Arena project is a losing endeavor

While a confidentiality agreement between the city of Youngstown and developer FaulknerUSA of Texas has hidden from public view the detailed financials of the proposed sports arena/convocation center in Youngstown, it is not a stretch of the imagination to conclude that the project will lose hundreds of thousands of dollars each year for at least five years. That reality should guide Mayor George M. McKelvey and city council as they decide whether it is a sound investment to commit to the project the $26.8 million gift Youngstown has received from the federal government.
What is the basis for concluding that there will be a huge revenue shortfall each year?
For one thing, FaulknerUSA's failure to secure a loan -- as of two weeks ago -- for the $26 million it has to put up in private equity to be a partner with the city. This failure suggests that the financial institutions aren't comfortable with the revenue projections. Hence, talk of a sin tax to provide a guaranteed pool of money that would be used exclusively for the arena.
For another, two recent newspaper headlines relating to similar projects. The first appeared in the Cleveland Plain Dealer March 4 and it read, "Gateway trying not to go broke." Here's the lead paragraph of the story: "The group that owns Gund Arena and Jacobs Field wants to change its leases with Cleveland's sports teams to escape the constant threat of bankruptcy." The stadiums are owned and operated by the Gateway Economic Development Corp, which, the Plain Dealer reported, has less than $900,000 on hand. The story noted that if Gateway cannot improve its finances and goes bankrupt, ownership of the stadiums transfers to the city of Cleveland and Cuyahoga County.
Lakefront center
The other headline appeared in The Vindicator June 6: "Hopes rest on civic center." The Associated Press story was datelined Erie, Pa., and led with this: "With factories closing and commercial fishing all but extinct, officials are increasingly hinging Erie's transformation on a yet-to-be-built $46.5 million lakefront convention center."
But here's the kicker: Although state and local governments are putting up all the money, a 1999 study by QED Consulting of Cincinnati estimated that the convention center would lose about $603,000 in its first year and about $286,000 by the fifth year. This, despite the fact that a developer plans to build a 13-story, 150-room Courtyard Marriott hotel next to the 113,000-square-foot convention center.
Against the backdrop of Gateway's possible bankruptcy and the losses projected for the Erie center -- don't forget that the entire tab would be paid from the public treasury -- Youngstown officials are absolutely right in not only insisting on a substantial infusion of private dollars, but also requiring the private developer to bear all the financial risk.
It is no wonder, therefore, that FaulknerUSA hasn't rushed to the negotiating table with checkbook in hand. Successful companies don't become successful by making bad investments -- and sports arenas/convocation centers are bad investments. That's why governments build them and, invariably, end up taxing the people to keep them operating.
Last week, it was suggested in this space that rather than squander the $26.8 million on a losing proposition, McKelvey and council should give serious thought to using the money to build a community center with a children's museum as the centerpoint.
Growing support
The idea of having the children's museum as the focal point, so the building could be designed as creatively as the Michael Graves steel museum, is gaining widespread support in the community.
But also last week, there was a drumbeat of criticism aimed at this writer and the mayor for suggesting that absent an infusion of millions of dollars from the private sector, the arena project is dead. The arguments went something like this: So what if the city is left holding the financial bag, the project is what matters.
It was argued that the mayor and council should show political leadership in going forward with the arena. These individuals obviously equate political leadership with spending public dollars on a project that the private sector won't undertake.
If this is such a great deal, there should be no trouble putting together a group of investors who would build the arena and the hotel. The city would willingly give them the land between Market Street and South Avenue bridges.
Word of warning to readers: Don't hold your breath.