Ottawa finance committee signs off on changes to Lansdowne Park deal

Ottawa Sports and Entertainment Group, owners of the Redblacks and the 67s, is petitioned the city for a change to its public-private partnership. THE CANADIAN PRESS IMAGES/Lars Hagberg

Ottawa’s mayor and city staff believe proposed changes to the municipality’s relationship with the team running Lansdowne Park will be better for the city’s bottom line in the long run, according to a presentation at the finance and economic development committee (FEDCO) on Thursday.

But some councillors and numerous community delegations who signed up to speak on the issue Thursday urged the committee to take more time to consult the public before making substantial changes to the public-private partnership.

FEDCO approved a staff recommendation Thursday that would see changes made to the city’s deal with the Ottawa Sports and Entertainment Group (OSEG). City council will now consider the motion at its meeting on Nov. 25.

The proposed changes include extending the partnership until 2054, letting OSEG access some of its reserve funds and waiving the city’s rights to freely terminate the group’s retail lease — measures that would reduce immediate financial pressure on the Lansdowne operators and help them attract new third-party investors.

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City staff made a presentation Thursday alongside executives from OSEG, who not only own and manage a slew of local sports teams, including the CFL’s RedBlacks and the OHL’s 67s, but also run Lansdowne Park’s commercial and retail spaces as part of a 30-year partnership. The city still manages the urban park.

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The novel coronavirus pandemic has drastically affected OSEG’s operations with a pause put on any professional sports and major events and significant disruption to retail, restaurants and amenities such as the site’s gym and cinema.

The ownership group therefore approached the city this summer looking to renegotiate some terms of the arrangement, including extending the partnership horizon by 10 years and allowing OSEG to take $4.7 million from a maintenance reserve fund to bolster its short-term operations.

OSEG’s finances were already shaky before the pandemic, due to unexpected operating costs and lower-than-anticipated attendance to the site. Infrastructure on the site, such as the north-side stands, is also in dire need of renewal.

This prompted a strategic review of OSEG’s operations in 2019 and new expectations that the city would not receive $62 million in accrued interest on the project. OSEG’s partners were also no longer expecting to recoup their initial capital contributions.

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Mayor, delegations point to community benefit

Many speakers at Thursday’s FEDCO meeting, including Ottawa Mayor Jim Watson, pointed to Lansdowne’s non-financial impacts on the city since it was redeveloped less than a decade ago.

Many delegations argued in favour of supporting OSEG because of the role the Ottawa RedBlacks play in civic pride.

In the same vein, Watson highlighted community events such as hosting the Grey Cup festival in 2017 and the revitalization of historic structures, including the Horticulture Building, as reasons to call the Lansdowne redevelopment a success.

Read more: CFL teams unveil plans for virtual events during 2020 Grey Cup Unite

Roger Greenberg, one of the ownership partners, asserted that his personal reasons for participating in the Lansdowne project were not financial, but rather a matter of “giving back to the community.”

Festivals, concerts, farmers’ markets and Lansdowne’s other experiential impacts are important to consider, Greenberg said. Nickel-and-diming the private-public partnership is not the only way to measure Lansdowne’s value, he argued.

“I bristle when they say, ‘We haven’t gotten anything from Lansdowne,’” Greenberg said Thursday.

But economist Angella MacEwen cautioned against exactly this line of thinking at Thursday’s meeting.

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“The football team is so important to the city that we’re willing to go to extreme lengths to prop up the private return and not consider what it’s costing us,” she said in her delegation.

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The OSEG owners were originally slated to invest $30 million in equity into the project when it was first proposed, but those contributions have ballooned to $152 million to date. The owners now propose investing an additional $40 million over the next five years to ensure OSEG remains a going concern.

The City of Ottawa put up $210 million in the initial redevelopment of Lansdowne between 2012 and 2014, but has not contributed public funds to the project since. It rents the stadium and publicly owned land to OSEG at the cost of $1 per year.

City staff said the proposed changes would not cost taxpayers any additional dollars, though some councillors on Thursday questioned the lost revenue tied to giving OSEG the break on rent for another 10 years.

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Why now?

Many delegations who came forward to Thursday’s meeting urged the committee to pump the brakes. Extending the OSEG deal another 10 years out to 2054 in the midst of a pandemic filled with economic uncertainty is unwise, they argued.

While many speakers, including representatives of the Glebe Community Association, were in favour of giving OSEG emergency access to the reserve funds, they suggested a long-term public consultation is needed before making significant alterations to the public-private partnership.

Read more: Lansdowne first neighbourhood in Canada to achieve LEED stage 3 certification, City of Ottawa says

Anthony Carricato, a citizen transit chair who also chairs the Glebe association’s Lansdowne committee, said Thursday he wasn’t told about the proposed changes to the OSEG deal in any of the working group’s meetings with the group and the city this past summer.

“Would’ve been nice, for sure. We have a working group for exactly this reason,” he said.

Other delegations also noted that an audit of the Lansdowne Park Project’s “waterfall” revenue model will be released only a day before city council would be scheduled to approve the new deal and it would not make sense to approve any changes without that information.

City manager Steve Kanellakos, who has seen that audit report, could not comment on the specifics of the report but said Thursday he did not think any of its contents would affect city council’s decision on this matter.

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In response to questions surrounding the urgency of the proposed changes, Greenberg told FEDCO that OSEG needs the confidence of these changes before putting more of its capital into the project.

“The changes that we are asking are ones that we feel absolutely necessary to give us confidence to say, ‘Let’s put another $40 million in this venture,’” he said.

The new model would give OSEG more stability in its cash flow and improve its ability to refinance its $106-million loan on the retail segment of Lansdowne, city staff said. Otherwise, the group is at risk of default.

The change would also give the group a longer horizon to recoup its investment.

Greenberg said the proposal included only “modest change” and expressed his confidence in city staff’s analysis.

“I’m not sure what there is more to study,” he said.

Not a ‘bailout,’ staff say

Kanellakos pushed back against narratives that the city was offering OSEG a “bailout” and argued that it is in Ottawa’s “best interest” to renegotiate in good faith with its business partners.

Kanellakos said the provisions suggested in the city report, such as removing Ottawa’s claim to participation rent under the deal and waiving the city’s ability to terminate OSEG’s retail lease without cause, will remove barriers for the ownership group to find a third-party investor for the site’s retail component.

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Kanellakos said the city will retain its ability to terminate OSEG’s retail lease in the event of a breach of contract. Terminating this lease without cause, however, would force the city to pay upwards of $100 million in equity to OSEG, he said.

Allowing OSEG to default on its retail loan, staff added, would put the burden of operating the site and running its numerous sports teams on the city itself. The annual impact on Ottawa’s budget would range from $4.5 million to $12 million under the optimistic or pessimistic versions of this scenario.

Extending the Lansdowne partnership deal for an extra 10 years to 2054 would be a “win-win” for the city, according to deputy treasurer Isabelle Jasmin.

Passing on 10 years of base and participation rent related to the site would see the city lose out on $10 million in revenue, Jasmin said Thursday, but putting the Lansdowne operating costs on OSEG for another decade would also save the city up to $22 million — an estimated net savings of $12 million.

And while the new arrangement would see OSEG dip into $4.7 million of its reserves, the extra 10 years would see the group contribute an additional $13.2 million to those lifecycle maintenance funds by 2054.

Among other recommendations proposed in the report are the establishment of another working group composed of city staff and OSEG representatives to “explore options” to improve the partnership. This working group could open the door to putting affordable housing on the site.

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