers suggesting the residential development potential and the development components identified by the Katz group. The implementation period was based on City projection of implementation. Without the input of the Katz Group expectations for development timing the Administrative model suggests: • Residential – The model currently shows about 575 units in the first 5 years, and 530 in the second 5 years which leaves about 90 within the third 5 years to reach 1200 marketbased units (i.e. Katz group does contemplate more units for student housing). The CRL area could support more, but that will have repercussions on The Quarters, and other areas of Edmonton. Retail will coincide in pace with residential. As a rough rule of thumb, perhaps a 1:10 ratio, so for every 1,000 square feet of new residential, perhaps 100 square feet of new commercial would be required. Based on 1200 units, this would imply 120,000 square feet of retail. However, as indicated, there could be more than 1200 units, and the 1200 does not take into account units in North Edge and the Quarters. Katz Group was proposing 300,000 square feet of retail, although they were suggesting more entertainment-based retail. Office could be approximately 75,000 square feet of need per year within the district. Government/public would be tax exempt and therefore would not contribute to the CRL. Hotel – there appears to be demand now for a new hotel, or perhaps two. Casino

•

• • • •

47. Please provide the estimates for the number of residential units as well as the square footage for commercial offices and hotel developments, which are needed to configure a viable model for City’s financing. One conceptual scenario that provides this level of CRL revenue (as a present value calculation at 5% to 6%) is the following: • • • • • 300,000 square feet of retail built over 20 years 370,000 square feet of hotel built over 6 years 95,000 square feet of casino built in the first year 1,500,000 square feet of office (occupied by taxable tenants) built over 20 years 1,800,000 square feet of residential built within the boundary (i.e. Arena or portion of North Edge) or 1,800 units built over 10 years

July 21, 2010 Sports and Entertainment Facility Questions from Council for Administration 2010FTB013 - Page #20

• •

Natural assessment appreciation for other existing properties in the CRL boundary area of 3% per year. Assumes a 3% increase in municipal and educational taxes per year.

There are many other scenarios that would provide this level of income. Ultimately, however, because the CRL requires projection of development trends and tax revenues out 20 years, there is no guarantee. 48. What additional civic investment would be required to support such development including utilities/drainage, roadways, LRT and parks/green spaces? Please also provide the number of FTEs are estimated to be assigned to this project. To date the only submission by the Katz group has been the rezoning proposal. Until a design concept has been submitted with an appropriate amount of detail to show the potential building envelope and associated land uses, access to parking/loading and onsite vehicle and pedestrian traffic circulation the required infrastructure and cost cannot be fairly estimated. Number of FTE’s cannot be determined at this point. 49. Given that the city is proposing to develop both the City Centre Airport lands and be a partner in the potential downtown arena, please provide evidence of investor interest and commercial, residential and office demand that would support the viability of these projects and guarantee a return to the City. Administration has retained the services of Colliers International to provide independent professional advice on market conditions and trends relative to the demand for various forms of development throughout the City to assist us in bringing forward recommendations. The question of investor interest in the downtown arena district is best answered by the Katz group as the development proponent. Councillor Sohi: 50. What are the timelines for projected growth around the arena? How many years would it take to generate $9.6 to $11.2 million in a projected uplift in incremental taxes? The answer is evolving as the development concept evolves. However, based on the conceptual model (the market model and Colliers initial analysis) it would take 7-10 years to get to this level of incremental taxes on the municipal component. 51. Was the Community Revitalization Levy (CRL), or similar model of financing, used for building arenas in other cities? What were some of the negative or positive implications? In the United States a CRL is commonly referred to as Tax Incentive Funding or TIF. This approach has been used for construction of San Diego Baseball stadium district and to fund some of the public infrastructure at the Nationwide arena and sports district in Columbus. A CRL has the potential for positive and negative impacts. On the positive side, the capture of education tax and municipal taxes can be used to support the redevelopment of land that that would otherwise not develop as quickly or go undeveloped due to other constraints. On the risk side, a CRL may be detrimental if it does not develop as planned with the attraction of residential or business growth. It may also result in a shift of existing tax base if it cannot provide new business opportunities Additionally, the perceived benefits of the CRL to fund infrastructure that may otherwise be the responsibility of private development, may not produce the overall City benefits that are expected.

July 21, 2010 Sports and Entertainment Facility Questions from Council for Administration 2010FTB013 - Page #21

52. Are arenas exempted from property taxes? How much in estimated property tax revenue would the City of Edmonton collect if the proposed downtown arena paid property taxes? Exemption for arenas is dependent on ownership and use of the property and could be affected by management/operating agreements. If the arena is owned by the City of Edmonton, it would be exempt under the MGA section 362(1)(b). Should a lease, license or permit to occupy the property be given over to a nonprofit organization, and if the non-profit organization meets the requirements of the MGA section 362(1)(n) in conjunction with the Community Organization Property Tax Exemption Regulation AR 281/98, an exemption for all or a portion of the property may be granted. Notwithstanding the granting of an exemption, if the arena has an A or B type liquor license, then the space and time for those liquor licensed areas would become taxable under section 365(1) of the MGA. The time and space that a professional sports franchise holds such an arena would also be taxable. If the arena is owned or held by a lease, license or permit to occupy by a for profit organization, then property would also be taxable. 53. As the CRL requires provincial approval, will the education portion of property tax be affected? Yes, the incremental component of the educational portion would be diverted back to the project for up to 20 years, or as soon as the CRL comes to an end. A CRL comes to an end as soon as the municipal capital borrowings are paid for, until the Province ends the CRL or for a maximum of 20 years, whichever comes first. 54. Have discussions taken place with the Province regarding the CRL model? Administration has had preliminary discussions with the province on the use of a CRL for arena development. 55. What role can (or will) the Administration play in regard to site selections? In the current situation, the Administration reviewed the proposed sites and determined the downtown location to be the most viable after taking into consideration the HOK Study and the challenges/opportunities of land consolidation for such an initiative. 56. What safe guards can be put in place to ensure that no new taxes would be required in the future to pay for debt servicing charges? Conditions could be negotiated to ensure that no new taxes are required to fund debt servicing costs. 57. How does the proposed site fit into the City’s Downtown Plan? What impact will the arena have on the Downtown Plan? Regarding the Downtown Plan see answer to Question 8a above. It is anticipated that the Planning and Urban Design Principles for a Sports and Entertainment District as outlined in the CCDPlan and approved by Council on July 7, 2010 will be used to evaluate the impact of planning approval submissions regarding the arena and entertainment district. A new arena and entertainment district would contribute a significant landmark to Edmonton’s cityscape, establish a new publicly accessible and

July 21, 2010 Sports and Entertainment Facility Questions from Council for Administration 2010FTB013 - Page #22

activity focal point within the downtown. Design principles would seek to create an attractive and comfortable pedestrian environment and streetscape and demonstrate sustainable design. 58. If city is the major financier of the arena, then why can the City not operate the arena and use the non hockey revenue to pay for the debt? The model proposed by the Katz group is for their organization to operate and retain all revenues. This model is proposed from the Katz group as they believe it will allow the NHL franchise to be sustainable. If a model where the City operated the arena could be negotiated, there would still be uncertainty and risk in being able to generate sufficient revenues to service the debt. 59. What role has the city administration play in the design of the arena, and what role will it play in the future? City Administration will evaluate planning applications submitted for review/approval concerning the development of an arena and entertainment district. The Zoning Bylaw and the Capital City Downtown Plan Policy CC 3.5 entitled ‘Potential for a Sports and Entertainment District’ and the associated planning and urban design principles will aid in the department’s evaluation and subsequent recommendations to Council. Proposed zoning for the site does not contemplate specific design regulations and graphics (i.e. Direct Control Provisions) and is based only on a standard Zone where design criteria may be minimal. If City ownership is an outcome of the initiative, appropriate review of the finished design would need to be undertaken. Councillor Thiele: 60. What will be the financial and social benefits of such an entertainment district in the City of Edmonton? Conversely, what would be the drawbacks in relation to a 20 year build out? (COE Administration) Should the sports and entertainment district be developed with consideration to the planning and urban design principles as described in the CCDPlan and due diligence with the overall project, it is expected that it will be a catalyst for development and Edmonton, over the long term, will experience increased economic activity, increased tax revenue and higher land values. The arena could become a showcase for Alberta and Canada. In the City of Edmonton's guiding plan, The Way We Live, Goal 2 speaks to the way Edmonton Celebrates Life and Goal 5 speaks to Edmonton as an Attractive City. The entertainment district will be a showcase venue for the City to host world leading arts, cultural, sports and entertainment events that attract local, regional and global audiences. 61. How many years would a $100 million investment take to realize recovery through a Community Revitalization Levy? (COE Administration) Any investment made would need to be recovered within the 20 year life of the community revitalization levy. The time to recover would be dependent on the pace of the development. 62. Would other revenue streams be considered (i.e. Hotel tax, restaurant tax, VLT/slot machine tax)? (COE Administration) All available revenue streams that can be used within the legislative authority of municipalities are being considered.

July 21, 2010 Sports and Entertainment Facility Questions from Council for Administration 2010FTB013 - Page #23

63. What is the current City of Edmonton subsidy to the operation for the Oilers today through Northlands operation of Rexall? (COE Administration) The Rexall Place Arena and site are owned by the City of Edmonton and Operated by Northlands. The current support agreement between the City and Northlands extends to funding for operating and capital of Rexall Place. This agreement began in 2004 and expires on December 31, 2013. Under the terms of the support agreement the City provides annual, inflation adjusted support contributions to Northlands. The 2010 contribution was $2.45 million. Total payments under the Northlands support agreement since 2004 are $16.352 million. The agreement also allows the City to receive a share of the profits from Northlands above a specified threshold. The City’s share of profit since 2004 has been $2.752 million. Those funds are reserved and contributed back to Northlands for major capital projects that are defined in the agreement. The response to question 36 provides a fuller explanation of the agreements in place with Northlands.
Northlands Payments under Support Agreement Support Payment Year to Northlands 2004 $ 2,200,000 2005 2,241,800 2006 2,291,120 2007 2,336,942 2008 2,388,355 2009 2,443,287 2010 2,450,617 Total $ 16,352,121 Profit Sharing Payment to City Capital Funded $ 147,667 $ 505,071 423,584 895,396 391,835 859,396 388,491 940,485

$

2,752,044

$

1,799,881

2010FTB013 – Attachment 1A, Page #1 Question 33b – Additional information

2010 NHL Arena Report

Anaheim Ducks The team plays in the Honda Center owned by the City of Anaheim and operated by Anaheim Arena Management, LLC. The facility opened in 1993 and was built by Huber, Hunt & Nichols for $123 million. The facility was 100% publicly financed and Ogden Entertainment is assuming the debt for the bonds issued by the city through a 30-year agreement. On December 13, 2003, the City of Anaheim reached a 30-year Facility Management Agreement with Anaheim Arena Management, LLC, which gave AAM the right to manage, maintain, and operate the Honda Center. In the nine years leading up to the new agreement in 2003, the City had to expend a total of $40.2 million more than it received in revenues for arena operations. The new agreement was crafted to reduce the public sector’s responsibilities. Maintenance is now the responsibility of the franchise through its management company. Atlanta Thrashers The team plays in Philips Arena owned and operated by Atlanta Spirit LLC. The company also owns the Thrashers and Hawks. The facility opened in 1999 and was built for $213.25 million. A total of $130.75 million in city-backed revenue bonds are being repaid from arena revenues. The Turner Broadcasting Company, the teams’ owners at the time the facility was built, contributed $20 million to the project. A three percent tax on short-term car rentals generated $62.5 million of the capital cost of the facility. Public sector responsibility is limited to 29.3 percent of the total capital cost as long as arena revenues repay the bonds. The Atlanta Hawks franchise itself is the collateral for the loan. Given the region’s market size and the high level of ticket sales for non-sports events there is little risk of foreclosure. The team agrees to play in the arena as long as there is outstanding public debt. The private firm is responsible for maintenance. Note: the high naming rights agreement with Philips (US $168M over 20 years) also reflects the exclusive rights Philips has to supply electronics to CNN. Boston Bruins The team plays at TD Banknorth Garden owned by Delaware North Companies, Inc. The facility opened in 1995 and was built for $160 million. Financing of the arena was private and the private firm is responsible for maintenance. The facility was built above a publicly-funded parking garage. The naming rights agreement also includes an $8 million pledge for arena improvements across 20 years, and $5 million for community improvement and/or tickets that will be made available for underprivileged children.

2010FTB013 – Attachment 1A, Page #2 Question 33b – Additional information

2010 NHL Arena Report

Buffalo Sabres The team plays at HSBC Arena, built in 1996 at a cost of US$122 million; $67 million was from private funds. The state of New York invested $20 million. Erie County also invested $20 million and Buffalo provided $10 million. Erie County also agreed to provide $7 million for a parking structure. An agreement between all of the parties has changed due to financial issues faced by the team. Erie County agreed that some of its revenue streams would be assigned to the team and New York forgave arena construction costs to new owner, Tom Golisano. Calgary Flames The team plays at Pengrowth Saddledome owned by the City of Calgary and operated by the Saddledome Foundation. The facility opened in 1983 at a cost of $143 million (US). The province and city each contributed $31.5 million and the national government invested $29.7 million. The 1988 Olympic organizing committee contributed $5 million. In 1994, a management agreement transferred the physical operation, maintenance, and management to the Calgary Flames Limited Partnership removing responsibility for maintenance from the public sector. The major renovation resulted in the addition of 46 suites and 1,440 premium seats Carolina Hurricanes The team plays at RBC Center owned by Centennial Authority and operated by Gale Force Sports & Entertainment. The facility opened in 1999 and was built for $158 million. Use of the arena is shared with North Carolina State University. The public sector assumed responsibility for 84 percent of the construction cost including a commitment from North Carolina State University ($28 million.) The Hurricanes’ ownership contributed $25 million. Wake County’s investment was $70 million and North Carolina invested $22 million. A sales tax refund provided the remaining funds. Public money was raised through bonds issued by city and county, repaid through food and hotel taxes. The public sector is 100 percent responsible for maintenance. The team pays $3 million in rent but has control of all revenues generated through sales inside the facility (including luxury seating, advertising, and profits from the sale of food and beverages).

2010FTB013 – Attachment 1A, Page #3 Question 33b – Additional information

2010 NHL Arena Report

Chicago Blackhawks The team plays at the United Center; the arena is owned and operated by the United Center Joint Venture Corporation. The operating company is owned and managed by Rocky Wirtz and Jerry Reinsdorf. The facility opened in 1994 and was built for $175 million and was privately financed. Chicago did contribute to some infrastructure costs and the venue received some property tax abatements. The arena is managed by a firm owned by the Bulls and Blackhawks and is responsible for maintenance. Colorado Avalanche The team plays at the Pepsi Center owned and operated by Stanley Kroenke. The facility opened in 1999 and was built for $180 million. Use of the arena is shared with the Denver Nuggets and the Colorado Mammoths. The facility was privately financed but the public sector made contributions through construction sales tax rebates ($2.25 million) and annual property tax abatement minimally valued at $2.1 million. City also contributed approximately $4.5 million for infrastructure enhancements. The private firm is responsible for maintenance. Columbus Blue Jackets The team plays at Nationwide Arena owned by Nationwide Mutual Insurance Company and managed by Spectator Management Group. The facility opened in 2000 and was built for $150 million. The facility was privately financed (Nationwide Insurance, 90 percent and Dispatch Printing owner of the local newspaper, 10 percent). Nationwide was able to reduce arena costs through the sale of personal seat licenses (ranging from $750 to $4,000/seat) and founder’s suites (a one-time $2.5 million payment that provided a 25-year lease, tickets not included). The private firm is responsible for maintenance. Competition from the arena built by The Ohio State University and the team’s poor performance have led to financial problems for the arena. Dallas Stars Team plays in American Airlines Center that is believed to have cost between $380 and $420 million. The two teams (Dallas Stars and NBA Mavericks) agreed to pay all cost overruns and the public investment was limited to $125 million for the building and $30 million for infrastructure. The public sector uses a hotel and car rental tax to pay for the bonds it secured. The teams reportedly pay $3.4 million each per year and have 30year leases. A management firm owned by the two teams is responsible for all maintenance and also receives all revenues earned at the facility. Teams have option to buy arena for $1 at end of lease.

2010FTB013 – Attachment 1A, Page #4 Question 33b – Additional information

2010 NHL Arena Report

Detroit Red Wings The team plays at Joe Louis Arena; the aging facility is owned by Detroit and operated by Olympia Entertainment (the holding company that also owns the Red Wings). The facility opened in 1979 and was built for $57 million; the bonds were paid by the City of Detroit. In exchange for control of arena, Olympia provides Detroit with 10 percent of all gate revenues, 7 percent of suite income, and 10 percent of concession profits. Olympia Entertainment is responsible for the maintenance of the arena but plans are being developed for a new facility. Florida Panthers The team plays at Bank Atlantic Center owned by Broward Country and operated by Spectator Management Group World. The facility opened in 1998 and was built using $184.7 million in public funds, with the remainder of the $212 million construction costs covered by then-owner, Wayne Huizenga. The arena was publicly financed by Broward County relying in part on a 2 percent hotel (tourism) tax, and also receives support from a state sports team rebate program. In return for using tourism tax as funding mechanisms, team made available one 30-second commercial for tourism purposes per telecast, and up to 50 tickets for each game was provided to Broward County for tourism promotion purposes. The team is responsible for $5.2 million in annual debt payments. In June 2009 the Florida Panthers, the arena, and the land surrounding the arena were sold to Sports Properties Acquisition Group for $240 million. The private firm is responsible for maintenance. Los Angeles Kings The team plays at the Staples Center owned by the Los Angeles Arena Company and operated by AEG Worldwide. The facility opened in 1999 and was built for $375 million. Use of the arena is shared with the Los Angeles Lakers, the Los Angeles Clippers, the Los Angeles Sparks, and the Los Angeles D-Fenders. The public sector’s commitment was limited to $38.5 million and the financial reserves of the Los Angeles Convention Center ($20 million) were also used. The public sector received dedicated revenue streams from the arena’s operation and those funds have led to full settlement of its investment. Los Angeles continues to receive those revenue streams and those funds are now part of the general revenues collected by the city. The private firm is responsible for all maintenance.

2010FTB013 – Attachment 1A, Page #5 Question 33b – Additional information

2010 NHL Arena Report

Minnesota Wild The team plays at Xcel Energy Center owned by the City of St. Paul and operated by Minnesota Sports and Entertainment. The facility opened in 2000 and was built for $130 million. Use of the arena is shared with the Minnesota Swarm. The team contributed $35 million towards construction and a local sales tax supported $30 million worth of the capital cost. The State of Minnesota provided an interest-free loan of $65 million to be repaid with sales tax receipts. Minnesota waived $17 million of the debt if City made the arena available for 50 days/year for public events at no charge. The team controls the rights to sell naming rights. St. Paul is responsible for all maintenance but the team does pay rent for the use of the facility, as do other users. Montreal Canadians The team plays at Bell Centre (La Centre Bell) owned and operated by the Molson Brothers (Geoff, Andrew, and Justin Molson). The team and the arena were reportedly sold to Molson for more than $500 million. The previous owner bought team for $115.5 million and paid $66 million for the arena in 2001. The facility opened in 1996 and was built for $198.2 million (American). Molson Co. Ltd privately financed the arena. The private firm is responsible for maintenance. Nashville Predators The team plays at the Bridgestone Arena owned by the Sports Authority of Nashville and Davidson County. The Powers Management Company, a subsidiary of the Nashville Predators, operates the arena. The facility opened in 1998 and was built for $144 million. The arena was publicly financed through general obligation bonds issued by Nashville. The city also reportedly paid some of the team’s expansion fee in order to attract a franchise. A 2008 agreement revised responsibilities for the arena. Powers Management Company is responsible for up to $1 million per year in maintenance expenses. If expenses surpass $1 million, the City of Nashville is responsible for the difference. If the team wishes to leave Nashville after June 2010, the exit fee is $20 million. In 2011, the exit fee increases to $25 million. Beginning in 2012, however, the team can terminate the lease if losses prevail for a settlement fee of $10 million. The exit clauses are linked to attendance and financial losses that must be documented. New Jersey Devils The team plays in the $375 million Prudential Center, opened in 2007. The City contributed $210 million towards construction. The team agreed to contribute $100 million and to be responsible for any cost overruns. Newark receives 7 percent of suite revenues and 4 percent of all other revenues. All other revenues are retained by the Devils.

2010FTB013 – Attachment 1A, Page #6 Question 33b – Additional information

2010 NHL Arena Report

New York Islanders The team plays at Nassau County’s Veterans’ Memorial Coliseum; the public owned facility is operated by the Spectacor Management Group. The facility opened in 1972 and was built for $31.3 million; Nassau County paid for the total cost of construction. Spectacor Management Group is responsible for maintenance and retains earnings from the management and operation of the facility. The Islanders’ rent is 11 percent of ticket sales and the team also gives the County some suite and other arena revenues. The Islanders are actively pursuing a new arena. New York Rangers The team plays at Madison Square Garden owned and operated by Madison Square Garden (MSG), Inc. The facility opened in 1968 and was built for $123 million. A $200 million renovation in 1990 was privately financed. MSG. is responsible for maintenance. MSG owns the Knicks and Liberty and both teams play their home games at the facility. The facility has benefited from a 25-year old property tax exemption and plans are under way to undertake a $500 million, privately-financed renovation of the facility during the off seasons of the Knick and Rangers. Ottawa Senators The team plays at Scotiabank Place. The arena is owned by Capital Sports Properties and is operated by Live Nation Canada. The facility opened in 1996 and cost US $146 million, including $27 million for infrastructure improvements. The arena was funded through private bank consortium loans, subordinated loans, and suite sales and fees. The infrastructure costs were publicly financed. The private firm, Live Nation Canada, is responsible for maintenance. Philadelphia Flyers The team plays at the Wells Fargo Center owned by Comcast Spectacor L.P. and operated by Global Spectrum. The facility opened in 1996 and was built for $210 million. The arena was largely privately financed with $35.5 million invested by the public sector (city and state) for infrastructure. Global Spectrum is responsible for all maintenance.

2010FTB013 – Attachment 1A, Page #7 Question 33b – Additional information

2010 NHL Arena Report

Phoenix Coyotes The team plays at Jobing.com Arena owned and operated by the City of Glendale. The facility opened in 2003 and was built for $220 million. The arena was funded by a $180 million contribution from the City of Glendale ($30 million in general obligation bonds and $150 in excise tax funding). The city planned to repay its debt from revenues generated from activities surrounding the facility. The Coyotes’ owner agreed to pay for any cost overruns and to repay the city for its investment if the commercial property surrounding the arena did not generate enough money to offset the city’s investments. The entire financial plan has collapsed and the team filed for bankruptcy protection. The City of Glendale is responsible for all maintenance and the costs for the facility’s construction and new potential owners have each submitted bids that would require Glendale to assume responsibilities for all construction related expenses and maintenance. No new ownership group has yet been designated and that team and the matter remain under the oversight of the bankruptcy judge and the NHL that is operating the team. Pittsburgh Penguins The team plays at the new, $320 million Console Energy Center owned by the Sports & Exhibition Authority of Pittsburgh. The team assumed responsibility for 38 percent of the cost; the balance of the funds were provided by the State of Pennsylvania drawing on revenues from gaming licensing fees collected from the owners of the Majestic Start Casino. The team is responsible for annual maintenance fees up to $400,000 collected from parking fees (but capped at $400,000). San Jose Sharks The team plays at HP Pavilion at San Jose owned by the City of San Jose and managed by San Jose Sports & Entertainment Enterprises. The facility opened in 1993 and was built for $162.5 million. The arena was financed through City bonds and private equity ($132.5 million) and HP Pavilion Management ($30 million); as a result, 82 percent of the arena was financed by the public sector. A new current operating agreement splits the maintenance costs 50/50 between the team’s management company and the city of San Jose.

2010FTB013 – Attachment 1A, Page #8 Question 33b – Additional information

2010 NHL Arena Report

St. Louis Blues The Blues play at Scottrade Center owned by the City of St. Louis and operated by Sports Capital Partners. The facility opened in 1994 and was built for $135 million ($170 million including land costs). St. Louis contributed $34.5 million. This went toward demolition of existing building and garage, site preparation and new parking facility; the balance of the cost was assumed by the private sector and the management company, which is privately owned, is responsible for all maintenance. Tampa Bay Lightning The team plays at St. Petersburg Times Forum owned and operated by Palace Sports and Entertainment. The facility opened in 1996 and was built for $139 million, with the public sector assuming responsibility for almost two thirds of the cost, 62 percent. Public funding through state sales tax, county tourism tax, city parking, county and city ticket surcharge. The private firm is responsible for all maintenance and retains all arena revenues. Toronto Maple Leafs The team plays at Air Canada Centre owned and operated by Maple Leaf Sports and Entertainment. The facility opened in 1999 and was built for $250 million. The arena is shared with the Toronto Raptors. The arena was privately financed and the private firm is responsible for all maintenance. Vancouver Canucks The team plays at Rogers Arena, owned and operated by Canucks Sports and Entertainment. The facility opened in 1995 and was built for US$116 million and was privately financed. The private firm is responsible for all maintenance. Washington Capitals The team plays at the Verizon Center owned and operated by Monumental Sports and Entertainment. The facility opened in 1997 and was privately built with the public sector investing $60 million for needed infrastructure improvements. The private firm is responsible for all maintenance.

2010FTB013 – Attachment 2

July 21, 2010 City Council Meeting Item 5.4 – Sports and Entertainment Facility Supplemental Questions from Mayor and Council Questions for the Katz Group Councillor Anderson: The precise terms of an agreement between the Katz Group and the City of Edmonton remain the subject of negotiation. Accordingly, what follows below is the subject of ongoing discussions and cannot be considered final. 1. Who will own the new arena? (Katz Group) Answer: We are presently working with a model where the City would own the arena. 2. Who will operate the new arena? (Katz Group) Answer: It is a central part of achieving a sustainable financial model for the Edmonton Oilers that we operate the arena. 3. Who will pay the operating costs? (Katz Group) Answer: We have yet to develop a proposed operating model in our discussions with City Administration. However, in principle, we would consider it appropriate that we would be responsible for operating costs. 4. Who will pay the maintenance costs? (Katz Group) Answer: This is to be settled. One must distinguish between routine maintenance and capital maintenance requirements. We expect that both will be considered as our discussions with City Administration advance. 5. Is the $100 m Katz dollars cash or land? (Katz Group) Answer: There are a number of ways to deliver $100m in value, but we recognize that this will have to be done in a fashion that is acceptable to the City. 6. Has a detailed analysis of the Katz lands been done (architects, planners, engineers, transportation experts, parking consultants, etc), to determine compatibility with the facilities program? (Katz Group) Answer: We have worked closely with developers, urban planners, civil engineers, traffic consultants and arena programming experts. This process has reinforced our view that the subject lands are an optimal location for the arena district.

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7. Can an NHL team in Edmonton generate enough revenue on its hockey operations to support itself? (without public assistance?) (Katz Group) Answer: No. However, with revenues from a new downtown arena, we are confident that we can establish a model that creates long term financial sustainability for the Oilers. Councillor Batty: The Katz Group is a private company and in that they could not reasonably be expected to make their affairs public, there should be an acceptable process whereby independent professional financial advisors (legal, audit, investment bankers) to the City could review the Katz Group data on a confidential basis in order to provide “comfort” to the City that there is appropriate financial resources. 8. Who are the investors in the Katz Group? Is it just the family or are there other Answer: Daryl Katz is the controlling shareholder of the Katz Group. His parents also have an interest. 9. Who are the major creditors of the Katz Group and what security do they have? Answer: As you have observed, the Katz Group has a right to privacy in respect of the details of its financial affairs. However, we are prepared to work with City Administration to satisfy the City that we are able to meet our financial commitments to this project. 10. What is the assurance of 100 million – how would the money be raised? Answer: The Katz Group has the wherewithal to honour this commitment. 11. Does the NHL have to sign on to a relocation agreement? Answer: Subject to concluding a mutually acceptable agreement for funding for a new downtown arena, the Katz Group is prepared to sign a long term lease which includes a location agreement. We are advised by the NHL as follows: “Location agreements, which are intended to bind a franchise to a particular market for a stipulated period of time, are typically a term of a lease between the franchise and the building owner. The NHL would not expect to be a signatory to such an agreement. However, the NHL expects all franchises to honour the terms of their valid leases. The NHL recognizes that, in many cases, government entities commit significant public funds for arena construction and infrastructure and that they do so with an expectation of the NHL's and the franchise's long term commitment to the local market. Franchise relocation may make other cities less likely to invest in arena facilities and accompanying infrastructure. This harms not only potential NHL expansion but also those existing franchises seeking municipal participation in building new arena facilities and infrastructure.

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Any franchise seeking to relocate to another market must have the permission of the NHL Board of Governors. While the first priority would be to keep franchises in their existing markets, a relocation application may be considered if the franchise does not have a binding lease. Such an application involves the consideration of some 24 factors, as set forth in the NHL Constitution and By-Laws, and is subject to a majority vote of the Board of Governors. The prevailing rules emphasize current local market viability first and foremost. Franchises whose markets are not viable due to the absence of a state-of-the-art arena and a sustainable financial model for the franchise may be considered candidates for relocation, again assuming there is no binding lease obligation. An important component of the analysis of local market viability is the assessment of the willingness of local government to participate in helping to establish the franchise's long term viability. In circumstances in which an NHL franchise is relocated, history indicates that a lengthy period of time is likely to elapse before another NHL franchise may be placed in that market, especially where the relocation was due to a failure of local support for the team from fans and/or local government authorities." 12. Should the Katz group suffer financial challenges does a relocation agreement ensure the team stays in Edmonton? Answer: We are advised by the NHL as follows: "The NHL has a critical interest in maintaining the viability of franchises in their home markets that have been assigned and approved by the Board of Governors. Should ownership of a franchise fail financially, all efforts would be made to find a viable local buyer to keep the franchise in the market and uphold the commitments made by the failed ownership. Alternate ownership candidates must, however, establish that they have the financial ability and wherewithal to support the team and make it successful in its current location, as well as otherwise meet the NHL’s criteria for transfers of ownership under the review standards and processes set forth in the NHL Constitution and By-Laws." 13. Should other strategic partners become involved in either the financing a possible arena or in the running of the project would the City of Edmonton be required to give approval? Answer: As to financing, yes, if the City is to own the arena, its agreement would be required in respect of all financing terms. As to operating the arena, any limitations on the Katz Group would have to be sorted out in discussions with the City Administration. We recognize the need to work with the City to best ensure that the arena development meets the needs of Edmontonians. Councillor Caterina: 14. What was the specific offer to Northlands by the Katz Group in terms of being involved in a new arena? Answer: Our discussions with Northlands took place over a period of about 18 months. They also took place within a context of a mutual expectation that the specifics of the discussions would remain confidential. We last made a written offer to Northlands in

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September, 2009 which we thought would have given them a significant role in the arena but would also have allowed the Oilers to be competitive and sustainable. Councillor Gibbons: 15. Arena operations: If the Oilers operate the arena and receive all revenues from the arena: a. Who will have responsibility for such things as maintenance and repair, replacement of mechanical systems, structural repairs and maintaining financial reserves for major replacements and repairs? Answer: Please see Answer #4 above. This has yet to be determined. b. Do you have an estimate of the annual fixed operating costs for this type of facility? Who will pay these costs? Answer: Please see Answer #3 above. As we are still in the design stage for the arena, we have yet to develop an operating pro forma. c. Will the Oilers pay rent for the Arena? Will the Oilers pay Operating Costs for the Arena? Answer: The matter of rent remains the subject of further discussion with City Administration. We anticipate that we will pay operating costs. d. Will the Oilers pay real estate taxes on the Arena? Answer: the matter of property taxes applicable to arena operations is another matter to be discussed with the City Administration. Councillor Henderson: My questions are about the non hockey revenues and probably are best answered by the Oilers and Northlands may also want to answer. 16. It is my understanding that in the old deal with the Oilers they had the non hockey business. At that time they chose to give it up, I presume because it was not lucrative. Answer: It is our understanding that the EIG gave up control over the non-hockey revenues as part of an agreement with the City. We are not aware of all of the details and rationale that went into that agreement. 17. I am wondering what has changed in the interim that they now want the business back. Answer: It was evident to us from the outset of our ownership of the team that it was essential to make fundamental changes in the Oilers’ financial model in order to achieve long term sustainability of the team in Edmonton. While the sustainability model of NHL franchises is different from place to place by reason of differences in markets and local conditions, our challenge was to find a sustainability model that will work within the context of Edmonton’s small media market where revenue sources have been both limited and essentially maximized. It became clear to us that there are two key elements to creating a sustainable financial model in Edmonton: firstly, having the enhanced revenue streams that would come with a modern NHL arena; and, secondly, having

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control over non-hockey revenues in that facility. Long term financial sustainability of the Oilers in Edmonton cannot be achieved without the Oilers being placed on the same footing as the Calgary Flames where non-hockey revenues go to sustaining the hockey team. By controlling the non-hockey events, we would also have the opportunity to create synergies between the entertainment events in the arena, and between those in the arena and the entertainment events elsewhere within the entertainment district. This said, we recognize that a specific magnitude of profit from non-hockey events is not guaranteed and may not be consistent from year to year. However, with the benefit of the synergies which can be created by the new downtown arena and Entertainment District, we are confident that we can raise the calibre of entertainment in Edmonton. The Katz Group is also in an advanced state of discussions with other NHL teams with the intention of creating a joint venture for arena operations. The object of such an arrangement would be to create new synergies and economies of scale in operation of multiple arenas and all events therein. 18. Would the deal be different? Has something changed besides Northlands management to suddenly make it lucrative? Answer: We are not in a position to comment upon any changes that Northlands may or may not have made. However, it is our understanding that the concert business in Canada is currently relatively strong due to more bands touring because of piracy issues, in combination with Canadian venues being more attractive because of the relatively high Canadian dollar. We also understand that Rexall Place is more attractive than the Calgary Saddledome in respect of some entertainment events due to an inability to hang certain types of staging equipment from the Saddledome roof. We further understand that this has resulted in Edmonton attracting some events that otherwise may have gone to Calgary. 19. And if Northlands took a money losing proposition and turned it into a money making deal, why would they want to walk away from that expertise? Answer: We are very confident that we have the personnel in place to successfully operate non-hockey events in the arena. We believe that we can develop a world class entertainment district in the heart of our downtown that will raise the caliber of entertainment in the City by providing both the modern amenities that will create a significantly improved fan experience and a platform for attracting the very best entertainment events. Councillor Iveson: 20. Please explain exactly how a Location Agreement works from the Franchise perspective, including the contemplated duration of the agreement. Answer: A location agreement would be a term of the lease pursuant to which the Oilers would play in the new building. It would bind the Oilers to playing only in that building for the full term of the lease. We are prepared to sign a long term lease in a new downtown arena that would bind the team to Edmonton for the term of that lease. We expect a term of 25 years or more. 21. What assurances can the Oilers or the NHL give with regards to the NHL arena standards, and how constant they will be over time; in other words, is there

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any likelihood of the proposed new downtown facility becoming outdated in 20-30 years and requiring major investment or replacement? Answer: As the history of Rexall Place has made evident, arenas require capital upgrades from time to time in order to remain current. The precise timing and nature of such investments is difficult to predict. However, with reasonable capital investments from time to time, we are confident that a new downtown arena will be a viable home for the Oilers for no less than 25 years, and very likely more. 22. Please explain all the competitive disadvantages the Oilers face in this market relative to other NHL franchises - including the particular revenue issues with today's lease - and provide a monetary estimate of the impact each of these disadvantages. Answer: The Oilers have 2 fundamental competitive disadvantages: we play in the League’s smallest media market and are the only team/ownership group in the NHL that does not receive non-hockey revenues from the building in which it plays. To put the former into context, a mid-market Canadian team like the Vancouver Canucks receives on the order of three times more for local television and radio broadcasts and sponsorships than does the Oilers. NHL teams do not disclose their non-hockey revenues, nor has Northlands disclosed their results to us. Accordingly, we are unable to reliably quantify the financial impact of not controlling non-hockey revenues. 23. What direct operating subsidy would be required to put the team in a position of sustainability, all other things held constant? Answer: Please see Answer #22 above. We would not propose a specific figure. What we can say is that we accept that we cannot change the fact that Edmonton is the League’s smallest media market. What we seek is to be placed on an equal footing with, for example, the Calgary Flames. While the Calgary Flames are also in a small media market, they are able to support their financial sustainability through non-hockey revenues. 24. Please provide the Oilers’ Unified Report of Operations (URO) as submitted to the NHL for the last two year We will not do that. Please see Answer #9 above. 25. Since the argument is that the team needs additional revenues to be sustainable, what assurances can be given that costs have been reduced and that the operation is as efficient as possible, (preferably with reference to league benchmarks)? Answer: The largest expense component is player salaries which are subject to a cap and floor system under the Collective Bargaining Agreement. All other expense components for the Oilers are in alignment with the other teams in the League, except for travel expenses which, because of our relatively remote geographic location, are higher than almost any other team. 26. What is the Katz Group definition of sustainability for the team - in terms of rate of return on investment for the team and the $100 million contribution for the arena? Answer: We do not define sustainability on the basis of a specific rate of return. We would at least want to stop losing money. We seek a commercial operating model that places us on the same footing as the Calgary Flames.

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Councillor Krushell: I want to again thank you Mr. Katz for your presentation before City Council. I appreciated your speech in particular and your passion for Edmonton. I apologize for not being able to be at the Council meeting in person as I was away for my 20th wedding Anniversary. As someone who is Committed to family as yourself, I am sure you can appreciate that family comes first. That said, I did conference call into the meeting because I do believe that the development of a downtown arena is of major importance. I also supported the motion to move forward with developing a framework for a downtown arena. The questions I ask are not intended to offend in any way but to clarify potential risks for Edmonton Taxpayers. I would appreciate any answers you can provide to the following questions: 27. From your presentation it is my understanding the Katz Group requires all hockey and non-hockey revenues in order to be viable? Is this correct? Answer: Yes. 28. Can you provide at least to City Administration in private, financial documents that demonstrate that the Edmonton Oilers are not making money? Answer: Mr. Marcaccio should be able to satisfy City Administration with respect to this question. 29. Presently Northlands operates the existing arena and most non- hockey revenues, specifically the concert revenues, go to offset Northlands operations. Is it the Katz Group's intention to retain all of these revenues for its operations? Is it the position of the Katz Group that the existing arena cease to have concerts etc. and that all of this business transfer to the new arena? What if anything, does the Katz Group see happening to the existing arena? Answer: Yes, without control of the non-hockey revenues from the facility, we will not be on the same footing as, for example, the Calgary Flames. These revenues are critical to the long term sustainability of the team. We believe that Edmonton is not large enough to have two facilities competing for arena based entertainment events. Neither facility would be sustainable in such a circumstance. We lack sufficient information and thus are not in a position to make recommendations as to what to do with Rexall Place. We respect that this is something for the City and Northlands to decide. 30. With the CRL model the City of Edmonton would need the surrounding development to be built at virtually the same time as the new arena in order to generate enough tax revenue to service the debt for the new arena. Can you provide any timeline for the surrounding development? Is the Katz Group prepared to provide the City of Edmonton with a letter of credit to ensure that if the surrounding development is not built the City of Edmonton would not be responsible for all of the risk? Answer: CRL revenue would come from development in the entertainment district (the 16 acre parcel we are focused on) as well as other development by third parties outside this district that leverages off the Edmonton Arena District. We are not presently in a position to provide a specific timeline for the private sector development in the

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entertainment district. However, our dialogue with our consultants and prospective tenants and partners leaves us with a high level of confidence that we will be able to develop a vibrant entertainment district around the arena. We have had substantive discussions with 6 major hoteliers and the level of interest in placing two hotels in the Arena District is very high. We are currently entertaining proposals from hoteliers in this regard. We have nine written Letters of Interest from a variety of international, national and local hospitality and entertainment providers and have had numerous other verbal expressions of interest. We have also had promising discussions with potential anchor tenants for the proposed office towers. We are confident that there will be a market within the District for both student residences and condominiums. However, for us to be able to move forward and secure these relationships, we require reasonable commercial certainty that the arena project will proceed. It is our intention to deliver as much private sector development contemporaneously with the arena as is economically feasible. As to the matter of risk, we seek a functional partnership with the City and a fair balancing of risk between the parties. Neither the City nor the Katz Group should bear risk disproportionately. Councillor Leibovici: 31. Has there been any discussion with the Shaw Conference Centre Management (EEDC) to determine whether there are any synergies regarding the Shaw Conference Centre expansion plans and the proposed sports and entertainment district? Answer: We have maintained an open dialogue with EEDC. We believe that the entertainment amenities in the Edmonton Arena District would support the expansion plans by enhancing the competitive position of the Shaw Conference Centre in attracting conventions to Edmonton. We also believe that the district would provide the additional hotel capacity that the downtown core requires to optimize the opportunities that an expansion of the Shaw would create. 32. Have there been any agreements reached with post secondary institutions regarding student housing? Answer: We have had extensive and ongoing discussions with post secondary institutions and are satisfied that there is a demand for student residences in the core. We are working collaboratively with post secondary institutions to create a framework for the potential inclusion of such facilities in the arena district. However, there are no formal agreements presently in place. 33. What is the projected construction schedule for building the arena? What are the projected timelines for build out of the other facilities, i.e. residential and student housing, hotel complex, etc.? Answer: Please see Answer #30 above. We are presently unable to provide a specific timeline but it is our intention to deliver as much private sector development contemporaneously with the arena as is economically feasible. 34. Can the Katz Group provide its business plan for the arena, as well as the sports and entertainment district? Answer: Please see Answer #30 above. As we are still in the conceptual stage and have yet to achieve a reasonable degree of commercial certainty that the project will proceed, formal business plans cannot be prepared. We are anxious to move forward in

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converting the expressions of interest referred to in Answer #30 into development commitments that will allow the formalization of a business plan for the district. 35. Given that under the proposal presented at the City Council meeting that the City will own the building is the Katz Group adverse to a design competition being held? Answer: It is our desire that the arena and other elements in the district feature iconic design and that there be design continuity in the district. The design of the arena is a key element of the business case for the related private sector investments in the entertainment district. We believe that we should select the architects to best ensure that the design best meets our needs as the developer of the entire district. We recognize that the arena design must be in the interests of the City and we have consulted, and propose to continue to consult, with the City Administration in that regard. 36. Is it understood that all City owned buildings must be certified at a minimum LEED sliver standard? Answer: Yes 37. Is a Sports Hall of Fame museum envisioned as being part of the sport and entertainment district? Answer: We are open to considering this possibility. 38. What will be the terms of the location agreement? Answer: Please see Answer #20 above. The location agreement would bind the Oilers to play in the new arena until the expiration of a contemplated long term lease. 39. Has there been any indication by the Province, that casino revenues could be utilized to fund the arena? Answer: No. 40. Explain the NHL requirements for arenas and provide information on the funding agreements that are in place between municipalities and NHL teams in both the United States and Canada for both capital requirements and operating revenues. Answer: We are awaiting confirmation from the NHL as to all of their current standards. However, we do know that Rexall Place is currently not a building that is competitive in either the quality of the fan experience or revenue generating opportunities. 24 of 30 arenas in the NHL were built with a mix of public and private investment. We do not have disclosure of the specifics of each of these agreements. However, we expect that they each have their own nuances that are a product of the unique circumstances of each city, team, market and the means available to raise capital. Our object is to achieve a funding agreement which works in Edmonton and which recognizes the limited ability that the Oilers have to generate revenue in the League’s smallest media market. 41. Explain what revenues personal seats or luxury suites licensing could provide? Answer: To the extent that there may be the capacity to generate revenues through the sale of seat or suite licenses, we would consider such revenues to be operational

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revenues of the team. This is another matter for discussion with City Administration in the context of a complete framework for an agreement. 42. What guarantees would the Katz group provide to the City of Edmonton if the CRL projections are not realized? Answer: Please see Answer #30 above. We seek a functional partnership with the City and a sharing of risk. The precise terms as to how risk may be allocated between the parties have yet to be negotiated. 43. Has the Katz Group considered a community benefit agreement as entered into by the Staples Centre in Los Angeles and Millennium Southeast False Creek Properties Ltd; City of Vancouver and Building Opportunities with Business Inner-City Society? Answer: We are aware of the type of Community Benefits agreement referred to. There are various tools available to ensure community engagement and we are open to further discussion as to what will best meet the needs of all concerned in this instance. Councillor Sloan: Re: Operational Business Case and Finances 44. Given that the Katz Group has stated that the financial viability of the Oilers is at stake, you must be prepared to disclose the details of the Oilers finances. Therefore, please advise as follows: a. How much of the purchase price for the Oilers was financed? Answer: Please see Answers #9 #28 above. The Oilers are a private company and do not publicly disclose financial details. We seek only the same operating model available to the Calgary Flames and all other NHL teams. b. What is the annual cost to pay the interest and fees associated with that financing? Answer: Please see Answers #9 and #28 above. c. Since Mr. Katz acquired the team, what operating deficits have occurred? Answer: Please see Answers #9 and #28 above. d. How much does Rexall pay for the naming rights for Rexall Place? Answer: Please see answer #9 above. The Oilers are a private company and do not publicly disclose financial details. e. How much do the Oilers pay to related Katz Group companies for management and administrative fees each year? Answer: Please see Answers #9 and #28 above. f. Are you prepared to open the books of the Oilers to the City Administration to prove financial need? Answer: Please see Answer #28 above.

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45. The Edmonton Oilers often make reference to the fact that they are disadvantaged compared to the Calgary Flames in terms of not having full control of an arena. Let's assume then that the Oilers had full control over Rexall Place over the past 5 years. How would this have changed the Oiler's financials - in other words, what would have been the increases in revenues; what would have been the increases in costs now that the Oilers would have assumed all costs; and how would this have changed their operating income? Answer: We have not had disclosure of Northlands operating results for Rexall Place. Accordingly, any estimates of what the differential would have been had the Oilers operated Rexall Place for the last 5 years would be speculative for that reason, as well as others. The Calgary Flames are also a private company and their financial results are also confidential. However, the Saddledome has approximately 3,000 more seats than Rexall Place and, with the benefit of a higher corporate base in Calgary than Edmonton, the Flames can charge more for their suites. Also the Flames, unlike the Oilers, control the non-hockey revenues in their building. Accordingly, while we cannot be specific as to the extent of the revenue differential, it must be evident that there is one and that it is significant. 46. Forbes has shown consistently over the past 3 years that the Oiler net operating income is better than the Calgary Flames anywhere from $3 million to $10 million per year? Answer: That is not accurate based on our information. 47. The 2009 Forbes report entitled NHL Team Valuations show that 14 of the 30 NHL's teams have a net operating loss even before EBITDA (earnings before interest, taxes, depreciation and amortization). Another 6 teams have net operating income of less than $5 million. This leaves only 10 teams with net operating income of more than $ 5 million per year - one of which is the Edmonton Oilers. Given what appears to be the poor financial state of the majority of the NHL's teams, is there not a much bigger NHL problem on the horizon? How can Edmonton be assured that no matter how much public money is committed, the NHL is headed for a major financial crisis because of its current business model that will cost the City even more money? Answer: The Forbes estimates are not accurate. While financial results vary across the League, total NHL Hockey Related Revenues increased 4.4% last season compared with the prior season. Moreover, the Oilers are currently unable to subsidize their operation through non-hockey revenue. As the Oilers have relatively high hockey related revenues, there is often the false impression created that the team is on a strong financial footing. In fact, as the team is situate in the League’s smallest market and does not receive non-hockey revenues, the Oilers operate at a significant disadvantage. 48. How does the Oilers cost structure compare to other teams? Is there any benchmark information? For example, all teams abide by an annual salary cap of $56 million which will rise to $60 million this year. But how do the Oilers compare to other teams in the terms of its management, coaching and operational costs? Answer: Please see Answer #25 above. With the exception of travel expenses, the Oilers’ costs are in alignment with other teams across the League.

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49. $100 million contribution: Please provide the following clarifications regarding the proposed contribution of $100 million: Answer: Please see Answer #5 above. negotiated with the City Administration. These proposed details have yet to be

a. Who will contribute the money (Daryl Katz personally, Edmonton Oilers, Katz group related parties; third parties)? Answer: Please see Answer #5 above. The contribution will, in any case, come from Daryl Katz or a corporation or corporations that he controls. b. If the Oilers contribute the money, will this add to their debt service costs and therefore their annual deficit? Answer: Please see Answers #5 and #28 above. c. How will the money be contributed? Will there be a cash payment to the City to use in paying the construction costs? Answer: Please see Answers #5 above. d. Will any of the money be spent in land acquisition costs? Administration costs? Overhead? Answer: Please see Answer #5 above. e. When will the funds be invested? Answer: Please see Answer #5 above. f. Are you expecting that the funds will be repaid to you? Answer: No. 50. Surrounding development: Since the development of the "revitalization area" (arena district) surrounding the new arena is central to your financing proposal, please advise as follows: a. What types of development will occur in the area (please specify percentage of office, residential, retail, hotel, dining and entertainment, etc.)? Answer: Please see Answer #30 above. We remain at the conceptual stage in this process and do not presently have the degree of commercial certainty that the project will proceed for us to move forward and secure the opportunities we have identified with potential tenants and partners. b. Who will be the developer? Answer: We will be the developer, that is, a corporation controlled by Daryl Katz. c. Will any entities in the Katz Group of Companies be involved in the development? Answer: Yes. d. Other than AEG, what other companies or individuals will be involved in the development as investors, lenders, partners or joint venturers? Answer: AEG is not involved in the project as anything other than a consultant. We require reasonable commercial certainty that the project will proceed before entering into such arrangements with anybody, and we may never have any partners or joint venturers.

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e. Does the Katz Group or related companies or individuals (in or related to the Katz family) have an interest in, or have an option to acquire an interest in, any lands or properties in the area (other than the arena site itself)? Answer: We have the 16 acre T-shaped parcel under our control. We do not hold title to any other adjoining lands. What other lands we might have interests in is a confidential matter. f. How much of the area do you envision will be occupied by: i. ii. iii. levels of government, educational institutions, non-profit organizations?

Answer: Details such as this have yet to be determined. g. In your view, how much of the development must be committed to by the private sector before construction of the Arena can commence (for arena financing purposes)? Answer: We anticipate that this issue will be discussed in our negotiations with City Administration. The amount of development required to service the City’s debt would be dependent upon the amount of that debt. 51. The Arena development: As the City is being asked to pay the majority of the cost of the new Arena: a. What is your present estimate of the cost of the new arena and what do these costs include: practice arena, casino, winter garden, infrastructure, soft costs? Answer: We are working with our consultants and with City Administration to refine costing estimates. These are not yet complete. b. Who will operate the casino? Who will receive the revenues from the casino? Answer: We do not know. c. Has the casino received regulatory approval? Answer: As you will be aware, there is a casino facility presently on the site. We assume it complies with all applicable regulations. d. Do you intend to sell seat licenses in the new Arena? Do you intend to market the naming rights to anyone but Rexall? Answer: These details have yet to be determined. e. As this is intended to be a City owned and financed public work, do you intend to follow City protocols with regards to the tendering and construction of the Arena? Answer: We anticipate being the developer of the arena but recognize the need to work with the City Administration to develop protocols that will ensure a transparent process. We have not made commitments to anybody for construction of the arena. 52. Business Plan: Understanding that a final business plan will be subject to deliberations:

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a. Please clarify the Katz Group current working business plan. How will the arena and surrounding developments be profitable to both the Katz group and the City of Edmonton? Answer: We are confident that the arena can be financed without an increase in City property tax rates and in a fashion where the City’s investment is repaid in full over time. A new, and significant, stream of property tax revenue will continue long after once the City’s indebtedness is repaid. We are also confident that there will be sufficient operating revenues from the arena to ensure the long term financial sustainability of the Oilers. While there will be commercial risk associated with the surrounding development, we are confident that there is sufficient market demand to make prudent private sector development viable. b. Is the City expected to partake in the adjacent development? If so, how does the Katz group envision this working in their business plan? Answer: No. Councillor Sohi: 53. If the projected growth does not materialize, and revenues raised through the CRL are no enough, will Katz group take responsibility for debt servicing? Answer: Please see Answer #30 above. The allocation of risk between the parties has yet to be negotiated. 54. Who will be responsible for the life-cycle costs of the new arena? Will there be a fund set aside to replace the facility? Answer: Please see Answer #4 above. This has yet to be negotiated. 55. Who will be responsible for the ongoing operational, maintenance and renovations costs of the arena? Answer: Please see Answer #3 above. In principle, we would consider it appropriate that we would be responsible for the operating costs associated with the arena. However, the responsibility for these and other costs has yet to be negotiated with City Administration. 56. Can the projected non hockey revenue portion be used to pay the debt? Answer: Please see Answer #17 above. Revenues from non-hockey events are a fundamental component of the financial model required to keep the Oilers financially sustainable over the long term in Edmonton. 57. Are two arenas viable in Edmonton? Answer: No. 58. What is the current price of Oiler Game Tickets? What impact will a $5.00 ticket surcharge have on the attendance?

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Answer: There is currently a 7% ticket tax on all Oiler game tickets. The Oilers have the League’s highest percentage of non-corporate season ticket holders. As these tickets are being paid for with after tax dollars, there is a relatively higher sensitivity to what we can charge for a ticket. Accordingly, there are natural limits as to what ticket surcharge can be applied without negatively affecting ticket sales or constraining our ability to price our tickets in response to market demands. This said, we understand the desire to incorporate a user pay component into the arena financing model and we are prepared to further discuss this with City Administration. Councillor Thiele: 59. $100 million is committed to the construction of the arena and another $100 million toward development around the arena. Please outline in as much detail as possible what type of development around the arena would be considered. (Katz Group) Answer: Please see Answer #30 above. We remain in the conceptual stage of this development but we currently envision the district around the arena including two hotels, two office towers, two residential towers, student residences, a casino and an assortment of restaurants, lounges, live music venues and other hospitality and entertainment commercial development. Once we have a reasonable degree of commercial certainty that the arena project will proceed, we will be in a position to proceed with design and pricing of the other elements in the Entertainment District. Only then will we be able to enter into commercial negotiations with prospective tenants and partners in the Entertainment District. 60. What would be a realistic timeframe for such a development and what would be the turnaround time for the COE to realize benefits of the newly developed district? (Katz Group) Answer: Please see Answer #34 above. We do not presently have the commercial certainty required to formalize a business plan for the district. This said, based upon our discussions with our consultants and prospective tenants and partners, we are confident that private sector development around the arena is viable and it is our intention to deliver as much of it as reasonably possible contemporaneously with the construction of the arena. The level of interest among prospective tenants and partners is very high. However, we anticipate that the development of the district will take place in phases and that it will take several years for the full development to be complete. 61. Do the cities of Los Angeles and London own their facilities? What contributions did each make? What are their annual revenues? (Katz Group) Answer: We do not have this information. Financing and ownership models for facilities elsewhere each have their own nuances that are a product of the unique circumstances of each city, market and the means available to raise capital. We seek a “made in Edmonton” funding model that is reflective of our local realities and best meets the needs of all concerned. 62. What are the financial/revenue agreements (subsidy revenue, revenue sharing, taxes) in place with other NHL teams? With the Hockey Related Revenues and other revenue streams (i.e. concerts and entertainment events etc) available to these teams, what sorts of revenue are they able to realize annually? (Katz Group)

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Answer: Please see Answer #40 above. While 24 of 30 arenas in the NHL were constructed with a mix of public and private investment, the specifics of the financial/revenue agreements and the total revenues derived have not been disclosed to us. 63. What are the opportunities to have funding from other orders of government? (Katz Group) Answer: This has yet to be determined. 64. Would the City of Edmonton be able to initiate design and environmental competitions? (Katz Group) Answer: Please see Answer #35 and #51(e) above. 65. If no new downtown arena district is built in Edmonton and the Oilers will not play in a renovated Rexall Place, where will they play? (Katz Group) Answer: Our singular focus is upon negotiating a mutually satisfactory agreement with the City of Edmonton that will facilitate the construction of a new downtown arena. We are confident that this can be achieved.

2010FTB013 – Attachment 3

July 21, 2010 City Council Meeting Item 5.4 – Sports and Entertainment Facility Supplemental Questions from Mayor and Council Questions for Northlands Mayor Mandel: 1. What is the breakdown of the revenue generated from Northlands from the arena site? After paying all of the operating expenses and building maintenance costs related to Rexall Place, Northlands generated net income of $6,200,000.00 from Rexall Place operations in 2009. 2. Ticket tax is an important part of the proposal. Can you breakdown what money Northlands receives? Northlands attracted and produced over 100 non-hockey events that generated $2,400,000.00 in ticket surcharge in 2009. We estimate the Oilers brought in approximately $4,000,000.00 in ticket surcharges in 2009 (based upon an average ticket price of $75.00). Councillor Anderson 3. Has Northlands done a successful job of marketing the current Rexall Place? (Northlands) Northlands has done an excellent job of marketing Rexall Place and independent third parties verify our results. In 2007 leading publication Pollstar ranked Rexall Place 10th best worldwide and 3rd best in Canada for music/concert entertainment based on attendance figures. In 2009 Venues Today, also a leading industry publication ranked Rexall Place 10th worldwide and 2nd in Canada for all non-sports franchise events, again based on attendance. Northlands is also a major partner with Edmonton Tourism in national and international event bids and has been successful in bringing many events to the city that drive significant economic impact and profile and market our city nationally and internationally. These events include The Brier, World Curling Championships, Canadian Country Music Awards, Canadian Curling Championships, and the World Junior Hockey Championships. Councillor Henderson: My questions are about the non-hockey revenues and probably are best answered by the Oilers and Northlands may also want to answer. 4. It is my understanding that in the old deal with the Oilers they had the non-hockey business. At that time they chose to give it up, I presume because it was not lucrative. This is a question for the Oilers, however, when Northlands took back the building in 1998, concurrently with the purchase of the Oilers by the Edmonton Investors Group, the nonhockey business was losing approximately $2,500,000.00 to $3,000,000.00 annually. For that reason, the Edmonton Investors Group insisted that they would only purchase the team if Northlands reassumed the responsibility of operating Rexall Place, which included the payment of all operating costs by Northlands. Since reassuming control of Rexall Place, Northlands has built the non-hockey business such that Northlands currently attracts over 100 non-hockey events to Edmonton annually.

2010FTB013 – Attachment 3

Operating this business successfully is important to the entire community in terms of economic spin off and cultural diversity, but it is also specifically important to the City as firstly, the revenue generated by these non-hockey events pays the operating costs for both hockey and non-hockey events and secondly, there is a direct financial return to the City from Northlands. Over the past five years Northlands has returned $2,800,000.00 to the City of Edmonton from Rexall Place operations. This amount is reserved by the City and provided back to Rexall Place for capital projects. Finally, the profit generated by Northlands from its Rexall Place operations ($6,200,000.00 in 2009) is reinvested by Northlands in Rexall Place and as a significant part of its business operations it is returned to the community in the form of programs, facilities and business and entertainment options that might not otherwise be seen in this market. While some of these programs or initiatives may not be profitable themselves, they do create substantial economic spin off and other benefits in the City of Edmonton. 5. I am wondering what has changed in the interim that they now want the business back. Northlands has built the business up over the years and has established a reputation for operational excellence and a strong working relationship with all the promoters, agents and artists. Through years of hard work and investment in people, Northlands has created an international reputation as a facilities operator. In addition, Northlands has demonstrated an ability to maximize the Rexall Place schedule, satisfying multiple stakeholders and bringing in a diverse array of concerts and family shows. This involves transforming Rexall Place from an ice rink one night to a rodeo ground the next night and then to a concert venue. This ability is one of our greatest strengths. Therefore, while it is true that live touring has become more prominent as a means of financial returns to artists in the last several years due to circumstances within the industry, Northlands has been able to seize the opportunity that has been presented both for its benefit and for the benefit of the City of Edmonton. 6. Would the deal be different? Has something changed besides Northlands management to suddenly make it lucrative? In addition to becoming excellent facility operators Northlands has also succeeded in building great working relationships with tour promoters and artists’ agents. Obviously, turning Rexall Place into one of the top 10 venues in the world requires the attraction of the top touring acts. Attracting those acts is central to our success. We have had to build and maintain our reputation with the tour promoters and agents. They know us for our operational excellence, our focus on relationship building and our can-do approach. We enjoy very positive relationships with our partners in the concert business. Although it is difficult to speculate on how the “deal” would be different if Northlands was not the operator of a new arena, it should be noted that there has been information presented that suggests AEG would be a partner and the deal, based on other AEG models in other cities, would indicate an exclusive or select entertainment arrangement. This model has proven to be challenging in other markets, in terms of allowing competitive players into the market. Third parties within the industry have expressed concern that this model would reduce Edmonton’s ability to bring in as many concerts and shows.

2010FTB013 – Attachment 3

7. And if Northlands took a money losing proposition and turned it into a money making deal, why would they want to walk away from that expertise? We are highly committed to continuing to operate this line of our business. We maintain that we have the expertise and are best placed to run this business in the primary interests of the entire community. In addition this line of business has produced a stream of net income that Northlands has used to support the Oilers building operations, assist in funding other important events and programs for the benefit of the community and return a profit share to the city. Councillor Leibovici: 8. Can Northlands provide the current operating budget for Rexall Place and Northlands? Detail all revenues and expenses for Rexall Place. Can Northlands provide a projected operating budget if Rexall is not part of its revenue stream? We have attached a budget document outlining that information. This document was part of a larger budget package that was presented to and approved by City Council in July 2010. 9. Please provide the HOK report as well as the reasons that the report was commissioned. Does Northlands agree with the analysis in the HOK report of the need for renovations at Rexall Place? The HOK research presented in 2007 was an important part of Northlands ongoing due diligence as part of our overall stewardship of the Facilities Master Plan. HOK did not produce a report as such, they did an analysis and made a presentation to Northlands Board of Directors and invited Oilers representatives to attend. Patrick Laforge and Doug Goss attended on behalf of the Oilers. A second presentation on the following day was undertaken with City Administration and City Councillors were invited to attend. Given that they are the facility specialists, Northlands would be pleased to invite HOK (now operating as Populous) back to repeat their presentation to the administration – and to Council if it so chooses. Attached is a copy of the news release from April 2007 outlining our intent in undertaking this due diligence. 10. (a) Please explain the different calculations that are in the media re: required renovations at Rexall Place, i.e. $49m; $200m; $250m; any other figures. There are different numbers being used related to different scenarios: maintenance and capital improvements, and large-scale renovation. The $49,000,000.00 is a calculation made by the City of Edmonton Capital Construction Department in March 2010 that was based on a previous Northlands report that is outdated. Northlands has reviewed that report and the City Capital Construction Department’s calculations and has updated the content of the report and determined that the city calculations did not factor in work that had already been completed. Northlands’ revised report puts forward calculations that include an update on completed work and further forecasts future expenditures through 2023, allowing for inflation. Those calculations show a total maintenance and capital improvement cost of $31.3 million.

2010FTB013 – Attachment 3

The second and third figures relate to a possible large-scale renovation of Rexall Place as outlined in the HOK Report. The original estimate in 2007 was $250,000,000.00. This number was recently updated by industry experts and is now estimated to be $197,000,000.00. (b) Has there been a cost benefit analysis to renovate vs. building a new arena? No 11. (a) Would Northlands be able to attract private capital to renovate Rexall Place and operate Rexall Place without any public subsidy? We are of the opinion that, if we had the same revenue generating opportunities that our current hockey partner has, we would be able to attract private capital to operate Rexall Place without public funds. As set forth in our answer to question #15 below, the existing license agreement between Northlands and the Edmonton Oilers provides significant benefits to the hockey club including all Oilers game revenues, and net food and beverage contributions. The Oilers are also entitled to all building advertising and sponsorship revenues including naming and pouring rights, and suite rental revenues. Under the current arrangement, these revenues are not available to assist in paying the operating expenses for the building. In addition, given that the Northlands’ business model is to reinvest its earnings back into the facility and into the community, Northlands would ensure that Rexall Place profits would stay at Northlands to be reinvested into more entertainment options for Edmontonians. The same may not be said of a more traditional arena operator who would potentially be taking any profits made by Rexall Place out of the business and out of the community. 11. (b) Who is currently responsible for any capital improvement to Rexall Place? Under the current site lease, Northlands is. 12. According to the 2007 HOK report how does Rexall Place compare as either a hockey arena or concert facility with other arenas? Based upon the 2007 HOK presentation, Rexall Place meets all NHL standards. It is also an excellent venue for concerts particularly given the ability to hang a large weight load in many configurations. Further, our rankings by Pollstar and Venues Today, both leading industry publications, are extremely positive. In 2007 Rexall Place was ranked 10th worldwide in the top 100 concert venues by Pollstar Magazine for concerts and in 2009 Venues Today ranked Northlands non-hockey business as 10th worldwide and 2nd in Canada. 13. Does the City currently receive any property taxes from either Northlands or Rexall Place? Does the City receive any revenues from Rexall Place? The property held by Northlands, including Rexall Place, is exempt from property taxes pursuant to the Municipal Government Act. This fact is acknowledged in the Master Agreement and in the Site Lease between the City and Northlands. However, it should be noted that, pursuant to these agreements, Northlands is required to pay property taxes on those portions of its property that are licensed for the consumption of alcohol. The basis for determining the amount of the taxes payable is set forth in the agreements. In addition, Northlands is required to pay any local improvement levies related to its property and Northland pays business taxes and license fees related to its operations. All in all, the amounts paid for these taxes are well in excess of $170,000/year.

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As for other revenues paid by Northlands to the City, Northlands pays the City a portion of any profit earned on an annual basis from the non-hockey events at Rexall Place. The amount paid is determined based upon a formula agreed to between the parties and it varies each year based upon the number and the success of non-hockey events held at Rexall Place. During the past five years, the total amount paid by Northlands to the City pursuant to this profit sharing arrangement has been approximately $2,800,000.00. 14. Are there any agreements in place with the City and Northlands which guarantee that Northlands will operate an arena after 2014 either at the current Rexall Place or any new arena? Our lease, which includes Rexall Place, extends to 2034. It is a term of the site lease that Northlands operates and maintains Rexall Place during that term. 15. What is the current revenue sharing agreement with the Oilers and the City regarding: 1.) Rexall Place; 2.) Northlands? The City of Edmonton and Northlands have a profit sharing arrangement related to annual profits earned by Northlands in the operation of Rexall Place. As stated in our answer to question #13, over the past five years, Northlands has paid the City a total of approximately $2,800,000.00 pursuant to this arrangement. The current lease arrangement between the Oilers and Northlands can be summarized as follows: a) The Oilers pay rent of $1.00 per year and contribute approximately $1,100,000.00 to operating costs each year, plus the sum of $270,000.00 per year towards repayment of the scoreboard loan; b) The Oilers receive all proceeds from hockey related activities, including all ticket sales and broadcasting rights; c) The Oilers receive all advertising and sponsorship revenues at Rexall Place; d) The Oilers receive all revenue received from the sale of the naming rights for Rexall Place; e) The Oilers receive all suite revenues for every event in Rexall Place; f) The Oilers receive all food and beverage revenue from hockey related events; g) The Oilers receive all parking revenue from the parking areas north of 118th avenue for hockey related events; h) Northlands pays all expenses and operating costs related to Rexall Place including all event staff, security staff, police costs, parking staff, building operation personnel, building utilities, maintenance and repair (the staffing cost is for all events including hockey). In summary, the current lease arrangement gives the Oilers all of the revenues from hockey events but requires them to pay only a portion of their share of actual expenses related to the operation of Rexall Place. In 2009, the amount paid by the Oilers was $1,100,000.00. The base expenses paid by Northlands in 2009 to operate Rexall Place to an NHL standard were approximately $10,900,000.00 of which at least $6,600,000.00 was attributable to the Oilers (based upon allocating 100% of the “Oilers only” expenses and 100/365 of the general base expenses to the Oilers). Yet the Oilers contributed only $1,100,000.00 to these expenses. The rest of the expenses were paid by Northlands using non-hockey revenue generated as a result of the efforts and expertise of Northlands. Based upon this, the current lease arrangement is extremely favourable to the Oilers.

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16. Can Northlands confirm that they agree with the concept of a downtown arena? Since the Mayor’s Leadership Committee released its report, we have been steadfastly supportive of a new facility as part of an overall downtown development plan. We have always wanted what’s best for Edmonton and would always support an innovation in our community. Our support has always been for an arena that is financially viable and in the best interest of the entire community. We’ve also been clear as part of our enthusiastic support that we believe that we are the best organization to operate the arena and continue to do what we do so well for this community – offer world class entertainment using a community investment business model. Councillor Sohi: 17. What is the cost of renovating Rexall? Will the renovations reduce seating capacity? The most recent renovation number that has been provided by HOK and verified by Mortensen Construction, is $197,000,000.00. The renovations were based on utilizing a benchmark facility. The Newark, New Jersey arena was used as comparator/comparative. The Oilers were involved in this process and requested a large number of private luxury suites included in the renovation analysis. If the number of suites were built out at the NHL benchmark then the seats would be reduced by less than 200. 18. With renovations, can Rexall meet the NHL standards? We meet the NHL standards at Rexall Place now. 19. If all non hockey revenue goes to Katz group, then what impact will this decision have on Northlands? Can it survive without that revenue? We’ve been clear as part of our enthusiastic support that we believe that we are the best organization to operate the arena and continue to do what we do so well for this community – offer world class entertainment using a community investment business model. If we were to cede all non-hockey revenue to the Oilers, this decision would have far reaching impacts that go far beyond Northlands. This decision would have impacts on the taxpayers of this city who enjoy the benefits of Northlands’ community investment business model. It would have an impact on the community who currently feel that Northlands is “theirs”. It would have significant impact on our agricultural partners who are supported and promoted through the work that we do. With Northlands at the helm, all community interests are served and the profits are reinvested for the enjoyment of our entire population. We believe that this is an innovative and important business model. To be clear: in 2009, Northlands generated sufficient revenues from its operation of Rexall Place to pay all the expenses related to Rexall Place (including the expenses attributable to the Oilers but paid by Northlands as explained in the answer to question 15 above) and to generate an operating profit of $6.2 million. This is a significant part of our business operations and it is returned to this community in the form of programs, facilities and business and entertainment options that we might not otherwise see in this market.

2010FTB013 – Attachment 3

Payment of the non-hockey revenue to the Katz group creates the following issues: a) If the Katz group did not agree to pay 100% of all expenses related to the ongoing operation of the new arena (including all base plus NHL expenses which would be higher in a larger arena compared to $10,900,000.00 per year for the much smaller Rexall Place) then the City would have no revenue from which to pay the balance of the expenses not paid by the Oilers and the payment of these expenses would come out of the City’s general revenues; b) If Northlands did not have the opportunity to generate an operating profit from Rexall Place (as we assume that the Katz group would insist upon the closure of Rexall Place), then it would have insufficient funds with which to pay for its community programming, its facilities and its existing obligations. Obviously, this would cause Northlands to significantly reduce its activities; and c) Alternatively, if a new arena was built without the involvement of Northlands, Northlands may have no choice but to continue to operate Rexall Place (under a new name we assume) in competition with the new arena in an attempt to retain some of its operating profit and to save its programming. Given the additional revenue that the Oilers stand to receive from the additional ticket sales, food and beverage sales, advertising and sponsorship sales that will come from a new significantly larger arena, the Oilers should not require the non-hockey revenues from the new arena. However, these non-hockey revenues are required to pay the base expenses of the new arena and to assist Northlands in funding its community facilities and programs. 20. Why are non hockey revenues vital for Northlands? Non-hockey operations form the core of our business. We are known industry-wide for our operational excellence and strong reputation. The nonhockey events that we attract and produce are not only a key financial component to Northlands but truly are an important part of our city’s cultural diversity. From Cirque du Soleil to Beyonce to Walking with Dinosaurs - this kind of entertainment range is critical to meet the needs of a broad stakeholder base in our city. While Northlands non-hockey operations are profitable, the decisions to bring various events to the city are not always based on a bottom line. It is important to continue to provide a spectrum of events to our city that will serve the broader interests of the entire community. Our more than 2,500 events attract over 4 million visitors to our city every year while generating $1 billion in economic activity in Alberta and contributing to our high quality of life here. This is what would be secured with Northlands at the helm of a new arena in the downtown core.