Sports in the public-private arena: City of Toronto.

• Author: Farag, Joe
• Position: Solutions

Over the past decade or two, many municipalities have entered into public-private partnerships (P3s) to provide sports and recreation facilities for their communities.

Most of these projects have involved the creation or extensive renovation of medium-scale facilities, which often host minor league professional sports teams as well as community events. Municipalities usually use some form of P3 for these projects in order to achieve the following objectives:

* Limiting the municipality's financial exposure

* Taking advantage of private-sector financial resources

* Taking advantage of private-sector expertise in facility design, marketing, and facility operations.

Toronto recently completed two of these projects. The outcomes differed sharply, leading to several recommendations that might be useful for other municipalities contemplating similar projects in the future:

* Carefully examine the demand forecasts, and structure the sharing of project returns and liabilities accordingly.

* Select a private partner with suitable experience, and make sure this partner's interests align with those of the municipality.

* Where possible, ensure that projects are located on government-owned property.

HOCKEY AT EXHIBITION PLACE

In 2005, Toronto entered into a public-private partnership for the conversion of the Coliseum at the city-owned Exhibition Place into an 11,000-seat hockey arena. The partnership included a private-sector firm that owned the American Hockey League (AHL) Roadrunner team, which was the farm team for the National Hockey League (NHL) Edmonton Oilers, an infrastructure investment firm that receives its capital primarily from the Ontario Municipal Employees Retirement System, and the City of Toronto. The Coliseum was an older arena built primarily for livestock and horse shows, and it was in significant need of refurbishment. As its principal investment in the project, the AHL franchise owners contributed the Roadrunners hockey team; and the infrastructure firm and the city each contributed capital for the renovation, with the city further guaranteeing third-party debt.

The team owners forecasted average attendance of 8,000 per game, which would generate the core revenues required to pay back the partners' investments in the project. Each of the partners was to receive a share of the net revenues, after debt servicing, through a "waterfall" arrangement, which compensated the city and infrastructure investment firm first by providing each with a return on capital with the residual, if any, flowing to the team owners.

Despite a variety of marketing efforts, actual attendance during the first...