More on the City of Glendale Arena RFP

Today I saw this article in the Phoenix Business Journal about the RFP to run the Glendale Arena. It is fairly accurate article and seems to have a bunch of inner-web folks quoting the 5 Million in loses per year as evidence to move the Coyotes. In an effort to understand the business a little better I began digging into the supplementary material for the RFP located here. The 5 Million in loses is located right here.

These are my thoughts/comments/questions:

  • The financial statements do not include hockey events so they do not include the major expense of 15 Million/per year that the city paid the NHL to manage the Arena 3 out ofglendale events the last 4 years nor does it include the revenue paid back to the city via a ticket tax that is usually implemented to “pay back” the city for the expense of the arena. I use quotes because this strategies rarely pay the municipalities back for the entire costs. (this isn’t an Arizona/Glendale issue….this is issue across all the US subsidies arenas/stadiums).
  • I went through the Non-Hockey Events sheets for the last few fiscal years to see that when you compare 2010 to 2012 the number events dropped from 52 to 22 and non-hockey attendance dropped from 359K in 2010 to 148K in 2012. That is a pretty dramatic drop and that isn’t related to the Coyotes. Keep in mind the NHL was running the Arena they would receive little to no benefit for booking more dates events for the Arena hence the drop off. Well when you have a drop off in attendance you probably have less opportunity to make money. That assumes that you don’t lose money per event. Interesting to call out there are a lot of reoccurring events and in 2010, 2011 & 2012 the PBR & AIA Basketball show up every year which probably means they have a long term agreement with the arena.

I dug into the financials a bit to get a sense of where money is being made, what kind of costs exist and how many events they would need to break even. I rather crudely broke each line item into fixed and variable to get some sense of a model going. Of course there are some blended Fixed vs. Variable line items and you can get some economies of scale for variable costs (i.e. bulk pricing) so by no means should this be considered a flawless model. Additionally, revenue & expenses can increase and decrease based on the type of event being hosted. In a perfect world you could segment the business a bit and create separate financial statements per event type and class. This is not that much complicated but requires the data to build the models.

So I punch the numbers and build the model only to find that based on the limited info shared by the city and my rather crude model, there is no way the arena can be profitable. I built out the scenarios for 50, 100 & 150 events and even if you were to book 150 events, they would still lose 4.6 Million….hmmm that is very close to the Glendale City Council put aside for next years budget.

Remember, this is non-Hockey events. The city of Glendale also paid the NHL $15Million to manage the arena 3 out of the last 4 years which isn’t even reflected in the Financial Statements. Based on that info, it appears the City of Glendale is paying 20 Million a year to run the arena. This doesn’t even take into account any debt service that must be paid back for the arena.

Feel free to comment but just let it be known this is a crude analysis limited to the information provided in the RFP and supplementary documents. That said, I am pretty certain I am pretty close. I imagine any arena manager will need to get anywhere between 4 to 6 Million a year from the city.

…and if you need any proof I have way too much time on my hands. (The truth is I am an accountant by education but haven’t worked in Finance or Accounting roles in almost 8 or 9 years…I love this #$%@!!!)

glendale finance statements

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RFP for Glendale’s Jobing.com Arena

Another bit of news that came out yesterday was the jobing.com Arena RFP went out yesterday. I didn’t want to post it until I read through the entire RFP.

Here are some interesting things in it: jobing

  • RFP submissions are due 5/24/13
  • A requirement is that the Manager must have experience running an arena with an NBA or NHL Team Recommend term of the lease agreement is 5 years with two additional 5 year renewals –
  • “provide an explanation of the firms experience attracting an anchor tenant for a facility comparable to the Arena…”
  • City wants manager to take over the facility no later than July 1st

This is how I interpret the RFP. First off, most if not all potential owners of the Coyotes will want compensation for running the Arena so we will not get confirmation of the Coyotes staying in Glendale until June. That said, there is nothing that would prevent the league to sell to someone else with the intent to move before the RFP is due. The RFP is written with the intent on having an anchor tenant, aka the Coyotes so it isn’t to say that Glendale is planning on the team moving. .

On the experience requirement, there aren’t a lot of companies that have this requirement so if this is tied to a Coyotes ownership group, look for a subcontracting/partnership with Levy, AEG, Aramark or SportService as those are the major players in this industry.

I did see a quote from NHL Deputy Commissioner Bill Daly: Glendale “RFP doesn’t affect ownership search at this point”

Here is a link to the RFP: http://www.glendaleaz.com/purchasing/documents/GLENDALEARENAREQUESTFORPROPOSAL-RFP-April16-2013.pdf

News of the day…Ron Burkle out in SacKings deal

As those of us that are following the Sacramento Kings situation as if an NHL team coming to Seattle depended on it. News broke earlier today that Whale #1 and Pittsburg Penguins owner Ron Burkle is out of the Kings ownership group. This is shocking news with just 10 more days before the NBA Board of Governors Meeting where they will vote on the Hansen/Ballmer deal for the Sacramento Kings. Kevin Johnson had a press conference earlier to go into damage control mode. To summarize the press conference I am including a timeline of Chris Daniels tweets while he was covering the press conference.

CD on KJ conf

Interesting enough, KJ himself tweeted on March 23rd, 3 days before the City Council vote on the deal that he has just closed the deal with Ron B. I was a little nervous after the New York meetings last week but now I am feeling a little bit better about Seattle’s chances. I don’t like the thought of taking a team away from somewhere but KJ should have known this was possible last year and that he should have lined up a buyer last summer. It would have been easier for his city and the people of Seattle. It was foolish to wait until Hansen had a deal in place to figure out how he would match it. A lot of people in both cities have a ton of respect for KJ but I’ve lost some. He is being careless with city money and not being transparent about the $$$ involved here. There were several Finance workshops on the Seattle deal that reviewed deep detail of Hansen’s assumptions and questioned a lot of his figures that he himself answered.

thispicsaysitall

Sacramento Kings Ownership Showdown in NYC

As most of you know, yesterday was the big showdown pitch meetings between Seattle and Sacramento for the Kings. As expected, we didn’t get much as meetings were behind closed doors and Stern did show his cards. I watched most of the three press conferences and here are the major things that I took away that could impact the situation.

  1. Stern shot down any talk of expansion citing it was not prudent to split their auxiliary revenues by adding a couple more teams.NBA
  2. The decision could go past the original said deadline of the NBA BOG meeting April 18th. If the Coyotes are an option for Seattle, this starts to impact that timeline where Seattle might not be a reasonable option.
  3. Sac ownership group did not match the Seattle offer price of the Kings. It should be noted that Stern was asked about this outside of his press conference (by Chris Daniels) and Stern implied that it would not be a deciding factor. I don’t know if this is really the case as Stern might eliminate that issue in the press to make sure he doesn’t tip the way he is leaning.

There is so much public and political posturing in these things it is really hard to gauge what is really going on so take everything you read and watch with a grain of salt. As usual, I love Neil deMause’s write up at Field of Schemes. It is definitely slanted but it isn’t the typical over positive Sports Coverage that you will read everywhere else. Hard for me to predict what will happen over the next 3 weeks other than I expect a lot of lawsuits in Sacramento and expedited resolution to any lawsuits or studies we have here in Seattle. Hold on tight…stay positive and try to be level headed to things that are reported.