This is always a difficult subject because of all of the facts and figures that are presented. The numbers can be confusing to those readers who have not followed my other blogs on the monthly reports. Here is a link to the report:http://www.glendaleaz.com/finance/documents/FY14MonthlyArenaReport-20140430.pdf . Here is the report itself:
This monthly report publicly released by Glendale will reflect the last of the hockey games for this season but does not capture the supplemental ticket surcharge which is due and payable 60 days after each fiscal year. The new fiscal year begins July 1, 2014 so this line item would not be paid to the city or reflected in this report until September 1, 2014.
The Interest Income-Escrow Account still sits at $4,620 and has not been updated since the first monthly report.
The agreement revenues to the city to date total $4,686,412 and reflect a prorated 11 month fiscal year begun on August 5, 2013. The total city expenditures to date are $10,252,055. In this first year all figures are prorated. The total management fee the city will pay is $13,750,000 and total capital improvement expenditures are $450,685. The report reflects a loss to the city, to date, of $5,565,643.
For purposes of discussion let’s include as revenue the supplemental ticket surcharge. It comes in at $774,452. Let’s add that amount to the total qualified ticket revenue received by the city; and new ticket revenue figure is $2,323,357. The total management fee of $13,750,000 and capital expenditure requirement of $450,685 paid by the city this fiscal year is a total of $14,200,685. Subtract revenues received from fees paid and the loss to the City of Glendale in this fiscal year is the grand total of $11,877,328.
Consider this. Next fiscal year even if all 17,700 tickets per hockey game were qualified tickets the maximum amount the city would receive is $2,537,000 in qualified ticket revenue. For this exercise, let’s add to that figure another $1,268,500 in supplemental ticket surcharge. Add an additional million dollars more in parking revenues to the nearly $1 million generated this year and the maximum revenue 42/43 hockey games per season can generate is approximately $6 million.
Global Spectrum and IceArizona would have to have approximately 100 revenue generating non-hockey events in order to earn an additional $9 million annually to be paid to the city to offset the $15,000,000 the city must pay as an annual management fee to IceArizona. They will be fortunate to host 25 non-hockey revenue generating events next year.
Some folks dismiss the $6 million portion of the annual management fee because it was already budgeted. It’s not to be dismissed because it’s in the budget. The money still comes from General Fund sales tax revenue. It still counts. It is still money the city has to receive from sales tax revenue to pay all required arena expenditures.
I added the Supplemental Ticket surcharge to the total revenues to be received by the city. Even with that “enhanced revenue,” the fact remains that this year the city’s loss is $11.8 million dollars. There is no more money forthcoming to the city from any magical or secret source.
For purposes of this exercise, here is how this year and the next 4 fiscal years worth of loss to the city may very well pencil out. For this exercise I reduce the annual loss by an estimated $2 million a year by increasing revenue to the city by an equal amount annually:
- This year, FY 13-14 loss of $11.8 million
- Next year, FY 14-15 loss of $ 9.8 million
- Year 3, FY 15-16 loss of $ 7.8 million
- Year 4, FY 16-17 loss of $ 5.8 million
- Year 5, FY 17-18 loss of $ 3.8 million
- 5 Fiscal Years Total loss of $39 million
Add to the $39 million deficit in earned revenues approximately $12 million a year in construction bond debt for a total of $60 million. In five years I estimate the city will pay $99 million dollars between paying annual construction debt and covering annual revenue losses generated by the management fee.
My disclaimer is that these estimates are my best, educated guess based upon the numbers that are publicly available. The actual loss number for five years could be higher or lower than estimated.
What is ironic about this IceArizona contract is that the “enhanced revenues” (with the exception of naming rights and the supplemental ticket surcharge) are not really new revenue. Before IceArizona and the NHL’s two years of management, the city paid no annual management fee…none…nada. Yet it collected the very same revenues — a ticket surcharge and a parking surcharge. They were included in the price of every ticket. Those revenues: sales tax earned inside the arena and the ticket/parking surcharges were used to pay down the construction bond debt because the city didn’t have to also pay a management fee.
With this new deal the management fee consumes all of ticket/parking surcharge revenues (in addition to the other revenues like naming rights) the city was already getting and leaves the city struggling to cover some portion of the $15 million deficit every year. Oh, and don’t forget, IceArizona takes $20,000 off the top of parking fees for every game. That comes to $860,000 this year.
Another irony is that when IceArizona took over, it didn’t subtract the existent ticket and parking surcharges that were historically already included in the price of the ticket. Those charges were absorbed and became part of the base price of the new IceArizona tickets to which they added the new, qualified ticket surcharge. In essence, every fan’s ticket now includes the old ticket and parking surcharges within the base price and the new IceArizona ticket surcharge is then added.
The management agreement was and is good for IceArizona but it’s not so good for Glendale. Earned revenues once applied to the construction bond debt are now used to cover the $15 million annual management fee. Those earned revenues simply are not adequate to cover the management fee.
The argument for keeping the Coyotes as an anchor tenant was to benefit all of the surrounding businesses in Westgate. With the totality of Glendale’s excessive debt burden the question must be, is it worth it to keep the team and struggle to pay the annual management fee? Or is Glendale better off going back to accepting one of the Beacon bids solicited last year? You decide.
© Joyce Clark,
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