THE McDAVID EFFECT: The $6-billion business of rebuilding a city around its hockey team
An ascending teenage hockey star is helping the billionaire owner of the Oilers accelerate an ambitious transformation of Edmonton's downtown. Marty Klinkenberg has the story from inside the front office and back rooms of the NHL's most exciting franchise
Illustrations by Ron Boyd
Daryl Katz was at his winter residence in California the night fortune smiled on the Edmonton Oilers. Tuning into NBC's broadcast of the NHL draft lottery, the team's billionaire owner watched with his then 14-year-old son, Harrison, to see who would win the right to pick Connor McDavid.
"I didn't expect us to be in the running at all," Katz says, settling into a wingback chair in front of a two-storey stone fireplace in the living room of his expansive home overlooking Edmonton's river valley. Through a wall of windows, the trees on the opposite bank of the North Saskatchewan are ablaze in a patchwork of fall colours. "I was not paying all that much attention. I figured it was destiny, and that Toronto's name was going to be called."
As the April 18 lottery progressed and the Maple Leafs missed out on the prodigy from Southern Ontario, Katz became more attentive. An 18-year-old whose skills have been likened to Wayne Gretzky and Sidney Crosby, McDavid could now go to only one of three teams: the Buffalo Sabres, Arizona Coyotes – or the Oilers.
"Suddenly I thought, 'Holy shit! We have a good chance,' " Katz says. "Then we won. It was arguably one of the most exciting moments of my life."
Together, business titan and teenager ran around the house in Palm Springs, screaming. The commotion startled the family's pooch, a joyful shih tzu/miniature poodle mix named Rex. "Our poor dog thought the world was ending," says Katz, 54.
E-mails and text messages began to pour in. Some were congratulatory, others not. "I didn't know so many people hated us," Katz says. "If they didn't hate us before, they hate us now."
A native of Edmonton and the owner of the Rexall pharmacy chain, among other business interests, Katz purchased the Oilers in 2008 for $200-million (Can.). The team – now valued at $625-million (Can.) – has wallowed in the basement since then, despite landing the first overall pick in four of the last six years.
But in drafting McDavid, they would get the most talked-about player in a generation.
"I still can't believe we won," Katz says. "In my mind, it set the wheels in motion for everything we've done."
After securing the rights to McDavid, Katz ordered a dramatic overhaul of the Oilers. In the six months since then, along with drafting the young star and adding a handful of other new players, the team has made changes in management, replaced its head coach and fired its scouting staff.
"We talked about our hockey operations and the business side, and the lottery was the impetus to get the ball rolling," Katz says. "It seemed like we needed to hit the ground running. We would have done these things anyway, but we wouldn't have done them the next day. There was no rush."
At the same time sweeping changes were being made to the team, a $480-million arena was under construction as the centrepiece of a $6-billion downtown development project Katz had dreamed about for a decade.
"I would not have bought the team without the challenge and opportunity to build the arena and everything around it," he says of the massive undertaking known as the Ice District. "It was the opportunity to do it as part of a once-in-a-lifetime development that I found inspiring. The combination of the two things is very exciting."
The 35-acre site is the largest private real-estate development in Canada and the second largest in North America after Hudson Yards, a 17-million-square-foot commercial and residential district on the Lower West Side of Manhattan. When it is completed, the Ice District will be 12 million square feet – slightly larger than LA LIVE, the entertainment quarter adjacent to the Staples Center in Los Angeles.
Courtesy Oilers Entertainment Group
"Four years ago, if you told anyone what we planned, they would have said, 'You're nuts!'" Katz says. A private man who rarely does interviews, he is speaking publicly for the first time about the lottery win that led to him remaking the once-proud team, and about the full size and scope of the development project. "They wouldn't have believed it in a million years."
So great during the 1980s that they are recognized as the NHL's last dynasty by the Hockey Hall of Fame, the Oilers have finished 28th, 28th, 24th, 29th and last twice in the 30-team league over the last six seasons. The men appointed to turn the team around – Bob Nicholson, Peter Chiarelli and Todd McLellan – are part of the owner's ambitious plans to make the Oilers champions again, and to rebuild Edmonton's downtown around them.
'The most giddy conference call'
On April 15, hours after he was promoted to chief executive of the Oilers' parent company, Bob Nicholson presented a pair of $12 lucky red socks in a maple leaf pattern to Bill Scott to wear at the NHL draft lottery. Further mulling the importance of the occasion, Nicholson also gave a $1 coin to the team's assistant general manager, and directed him to tuck it into his pocket for luck in Toronto three days later.
"I told him not to come back unless we won," Nicholson says.
After missing the playoffs for nine years, the Oilers were clinging to the hope that they would secure the rights to choose Connor McDavid. At 11.5 per cent, their odds of winning the No. 1 pick were so slim that little enthusiasm was expressed when team officials prearranged a conference call for an hour after the lottery.
Sitting on the couch in his condo and watching the telecast before Game 2 of the Penguins-Rangers playoff series, Nicholson nearly dropped the bottle of water he was drinking when Bill Daly, the deputy commissioner of the NHL, turned over the card bearing the Oilers' logo.
"It came up gold, and then my phone ignited," says Nicholson, who joined the Oilers Entertainment Group as vice-chairman in June of 2014 after 25 years with Hockey Canada, the last 16 as president. "I have been in some big moments – being involved with teams that won Olympic gold medals – but I have never seen my phone light up like that."
Once an undersized winger for the Penticton Broncos of the British Columbia Hockey League, Nicholson presided over Hockey Canada as it grew from a small organization with 23 employees to a major entity with a payroll of 107. During his time at the helm, Canadian national teams won 76 medals at world championships and the Olympics, including 44 golds.
It was during the last two Winter Games that he began to forge a relationship with Katz, who was as impressed with Nicholson's resume as Nicholson was with Katz's generosity and business acumen.
In 2010, the Oilers owner lent his corporate jet to Team Canada so it could shuttle NHL players into Vancouver at the last minute. In 2014, Katz rented a spacious suite at the Bolshoy Ice Dome in Sochi, and turned it over to Team Canada's management group.
"He never even came to the Olympics," Nicholson says.
Katz tried to persuade Nicholson to work for him in 2010, but he didn't acquiesce until 2014, after Canada's men's and women's teams captured Olympic gold medals.
"After that, I felt it was time to pass the torch to someone else," says Nicholson, 62. "Eventually, I came to an agreement with the Oilers and, after a number of months, we started to seriously talk about my interest in taking over the Oilers Entertainment Group."
After discussing the matter with his wife, Lorna, Nicholson accepted a promotion to CEO, giving him control over the Oilers' hockey operations and the Katz Group's sports and entertainment interests. Along with the Oilers, the group owns the Edmonton Oil Kings of the Western Hockey League and the Bakersfield Condors of the American Hockey League, and will operate Rogers Place, the arena that will play host to the Oilers and Oil Kings beginning next year.
"The reason I took the job is the way Daryl managed his business," Nicholson says. "He is hands-on when it comes to details, but leaves the day-to-day operations to other people. For me, that was a key."
Three days after Nicholson accepted the promotion, the Oilers hit the lottery. The conference call that followed was anything but the anticlimactic post-mortem everyone expected. "It was the most giddy conference call of all time," says Tim Shipton, vice-president of communications for the Oilers Entertainment Group. "People were jubilant and shouting."
Nicholson set up a meeting with Kevin Lowe and other executives at 8 the next morning, during which he unrolled plans to transform the struggling team. At Katz's direction, Nicholson had spent the previous eight months evaluating the Oilers' organization. He had not factored in winning the rights to a brilliant teenage hockey prospect who was so coveted that some teams tanked last season to improve their chances of getting him.
By the time Nicholson was formally introduced 24 hours later as head of the Oilers Entertainment Group, he had already sought permission from the Bruins to speak to Peter Chiarelli. The general manager in Boston for nine years, Chiarelli had been dismissed the previous Wednesday – the same day Nicholson presented Scott with the lucky socks, which Edmonton Mayor Don Iveson had handed out earlier at a breakfast celebrating the FIFA World Cup.
Within 36 hours, Nicholson had Chiarelli, who built a Stanley Cup winner in Boston, under contract.
Almost immediately, a search began for a head coach to replace Todd Nelson, who had not been retained after taking over in December on an interim basis. Nicholson and Chiarelli quickly settled on Todd McLellan, who announced that week that he was leaving the San Jose Sharks. They did not interview, or seek permission, to speak to anyone else, not even Mike Babcock.
"Peter and I each said we had someone in mind as the first choice, and then we both said the same name," Nicholson says. "From that point on, we stayed focused on one guy. It was lightning fast."
Nicholson and Chiarelli travelled to the Czech Republic in early May to interview McLellan, who was coaching Team Canada at the International Ice Hockey Federation World Championships. Although a deal was already in place, his hiring was not confirmed until after the Canadians had won the gold medal on May 17.
"We held off out of respect for Hockey Canada," Nicholson says. "The timing was also pretty good for us, coming right after a gold medal."
Brought on board to be the central figures in the team's operations, Nicholson, Chiarelli and McLellan are all similar: friendly, outgoing and down to earth.
"Everyone wants to say they have an ultimate plan, but the timing of certain situations allows you to execute that plan," Nicholson says, referring to finding a top general manager and head coach in the unemployment line. "The key is that you have your evaluations done, so you are able to strike when the time comes."
'It was a no-brainer'
Peter Chiarelli was at the movies in Texas on the night the NHL's neediest teams had long awaited.
Fired as general manager of the Bruins three days earlier, Chiarelli was in Fort Worth to cheer for his daughter, Talia, an All-American gymnast for the Michigan Wolverines, at the NCAA championships.
A few hours later, as Chiarelli sat in a theatre watching a cyber slasher flick called Unfriended with his son, Cameron, his attention was diverted by a news alert that flashed across the teenager's phone. In a race among the downtrodden, it was the Oilers and not the Sabres, Coyotes or Maple Leafs that won the chance to pick McDavid.
"Other than being surprised that it wasn't someone with better odds, I didn't give it much thought," Chiarelli says. "I knew Bob [Nicholson] and Kevin [Lowe], so I was happy for them."
There was no lack of interest around the league in Chiarelli, whose teams in Boston made the playoffs in all but his last year. He gravitated to the Oilers because of his relationship with Nicholson and Lowe, with whom he served in Team Canada's management at the 2013 IIHF World Championships and 2014 Winter Games. Nicholson quickly reached out to Chiarelli, and on April 24, he was introduced as general manager.
"I felt it was the best professional opportunity for me," Chiarelli says, seated in his office beside the Oilers' dressing room at Rexall Place. "It is a team that already has good young players, and the decision was easier when I realized they were going to get Connor McDavid. But even without that, it would have been the best place for me."
In a matter of weeks, Chiarelli had hired McLellan – "I went after him hard, and in a hurry" – and made sweeping changes to scouting. Among the five scouts terminated was Dave Semenko, the big winger who served as Gretzky's bodyguard on some of the Oilers' great teams in the 1980s.
"I'm not a scorched-earth type of person, but it goes with the territory," says Chiarelli, who was captain of the Harvard Crimson hockey team and a player agent before becoming an NHL executive. "Usually, a general manager is brought in for a reason. It's not just succession."
On the night of June 26, Chiarelli stood at a podium in the Florida Panthers' home rink and calmly chose McDavid with the first selection in the NHL draft. The Oilers received no offers for the No. 1 pick, and would not have entertained one.
"It was a no-brainer," Chiarelli says.
In a busy two days in the Fort Lauderdale suburbs, Chiarelli also strengthened the team's goaltending and defence by trading a raft of draft picks for Cam Talbot of the New York Rangers and Griffin Reinhart of the New York Islanders.
"I found the draft exciting because I had other deals going on," says Chiarelli, 51. "In my mind, by the time the draft started, I had already moved past Connor. My mandate is to win the Stanley Cup. I had a list of things I wanted to accomplish."
During his whirlwind courtship two months earlier, Chiarelli flew to Edmonton, was given a tour of the new arena, and was shown a presentation that detailed its importance as a catalyst for Katz's downtown revitalization project. Construction on Rogers Place was only about half-finished, but it captured Chiarelli's imagination.
"When I saw it," he says, "my reaction was, 'Holy cow, this is going to be my work place.' "
Courtesy Oilers Entertainment Group
Prairie boy coaching in the West
Todd McLellan was on a family outing in California when the Oilers won the Connor McDavid sweepstakes. McLellan was driving when his 16-year-old son, Cale, announced that Edmonton would get the No. 1 pick. The Oilers also had the first overall choice in 2010, 2011 and 2012.
"When my son told me, I said, 'Get out of here! Not again!'" McLellan says.
While curious about how McDavid would fare in the pros, McLellan placed no special significance in the matter beyond that. At the time, the NHL season had just concluded, and his team in San Jose had missed the playoffs for the first time in seven years.
"I was finishing things up there, and in my head I was already thinking about the [IHHF] World Championships," McLellan says.
On the following day, however, McLellan met with Doug Wilson, the Sharks' general manager, and they agreed to a mutual parting. The day after that, Nicholson was announced as chief executive in Edmonton; within a few days he hired Chiarelli and the pursuit of McLellan began.
After leading San Jose to four 100-point seasons, three division titles and two appearances in the conference finals, McLellan was clearly an attractive candidate. But would he be drawn to the Oilers, a star-crossed team whose playoff drought was approaching 10 years?
While he was in Europe, McLellan met with a number of NHL teams with coaching vacancies. Chiarelli went to Prague and spoke with McLellan several times, and when it was clear the interest was mutual, Nicholson then flew in to help seal the deal. The day after Team Canada beat Russia in the gold-medal game, McLellan flew to Edmonton, and on the following day, May 19, he was introduced as head coach.
"I liked the direction the organization was taking, and I was impressed with the people involved," McLellan says. "When I looked at the players, both old ones and new, I thought there was a lot of potential. I saw it as a young team that could all grow up together."
A prairie boy from small-town Saskatchewan, McLellan says he selfishly wanted to coach in Western Canada. The first NHL game he attended as a kid was in Edmonton; his grandmother once lived there. "There were a lot of ties," he says. "For me, it was pretty simple. I fit the community."
In McDavid, McLellan suddenly finds himself coaching the most highly touted rookie in a generation.
"It is not different in terms of the way we try to prepare him and get him thinking," McLellan says. "But the overwhelming interest in him is different than anyone I have ever coached. I've never seen anything like this with an 18-year-old. He is a special player with a special skill set that fans are going to enjoy for a long time, and he is going to have a great career. But he is still a young man. It's our job to make sure we get the most out of him in a real good environment."
During the three weeks he coached Team Canada at the IHHF World Championships, McLellan turned to Crosby, the greatest player to enter the league in a generation, and sought advice.
"I knew I was coming to Edmonton, so it was natural for me to ask Sid about his first season," McLellan says. "He spent a fair amount of time revealing what he had gone through coming into the NHL, and really about being The Next One, if you will. It's tough to be that player. It's exciting, but there are hardships: adjusting to fame, to the stress of dealing with media, of dealing with everyday people." McDavid, with the help of the Oilers organization, coaches and teammates, will be fine, McLellan says. "But he is just one piece of the team. You don't win with one. You win with a group."
'The project of a lifetime'
Bob Black ducked out of a high tea party celebrating his daughter's 13 th birthday to find a TV on the night of April 18.
Escaping from tween girls dining on finger sandwiches and wearing fancy hats and elegant dresses, the executive vice-president of the Katz Group sat in a suite at the Fairmont Hotel Macdonald, poured a glass of wine, and watched events unfold.
"When our logo came up, an unfortunate quantity of wine was spilled on the carpet," Black says. "Then my phone blew up with e-mails, calls and messages."
A friend of Daryl Katz since they played together on Alberta's junior tennis team 40 years earlier, Black abandoned a career as a principal in a large law firm in 2009 to accept a position with the Katz Group overseeing the design of Rogers Place.
Built on the site of a former rail yard, the arena is the anchor of the downtown revitalization project Katz had envisioned before he even bought the Oilers. It will take up roughly the space of 40 football fields and include Canada's tallest office building outside of Toronto, luxury condominiums and hotel rooms in soaring high-rises, restaurants and retail space, a 14-screen cinema, a Rexall drug store (naturally), a new rail transit station, and a public plaza with a community skating rink.
"When Daryl told me about the project, I immediately thought it was bold and visionary," says Black, who is 55 and has maintained a love for the Oilers since 1972, the year they joined the World Hockey Association. He was 23 when the Oilers won their first Stanley Cup in 1984; after that, they won four in the next six years. "Listening to his passion, I was filled with enthusiasm, and went from being a lifer at a law firm to a completely different trajectory. I saw it as the project of a lifetime, and have never looked back with even an iota of regret."
Working out of the Katz Group's headquarters on the 17 th floor of a skyscraper adjacent to the arena site, Black has had the best view in the city as the rink has taken shape. Construction began March 3, 2014, and at this point, the roof and exterior are done. Bleachers are being installed, and framing, electrical and mechanical systems are being tested and put in place.
Designed in the shape of an oil drop, Rogers Place sits at the edge of the city's financial and civic centres and arts district, and is within walking distance of city hall.
"Given the fact that we were able to mobilize more than 25 acres, we recognized an opportunity to make sure the Ice District was integrated with everything in the downtown core," Black says. "We understand that what's good for the downtown is good for Oilers. The high tide floats all boats."
Not unlike other urban arena projects, it stirred considerable and raucous debate. The total cost for the 18,641-seat facility and surrounding infrastructure is $606-million and took years of negotiations between the Katz Group and the City of Edmonton. As part of the deal, the Oilers' parent firm provided $161-million in financing while the city contributed $279-million, a portion of which will be raised through a community revitalization levy assessed over 20 years. Another $125-million will be garnered through a ticket surcharge, with $7-million coming from the federal government, and $2-million from neighbouring Grant MacEwan University. A contribution of $32-million was expected from the province but has not been received. If not, the additional $32-million will be added to the community revitalization levy.
At times, discussions stalled and the relationship between the parties became strained. With deliberations at a standstill, Katz and other executives met community leaders in Seattle who hoped to attract an NHL team – perhaps the Oilers. That further raised the ire of dissenters in Edmonton opposed to public funding being used to finance an arena.
"It has taken a long time getting to this point, and at times it was very bruising," Black says. "The two sides were involved in complex commercial negotiations, and with it being high profile and the rhetoric that attracts, there were dark days and days where emotions got high. But on the other side of consummation of the deal has emerged an incredible partnership with the city, and that is one of the legacies of the project." The development, he says, "is going to materially change the way people see our city."
As part of the accord, the Katz Group committed to provide $100-million to help stimulate further investment around the new arena. In the last year, it committed $2-billion and is now pledging to kick in more. In addition, the city now estimates that the community revitalization levy will raise more than expected, helping to pay for another $377-million of municipal infrastructure to improve the downtown core.
"Everything we have talked about has become a reality," Katz says. "We have done exactly what we said we would, and more."
Filling the hole in downtown
Part of a trend among team owners who use an arena as the anchor for broader real-estate development, the Ice District was designed to change the face of downtown Edmonton. It had been three decades since a full-service hotel was constructed in the city centre, and the retail sector has suffered since the opening in 1981 of the West Edmonton Mall, the largest shopping complex in North America.
"One of the arguments against building a new arena was that the city didn't need one," says Brad Gilewich, senior vice-president of corporate affairs for the Katz Group. "But the arena is part of a bigger program. As in most cities, where the downtown used to be vibrant, it had become hollowed out. This is about filling that hole."
Encompassing about eight city blocks, the Ice District is significantly larger than Maple Leaf Square, the $500-million hospitality and residential corridor that sprung up as an afterthought around Air Canada Centre. The arena and development belong to Maple Leaf Sports and Entertainment (MLSE), the behemoth that owns Toronto's Maple Leafs and Raptors.
It is the Katz Group's ambition to become an industry giant to rival MLSE and Anschutz Entertainment Group (AEG). Besides its sporting ventures, the Oilers Entertainment Group is a partner in Silver Pictures, a film and television production company, and also owns and manages an events-planning company.
"When it comes to competing with MLSE and AEG, we're coming up the middle," Nicholson says. "It's not a pipe dream or a sales pitch, it's real. The Ice District is under way. We are not in the starting blocks. We are out of the gate."
The first phase of Ice District – which includes Rogers Place, 66-, 50– and 27-storey office towers, and a 26-storey Marriott hotel – is expected to be complete in 2019. After years of planning and negotiations, the project has progressed with remarkable speed – a result of numerous factors, including pent-up demand, favourable weather and co-operation from city officials.
"It is certainly the fastest development in North America and one of the fastest in the world," says Glen Scott, senior vice-president of real estate for the Katz Group. "Being able to go pedal to metal is not the normal process."
Gary Klassen, general manager for the City of Edmonton, says options were explored for reinvesting in Rexall Place, which opened in 1974 and after Madison Square Garden is the second-oldest arena in the NHL. Estimates to refurbish Rexall Place ran as high as $250-million.
"We were very mindful that it was something we needed to address," Klassen says. "As a city, we have a history with the Edmonton Oilers. Hockey is part of our DNA."
'It gives you shivers'
A painting waits to be installed in the living room of Daryl Katz's home across the North Saskatchewan River from downtown Edmonton. Exquisite tapestries decorate the walls. Books celebrating the works of Jack Bush, a Canadian abstract artist, and the famous American painter Jasper Johns, rest on a coffee table.
The shy son of a pharmacist, Katz grew up in an upper-middle-class family and played tennis, soccer and basketball in his youth. After attending law school at the University of Alberta, he worked for a legal firm and then set up a practice focused on corporate and franchise law in the same building that houses the Katz Group's offices today.
With help from his father, he opened his first pharmacy in 1992, the same year he established the Katz Group, and then purchased the fading Rexall chain four years after that. It had a dozen stores in Canada then; now there are 450.
With an estimated worth of $3.3-billion, Katz ranks among the wealthiest Canadians – and continues to broaden his interests. The downtown construction project, along with other holdings, makes the Katz Group one of the largest private real-estate developers and landowners in Canada.
"People don't get it," Katz says. "They still think I am in the drug store business. I have [six million square feet] of real estate already under development here."
Sitting in the chair near the soaring fireplace, he seems anything but a reclusive captain of industry: convivial, engaging, at times entertainingly profane, and enthusiastic about matters dear to his heart, especially his hockey team.
He acknowledges acquiring land for the arena project before he even purchased the Oilers. More recently, he procured 10 acres north of the arena to be used in the next phase of the downtown development.
"I didn't have to be in the hockey business," Katz says. "The team was struggling and it was a small market, but I saw an opportunity to do something for the city, to build an arena and use it in a revitalization that would allow us to be prouder of our downtown. I took the idea to [several people] and it struck me that nobody was interested. They didn't want to put in a dime, and that inspired me. Many of my businesses are too mature. They are beyond entrepreneurial, and don't need me. This was a challenge."
Katz laboured over plans for the arena, complicating the design specifications with his insistence that it be built in the shape of an oil drop – a nod to the province's energy industry. "That's Alberta, and that's Edmonton," he says. "The problem was getting everything you want and need in an arena while keeping it that shape."
At 14 storeys tall, the building looms over the edge of downtown. The exterior is all stainless steel and glass; among its amenities is the largest high-definition, centre-ice scoreboard in the NHL. "It is a building I fought for and wanted for the city," Katz says. "When I walk into the winter garden – the entrance most people will use to access the arena – I'm overwhelmed with emotion. It brings tears to my eyes."
Banners celebrating the Oilers' five Stanley Cups are displayed on a wall beside the bank of elevators just outside the Katz Group's offices in the high-rise next to the arena. On the opposite wall, there are photographs of some of the greatest players in franchise history – Gretzky, Mark Messier, Jari Kurri, Grant Fuhr.
They were heroes to Katz as he grew up, and today they remain part of his fondest memories. With the arrival of Connor McDavid, however, a new era has begun.
"You pause for a second and realize that in less than one year, the arena will be done," says Shipton, the vice-president of communications. "I can imagine Connor threading the puck to Taylor Hall and him going top shelf to win it all in Game 6 of the Stanley Cup finals. It is a dream, but it's what we all aspire to. It gives you shivers to have what we will have here."
Katz says his biggest wish was that the team would turn things around at about the same time it moved into the new arena. As successful as he has been with most everything he has done, his hockey team remains a work in progress.
"Everyone in the organization understands how fortunate we were to win the lottery," he says. "We have a new staff and new players and there is heightened sense of interest for everybody. I think we are going to be ready, that's for sure. And I am proud."
Ron Boyd for The Globe and Mail