A bad week for banks

RAE CORELLI December 14 1998

A bad week for banks

RAE CORELLI December 14 1998

How the roof came off


'Sweetheart deals' are behind the SkyDome's insolvency


Nobody ever said building a domed stadium in downtown Toronto was going to be easy—or cheap. The movers and shakers who put the deal together back in the mid-1980s, and who subsequently sold SkyDome to themselves a decade later, are quick to point this out. Sun Media president Paul Godfrey, EdperBrascan executive Trevor Eyton, the Ontario premiers instrumental in building and buying the dome all say the same thing: people who go back and look at what is on the record can see for themselves that the businessmen and politicians who promoted and financed the now-bankrupt domed stadium always said it would cost hundreds of millions of dollars. The issues were always how many hundreds of millions were going to be required—and who could be persuaded to put up the cash.

As most Ontario taxpayers know only too well, the answers turned out to be: a) $600 million and b) the province’s elected officials. Yet the way the politicians tell the story, they were not handing over buckets of cash without expecting to make a decent return; the more than $350 million ponied up by the province was supposed to be an investment. In time, as the value of the stadium and its prime tenant, the Toronto Blue Jays baseball club, soared into the fiscal stratosphere, taxpayers would share in the eventual upside—or so the argument went.

Now, almost a decade after the controversial coliseum opened its doors and first swung back that gleaming white roof, it is clear that this is never going to happen. Quite the opposite. The province—

and other outside investors—are on the verge of taking yet another £ financial haircut. And it is becoming equally clear, for the first time, § that the SkyDome’s problems can be attributed as much to so-called I sweetheart deals with some of the country’s largest corporate play-1 ers as to changes in the business climate. Indeed, the true story of | what one insider calls the “stupidity or cupidity” involved in building t and operating SkyDome is finally starting to trickle out.

Interbrew SA, the giant Belgian brewery that in 1995 bought Labatt Breweries of Canada, which at that point owned 90 per cent of the ball club and 43.5 per cent of the SkyDome, has lost $100 million on its investment (a formal $ 100-million bid for the stadium was announced late last week by a group including former Jays general manager Pat Gillick). A Labatt spokesman says efforts to sell the team have been put on hold indefinitely as the Belgians look for ways to stop the bleeding. Labatt is determined to lessen baseball losses from 1998’s $44 million to $10 million next year—without, company officials say, further cutting the team’s payroll.

Toward this end, Labatt and the Blue Jays spent the fall negotiating a new lease with SkyDome management, in the hope that lower rent and, even more important, a larger portion of ancillary revenues from advertising and souvenir sales, would help achieve this goal.

But in order to do so, the owners have to squeeze out some of the companies now holding those rights. Their solution: to declare their stately pleasure dome insolvent and to seek bankruptcy protection, a move that requires everybody with a financial stake in the stadium—corporate suppliers, shareholders, creditors and landlords— to sit down and decide who is willing to renounce some portion of


© THE SHAREHOLDERS Labatt Breweries of Canada 48.5% Hospitals of Ontario Pension Plan 29.4% Canadian imperial Bank of Commerce 10% Toronto Investor Montegu Black through Controlled Media Investments Inc 6.9% Manitoba Teachers Retirement Allowances Fund 5.2% THE MAJOR CREDITORS Seven Canadian insurance companies . . . $44 million in secured bonds Province of Ontario through Stadium Corp. . . . $25 million in loans and preferred shares Penfund CapItal (No.1) Ltd. of Toronto . . . $14 million secured against food-services assets Controlled Media Investments . . . . $1 million, also against food assets

their claims in order to see SkyDome continue to operate in the style to which sports fans have become accustomed.

They have no choice: Labatt controls the Blue Jays, and without the team, the dome is not even toast—toast, after all, has intrinsic value. “How do you value the SkyDome without the Blue Jays?” one of the country’s top real estate restructuring experts asked last week. “By the pound?” Some creditors’ lawyers say the stadium’s viability became even more uncertain after the ball club announced that it would bow to the wishes of five-time Cy Young Award-winner Roger Clemens by trading the star pitcher to a team either closer to his Texas home or at least closer to a World Series bid. If, for some reason, the SkyDome loses the Blue Jays, and is unable to attract another major-league tenant, “what are you going to do with it?” one lawyer asks. “Build lofts?”

Debt is not the problem. Adding the world’s first fully retractable roof, the luxury hotel and a little-used fitness club increased the original cost of building the stadium from the $150-million estimate to a final $600 million in 1989. The obligation to service or repay much of this money, however, disappeared down the public drain when former Ontario premier Bob Rae’s New Democratic government agreed to eat $321 million of its outstanding SkyDome debt

when the facility was privatized for $151 million in 1994. The far more fascinating question raised by the SkyDome bankruptcy is why, even before making any concessions to the Jays, Toronto’s third-most popular tourist attraction cannot make enough money to pay its property taxes (it is $1.2 million in arrears) and service its extremely modest mortgage ($58 million at roughly 9.8 per cent).

Forget all that talk about exchange rates, dwindling baseball attendance and competing venues; the real challenge, insiders say, lies in the dome’s secret business dealings with a small group of original investors who—in exchange for $5 million each of taxdeductible money in 1988 and 1989—were given the use of a luxury SkyBox plus the right to control just about every moneymaking business operation attached to and spun off from the dome over the past 10 years.

These companies, controlled by some of Central Canada’s biggest business names, have taken many times their original investment out of the stadium in the form of fees and profits on what, lawyers who have studied the deals say, is everything from operating the JumboTron to toilet-paper sales and souvenir and magazine sales. These are what are known, in SkyDome parlance, as the “sweetheart deals.” Court documents call them “executory contracts,” but to date do not disclose identities or terms. “That information remains confidential,” a SkyDome spokeswoman told Maclean’s. ‘We are in the process of reviewing all contracts, so we are uncomfortable releasing names or details at this time.” These

contracts are why Labatt sought court protection, company officials say. “This is where people are getting their snoots right into the trough,” says one manager. “We are not going to renew our contract at the dome and let all those troughers stay in there ahead of us.” Names and numbers will be included in court documents in the weeks ahead.

Some original consortium members got little more for their $5 million than a tax break (made possible by the fact that the “investments” were accounted for as business expenses rather than acquisitions) and a fancy place to entertain clients. This group includes Canadian National Railways—which essentially made the federal government’s stadium contribution by providing the land—as well as BCE Inc., Canadian Airlines, George Weston, Imasco, Imperial Oil and a number of financial and management companies controlled by or affiliated with companies that were part of Eyton’s EdperBrascan group.

Other than Bitove Corp., the food-service provider whose prices sparked a SkyBoxholder revolt in the mid-1990s, and which was bought out of its contract for $15 million in 1997, Maclean’s has been told of two companies with contracts that have posed problems for SkyDome. One is Hollinger Inc., which currently owns a seven-per-cent equity stake in the building and the rights to any original publication sold or distributed in the stadium. Another is Toronto real estate developer Edwin Cogan’s Cogan Corp., which recently sold its rights to a subsidiary of Labatt, but for years made money from all souvenirs and merchandise sold in the stadium.

Godfrey is confident that when the truth is told, the original partners will have nothing to be ashamed of. “There was never any backroom skullduggery,” he says. “This was at all times a very open process.” Despite its insolvent state—and his midNovember resignation, along with Eyton, from the SkyDome board—he remains an unrepentant booster of the stadium, which he argues should have stayed in government hands. As for who should be held responsible for the current mess—other than the NDP for selling the public’s share—Godfrey shrugs. “The 80s were wonderful times,” he says, “but governments were chicken. So a lot of companies came in and they put up $5 million each and they all said, What am I going to get for it?’ They got to sell food, advertising, electrical, trinkets and trash.” The brewery, Godfrey adds, has no business whining—managers knew what was happening all along. “I remember saying—at the time—if you give away your revenue streams, what are you going to live on later on?” Upcoming talks with creditors will determine what, if anything, SkyDome now has to hand over in order to get this money back. □