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 of 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 $15Million to manage the arena 3 out of the last 4 years which isn’t even reflected in the Financial Statements. Based on that info, it appears the City of Glendale is paying 20 Million a year to run the arena. This doesn’t even take into account any debt service that must be paid back for the arena.
Feel free to comment but just let it be known this is a crude analysis limited to the information provided in the RFP and supplementary documents. That said, I am pretty certain I am pretty close. I imagine any arena manager will need to get anywhere between 4 to 6 Million a year from the city.
…and if you need any proof I have way too much time on my hands. (The truth is I am an accountant by education but haven’t worked in Finance or Accounting roles in almost 8 or 9 years…I love this #$%@!!!)