Economist Trevor Tombe says the way Flames' Ken King described their arena meeting isn't the full story

Earlier this year, University of Calgary economist Trevor Tombe met with Ken King, vice-chairman of the Calgary Flames ownership group, and the pair talked about public financing for professional hockey arenas.

But Tombe says the way King recounted that meeting on the Calgary Eyeopener this week wasn't the full story.

On Thursday, when King was on the morning radio show, he said he met with Tombe and thought the economist was on board with the idea of an arena receiving financial support from the City of Calgary.

Recounting their conversation, this is how King described it: "[Tombe] said, 'Actually,' — his words not mine — 'Actually, I think there could be lots of really good reasons to do this, and it should be done.'"

King said he was then surprised to see Tombe criticizing aspects of the arena deal and the way it was communicated this week, after details were made public on Monday evening.

"He would appear to either have changed his mind on that or, simply from an academic standpoint says, 'Look, I need to be a critic here and that's what I'm going to do,'" King said of Tombe's recent public statements.

"But frankly, I think he, actually in his heart — and I don't know if he's a hockey fan or a culture fan or anything else — but he, like so many others, would say, 'You know, we should do this.'"

So, is that what Tombe actually believes?

Eyeopener guest host Rob Brown got the economist's side of the story on Friday.

Here is a condensed version of that interview, edited for length and clarity.

Q: Is this the way you recall the conversation with Ken King?

A: So, Mr. King and I met in March and it was a very deep and wide-ranging conversation. He was very generous with his time. But, of course, back in March we had no sense of what any details were around the deal. So we're talking at a very high level.

And I think that's right. There is a case for public involvement in an arena and a case for public funds being used in the construction of the arena. There's lots of kind of infrastructure benefits, potentially. There's public-good elements of this where we all get enjoyment from having the Flames here in Calgary, even if we don't go to the games.

So, yeah, I support — in principle — the idea that public funds are used. But supporting a deal does not mean supporting any deal. And supporting public funds does not mean with, you know, no limit on those funds.

So the devil is in the details. And we only saw those details on Monday.

Q: So are you both on the same page then? Because he said that you said it should be done. And hearing what he said, it sounds like you believe we should have a new arena.

A: I think there is a case for public funds being used to build a new arena. How many dollars are we talking about? What will the new arena look like? Details matter.

But, yeah, absolutely — in principle — I think the city should be putting some resources toward the construction of the arena and building some of the related peripheral infrastructure around it.

Q: OK. So you haven't changed your tune, as Ken King suggested on our show yesterday, from supporter to reluctant critic. It's just you have the details now, and the economic argument that has been put up by the city and the Flames ownership group you have some issues with. Tell us about those.

A: Yeah. This is where I really take issue with how the city is framing it.

They put forward a cost of $290 million ($275 million for the arena and $15 million or so for demolition of the [old] stadium) and then they compare that to $400 million of what they're calling "financial benefits" — revenue from a ticket tax, property tax revenues, the naming rights and so on.

But that $400 million is just adding up dollars over 35 years without any discounting whatsoever. But a dollar 35 years from now is worth a lot less than a dollar today.

So I think that might be kind of a combination of the city wanting to really boost support for the deal by putting out some favourable numbers. But it also might be a sign that mistakes are being made, given the really tight timeline that the city staff are working with.

Q: I've been watching you tweet and I talked to one or two reporters who spoke with you earlier this week. Is the real number actually in the negative, at the end of the day?

A: Yes. The real number is absolutely in the negative.

And it looks like, verbally to council, that senior city staff are thinking it's somewhere around negative $47 million, although the details of how they come up with that number is unclear.

There's not so much that I can [use to] independently produce my own estimates. But doing the best I can, it looks like maybe it's somewhere around negative $150 million, maybe negative $200 million. It depends on what you count as a benefit associated with the arena deal.

And that's how the conversation should go. We should be asking ourselves: Is the cost worth the non-economic benefits associated with the arena? That means having clear, transparent costs being provided to Calgarians so that we can evaluate the deal.

Right now, they put it out there as though it is a no-brainer: benefits exceed the costs. But that's just not the case.

Q: What do you think the best arguments around the non-economic benefits for a publicly funded arena are?

A: Well, there's civic pride and community engagement. The facility will be used during Stampede, for example. There are community days and, in particular, the secondary facility [if it's built] will be used for many more community activities.

And just a feeling that Calgarians get when watching the Flames and seeing how they how they perform in playoffs, for example. There is really a public-good nature to having that team here, which might motivate some public funds being used to build a new facility.

Not a lot of people talking about that aspect of the deal, though people are focused on the dollars and cents, because, you know, it's their money at stake.

Q: Referring back to your Twitter stream. Are you making the argument, if I understand your tweets correctly, that the deal itself could be improved if the return for the city via the ticket surcharge was higher? And this is something that has struck other people: it's a 50-50 split on the bill, but we're not getting 50 per cent of the profits, are we?

A: Right. So we are going to be levying a two-per-cent tax on revenue in the new arena.

There's some details and complexities around there but, roughly speaking, each one per cent in ticket tax is, in today's terms, equivalent to about $40 million. That that's my own estimate.

Q: Annually?

A: No, in total.

So, that's what we want to then compare to the $290 million. So, it's about $3 million a year, at first, and then it grows after that, as you know, with inflation and things like that.

And right now, the ticket tax is at two per cent. If it were instead around five or six per cent, then the public contribution would be almost nothing.

And that would really be users of the facility paying that ticket tax, while the Flames owners would characterize it as a tax on on them. I think it would be mostly passed on to consumers.

There's some debate around what that number could be. And that's why time is useful to think about alternative parameters of the deal and what the implications of them might be.

Q: You do make the point that more needs to be done in terms of council looking into this as well you don't think the consultation period for the public is long enough and you don't think council has enough time to digest all of this.

A: Yes. Some councillors have not seen any of the details until Monday. And then they're expected to digest it all over the course of a week?

And there's some complicated factors to weigh here. That $290 million: What does it mean for a typical household? What are the alternatives that the funds could have been used for? We could've used that amount of capital funds to help offset the pressure on the operating side of the budget — and I know that's a contentious kind of discussion out there — but you could take $290 million, pop it in an endowment fund and have it generate maybe about $12 million a year for the operating side of the budget.

So considering tradeoffs, carefully presenting analysis, being transparent about the costs and then having a conversation about the intangibles — that's how we should be approaching this.