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Ottawa's abysmal year in sports: Why it’s so difficult to build sustainable teams here

Anyway you cut it, this was an abysmal year for Ottawa franchises.

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Had they understood all of the risks from the beginning, they likely would have reconsidered.

For the past dozen years, the five founding partners of Ottawa Sports and Entertainment Group, led by real estate mogul Roger Greenberg, have attempted what history suggests is impossible — to create a professional sports company capable of sustaining operations in the nation’s capital. And it has cost them dearly.

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It started out so simply, with the dream of seeing the Canadian Football League return to Lansdowne Park, a few kilometres south of Parliament Hill. Instead, it transformed into a massively complicated $500 million plus project in a 30-year partnership with the city, with nearly all the financial risks borne by the OSEG partners.

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From the city’s perspective, Lansdowne has been a spectacular win. A football stadium and hockey arena have been restored under the banner of TD Place, and a formerly desolate 40-acre site is now populated by condominiums, office buildings, restaurants, retail shops and an urban park — all at no cost to the city thanks largely to the extra realty taxes.

The result, financially, looks much different from the vantage of OSEG’s partners.

Collectively, OSEG has contributed nearly $100 million more than originally planned to remake Lansdowne. OSEG underestimated the construction costs and failed initially to include sufficient money for food concessions, roof repairs and information technology. The sports and entertainment group is also responsible for absorbing all losses related to operations.

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On current pace, the partners will lose nearly $70 million of their extra investment.

“The single biggest mistake we made, we did not understand the full extent of the damage in Lansdowne’s infrastructure,” Greenberg said in an interview with this newspaper. “We relied too heavily on disclosures from the city that were not complete. That’s bad on us.”

Nor is the issue of compromised infrastructure fully accounted for. Seven years into the Lansdowne partnership, OSEG recognizes the entire north side of the football stadium as well as the arena need replacing, and soon. The original assumption had been OSEG would be able to spend a bit each year to keep the stands and arena in good condition. That much was budgeted for, but a full replacement, which would cost tens of millions of dollars, was not. In coming months OSEG and the city will negotiate over who should bear the extra cost.

This, naturally, complicates the job of OSEG’s chief executive Mark Goudie, who is trying to achieve breakeven for OSEG by 2022 in order to stop the bleeding. Part of this means attracting at least five million visitors annually to Lansdowne, a million more than this year’s total. Remarkably, fewer than 20 per cent of the visitors need to be football or hockey enthusiasts. While spending by fans is important, modern sports organizations generate the bulk of their money elsewhere. Most of the positive contribution to OSEG’s bottom line comes from rent paid by the retailers and restaurants on the Lansdowne site.

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Aerial photo of TD Place Stadium and shops at Lansdowne Park.
Aerial photo of TD Place Stadium and shops at Lansdowne Park. Photo by Wayne Cuddington /Ottawa Citizen

Embedded in these numbers is the story of how truly difficult it is to build successful franchises in a city with fewer than 1.5 million people, dominated by governments averse to the idea of supporting sports.

Yet, if Goudie actually manages to create a profitable business on behalf of the OSEG partners, Lansdowne could become a model for how to develop Ottawa’s largest empty space, LeBreton Flats. It may be, that despite the enormous teething problems, the OSEG’s formula for operating sports franchises is the only one that can succeed here.

• • •

From the beginning, few seemed better suited for the job of reviving professional sports in Ottawa than OSEG’s founders.

Three of the partners — Roger Greenberg, John Ruddy and Bill Shenkman — have serious money, the product of careers spent building homes and commercial properties, many of them in Ottawa. They are familiar with large, complicated projects and the associated risks. The other two partners — Jeff Hunt and John Pugh — are sports entrepreneurs, former owners respectively of the Ottawa 67’s hockey team and Ottawa Fury soccer franchise.

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Also in their favour, OSEG’s owners have Ottawa in their blood. Greenberg, Ruddy and Shenkman grew up in the city and have a deep, sentimental attachment to Lansdowne Park and the Rough Riders who once played football there. Hunt and Pugh made their way here decades ago from Newfoundland and Britain, respectively. The partners are all well connected in business and philanthropic circles, and at city hall.

These extensive ties are what underpin their willingness to continue despite Lansdowne’s unexpectedly high costs. For sports fans this matters.

That’s because, with the notable exception of the Ottawa Senators hockey team, owned by pharmaceutical entrepreneur Eugene Melnyk, nearly all of the city’s major sports franchises are either owned by or somehow involved with OSEG, or soon will be.

OSEG owns 100 per cent of the Redblacks and 67’s, the two teams that contribute revenues and expenses to the Lansdowne partnership.

The Fury soccer club is owned by Pugh and two other OSEG partners, and operates outside of the partnership. A similar arrangement appears to be in store for the Ottawa Champions baseball club. Several OSEG partners, along with Winnipeg Goldeyes owner Sam Katz, are expected soon to buy the Champions from owner Miles Wolff.

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OSEG also revealed in November that the Ottawa Blackjacks, the seventh franchise of the fledgling Canadian Elite Basketball League, will begin its first season next year at Lansdowne Park. This will see the Blackjacks pay rent to OSEG. It’s likely Ottawa fans will also be able to see professional rugby at Lansdowne starting in 2021.

Shanyder Borgelin (63) of Bethlehem Steel FC gets a handful of jersey as he battles for possession with Onua Obasi of Ottawa Fury FC during a United Soccer League Championship match at TD Place stadium on Saturday, Oct. 12, 2019.
Shanyder Borgelin (63) of Bethlehem Steel FC gets a handful of jersey as he battles for possession with Onua Obasi of Ottawa Fury FC during a United Soccer League Championship match at TD Place stadium on Saturday, Oct. 12, 2019. jpg

For those who worry about the evils of corporate concentration, consider that all of the teams touched by OSEG collectively generate less than one-quarter the annual revenues of the Ottawa Senators alone. What all of these teams share is a history of losses — a metric that the Senators also dominate.

Sustaining these teams will mean continued injections of cash from owners, along with cross-subsidies from other businesses.

While money-losing sports franchises are hardly unique to Ottawa, owners here face impediments unknown elsewhere in North America.

• • •

One of the biggest obstacles to sports profitability, aside from a small population, is the city’s lopsided economy. Employment in public administration this year has averaged 181,000 — nearly 24 per cent of the total workforce for Ottawa-Gatineau. That far exceeds the comparable ratio in Canada’s other large cities. Edmonton, with less than eight per cent of its workforce in government, is a distant second.

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The extraordinarily high concentration in Ottawa-Gatineau matters because the federal government, which accounts for nearly 85 per cent of public administration workers here, prohibits employees from accepting free tickets to sports matches to prevent conflicts of interest.

In other cities, it’s natural for employers and business owners to invite clients to hockey, baseball or football games. Indeed, the teams’ owners count on it, some more than others. An estimated 15 per cent of Redblacks’ fans this past year were corporate clients, while for the Ottawa Senators the concentration was 35 per cent, thanks in part to the large number of corporate suites in the Canadian Tire Centre.

Even when government employees buy tickets on their own account, the biggest clusters in the capital region happen to live in west Gatineau and east Ottawa — many kilometres distant from the NHL arena in Kanata and a less-than-straightforward commute to Lansdowne.

Add to this a couple of other short-term impediments. First is the multi-year saga involving the federal government’s botched pay system known as Phoenix. Workers uncertain about what amounts will be deposited in their bank accounts, or when this will happen — the majority of the government’s workforce, in other words — are less likely to spend $100 or more to see the Redblacks or Senators in person.

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The extraordinary startup problems experienced since September by Ottawa’s new light rail transit system aren’t helping matters. It’s another negative for fans thinking about buying tickets.

With any luck, problems with Phoenix and the LRT will be sorted out by next year. But it’s not at all clear that will also be true of Ottawa’s top sports franchises.

• • •

Anyway you cut it, this was an abysmal year for Ottawa franchises.

The Senators and Redblacks in particular put on a dreadful show, each finishing last in their respective leagues. The NHL squad also ranked 27th out of 31 teams in attendance for the season ended last April, according to ESPN — and slumped in the fall to 31st despite rising in the standings. Fewer than 12,000 on average by early December attended games in the 18,500-seat arena.

Many empty seats in the Canadian Tire Centre when the Ottawa Senators played the Minnesota Wild. October 14, 2019.
Many empty seats in the Canadian Tire Centre when the Ottawa Senators played the Minnesota Wild. October 14, 2019. Photo by Errol McGihon /Postmedia

The Redblacks managed to attract more than 22,000 fans to each of their nine home games this year — just 2,000 short of capacity, despite losing many of their matches in blowouts. The popularity of the Redblacks owes much to their stellar re-entry into the CFL. Since 2014, the team has reached the Grey Cup three times, including 2016 when they won the league’s top trophy. Fans can forgive a lousy year after that track record.

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But would two lousy years in a row start to undo all of the initial enthusiasm? OSEG is certainly aware of the risk and determined to reduce it — not least because the financial health of the Redblacks is critical to the performance of the Lansdowne partnership.

According to snapshots of OSEG’s finances obtained by this newspaper, the team for the past couple of seasons has been nudging breakeven on operations on annual revenues of about $21 million. On current projections the team is expected in two years to begin posting strong profits. Over the full 30 years of the Lansdowne partnership, OSEG is counting on the Redblacks for nearly 30 per cent of total earnings on operations. (The lion’s share of profits will come from net rents contributed by Lansdowne’s retailers.)

Financial contributions from the Ottawa 67’s will be substantially less. Although the team was far more competitive than the Redblacks this year — they were atop the Ontario Hockey League for the second straight season — attendance was shockingly low. It’s been averaging fewer than 4,000 fans per game last year and this fall, according to hockeydb.com, less than half the capacity of the arena. This was the product of a double-whammy.

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After construction began on the Civic Centre in 2012, the 67’s were forced to host competitors in the Canadian Tire Centre for a couple of seasons, a longer trek for the 67’s core fan base. Coincidentally, the team’s performance tanked. After finishing first in the east for three straight seasons, the 67’s dropped to fifth in 2013 and 2014, when they failed to make the playoffs.

Ottawa 67’s vs Kingston Frontenacs.
Ottawa 67’s vs Kingston Frontenacs. Photo by Valerie Wutti /Postmedia

The fans stopped going to the games, though whether because of the Kanata location or the team’s record was never quite clear. Even when the 67’s returned to the refurbished Civic Centre in Lansdowne, attendance per game did not climb above 4,000 — at least not until the team’s spectacular run in the playoffs this past spring, when they went undefeated until the very last round.

Because the 67’s charge only $30 or so for game tickets, team revenues — less than $4 million annually, excluding playoff action — are a relatively small piece of OSEG’s Lansdowne partnership revenues. Although OSEG is forecasting positive earnings for the team by 2023 or so, these will represent a scant two to three per cent of OSEG’s total profits on operations.

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Professional sports within the city, outside OSEG’s Lansdowne partnership, saw a couple of unsettling developments in 2019, both directly tied to the vulnerability of franchises in smaller cities.

Ottawa’s top teams in baseball and soccer — the Champions and Fury, respectively — suspended operations with little prospect they’ll find a league in which to compete next year.

The Champions had been playing since 2014 in the independent Can-Am League, which agreed this fall to merge with the Frontier League. Frontier’s teams generally compete in cities in Canada and Northeastern U.S. not associated with Major League Baseball. That makes it tougher to build a base of fans — part of the joy of experiencing minor league ball is being able to watch future MLB players before they become famous. Five Can-Am franchises will join Frontier’s nine teams for the first time in 2020 — but not the Champions, which will have to wait at least another year.

The omission had to do with the uncertainty over the team’s ownership. Miles Wolff had lost a small fortune trying to build a loyal following of Champions fans, and was on the verge of a deal to sell the team to Ottawa businessman Ray Abboud and two of his colleagues. That’s when the agreement to merge the Can-Am and Frontier leagues was announced.

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However, the sale of the Champions was contingent on Abboud and his colleagues signing a lease for use of Raymond Chabot Grant Thornton Park, the city-owned facility across from Ottawa’s main VIA train station. And there was a not-so-small complication: the Champions were behind more than $400,000 on their lease payments.

When the Winnipeg Goldeyes’ owner Sam Katz, working together with OSEG, agreed to pick up the lease arrears and inject fresh capital, they became the frontrunners — a status confirmed last week by a city council committee, which recommended negotiating a new lease with Katz and OSEG. The purchase price for the franchise will not likely top $1 million.

The Champions are expected to play 2021 in either the Frontier League or Atlantic League, which also features franchises throughout northeast U.S.

Just how OSEG and Katz will transform professional baseball into a winner in Ottawa is an open question.

A close play at first base in a game between the Ottawa Champions and the Rockland Boulders at RCGT Park on July 15, 2019.
A close play at first base in a game between the Ottawa Champions and the Rockland Boulders at RCGT Park on July 15, 2019. Photo by Errol McGihon /Postmedia

It will be a similar period of uncertainty for Ottawa Fury, the soccer franchise that played its first home game at Lansdowne in the summer of 2014.

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The Fury for the past three seasons had competed in the U.S.-based USL Championship league, the only Canadian team among 36 franchises. The Fury’s value, based on the fee paid by new franchises added in 2019, was about C$10 million.

But throughout 2019, the USL’s governing body — the Confederation of North, Central American and Caribbean Association Football, one of six FIFA fiefdoms — had been pushing the Fury to join the fledgling Canadian Premier League.

The Fury resisted, reckoning its value there would plummet to little more than C$1 million. Not only that, OSEG was concerned that the new Canadian League might not be around in a few years. CONCACAF forced the issue in November by depriving the Fury of its USL Championship credentials. OSEG balked at joining the Canadian league on such terms.

“The desire to join somebody who has issued you a ransom note was not particularly high,” Goudie said when he announced the suspension of the Fury’s operations.

Financially, it may not be much of a penalty. After all, the Fury has suffered average annual losses of $2.5 million since inception. Not playing would save money, in other words. But this is not the way of sports entrepreneurs. The Fury announced Wednesday that it sold its USL franchise rights to Riccardo Silver, the owner of the Miami FC soccer club. Not coincidentally, Miami FC is managed by Paul Dalglish, Fury FC’s former head coach and general manager.

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• • •

Team suspensions, poor play, low attendance and weak financials — all of these hung over Ottawa’s sports scene this year. But there was also an extra layer of malaise, triggered by the collapse of what would have been a transformative deal to remake LeBreton Flats.

Construction was to have started this year on a $4-billion project to fill the 55-acre site with condominiums, retail shops, a hotel, museum and other attractions. The centrepiece: an NHL stadium. This was Lansdowne on steroids — 10 times the cost, spread over decades, not years.

A project this ambitious in a town this small cannot succeed without a pooling of resources and deep collaboration. Construction risks are too many, there’s uncertainty over who will buy which condos when, and it’s likely profits won’t emerge until at least a decade after launch. These and other considerations demand a high level of trust between the directing partners.

This was never much in evidence. LeBreton’s two main partners — Trinity Development founder John Ruddy and Ottawa Senators owner Eugene Melnyk — are embroiled in $1.7 billion worth of lawsuits and counter-claims over how the development should have unfolded.

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Various views of Lebreton Flats area.
Various views of Lebreton Flats area. Photo by Julie Oliver /Postmedia

Part of the dispute appears grounded in disparate personalities. Ruddy is a consummate Ottawa insider. He played cornerback for the St. Patrick’s High School team and, later, for Carleton University’s squad. Ruddy is quiet to the point of self-effacement, nearly always willing to let his business partner Roger Greenberg take the lead in dealing with the public. Colleagues have learned never, ever to interrupt him when he is watching his beloved Redblacks.

Melnyk is the mercurial outsider, with his principal home in Barbados. At age 23 he launched a medical publishing company which he sold seven years later in 1989. Melnyk used the proceeds to create Biovail, which manufactured generic pharmaceuticals and eventually formed the basis of a considerable personal fortune. He bought the Senators out of bankruptcy for the bargain price of US$93 million.

Typical of many self-made entrepreneurs, Melnyk prefers to do business on his terms. That much was clear during the run up to the Lansdowne project. Those in charge of LeBreton would have been smart to pay attention.

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• • •

When Jeff Hunt dropped by to visit Ottawa mayor Larry O’Brien in the fall of 2007, it had been 10 years since he sold his carpet-cleaning business for a small fortune and nine years since he purchased the 67’s OHL franchise. He was also a die-hard CFL football fan, a season ticket holder until the Rough Riders folded in 1996, and a fan of the Renegades, which had unexpectedly ceased operations in 2006.

“A Thursday night, sitting outside watching CFL football was as much fun as I could have,” he told this newspaper nine years ago, “I was heartbroken when the Rough Riders left.”

Hunt told O’Brien that he and several partners were eager to bring the CFL back to Ottawa, and sounded out the mayor on the idea of leasing Frank Clair stadium at Lansdowne.

“I had no problem with them bringing back football,” O’Brien recalled in a recent interview. “My problem was this disaster of a site called Lansdowne. I told Jeff that if he came back with a proposal for fixing it, I’d be open to it.”

A piece of prime property, owned by the city since the mid-1800s, Lansdowne had served as a military staging area, exhibition site and community sports facility. It played host to Stanley Cup matches in 1904, curling and soccer championships, and several seasons of professional baseball in the 1950s. Most famously, Lansdowne’s Frank Clair stadium was the home for the Ottawa Rough Riders — the CFL franchise that so entranced Roger Greenberg and John Ruddy in the late 1960s and 1970s, when the team captured the Grey Cup trophy four times.

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But by September 2007, the stadium and surrounding property were in dangerous disrepair.

After city engineers discovered severe structural damage on the south side stands in September 2007, the city began examining alternatives for refurbishing the site.

For Hunt, Ruddy, Greenberg and Shenkman, it was an opportunity to revive a favourite CFL franchise and upgrade the home arena for the 67’s. They launched OSEG in 2007, and the following spring they were awarded a CFL franchise — conditional upon a new or refurbished stadium. (Pugh would join as OSEG partner later.)

OSEG began developing a detailed proposal to remake Lansdowne, which they submitted Oct. 20, 2008. The developers in this group knew the sports franchises on their own could not pay for the infrastructure. They would need to include plenty of housing and retail shops to create an economic engine that would sustain the entire project.

Dominique Rhymes #15 of the Ottawa Redblacks is unable to make the catch against the Toronto Argonauts during a CFL game held at TD Place on Sept. 7, 2019.
Dominique Rhymes #15 of the Ottawa Redblacks is unable to make the catch against the Toronto Argonauts during a CFL game held at TD Place on Sept. 7, 2019. Photo by Jana Chytilova /Postmedia

Meanwhile, Eugene Melnyk was preparing to make a pitch for a Major League Soccer franchise. At the time, Toronto was the only Canadian city with a team in the top-ranked league but MLS commissioner Don Garber confirmed in July 2008 that Ottawa was one of a handful of contenders for two new franchises to be awarded in 2011.

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In September, Melnyk and Ottawa Senators president Cyril Leeder unveiled plans for a new $100 million plus MLS stadium to be built in Kanata on city land near the site of the Senators’ home arena, the Canadian Tire Centre. Eventually, it would be surrounded by condos, apartments, offices and retail shops.

There was a caveat, of course. Melnyk was seeking financing from all three levels of government — $37 million each from the feds and the province and $17 million from the city. Melnyk would put down $10 million.

The city made clear it was prepared to provide some support for either the Kanata stadium or Lansdowne facility, but not both, and possibly not either.

Behind the scenes, O’Brien proposed a compromise — a dual-sport stadium for Kanata. The city would contribute land and possibly other assistance for the 20,000-seat soccer facility. The new CFL franchise would rent it. “The idea was to redo Lansdowne, but move football to Kanata,” O’Brien said.

A tentative deal emerged in late March or early April 2009 after a rapid fire series of phone calls between O’Brien, Leeder and various members of OSEG. Two principals involved in the talks said OSEG agreed to rent the MLS stadium for at least nine regular season CFL games. The city would refurbish the Lansdowne site on a smaller scale, without a stadium.

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Although the MLS in March had already announced Portland and Vancouver would be awarded the two new franchises for 2011, it was understood the league would continue to expand.

In April 2009, O’Brien called Leeder with the news he would support the two-sport stadium concept but was somewhat puzzled when a delighted Leeder wrapped up the call by telling him, ‘I’ll just run this by the boss.’

Melnyk, it turned out, wasn’t happy with the news at all. “Eugene doesn’t want to do it,” a very apologetic Leeder told O’Brien shortly after.

Stunned at the turn of events, O’Brien called Melnyk at his home in Barbados and asked why the Senators’ owner did not want to collaborate on a two-sport stadium.

“He said ‘the CFL is a relic’ and that he wouldn’t want to share his MLS stadium with the CFL,” O’Brien recalled. “I reminded him that this wouldn’t be his stadium.”

While the details were yet to be worked out, Ottawa would co-finance with other governments the building of what would be a city facility.

Views of TD Place Stadium Sunday December 1, 2019.
Views of TD Place Stadium Sunday December 1, 2019. Photo by Ashley Fraser /Postmedia

OSEG’s partners went back to “Plan A” — a full remake of Lansdowne Park.

After Melnyk dismissed O’Brien’s offer of supporting the MLS soccer stadium, the mayor lobbied every councillor he could find in favour of OSEG’s proposal, which prevailed by a vote of 14 to nine on April 22, 2009, in a meeting of the full city council.

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Melnyk dropped his pursuit of MLS soccer.

Melnyk declined comment on his decade-old conversation with O’Brien, but noted in an email that his proposed stadium was not soccer exclusive, and that he “remains disappointed that our proposal wasn’t selected by council.” The Senators owner added: “We remain confident our proposal was the correct business decision, especially in light of how soccer attendance, team values and expansion fees have skyrocketed as the MLS has grown over the past 10 years.” 

That’s something few could have predicated in 2009, the year of the global financial crisis. The MLS entry fee that year was about US$35 million to US$40 million. A decade later, the next expansion club is expected to shell out more than US$300 million according to Forbes Magazine.

• • •

Was Ruddy paying close attention? Five years later, in the fall of 2014, the Trinity Development founder met with Melnyk to discuss, for the first time, the possibility of joining forces in a bid to develop LeBreton Flats, land owned by the federal National Capital Commission.

Between January 2015 — when Melnyk and Ruddy submitted their bid under the name RendezVous LeBreton — and April 2015, when they were selected as one of four finalists, Melnyk was readying for a liver transplant. He received it May 19, 2015.

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For much of this period, Cyril Leeder took the lead in negotiating the terms of the partnership, though Melnyk appears to have been kept appraised of all key developments.

However, as Melnyk recovered, his instincts to assume control re-emerged. He also grew more concerned about the financial risks — which he believed were exacerbated by a separate Ruddy project to build three large towers of apartments adjacent to the LeBreton Flats site. Leeder had believed the project would help create a lively atmosphere in the LeBreton area, injecting a critical mass of people.

Melnyk didn’t see it that way. He became convinced the development at 900 Albert St. would fatally injure the economics of LeBreton Flats, which depended on the sale of residential and retail properties. The units at 900 Albert St. were to be marketed to the public first.

Melnyk’s reduced financial heft may have been a factor in his caution. When he purchased the Senators in 2003, the value of his stake in Biovail was a tidy $1.7 billion. One year later, his Biovail stock was worth $600 million.

Eugene Melnyk.
Eugene Melnyk. Photo by Jean Levac /POSTMEDIA

The slide continued in May 2009, when Melnyk lost control of Biovail’s board of directors. Melnyk sold off his entire stake for several hundred million dollars, based on the average Biovail share price during this period. Had he held his shares another few years, they would have been worth close to $6 billion.

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The loss of wealth hurt, especially considering the weak economics of the Ottawa Senators. From 2003 to 2013, despite a highly competitive team, the Senators lost nearly $10 million per year. Part of this reflected the difficulty of raising ticket prices in the Ottawa market. At an average price of less than US$60 per ticket, the Senators can charge less than half the amount per ticket as the Toronto Maple Leafs. Not only is Ottawa-Gatineau one-fifth the size of greater Toronto in population, the Senators must lure fans deep into the west end while Toronto fans can take the subway downtown.

And there’s another problem unique to the Senators — Ottawa is knee deep in hockey fans, but too many of them maintain tribal loyalties with teams from Montreal and Toronto. These allegiances were formed long before the Senators re-entered the league in the early 1990s and have proved enduring. Canadiens or Maple Leafs fans will help fill the Canadian Tire Centre no matter the distance or weather, but are less enthusiastic when other teams are featured.

Melnyk nevertheless has benefitted hugely from the increase in the overall value of the team, from US$93 million when he bought it to US$435 million last year, according to a recent Forbes Magazine estimate. Over the same period, the Senators have seen team debt increase from US$40 million to roughly US$200 million, as Melnyk borrowed to cover the team’s annual losses.

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That much at least, is something OSEG’s partners can only envy. They did not have the luxury of solid capital gains when it came to negotiating with the city over the terms of the Lansdowne project.

• • •

When OSEG and the city formally concluded their partnership in 2012, the objective was pretty straightforward. Each would pay for specific parts of the project. The city, for instance would finance the stadium, arena, part of the parking lot and the urban park.

OSEG would pay for the rest of the parking lot and the retail shops. It would also be responsible for operating the 30-year Lansdowne partnership with the city, which means absorbing the annual losses in the early years.

The idea was to pool streams of cash from ticket sales, arena and stadium rentals, parking and concessions. These were to be allocated first to OSEG, then the city, according to a formula. OSEG for instance is permitted to earn 8 per cent simple return on the amount it invests (equivalent to less than 5 per cent compounded).

But note the difference in how these partners financed their particular piece. The city in 2013 issued a sinking fund debenture — a loan whose principal drops over time — for $154 million. This was secured against realty taxes paid by Lansdowne’s retail shops among other new tenants, as well as air rights paid by Minto in order to erect condo towers on site. In financing, this is about as low risk as you can get.

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On the other hand, OSEG estimates it will have contributed equity of $152 million over the life the project, nearly $100 million more than expected.  All of this money comes straight out of the pocket of the five partners, but you can be sure Greenberg and Ruddy have paid the bulk. Since they are entitled to a return on their extra investment, they won’t necessarily incur an actual loss. This will depend in part on Goudie’s success in generating new streams of revenue from the Lansdowne site, and how much new investment will be required to make sure the stadium and arena be up to code by 2044, when the partnership terminates.

It’s more than possible OSEG will wind up with a total return of zero, underscoring the punishing economics of sports in the nation’s capital.

Few people feel sorry for these guys. They’ve done well by their businesses in the city. OSEG’s partners went into the Lansdowne project as a way of giving something back to the community. In the end they did this by bringing a derelict urban site back to life. They also got their CFL team back, along with a bunch of other professional sports.

Had they known then what they know now, it’s possible they might have balked at what it all cost. But they’re in it now, and have every incentive to come up with a formula for cross subsidizing sports teams in a manner that’s fair to owners as well as taxpayers.

Much rides on OSEG’s shoulders, perhaps even the future of professional sports in Ottawa.

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