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Business Commentary Calgary Flames’ arena tantrum masks inconvenient truth: Economic payoff isn’t there

So the Calgary Flames are done talking to the city about building a new arena for the NHL team. "It's not going to work," Flames president Ken King huffed last week, hinting that the team's future in Calgary might be in doubt.

Oh, please.

Mr. King's little tantrum is all part of the ritual dance that goes on across North America whenever a professional sports team wants gobs of government cash to build a new venue it would rather not pay for itself.

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Hey, Ottawa: Get ready for similar threats from Ottawa Senators owner Eugene Melnyk, who is negotiating with the National Capital Commission to build a new arena on the federally-owned LeBreton Flats near downtown.

Globe editorial: Calgary Flames to city: Pay up or we'll drop dead

Related: Calgary Flames and Gary Bettman turn up the heat on arena talks

The playbook is always the same. Get the city, province or some other level of government to bear as much of the financial risk as possible. And if the offer isn't rich enough, threaten to move.

It's a simple calculus. The more of the upfront costs team owners can offload on taxpayers, the more profit they'll be able to keep for themselves – from broadcast rights, ticket sales, private boxes, naming privileges and concessions and the like.

Calgary says it offered to chip in the equivalent of $185-million to cover the cost of a new $555-million arena, plus pay for indirect costs such as upgrading utilities and infrastructure related to the facility, to be located in Victoria Park near downtown. The rest would come from the team and a surtax on ticket sales. The proposed taxpayer contribution represents about a fifth of what Alberta will spend between now and 2021 building and renovating public schools across the province.

That apparently wasn't enough for the Flames' wealthy owners, including Murray Edwards.

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Owners often make the case that the economic spinoffs, jobs and tax revenues more than cover any public dollars spent. Unfortunately, decades of research have shown that new venues add little to a city's economy after all the bills are paid.

Many of the promised jobs are temporary (construction) or low-wage (concession staff and cleaners) and the promised tax revenues often fail to take into account the substitution effect: If sports fans buy pricier tickets to see the Flames or Senators, they'll have less money to spend on other things, such as restaurant meals, concerts or clothes.

Unlike spending on roads and bridges, the benefits of sports venues tend to be enjoyed by the relative few who can afford to go to games. So the subsidies are regressive from a tax perspective.

The University of Chicago's Booth School of Business recently asked a panel of 50 prominent U.S. economists whether the benefits of subsidizing professional sports venues exceed the cost to taxpayers. Nearly six out of 10 said no.

Yet governments just can't resist. Taxpayers have borne between 50 per cent and 100 per cent of the cost of recently built or refurbished arenas and stadiums in Edmonton (Rogers Place), Regina (Mosaic Stadium), Winnipeg (Investors Group Field), Toronto (BMO Field), Hamilton (Tim Hortons Field), Ottawa (TD Place) and Quebec City (Videotron Centre).

From 2000-15, privately-owned sports facilities cost U.S. taxpayers $12-billion (U.S.). That includes losses to the U.S. Treasury from tax-free federal bonds, often used to finance the projects.

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Sometimes no amount of money is enough to keep a team from a better offer somewhere else. Three levels of government spent $258-million on a new stadium to lure the Los Angeles Rams to St. Louis, Mo., in 1995. The Rams moved back to L.A. last year, sticking St. Louis with $144-million in debt and maintenance costs on the mostly unused Edward Jones Dome.

Taxpayers in some cities are growing tired of the shakedown. Last year, voters in San Diego rejected a proposal to raise the local hotel tax to fund its $350-million share of a new stadium for its NFL team. The Chargers opted to leave, also to L.A.

All this is a cautionary tale for the people of Calgary, Ottawa and maybe your city soon. Calgary's Scotiabank Saddledome is 34 years old, but it's already considered obsolete.

Cities need to have realistic expectations. A new facility isn't likely to be an economic boon. But with progressive urban planning, it can be an anchor for broader redevelopment goals that benefit more than just team owners. Absent that, it's just a financial anchor.

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