Viewing local venue’s losses in broader context

Youngstown’s location will work against it, the editor of a trade publication says.

By ANGIE SCHMITT

VINDICATOR STAFF WRITER

YOUNGSTOWN — With a $26 million federal check in its wallet, Youngstown leapt into the sometimes fickle waters of arena management.

The 5,700-seat Chevrolet Centre opened in 2005 with a lot of promise for the downtown riverfront. It retains the promise, but in the 18 months it’s been open, the center has struggled to turn a profit.

The center’s finances made headlines again in May when quarterly profits fell 16 times short of projections. The January-to-March period was supposed to generate profits of $458,564. What came in was $27,440.

Mayor Jay Williams is one of many local officials worried that the differences would make the city, in his words, “subject to ridicule.”

The center’s new executive director, Tim McGrath, marveled how a negative light shines over what was a profitable period. “A projection is just a projection,” said McGrath. “The fact that we’re in the black, we’re excited.”

Determining what’s a respectable profit for the Chevy Centre is a complicated matter. The public arena industry offers no convenient standard for measuring the success of an arena. Publicly owned venues across the country vary in success.

The Mark of the Quad Cities in Moline, Ill., posted profits of about $600,000 last year, said the center’s marketing consultant, Melissa Gardner. More than 10 years after its construction, the venue is a continued source of revenue for the city, she said.

Another Illinois city, Bloomington, has fiscal losses so significant that in May its city council explored the notion of raising property taxes to compensate, according to reports in the local paper, The Pantagraph. Its U.S. Cellular Coliseum registered close to a $2.5 million deficit during its first year in operation, according to financial reports.

Location, volume, quality

Gardner attributes much of The Mark’s success to location.

“We are three hours from Chicago, two from Des Moines,” Iowa, she said. “We’re in a great centralized location to get shows that move from one area to the next, but we’re still far enough that we’ll pull our own people.”

Youngstown’s location will work against it, said Jim Grinstead, editor of the trade publication Revenues from Sports Venues.

The Centre must compete for performance acts with Cleveland and Pittsburgh, each about 60 miles away. Grinstead said research shows that people will travel up to two hours for a big act.

The Mark is also outpacing the Chevrolet Centre in events held, said Gardner. Moline’s arena opened its doors to 200 events last year, compared with 87 at the Chevy Centre.

This year, Chevy Centre’s management, Phoenix-based management firm Global Entertainment, has expanded its schedule to 109 events.

Grinstead says an arena of the Centre’s size should hold about 150 events each year to break even. A highly successful arena would host about 250 events, he said.

Carrying debt

Much of Bloomington’s arena turmoil can be traced to the way the building was financed.

The city of Bloomington borrowed $29 million of the $35.8 million total construction cost for its arena. Each year, Bloomington is responsible for $1.7 million in bond payments, in addition to the operating costs of the center, according to the arena’s financial statements.

Originally, supporters of Bloomington’s arena expected its revenues to exceed the cost of bond payments, said arena manager Mike Nelson. Now, he and other local leadership question whether the venue will ever turn a profit.

“It’s going to be a challenge to ever to put a dent in the debt services payment,” he said. “We’ve come to that realization.”

Youngstown has an easier situation with debt.

The city contributed $11.5 million to the construction of the Centre, which has resulted in $755,650 in annual bond payments.

Youngstown is further protected from Bloomington-scale losses by its contract with Global. The city is guaranteed $600,000 per year from Global, regardless of profit or loss. As a result, the city still stands to lose up to $155,650 per year.

Hockey powers Wilkes-Barre

The Wachovia Arena in Wilkes-Barre, Pa., demonstrates the potential of a sports team to generate profits for an arena.

The 8-year-old arena reported profits of about $300,000 in 2003, according to reports from the Wilkes-Barre Times-Leader. Wachovia Arena management did not return requests for financial information.

The report attributed much of the venue’s success to the faithful fans of the arena’s minor league hockey team — the Penguins, which competes in the American Hockey League, a step above the SteelHounds’ Central Hockey League.

Despite the team’s losing record, Penguins games were netting the Wachovia arena about $10,000 profit each month during 2003, it reported.

Grinstead cheered the arena in an interview with the Times-Leader, saying the sports team’s relationship with its building is critical to the building’s survival.

In Youngstown, the partnership between Chevrolet Centre management and the arena’s minor league hockey team has been strained by a financial dispute.

Global is demanding about $150,000 in 2006 club seat revenues from SteelHounds’ owner, Blue Line LLC.

Global maintains that its contract with Blue Line stated that the seller of the luxury seats would receive the revenues. Global sold all of the club seats at about $1,000 each, said Thomas Sadler, president of Global’s facility management company, Encore Facilities Management.

However, Blue Line President Herb Washington told The Vindicator in 2006 that his firm would never have agreed to turn over all its club seat sales to Global. Blue Line has countered by refusing to attach parking and facility fees to its SteelHounds’ tickets. The matter has yet to be resolved.

Rockford’s losing but investing

Officials in Rockford, Ill., haven’t lost faith in their struggling facility.

Unfazed by operating losses averaging close to $1 million per year, the city plans to invest $20 million in its 10,000-seat MetroCentre.

The city has been subsidizing the arena, built in 1981, with $912,000 annually.

But Rockford City Council gained a new appreciation for its embattled center after a 2005 economic study found the MetroCentre generated about $23 million in economic activity that year, said general manager Corey Pearson. Since then, Pearson has teamed with Rockford’s convention and visitors bureau to maximize the center’s economic impact on the city, despite its negative bottom line, he said.

The local bureau contributes a portion of the rent for events that are not expected to generate a profit for the MetroCentre, but can mean big gains for local hotels, restaurants and other businesses.

Also next year, the corporation that owns the facility will own the minor league hockey team there and expand to the more competitive American Hockey League. It was in the United Hockey League, which is somewhat on par with the SteelHounds’ CHL.

Chevy: Draw, not drain

Under pressure to perform, Rockford is one of many cities to highlight the value of its arena outside the box office.

Both Bloomington and Rockford have emphasized the larger value of their publicly owned facilities in terms of downtown revitalization.

Youngstown is no exception.

Youngstown’s deputy finance director, Kyle Miasek, attributed many of the early struggles at the Chevrolet Centre to mismanagement by Global. But, he said, the center’s financial situation is improving year to year.

“That’s something that bodes well for them,” he said.

Global manages arenas mostly in the Southwest and West. Its main competitor is a Philadelphia-based management company called SMG. SMG manages the Wachovia Arena as well as the Nationwide Arena in Columbus. Both the Mark and the U.S. Cellular Coliseum are managed by independent agents.

A 20-year contract, however, prohibits the city from seeking another management company should they wish to, Miasek said. He said the city prefers dealing with a smaller management company like Global because of the increased local control it allows, he said.

Miasek said the general attitude in city government is that the downtown redevelopment potential of the Chevrolet Centre trumps its value as a potential source of revenue.

“We kind of gauge the Chevy Center as a tool to draw people downtown,” he said. “As long as it doesn’t in any way inhibit the city’s budget, we’re excited.”

He said the city spends more money annually keeping up its swimming pool than financing the debt for the arena.

Grinstead agrees with the city’s evaluation.

When location and market size are taken into account, the Chevrolet Centre would be doing well to break even, he said. He suggested the city optimize the larger value of the venue for residents by offering local groups a lower rental rate.

McGrath maintains that Youngstown is fortunate to have a facility on the scale of the Chevrolet Centre.

The $45 million center was by far the biggest downtown development in the past 10 years. Before its construction, musicians Ludacris, ZZ Top or Tool never would have visited Youngstown, said McGrath.

“We are the cornerstone of a downtown that really needed a kick in the butt,” said McGrath. “I just wish there was more focus on our success.”