Alaxandra Gruca-Macaulay
In 2012, the City of Ottawa and the Ottawa Sports and Entertainment Group (OSEG) formed a limited partnership that put into motion the redevelopment of Lansdowne Park as a home for a new CFL team. The Ottawa Redblacks played their first game in 2014, but, despite OSEG’s optimistic projections, the public/private limited partnership (LLP) has suffered recurring year over year losses, totalling $109.6 million as of 2023 fiscal year end.
In May 2023, OSEG’s CEO, Mark Goudie and OSEG investor Roger Greenberg made a presentation to the City’s Finance Committee where, with vivid imagery, Mr. Goudie expressed the crux of the problem, “I think last time we were here Roger [Greenberg] was going to lose his shirt, now it’s shirt and shorts.” To which Mr. Greenberg added, “This [the poor financial outlook] demonstrates why the current status quo cannot continue. It just won’t – won’t from our perspective. So, we need 2.[0]…”
Although the City/OSEG partnership involves dozens of legal agreements, the basics of the LLP structure are easy to understand: Four revenue generating “business lines” at Lansdowne, each its own partnership (Redblacks, 67s, Stadium/Arena, Retail), are contained within a master partnership “bubble.” The LLP bubble ultimately is owned by OSEG’s member investors. The City has no ownership shares in the bubble but does own the land and buildings upon which the businesses operate and rents these for $1.00 (one dollar) a year to the Stadium/Arena and Retail components. OSEG is legally responsible for the maintenance, upkeep, and operations of the facilities.
Since business operations are OSEG’s responsibility, OSEG members, as ultimate shareholders, are required to make up any operating shortfalls – these cash injections are then logged as “equity” for OSEG, to be paid back to OSEG (along with interest) from future profits, if any. The City’s main benefit from the partnership was to have come from OSEG taking responsibility for the facilities’ upkeep. Since the City’s land and buildings were basically given over for OSEG’s use, and since the City has spent hundreds of millions of dollars on Lansdowne redevelopment to date, part of the agreement was to have seen the City share in the future profits of the business lines.
However, the LLP’s business operations have not lived up to expectations. As starkly put by Ernst and Young (EY) in their due diligence report: “…the financial performance of Lansdowne over its first 10 years since redevelopment [has] significantly fallen short of initial projections.” As a result of these poor results, OSEG investors have had to contribute to the LLP, and while the City originally was to have received about $80 million in profit sharing, it is now projected to receive $0.
Despite the fact that it was OSEG which had approached the City in 2010 with an unsolicited bid to redevelop Lansdowne, problems with OSEG’s business plan surfaced almost from the start. OSEG incurred significant construction cost overruns that began the slide to financial unsustainability (under Lansdowne 2.0 responsibility for construction cost overruns would shift to the City).
By 2018, a mere four years after the start of operations, OSEG was commissioning an engineering report on the question, “Are the existing structure and foundations of Ottawa Civic Centre and North Stands structurally adequate to allow for a redevelopment into a mixed-use Residential, Retail and Sports Complex,….?” In other words, could the current facilities withstand the construction of a 2.0 type of development? The engineers’ answer: the Civic Centre and North Side would need to be demolished. However, as City staff have confirmed, in their current use the sporting facilities are structurally sound and safe. Councillors Bradley, Devine, and Troster emphasized this point in the Ottawa Citizen: “To be blunt: Lansdowne is not an emergency. The north-side stands of the stadium are solid and engineering studies show that the arena has decades of life left in it.”
The lack of transparency about these and other aspects of the project was called out by many of the 80 delegates who presented at the November City committee meetings. Leading up to the Lansdowne 2.0 vote at Council, Mayor Mark Sutcliffe put out a promotional video that started with the claim: “Almost 15 years ago, we invested in Lansdowne, and the results have been fantastic…” (The LLP agreements were only signed in 2012, and of course, the financial results have been dismal) and then went on to claim that if Council does not approve OSEG’s redevelopment plan, “the cost of doing nothing is enormous…” Indeed the staff report cautions that if OSEG makes a business decision to default and if nothing were to be done to improve the facilities for the next 40 years (an improbable assumption), the “costs could be as much as $400 million or more over the next 40 years.”
But separately, the City reported a cost range of OSEG default between $118M and $407M, “depending on the length of time the impacts of the pandemic are experienced;” the 2023 Lansdowne Annual Report advised that operations have returned to pre-pandemic levels meaning the upper end of this range was no longer relevant. More importantly, to have any value, a “cost of default” estimate would need to consider not only costs but anticipated revenues and potential gains, such as direct receipt by the City of retail rent revenues. It also would need to assume that needed repairs and maintenance do in fact get done (estimated in the report at $1.0 million/year over 40 years), and most significantly, would need to add in the savings from $696 million of avoided City debt repayments.
There is no guarantee that OSEG won’t make a decision to leave the partnership at any point in the future, even if the City funds its 2.0 proposal. Recognizing that OSEG has only committed to keeping the Redblacks at Lansdowne until 2032 – approximately the time when 2.0 construction is expected to finish, Councillor Menard asked whether OSEG would have “no problem” in extending its commitment for the duration of the partnership agreement. Mr. Greenberg responded: “I wouldn’t say we have no problem, I’d say if it’s something that we’re going to negotiate, and we’re going to get something in return for it, it’s something we can talk about.” It is conceivable that the City will spend upwards of $400 million on new sporting facilities and soon afterwards be left with a stadium but no team.
In our next issue, Alexandra Gruca-Macaulay concludes her investigative analysis of the cost implications of Lansdowne 2.0 for the City and for taxpayers.
