Thursday, January 03, 2008


The Location Agreement

There seems to be some confusion about whether or not the Edmonton Investors Group signed documents committing them to keeping the Oilers in Edmonton when they purchased the team in 1998. In this post at Covered in Oil, Vic Ferrari stated, "worth noting that when the EIG purchased the Oilers they flatly refused to agree to a non-movement clause with City Hall. The right to relocate the team to another city, at any time, or sell to a buyer who would do the same, that was one of the conditions of purchase from the EIG." But is that in fact true? With great assistance from Colby Cosh, I went digging for an answer. Here's what we found.

Did the Edmonton Investors Group sign documents committing the team to Edmonton when they purchased it in 1998?


Source #1
Puck iced as Oiler sale is finally done; OUT WITH THE OLD; IN WITH THE NEW
The Edmonton Journal
Wednesday, May 6, 1998
Page: A1/ FRONT
Section: News
Byline: Jac MacDonald, Journal Staff Writer
Dateline: Edmonton

"The Edmonton Investors Group Limited Partnership took possession of Edmonton's National Hockey League franchise around six p.m. Tuesday,league vice-president Frank Brown said.

The deal had to close by midnight Tuesday, or the franchise would have been sold to Houston Rockets owner Les Alexander, who planned to move the club out of Edmonton.

The group of 35 individuals and companies had already paid down a $5-million US deposit on the $70-million US purchase price. Tuesday, they paid the remainder and signed a mountain of paperwork. Among the documents was a new commitment to abide by an existing 1994 location agreement that requires the owners to keep the Oilers in Edmonton until 2004.

Source #2
Pocklington gave, but he also took; Fans must support hockey team
The Edmonton Journal
Saturday, May 9, 1998
Page: A14
Section: Opinion

"For their part, local hockey fans might feel gratitude to Pocklington for keeping the team in Edmonton all those years. The fact that it is still here, however, has more to do with the location agreement that city lawyers, representatives of Economic Development Edmonton and Northlands, and former mayor Jan Reimer had the foresight to include as part of the Coliseum concession package given the team in 1995."

Source #3
Dwight Hamilton and Pierre Pelletier, "The Puck Stops Here,"CA Magazine, October 1999

"But Houston had a problem. Unlike the owners of the Québec Nordiques (which moved to Denver in 1995) and the Winnipeg Jets (to Phoenix in 1996), Pocklington could not sell the franchise to another location without jumping through a few legal hoops first. Thanks to a little piece of paper he had signed back in 1994 known as the "Location Agreement," he was bound contractually to Edmonton until 2004. As a result of Pocklington's earlier threats to move the team south unless improvements were made to Northlands Coliseum, the federal, provincial and municipal governments each pitched in $5 million in 1994 - along with $8 million from Pocklington himself - to upgrade the rink and his Triple-A baseball stadium, Telus Field. At the same time, Pocklington formed CMI and began to levy a ticket tax on fans to the tune of $2.8 million each year.

This gift of public funds came with a catch: for the next 10 years, if the entrepreneur wanted to sell the club, and if a local group could commit to a purchase price of US$70 million within 30 days, the team would be sold locally regardless of whether a better bid was available from someone who wished to move it. If no local money came forward, Pocklington was free to sell to the highest bidder."

Source #4
Office of the City Auditor, Edmonton Northlands Park/Skyreach Centre: Review of Financial and Operating Information, February 26th, 2003

"In May 1998, Edmonton Investors Group acquired the Edmonton Oilers Franchise and all related contracts and commitments including the 1994 License Agreement and any related obligations to Northlands. As a condition of the purchase, Edmonton Investors Group entered into covenants and restrictions similar to those contained in the 1994 Location Agreement, which grants substantial control to Northlands, the City, and Economic Development Edmonton over attempts to move the Oilers from the City."

Bolds and italics are all mine. As the CA story indicates, the EIG couldn't ignore the Location Agreement, since it was what allowed them to buy the team for $70 million in the first place. There are even more mentions of the Location Agreement in this ATB Press Release, dated October 2nd, 1997. Colby has properly identified this as a quid pro quo deal between the EIG and the City of Edmonton. The team stayed in Edmonton, and the new owners got some nice economic perks. Avi Schaumberg noted as much in an old post:

"The EIG struck a solid bargain in 1998. They accepted the terms of the Location Agreement and agreed to lease Northlands Coliseum for $1 a year until 2004. In return, they received:

• all concession revenues for Oilers games,
• parking revenues north of 118 Avenue,
• $2.2 million of the $2.8 million ticket surcharge that formerly went to the City,
• ownership of the naming rights to the building (the rights were sold to Skyreach for $1.2 million a year, and later to Rexall).

Northlands Park was still responsible for operations and maintenance for the building (then a $17 million annual cost), and received revenue from non-hockey events (then $12 million). The City agreed to cover Northlands’ $2.4 million shortfall."

Is that Location Agreement still in place?


As the sources quoted above note, the original Location Agreement only lasted until 2004. That means the original Location Agreement expired four years ago.

Was a new Location Agreement signed between the EIG, Northlands and the City of Edmonton after the first one expired in 2004?

Fairly certain the answer is no, but I'm not positive.

Source #1
Avi Schaumberg, "Pyramid Power," SportsMatters, November 16th, 2006

"Meanwhile the Northlands agreement with the City has been extended to 2013. Under the current terms, the City has agreed to index its $2.2 million contribution to inflation – so the cost to taxpayers is already set to increase. And the EIG’s deal with Northlands has been extended to 2014, continuing the flow of concession, parking, advertising, sponsorship, suite sales, ticket surcharges and Oiler game revenue to the team. The EIG agreed under its new deal to contribute $878,166 per year towards operating costs (a payment that’s also indexed) and pay $270,272 a year for the new scoreboard (if they move, the payment is reduced)"

Source #2
Northlands Park 2005 Annual Report, December 31st, 2005

"City of Edmonton Support Agreement
The City of Edmonton Support Agreement provides a contribution towards Rexall Place operating cost of $183,333 per month or $2,200,000 per year until May 12, 2013. The $2,200,000 is adjusted for inflation annually, commencing January 1, 2005. The Company will be required to renegotiate the agreement with the City if there is a material change in the financial status of Northlands or Rexall Place during the term of the agreement."

Source #3
Northlands Park 2005 Annual Report, December 31st, 2005

On April 5, 2004, the License Agreement was renewed with the Edmonton Investors Group Limited (EIGL), effective July 1, 2004 for a period of ten years. Under the terms of this agreement, Northlands continues the management and operations of Rexall Place. The License Agreement grants EIGL the right to receive all Oiler game revenues, including net Oiler food and beverage contributions. EIGL is also entitled to all building advertising and sponsorship revenues, suite rental revenues, Oiler ticket surtax revenues as well the Rexall Place parking lot revenue. Northlands is responsible for building operating and capital costs, including the building event costs related to the playing of professional hockey. Under the Agreement, Northlands receives from EIGL building rent of $1 per annum plus a contribution towards operating costs of $73,180 per month or $878,166 per annum for the period July 1, 2004 to June 30, 2014. The EIGL contributions are adjusted annually based on the Consumer Price Index (2005 - $816,709; 2004 - $778,166).

The License Agreement includes an additional annual contribution of $270,272 for the use of the scoreboard until September 30, 2021. EIGL has agreed to pay a lesser amount than the loan should the Edmonton Oilers cease to play hockey in Rexall Place during the term of the loan."

Tyler Dellow has an excellent, must read post up on his site that quotes the CA Magazine story. I do think that Tyler grabbed the wrong quote about the Location Agreement from the story, though. The quote he uses simply states that the EIG rejected a request to extend the original Location Agreement from 1994-2004 to 1994-2008. The better quote is this:

"Despite all the government assistance, EIG is only held by the conditions of the original Location Agreement - which the city chose not to extend beyond 2004."
But the problem with that quote is that the CA Magazine story dates back to October of 1999. Much has happened since then. All this really tells us is that the EIG and the City of Edmonton had a Location Agreement from 1998-2004, which we already knew. Ultimately, that source doesn't help much at all.

What is worth talking about is the Northlands 2005 Annual Report (the 2006 Annual Report features the same information). First off, there is talk at the end of the Northlands/EIG section about payment for a scoreboard if the team moves. But it is unclear whether this comes into effect if the team leaves town, or just plays somewhere within the city other than Rexall. Secondly, as Avi noted, the Annual Report mentions agreements between Northlands and the City of Edmonton, as well as Northlands and the EIG, but there is no mention of an extension on the location agreement between the EIG and the City of Edmonton. And there is nothing within the section on the Northlands/EIG agreement about the team being required to stay in Edmonton. It's a license agreement, not a location agreement. The only mention of location concerns the scoreboard, but as I just mentioned, it might only be a reference to the team playing somewhere else in the city. I can not find anything anywhere about a second Location Agreement between the City of Edmonton and the Edmonton Investors Group, including the City's Annual Reports. That leads me to believe that the EIG is getting all the benefits of the original Location Agreement in their extension with Northlands (concession revenue, naming rights, parking revenue), without having to commit to keeping the team in Edmonton until 2014. I may be wrong on this, but I can't find any evidence to the contrary.

The whole thing is still a little confusing, but here's my best guess. The Edmonton Investors Group did sign a Location Agreement with Northlands and the City of Edmonton in 1998, which in return for economic benefits committed them to keeping the Edmonton Oilers in Edmonton until 2004. That Location Agreement has expired. Northlands has signed an extension with the City that goes until 2013, and the EIG has signed an extension with Northlands that goes until 2014. Those two deals help Northlands and the Edmonton Investors Group economically, without actually requiring the EIG to keep the Oilers in town. There is no second Location Agreement, only licensing agreements.

All of this leads to the following: if I am correct about the EIG not having a current Location Agreement that contractually binds them to the city of Edmonton, it leaves one wondering why their Board of Directors is making such a demand to Daryl Katz. If I am wrong, however, and they do have such an Agreement, it leaves one wondering why Katz won't sign one of his own. Then again, if one is already in place, what exactly is the EIG worried about? Wouldn't Katz be bound to their agreement in the same way they were bound to Peter Pocklington's agreement when they took over the team in 1998? Plus, doesn't the licensing agreement already bind the team to the city until 2014? Okay, now I just have a headache. It would have been so much easier if a reporter had just asked Butler the question at the press conference yesterday.

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Under most corporate acquisitions -- the act of "assuming" the obligations under agreements from the one body to the new one is usually pretty straightforward. However, some agreements would have a "out-clause" that allows the other party (Northlands in this case) to at least have mutual acceptability if there is a material change to the ownership of the company.

Bottom line is that, if the following is true:
- Nichols saw that nearly 50% (at least by quantity) of the shareholders wanted to exit in August
- That they redid the valuation in July so that $135,000,000 DIV number of shares was the retirement value
- The remaining members of the Board and executive committee is populated by the NAY group (we know Saville, Hole, Nichols, and Beane representing 35-40% of shares are all less involved now)

Then this was a badly planned tactic on the NAY-IG from the outset. If I am a "fence-sitter" shareholder with somewhere between 1-3% of the shares -- this turns me off. The majority of the shareholders were recruited by Cal -- and he doesn't need to say anything -- for them to likely follow-him.



Staples, McKinnon, or Barnes -- ir you are reading this -- jump all over the location agreement stuff.

Terrific post, Andy. Tyler's work is terrific as well.

Hopefully the right questions get asked of both parties. Even if they don't get direct answers back, evasive answers often say just as much.

It's always intersting being an Oiler fan it seems.

Andy and Cosh: Thanks for the legwork and putting the details together. Great stuff.

Very nice work Grabia and Cosh. Hopefully some of this finds its way into the dailies. Heck maybe one of those hacks actually contributes something on top of this too. I'm not holding my breath on that one.

The EIG lost me yesterday.

Butler is no Cal Nichols in the spokesman and diplomat department.

But more basically, the EIG is acting like they finally got to the front of the lineup at the urinal only to discover their underwear is on backwards, and are fumbling desperately for their manhood while they try not to piss themselves.

The offer to purchase the shares by Katz was simple: money for the shareholders. The wording about a new arena was to allow the current shareholders to exit gracefully saying 'it was something we could not afford but Katz can'. Now they have messed up that graceful exit and have come out looking childish.

Sounds like Nichols is going to step down from the EIG Board altogether.

Your excellent post is getting some play on Team 1260 right now (16:20).

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