Regina council might consider dissolving REAL amid serious financial issues

Regina city council might consider dissolving Regina Exhibition Association Ltd. amid significant concerns about the organization's future. 

REAL operates the Brandt Centre and Mosaic Stadium as well as hosting the Canadian Western Agribition, the Frost Festival and Queen City Ex. 

On Wednesday, Ward 4 Coun. Lori Bresciani persuaded a majority of her colleagues to request a report on the situation. 

It will outline the steps and effects of dissolving REAL, having the City of Regina assume full management of all its assets, including operational and governance changes, as well as potentially winding up REAL's operations in Regina. 

"This is one scenario that I think really needs to be considered for both the risk we are taking on and because, maybe, there are some cost savings," Bresciani said. 

Bresciani's motion passed 5 to 4. 

The decision comes just a week after council directed city administration to begin the process of transitioning Tourism Regina into the city's portfolio rather than keeping it at the troubled municipal corporation after a controversial and failed rebrand.

City council has begun discussing an independent financial review of REAL by accounting firm MNP.

Its report says REAL's current business model is not financially sustainable without significant subsidies from the City of Regina. 

"MNP does not believe that REAL will be able to operate on a full break-even on operation in the future," the report says. 

REAL has consistently lost money in the past few years, according to its financial statements: $5.6 million in 2020, $3.9 million in 2021 and $5.1 million in 2022. 

The losses are only going to get worse as time goes on, according to MNP. An annual grant of $2.6 million from the Saskatchewan government for not operating slot machines is set to expire in 2027. 

The MNP report says after 2028, REAL would need to host an equivalent of four to seven  2022 Grey Cups annually just to break even financially. 

As a result of the dire financial situation, REAL is asking for a boost in funding from the city. 

Over the last three years, the city had been providing REAL with $1.1 million a year. REAL is asking for more than $5.8 million.

It was a tough pill to swallow for some councillors, who were also informed that REAL's use of the Canada emergency wage subsidy during the COVID-19 pandemic is currently being audited by the federal government. 

The audit is not an indication that any wrongdoing occurred. It's part of the Canadian Revenue Agencies review of the program. However, it means that REAL could be forced to repay part or all of the $7.5 million it received from the program. 

City administration confirmed it is aware of the audit, but that there's no timeline for when it might be completed. 

On Tuesday, REAL CEO Tim Reid said he doesn't like going to Regina city council to ask for more money, but admitted it's the "reality" of the situation it's in. 

"I wouldn't say that this should ever be an easy discussion. I think it's a reality that is a conversation we've needed to have for a number of years, and I think it's coming to a head," he said. 

Reid admitted that the COVID-19 pandemic changed the organization's business model, something that needs to be addressed. 

"I think sometimes we hope that the profit sectors at REAL will allow us just simply not to pay for things that we would pay for in other places. I would love to see that come back. I don't know that it ever will. Foundationally, we need to probably embrace the fact that the business of REAL has changed."

Debt is one of the issues that has forced REAL into its financial hole, Cathy Warner, a board member, told the executive committee on Wednesday. 

Servicing the debt

In 2024, the organization will need to pay $2.7 million just to service the debt it took on as part of the Mosaic Stadium construction, and the series of loans it received to keep operating during the COVID-19 pandemic. 

According to Warner, it will have to pay $1.3 million in interest and $1.4 million in principle payment. 

Warner says the $5.8 million in funding it has requested would not necessarily address REAL's long-term financial viability, but would essentially serve to "keep the lights on," a description provided by Ward 3 Coun. Andrew Stevens

Regina's executive committee eventually directed REAL to work with city administration to help organize its budget submission. 

A final decision on the organization's budget will come on Dec. 13, when council begins deliberations on its 2024 budget.