KINGSWAY ENTERTAINMENT DISTRICT AND ARENA Economic and Financial Analysis Sudbury, Ontario Prepared for Municipal Law Chambers March 12, 2018 March 12, 2018 Mr. Gord Petch Municipal Law Chambers Royal Building 277 Lakeshore Road East Oakville, Ontario L6J 6J3 Dear Mr. Petch: Kingsway Entertainment District and Arena Economic and Financial Analysis As per our discussions, you have asked urbanMetrics to prepare a preliminary report summarizing our initial analysis and conclusions with regards to the proposed Kingsway Entertainment District in Sudbury and the proposed relocation of the Sudbury Community Arena, as part of this proposed arena/casino/entertainment/retail centre on the north side of The Kingsway in the vicinity of Levesque Street. As you are aware, our firm, and our legacy organizations: the Coopers & Lybrand Real Estate Consulting Group and the PricewaterhouseCoopers (PwC) Real Estate Advisory Services Practice, have extensive experience in terms of analyzing the need for sports and entertainment complexes as well as casino gaming. In addition, we have undertaken numerous studies on behalf of municipalities to assist them in planning their commercial structures and downtown cores. We were involved in the analysis that led to the initial introduction of casino gaming in Ontario, and have continued to analyze casino and gaming projects on behalf of both private and public-sector clients. We have also undertaken numerous downtown studies on behalf of municipalities, and recently, on behalf of the Downtown Peterborough BIA undertook an analysis of a similar type of casino proposal. Moreover, we are also able to provide considerable insights into the Sudbury market and tourist draw, having been the economic consultants to Science North on a number of occasions and assisted in the creation of the Dynamic Earth attraction. As part of our analysis, we have undertaken a review of the background documentation, including two PwC reports, which reviewed various options for the arena/entertainment complex, developed locational criteria and applied those criteria to provide Council with www.urbanMetrics.ca | 67 Yonge Street, Suite 804, Toronto, ON, M5E 1J8 | 416-351-8585 (1-800-505-8755) | [email protected] Kingsway Entertainment District and Arena Economic Impact direction as to an appropriate site for a new arena. We have also reviewed various planning policy documents, although we would note that the focus of our analysis relates largely to the market and economic impacts related to the arena and the impacts that might occur with the relocation of the arena and the casino to the proposed Kingsway Entertainment District. The following report summarizes our principal conclusions and supporting analysis related to the proposed Entertainment complex. If you have any questions with regards to any aspect of our report, please do not hesitate to contact us. Yours truly, urbanMetrics inc. Rowan Faludi, MCIP, RPP, CMC, PLE Partner [email protected] 2 | Page Kingsway Entertainment District and Arena Economic Impact Summary of Findings We have undertaken a preliminary assessment of the principal components of the proposed Kingsway Entertainment District, and particularly, the proposed relocation of Sudbury Community Arena and the proposed relocation of Gateway Casinos Sudbury. In our opinion, the proposed Kingsway Entertainment District would be contrary to a number of key municipal and Provincial policies, including the Official Plan, the Downtown Master Plan, the Economic Development Strategy and the Growth Plan for Northern Ontario. Our analysis also concludes that the Kingsway Entertainment District is not a project that would make economic sense for the City of Greater Sudbury in that the benefits it would produce would be overshadowed by its economic and financial costs. Before investing further staff and financial resources in this project, we strongly recommend that the City proceed with the conduct of an independent economic and financial analysis of this project. • Downtown Sudbury is the City’s and Region’s Commercial Engine. This is reflected in all of the City’s key Planning and Economic Development policies. These policies protect Downtown Sudbury and actively promote continued investment in the core. The Sudbury Community Arena is the largest visitor attraction to Downtown Sudbury and supports many downtown businesses. The relocation of the Sudbury Community Arena would be a lasting economic drain on Downtown Sudbury. It would likely cause the direct loss of businesses that rely on the arena and would significantly hamper the attraction of new investment to downtown Sudbury • Downtown’s are the Preferred Location for Major Arena/Entertainment Complexes. Major sports leagues including the NHL and CHL have recognized that their most successful franchises are in downtown locations, while the least successful franchises are on suburban sites. Municipalities, such as London, Kingston, Guelph, St. Catherines, Oshawa, and others, with downtown CHL arenas are seeing a surge in commercial and residential investment. The development of a new arena in Downtown Sudbury, would help to stimulate private investment in this strategic area. • The PwC Report Confirmed Downtown as the Preferred Site for the New Arena. PwC was engaged by the City of Greater Sudbury to undertake two reports examining the need for and the location for a new Arena/Entertainment complex. After examining eight key factors, PwC concluded that the Downtown was the preferred site for the Arena. 3 | Page Kingsway Entertainment District and Arena Economic Impact • Making a Decision Based on a Sub-set of the PwC Factors is a Flawed Approach. Council directed PwC to make an assessment based on only three of the factors – Economic Impact, Cost, and Parking. While the Downtown site was rated highest from an economic impact perspective, it was rated behind the Kingsway site in terms of Cost and Parking. PwC used very generalized and preliminary cost information and, in our opinion, did not have sufficient information to rank the options based on cost in a supportable manner. The parking analysis left out a number of key factors that could have returned an alternative result if considered. Furthermore, it was based on a pre- existing bias that an expansive suburban parking area was in someway superior to downtown parking options, without taking into consideration the amount of parking actually required to support a new arena. The analysis using only three of the eight factors is a flawed approach and should not take precedence over the analysis of the full range of factors, which resulted in the Downtown being the preferred location for the arena/entertainment complex. • The Kingsway Entertainment District Would Redirect Business and Investment Away from Other Parts of Sudbury. The current Kingsway proposal would include the relocated casino, the relocated arena, as well as, restaurants, and other recreation/entertainment uses and is also being promoted to include shops and a convention centre. Sudbury is not a large market and is projected to grow at only modest levels. In the absence of a major draw in the downtown to replace the arena, it is likely that the Kingsway Entertainment district could exist only by cannibalizing business from the downtown and other parts of the City, which are already identified in the Official Plan as being important commercial nodes the entire City and beyond. • The Kingsway Proposal Would Jeopardize the City’s Planned Transformational Large Projects. Following a public consultation process, City Council gave direction to proceed with two major projects – The Greater Sudbury Convention and Performance Centre and the Library/Art Gallery. The re-use of the existing arena was deemed the preferable location. In our opinion, it is likely that the proposed Kingsway Entertainment Centre could duplicate the function of the convention centre and events centre – by offering alternative performance venues, meeting spaces and convention facilities. In addition, by relocating the arena to the Kingsway site, the City would be losing all of the synergies that would exist between the convention centre and the arena, such as, attracting large scale events that would use both facilities, or by attracting a large convention hotel that could serve both arena and convention centre. In our opinion, the Kingsway development would seriously impact the viability of these important projects in the downtown core. And in fact, the 4 | Page Kingsway Entertainment District and Arena Economic Impact Kingsway development is already being promoted for a convention centre to tie into the opportunities created by the relocated arena1. • A Casino Would Not Significantly Affect Tourism to Sudbury and Would Draw the Vast Majority of Its Support from within the City. The existing Sudbury tourism market is not large and not well oriented towards casino gaming, with about 70% of visitors coming to visit friends and relatives or for shopping and personal appointments. About 60% of visitors arrive from other parts of Northern Ontario. The current pleasure market comprises only about 21% of visits. The existing casinos in Northern Ontario – in Thunder Bay and Sault Ste. Marie draw between 85% to 95% of their visitors from within the local municipality. Licence plate surveys conducted at the Gateway Casino Sudbury (Former OLG Slots), confirm that the vast majority of customers are from Sudbury. Attracting tourists to a casino in Sudbury would require tapping into new markets not currently visiting Sudbury. This would be difficult to do because the Provincial and International gaming markets are already severely constrained by existing casinos, while the OLG modernization program will be bolstering this competition. In our opinion, additional gaming revenues that would be achieved by a new casino in Sudbury would be derived mostly from Sudbury residents, who would have transferred their spending from other commercial sectors elsewhere in the City. • Casino Gaming Extracts Money from the Local Economy. Casinos and slots facilities typically generate very high profits. In the case of the OLG Slots, this facility generated approximately $42 million in net gaming revenues in 2016/17, plus a small amount in food services. Local costs (wages and salaries, municipal revenue share, sponsorships, local purchases, etc.) comprised only about $12 million. The OLG Slots Sudbury faciltiy contributed approximately $30 million to the Province. With the vast majority of these revenues being derived from Sudbury residents, an estimated $20 to $24 million was effectively transferred from the City’s economy to the Province. While the Province invested money back into the City as part of its ongoing spending on health care, transportation, infrastructure, etc., there is no way of knowing whether this represents a gain or a loss for the City, or whether the Province would invest any differently if there were not casino in Sudbury. Effectively this money was being transferred from the City for discretionary spending by the Province. This situation will be less favourable for Sudbury going forward, in that future casino revenues will be shared 1 Promotional video prepared by True North Strong Centre. 2 Science North is made up of multiple separate attractions including the Science Centre, Dynamic Earth, the 5 | Page Kingsway Entertainment District and Arena Economic Impact between the Province and Gateway Casinos – a private BC company owned by a Toronto Investment firm, which would have no obligation to invest revenues back into the local economy. • The Proposed Kingsway Entertainment District May Not Result in a Significant Number of New Jobs for the City. While the proposed entertainment district will be a relatively large employer, most of the jobs will occur from transferring existing jobs from the arena and the slots facility. The employment gain from the new arena would be negligible and would likely be the same if the arena were constructed downtown. Gateway Casinos has announced that it will employ some 400 persons. These would replace approximately 190 jobs at the slots site. Based on our understanding of the Gateway concept, about two-thirds of these employees would be required for work in food services and retail outlets at the casino. It is likely, that at least some of these jobs will be transferred from existing bars and restaurants in the downtown and elsewhere in Sudbury, so that the net gain could be relatively small. Equally as important, is that due to their high profits, casinos do not generate a lot of employment per dollar earned. So that transferring revenues from establishments such as restaurants that require more staff per revenue earned, could actually result in employment losses for the City as a whole. • Additional Revenues to the City from the Proposed Kingsway Entertainment Project May Not Be Significant. The City currently receives about $2.2 million from the current slots facility through the Municipal Contribution Agreement with OLG. Based on a projected casino win from a current level of $42 million from the slots to between $75 and $80 million from both tables and slots, this would increase the municipal share by between $1.45 to $1.7 million. Additional revenues would also be available from property taxes, however, these will be highly dependent on assessment changes that are being reviewed by the Municipal Property Assessment Corporation in response to the OLG modernization program. These would result more from changes to how casinos are assessed than to where they are located. In other words, the assessed value of the facility will likely change regardless of whether Gateway Casinos moves to a new location. As a municipal facility, the Community Arena, is exempt from taxes. This is not expected to change with the proposed relocation to the Kingsway site. These net revenue gains will also be tempered by tax losses from the closure or downsizing of downtown businesses due to the relocation of the arena and competition from the proposed Kingsway development. Furthermore, taxes received from new development also come with a requirement for a municipality to provide public services, such as road maintenance, emergency services, administrative 6 | Page Kingsway Entertainment District and Arena Economic Impact services, etc. So that much of the tax increase from the development of a new casino may be required to provide the necessary services to support it. • In conclusion, the Proposed Kingsway Entertainment District has many Economic Drawbacks for the City and it is likely that its Economic and Financial Costs would Outweigh its Benefits. As a result, we would strongly recommend that a more detailed economic analysis be undertaken, before additional staff and financial resources are invested by the City towards this proposal. 7 | Page Kingsway Entertainment District and Arena Economic Impact 1.0 Sudbury Community Arena is an Important Economic Driver and Community Resource Sudbury Community Arena is currently one of the largest visitor attractions within the City and an important economic driver for the downtown core. Based on the February 21, 2017 PwC Report, which was commissioned by the City to assess the viability of constructing a larger and modernized facility, between 2013 and 2015, the current arena has drawn between 156,000 and 213,000 visitors annually. To put this in perspective, this is more than the attendance attracted to the Science North Science Centre over this period, which drew between 142,000 to 149,000 visitors2. While the source of visitation to these two important attractions is very different, none the less, Sudbury Community Arena draws a very significant volume. The City of Greater Sudbury’s website describes the Sudbury Community Arena: The Sudbury Community Arena is where sports and entertainment come alive in the north! A hub of community activity since 1951, the Sudbury Community Arena has hosted countless concerts, tradeshows and sporting, entertainment and cultural events. It is also proud home to the Ontario Hockey League’s Sudbury Wolves. Centrally located in downtown Sudbury, the Sudbury Community Arena is situated near a variety of unique shopping, entertaining and dining locations3. As one of the most visited attractions in the City, Sudbury Community Arena attracts many visitors to the site, but also supports a wide range of businesses in its vicinity, including restaurants, retail shops, accommodations, and others. In our experience, the location of the arena will play a very significant role in terms of its ability to support local businesses and attract visitors to its own events. 2 Science North is made up of multiple separate attractions including the Science Centre, Dynamic Earth, the Exhibit Hall, the IMAX Theatre, the Planetarium and the new Escape Room. All of these attractions combined drew between 343,000 and 381,000 persons between 2013 and 2015. The Science Centre is the most popular of these attractions, drawing between 142,000 and 149,000 visitors. 3 https://www.greatersudbury.ca/play/recreational-facilities/arenas/sudbury-community-arena/ 8 | Page Kingsway Entertainment District and Arena Economic Impact 2.0 Downtowns have Become the Preferred Location for Major Arena/Entertainment Complexes Both municipalities and sports organizations across North America have realized that suburban-based arenas consistently underperform those in downtown locations, both in terms of economic impacts and attendance. The National Hockey League has acknowledged the trend towards successful downtown arenas, citing young people’s preference to living downtown and forgoing car ownership and that from an urban planning perspective the trend is moving away from suburban entertainment districts towards a more dynamic mixed-use approach, including residential development and retailing. The weakest franchises in terms of attendance - Florida, New Jersey, Arizona, Carolina and Ottawa are those with NHL arenas in suburban locations4. The Edmonton Oilers recently relocated from the former Northlands Coliseum (Rexall Place) beside the Northlands exhibition grounds (i.e. an entertainment district), to Rogers Place in the heart of the downtown core. The construction of the new arena has attracted a downtown building boom characterised by a number of new condominium and office projects. The City of Ottawa is also considering a relocation of its NHL arena from suburban Kanata to LeBreton Flats adjacent to the downtown core. NHL Commissioner Gary Bettman has stated that “A new downtown arena is vitally important to the long-term future, stability and competitiveness of the Senators”5. Smaller communities with Canadian Hockey League (CHL) teams are also moving towards downtown arenas. The London Knights, which has the highest average attendance in the Ontario Hockey League (OHL) and the second highest in the CHL has their home in Budweiser Gardens – an important downtown attraction, which like Edmonton has also attracted considerable downtown investment since its opening in 2002. The City with the highest average attendance in the CHL is Quebec City, which has an arena on the fringe of its downtown. Similarly, the K-Rock Centre in downtown Kingston has become a key economic driver for the core area, hosting the Kingston Frontenacs OHL team and a myriad of major concerts and events. To enhance the economic impacts of the arena, it was designed so 4 “Suburban arenas a problem for the NHL”, Toronto Star, November 23, 2107. https://www.thestar.com/sports/breakaway_blog/2017/11/23/suburban-arenas-a-problem-for-nhl.html 5 “NHL commissioner Gary Bettman says Ottawa Senators need a new home”, Ottawa Sun, November 10, 2017. http://ottawasun.com/sports/hockey/nhl/ottawa-senators/bettman-says-the-senators-need-a-new-home 9 | Page