Man, Economy & Sport

The Canadian province of Alberta has been ruled by the Progressive Conservative Party—which is neither progressive nor conservative—since 1971. Under current leader and Premier Alison Redford, the PCs won their 12th consecutive election last April. Six months later, the Toronto-based Globe and Mail reported Edmonton Oilers owner Daryl Katz gave Redford and the PCs $430,000 in campaign contributions, roughly 28% of the party’s entire budget.

Katz has been trying to extort hundreds of million dollars in new subsidies from the City of Edmonton for a new Oilers arena. It’s unclear what, if anything, Redford’s government will do about this, especially after Katz’s donations came to light. You would think this was a golden opportunity for Redford’s political opponents to highlight the economic insanity of subsidizing wealthy sports franchise operators—Katz is reportedly worth over $2 billion—and at least force the provincial and city governments to grow a backbone and tell the Oilers to fund their own damn arena.

Instead, we saw a bizarre display yesterday from Danielle Smith, leader of the Wildrose Party, which won the second-most legislative seats in last year’s election and thus forms the “official opposition.” Wildrose markets itself as a conservative party and Smith has been portrayed as a libertarian. Despite this, Smith has proposed subsidizing Katz’s potential arena through a “rebranded KENO lottery game.”

This wasn’t totally unexpected. In a Twitter exchange a few months ago, Smith indicated to me this proposal was forthcoming. Still, yesterday’s announcement came off as quite amateurish. Smith started off with the dubious premise that “Edmonton is still without the state-of-the-art entertainment facility it needs,” thus requiring some form of government intervention. She then said in light of the continuing deadlock between Katz and Edmonton over financing, it was time to consider “new and creative ways to get the facility built.”

Smith thinks Keno is “new and creative.” Governments have used Keno and other lottery games for years to raise funds in lieu of direct taxation. (Legend even has it the ancient Chinese used a form of Keno to raise funds for building the Great Wall, although historical records date the game’s invention to 19th century China.) Smith claims Keno is “underutilized in Alberta” and that its expansion could provide upwards of $100 million to help finance Katz’s new arena:

[KENO is] played in just 88 locations across the province and brought in a total of $3.1 million in total revenue last year. Compare that to British Columbia – where KENO is played in over 4,000 sports bars, pubs and lottery centres and where it brought in nearly $235 million last year.

To understand how it could generate similar revenues here, consider this: In 2012, BC Sports Action – the standard sports betting game in BC – generated almost $54 million. In Alberta, the identical game, Sport Select, generated $56 million. And that’s with four fifths of BC’s population.

If applied here in Alberta on the same scale as it is British Columbia, we believe KENO could generate that missing $100 million for the Edmonton arena project within five years, and contribute the same amount of money in the same time frame for Calgary.

The obvious question is, Why would Smith assume demand for Keno is as great in Alberta as British Columbia? She could have picked any other province of U.S. state for comparison and it would have been just as valid (or invalid, as it were). Smith may have been a businesswoman before entering politics, but as a legislator she’s not in an entrepreneurial position to assess the marketplace for gambling services. And for what it’s worth, the PC government said they’ve looked at Keno and determined “there’s significant doubt” it could raise the amount of money Smith claims.

What’s also left unsaid here is that governments like Keno for a reason—it offers the best house advantage of any betting game, around 25%-28%, far more than, say, blackjack or even slot machines. Smith is cynically banking on the Monty Burns view of gambling—“I’ve discovered the perfect business: people swarm in, empty their pockets, and scuttle off.”

Smith also maintains that using Keno funds to subsidize Katz will “save taxypayers money.” While lottery funds may be voluntary gifts from gullible members of the public, once the money is in the province’s hands, it’s still taxpayer funds (as the great Neil deMause pointed out). So, no, Smith wouldn’t be saving taxpayers anything.

And no matter how much Smith tries to spin it, taxpayer funds would go towards subsidizing a billionaire hockey owner. In fact, Smith’s attempt to deny this comes off as a boldfaced lie:

[W]e must acknowledge the importance of these types of facilities to Alberta cities. Some will argue they are merely hockey arenas built so millionaires and billionaires can play a game and make money. In reality, they are much more.

[…]

They are essential to the future growth and advancement of our cities. They spur development, help generate revenue and invigorate local businesses. Yes, they ensure the viability of our beloved NHL franchises – and that is a big part of why they are necessary. But more than that, they say to the world that we in Alberta are major players.

It’s important to note that not a dime would flow through to the NHL franchises themselves. As I mentioned before, we believe the benefits of these facilities go well beyond just hockey – and that’s why the money would go the cities themselves.

The “major players” argument is a restatement of the “monument building” argument I’ve discussed before in relation to the Edmonton situation. Put bluntly, constructing elaborate monuments to government largesse is not a form of economic development. Second, Smith’s claim that “not a dime” would go to Katz is no more honest than her claim Keno funds aren’t taxpayer funding. The Oilers are the reason there’s even a discussion about an arena. Katz’s threat to relocate the team—which is, according to any sane analysis, a moot threat—is what animated this debate in the first place.

What’s really astounding here is Smith’s timing. The Oilers are still maintaining a lockout of the players, depriving Albertans of any NHL hockey for the foreseeable future. The NHL is not in high demand right now. Everyone knows the Oilers are a profitable club. Katz should have no leverage with anyone in Edmonton or Alberta’s political establishment right now, especially after the revelations of his (likely illegal) donations to the PCs.

So why is Smith now promoting this ridiculous Keno subsidy scheme, which can only enhance Katz’s bargaining position? The obvious answer is she hopes to curry favor with hockey-mad voters in Edmonton and Calgary, where Wildrose won just two out of 44 possible seats in 2012. And it never hurts to cozy up to a billionaire with a willingness to spend six-figure sums on local campaigns.