Council Considers Report on Sale of Mile One Centre
Council has reviewed the report prepared for the Board of St. John’s Sports and Entertainment Ltd. (SJSEL) on the implications of a potential sale of Mile One to a private owner and determined that more information is required before any potential sale could be contemplated.
The report, prepared by consultants KPMG, was finalized on January 14, 2021 and provided to the Board before being provided to Council for consideration. The consultants conducted a review of the Canadian marketplace to determine the number of privately held comparable arenas and their experience; an analysis of the building system and labour relations implications; a review of past agreements to identify any potential restrictions; an analysis of the impact on the City’s tourism and event strategy; and an overview of valuation methods to determine an accurate selling price.
“Having carefully reviewed the report at both the Board level and at Council, we have determined that more information is needed before making a determination on the potential benefit of selling Mile One to a private owner,” explained Councillor Jamie Korab, Chair of SJSEL. “Given the fact that Mile One is a 20-year-old arena, the consultants recommended a thorough building condition assessment be conducted to determine the remaining useful life of critical infrastructure, and we agree with that recommendation.”
The consultant’s report presents both the pros and cons of privatizing Mile One in the context of current operations as well as how other similar facilities are run across Canada.
Of the 58 comparable arenas in Canada surveyed by KPMG, there is only one example of a privately owned and operated arena.
“This fact reflects the many financial challenges of owning a regional facility such as Mile One and the difficulty in making these types of facilities profitable,” said Councillor Korab. “Council and the Board have to consider the real possibility, as experienced in other municipalities, that a new owner will be unable to meet the financial obligations associated with operating a large arena, and we do not want to be in a position where we have to re-acquire the asset in an unknown condition after a period of time.”
Mile One and the St. John’s Convention Centre (SJCC) are interconnected, both in terms of infrastructure and operational staff. In terms of building systems, the boilers in Mile One Centre provide the hot water for the SJCC and electrical power for Mile One is provided from a switching station located in the SJCC and delivered to Mile One via the pedway.
For operations and ownership of the Mile One Centre to be severed from the SJCC, various building systems contingencies will have to be considered. The City would require a feasibility study and full costing by an engineering firm to evaluate the required infrastructure upgrades and full financial impact to the City. This would have to be weighed against the City being able to mitigate this risk in a deal with a potential new owner.
In terms of staffing, the current operational model sees staff and management shared between the two facilities, and staff are included in the City’s pension plan.
“The consultants are quick to point out that, if the facility were sold, the new employer would inherit the union and the unionized workplace and become a party to the collective agreement currently in place,” said Councillor Korab. “Human resource implications are an important consideration, and further review of cost implications would be required before a sale could proceed.”
Financial and Economic Implications
The consultants outline three potential models for determining the value of Mile One, ultimately recommending that a valuation be obtained from a third, independent party.
The total cost of construction of Mile One Centre and the original Convention Centre was $48,878,312. The final debenture to finance the construction is scheduled to be repaid in 2022, so any sale of Mile One Centre would need to consider how to treat the outstanding debt of $2.3 million.
The subsidy for Mile One has always been a contentious issue in the public.
“Assuming the terms did not commit the City to a continuing subsidy to the new owner, the sale of Mile One has the potential to remove approximately $2 million annually in subsidy from the City’s expenses, in addition to amounts for capital improvements,” said Councillor Korab. “That being said, Council considers the subsidy to Mile One to be an investment in community vibrancy and economic development.”
Typically, St. John’s Sports and Entertainment Ltd. recovers approximately 70% of its cost. This compares very favorably to other City-owned facilities like the Mews Center or the Paul Reynolds Centre, which only recover about 20% of their operational cost.
“Overall, the Board and Council are pleased with the KPMG report and are pleased to be able to share it publicly with everyone interested in whether or not we will ultimately make the decision to sell Mile One,” said Councillor Korab. “Taking into consideration the opinions of the Board, City staff and members of Council, I believe we are making the prudent decision to have a building condition assessment done and to listen to public feedback before a final decision on the sale of this important City asset.”
The full report is available here.