Calgary Flames pull out of new arena deal with city due to rising costs

WATCH: Although both sides of the deal say they want the event centre built, Flames ownership says additional costs and supply chain issues have made the project too expensive for them to move forward. Adam MacVicar reports.

The Calgary Flames ownership group is pulling out of the new arena deal.

More than a year after an agreement was signed for the construction of the new Calgary Event Centre and arena, the Calgary Sports and Entertainment Corporation (CSEC) said there is no viable path to complete the project due to rising costs.

“We are deeply disappointed with the outcome,” CSEC said in a statement late Tuesday night.

In addition to being the Flames home arena, the building was designed to house events like concerts of all sizes.

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Earlier in the evening, Mayor Jyoti Gondek said the group intended to “pull the plug” on the deal. For one party to walk away over 1.5 per cent of the deal was “staggering,” she added.

“Today, I spoke with Murray Edwards, primary shareholder of Calgary Sports & Entertainment Corp (CSEC), about the future of the Event Centre project,” Gondek tweeted late Tuesday.

“He informed me of the Flames’ intention to pull the plug on the Event Centre deal.”

Describing the conversation as “very professional and straightforward,” Gondek said Murray tried to get the ownership group to “keep moving forward” on the arena deal.

“There was additional funding that had to be taken on by Calgary Sports and Entertainment Corporation,” Gondek said Tuesday evening.

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“It appears that they’re unable to make that financial commitment following the approval of their development permit, so it would appear that they are ending the deal.”

In 2019, both the city and CSEC signed the $550 million deal, splitting the costs evenly. The city agreed to pitch in $22.4 million for the cost of demolishing the Saddledome and reclaiming the land.

As part of the deal, a split of additional construction costs was set at a maximum of $25 million. CSEC would be responsible for cost overruns above that cap.

Negotiations in July resulted in Calgary Municipal Land Corporation being removed as the development manager. According to Gondek, the city added $10 million in event management costs.

However, CSEC said the overall cost increased to $608.5 million this past July. It says that’s when the city said it would not be able to fund its 50 per cent share “which, under the terms of the Project Framework Agreement, would have resulted in termination at that time.”

Instead, CSEC said it agreed to fund a disproportionate share  — $321 million to city’s $287.5 million — and accept the risk of reasonable future design and construction cost increases.

The event centre is now expected to cost $634 million, CSEC said, adding that means the group would be responsible for an additional $25.5 million. The overall breakdown would have been $346.5 million for CSEC and $287.5 million for the city, the sports organization said.

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Gondek said since her election in October, her office and city officials have been working with Flames ownership to mitigate additional costs, including two that were identified: $4 million in climate mitigation — including solar cells as part of the development permit process — and $12.1 million for road and sidewalk issues.

“The city came to the table to assist with $6.4 million in roadways leaving $9.7 million for the Flames,” Gondek tweeted “Based on this gap, CSEC informed me they are walking away from our deal.”

The CSEC said while it was prepared to move forward in the face of escalating construction expenses and assume the unknown future cost risks, it is not prepared to fund the infrastructure and climate costs introduced by the city following the agreement in July — not included in the current cost estimate.

“The failure of the City and CSEC to find a viable path forward was not based upon simply the ‘the last dollar’ on the table, but rather was based upon the accumulated increase in CSEC’s share of the costs, including the infrastructure and climate costs, the overall risk factors related to the Project and the inability of CSEC and the City to find a path forward that would work for both parties,” the group’s statement reads.

The group also cites the high risk associated with unknown future expenses due to ongoing supply chain issues and commodity price escalation as a result of the COVID-19 pandemic.

The mayor acknowledged any construction project can be subject to a variety of factors, adding the city has seen cost overruns based on pandemic-related inflation and supply chain complications.

“I’m not exactly sure what is driving their position, but I can tell you that we have done our best to be accommodating and unfortunately, they’re unable to proceed at this time.”

Mayor Gondek expects more information will be revealed in the coming days.

“I’m very interested in seeing what happens next. I can only give you a snapshot in time. We were quite surprised by this.”

CSEC said the organization’s intentions are to remain in the Scotiabank Saddledome.

© 2021 Global News, a division of Corus Entertainment Inc.

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