The Ottawa Senators have been in the news for years about building a new arena for their team. But why does it make sense to build a new one versus renovating or investing in the current building? There are a few reasons that could help explain the economics behind this thinking.
LOCATION
It’s kind of funny whenever a team doesn’t actually play in the city they represent. The Dallas Cowboys don’t actually play in Dallas — their stadium is located in Arlington, Texas, about a 30 minute drive from Dallas proper on a good day with no traffic. The New York Giants and New York Jets play in New Jersey. The New England Patriots, so closely identified with Boston, play in the middle of nowhere Massachusetts. In MLB, it’s the Atlanta Braves in a suburb of Atlanta.
The Ottawa Senators are one of the entrants into this category in the NHL, with Canadian Tire Center located in Kanata, 20 minutes west of downtown Ottawa. While it may not seem like a big deal to have an arena in a suburban location, if you do a little digging, you’ll find that teams generally tend to struggle in the long-term with attendance if they’re outside of the city’s population core. The outer location makes it more likely that on-ice performance will have a heavier influence on attendance as well, as there are often nothing outside of the arena that draws people to the area. If you’re going to do it in the suburbs, you have to have a master plan for the area around it to create a lively atmosphere that people want to go to and will turn attending games into an experience beyond just the 2.5-hour game versus the Arizona Coyotes on a Tuesday in February.
So far, the most widely reported location that the Senators have been targeting for a new arena development is LeBreton Flats, which is much closer to the city center. Just moving to this location is likely to lead to increased attendance in the long-term, not to mention the higher bump newer arenas typically see for approximately three years after opening, with people excited to see a new environment and experience before the shininess has worn off.
NEW REVENUE OPPORTUNITIES
Fun fact: sometimes renovating a building to stay up-to-date on trends in arena design cost you so much that you actually generate a better return on investment if you build a brand new building. For example, every arena has to eventually undergo major infrastructure improvements for the structural integrity of the building, such as replacing the concrete casting of the seating bowl.
Those costs don’t even do anything to outwardly improve the fan experience, and it’s important that fans see improvements to their experience to justify paying higher season ticket costs or concession prices as a result of the capital put into the building. So arena developers and architects will work to improve concessions, concourses, restrooms, and general aesthetics to reflect some of the money put into the renovation, layering on additional cost to what is just necessary for the building to continue to function.
A new building can sometimes be not much more than the cost of those renovations, relatively speaking. If a major overhaul of an existing structure might cost $400 million, but a new arena would cost you $750 million and allow you to add in a variety of different seating experiences to generate additional revenue streams for the club, at that point the cost differential might be outweighed by the revenue generating capabilities under the new build scenario versus the renovation scenario.
The way fans consume games has evolved over time. Before, you might go to an arena and get three options to pick from: glass seats, regular seats, or a luxury suite where you’ll spend upwards of six-figures and have to fill it with 16+ of your closest friends every game. As teams have realized that some people will pay for added comfort (think extra leg room and a more comfortable seat, like a premium economy ticket on an airplane), or others only want a social space where they can have easy access to a bathroom and a dedicated bar with shorter lines, or smaller companies don’t have a good client entertainment option between individual seats and can’t afford or fill a traditional suite, the types of seating experiences desired within the arena have changed.
The result? Segmented seating offerings. Now, you’ll see three different club seat experiences, seating along a drink rail, small boxes for groups or mid-sized companies to entertain, suites at ice level, traditional luxury suites, standing room only or social spaces where people don’t even have a seat, couch-style seating, and even more options unique to each market’s desire and appetites for these enhanced experiences.
Fans will argue, of course, that these changes “price out the die-hard fan” but the way arenas are usually designed and priced are to try to reach the widest amount of customers possible at a variety of price points. So what fans really mean is that the seat they want to sit in is no longer possibly in their budget. And while that seems unfair, the fact of the matter is it is all about real estate. Prime locations equal prime dollars. Those dollars allow teams to pay for ever-increasing salaries, transportation costs, travel expenses, front office staffing costs, and the myriad of other expenses related to operations of a professional hockey team.
Ultimately, the market dictates what goes into that building and how much those tickets cost.
ANCILLARY DEVELOPMENT
Originally, the team proposed a vast development of 53 acres in that neighbourhood. As it stands today, the team has a Memorandum of Understanding with the National Capital Commission to develop six acres in that location. Among the four most recent arenas constructed (Little Caesars Arena in Detroit; Rogers Arena in Edmonton; UBS Arena in New York; T-Mobile Arena in Las Vegas), the smallest acreage for an arena project was 12 acres. So half that size to develop would mean a tightly designed building fit onto the site that would leave little to no other opportunities for the team to develop around it.
And don’t get it twisted. Development around a new arena is a huge driver of building a new one to begin with.
Often, the value in arena projects is not derived primarily from the arena itself. It’s all of the real estate development done around it that raises land values, generates passive incomes like rents, and also is the very thing that is used to sell the public on kicking some tax money into the project, as they can cite the rising tax levels (such as sales taxes), hotel room nights generated for tourism, and jobs created in and around the area as a result of this development.
Outside of T-Mobile Arena, which was inserted directly onto the Strip in Las Vegas, each of those newest arena projects have a massive planned development around them featuring hotels, office space, multi-family housing, retail, restaurants, and other entertainment (i.e. movie theatre, mini-golf, etc.) Even if it’s not open today, the plan is for those kinds of other uses to go around the arenas to create a buzz and sense of excitement around the arenas to activate the location beyond the events hosted at the arena throughout the year.
You better believe that if you dig through the legalese enough, at the heart of those developments are companies owned by the hockey team’s ownership. This is where arena ownership makes the real dollars to support their operations. While the team might vacillate between making and losing money every year, these real estate developments usually insulate the overall business from cyclical changes caused by on-ice performance and resulting declines in gate, concessions, and merchandise revenues.
Additionally, the ability of the team to make money outside of the arena removes the pressure of the team to be self-sustaining primarily through event revenues. This can also help keep the ticket price increases under control over the long-term, as teams don’t have to look for the consumer of those events to solely make up for any losses.
TIMING
There’s still no concrete timeline as to a new arena for the Ottawa Senators. This past spring, the NCC said that they were still aiming to sign a lease this fall for the development project to proceed. Once the land side of the deal is figured out, the timeline for actually putting shovels in the ground is all dependent on how far design and cost estimating has gotten from the architect’s side. If the costs were estimated in, say, 2019, those obviously would not reflect the realities of the current post-COVID-19 supply chain realities the world is still contending with. Even if all of the planning is in place prior to the lease being signed, the shortest time frame for arena construction is likely two years, and that assumes there is no mitigation needed to the site to prepare it for construction (like removing toxic waste, evening out the surface, etc.)
Maybe fall 2027 is the optimistic timing for a new arena coming online, with 2028 being more likely given there is no telling what a new ownership group would want to change or include as part of an arena design they had (potentially) no part in putting together. There’s also funding to figure out, public works like water, electrical, sewage hookups or streets to create for the development. In other words, there’s a lot of steps before it becomes a reality. It also never could come to fruition if all entities aren’t rowing in the same direction with the same vision for the development.
But one thing is certain: the Senators play in one of the oldest arenas in the NHL, and there haven’t been significant improvements to it on par with the likes of Madison Square Garden, United Center, or TD Garden. And every year that the building continues to be outdated is another year the Senators fall behind the eight-ball financially compared to their peers.