Skip to main content
Entrepreneurs
Business Observer Friday, Nov. 28, 2003 14 years ago

Sarasota Arena: How Big a Drain?

Share
Read the consultants' report on a new arena at Sarasota County's fairgrounds. It provides plenty of information to question the project's viability.

Sarasota Arena: How Big a Drain?

Read the consultants' report on a new arena at Sarasota County's fairgrounds. It provides plenty of information to question the project's viability.

By Sean Roth

Real Estate Editor

Rex Jensen, president of East Manatee County-based Schroeder-Manatee Ranch, seldom minces words. Summarizing his company's proposed privately funded sports arena at Lakewood Ranch versus constructing a similar publicly funded complex at the Sarasota County Fairgrounds, Jensen says:

"It comes down to: Do you want something on the tax dole or the tax roll?"

To be sure, the directors of the Sarasota County Agricultural Fair Association Inc., the not-for-profit owners of the site of Sarasota's fairgrounds and deteriorating Robarts Arena, acknowledge their proposal will require public money. Their consultants stated as much in their analysis of financing such a venture: While noting that more and more arenas are obtaining private capital from naming rights and vendors, the consultants say, "The primary source of underwriting for debt service on construction of these facilities is still typically derived from public avenues."

So one question is this: How much will that be?

How much will annual debt service cost taxpayers on a proposed $54 million, 7,500-seat multipurpose arena at Sarasota's fairgrounds?

Not only that, how much more public money, if any, will be needed to cover operating costs? What's more, how viable is such a center compared to some alternative use of the fairgrounds property - say, residential development?

If you read the entire December 2002 fairgrounds consulting report - produced by the four A-listed firms of SMRT, Heery International, Kimley Horn and KMPG LLP - you would not be making an unreasonable leap to question the viability of the fairgrounds association's plans. Read the report closely, even the consultants send many signals that such a venture is destined to be what Schroeder-Manatee's Jensen has called "a tax inhaler."

Financial viability

Based on the consulting firms' projections, the Sarasota Fairgrounds Association's $54 million arena could be financed anywhere with 70% to 88% of the money coming from public sources - $38 million to $48 million in public financing. (As a comparison, of the 11 similar arenas constructed around the nation in recent years, the public-private financing averaged 60%-40%, with 60% the public portion.)

If, say, that $38 million were financed over 30 years at 3% interest, principal and interest on the debt would cost about $11.6 million in the first five years.

Will the arena generate enough cash to cover that and its normal operating expenses?

Not by a long shot.

As the accompanying table shows, the consultants are projecting the arena will operate at an annual deficit in the first five years - a deficit that is projected to increase with time rather than decrease. To wit, the projected operating deficits:

2006$303,000

2007$275,000

2008$346,000

2009$358,000

2010$368,000

Now add on about $2.3 million a year in debt service and another $1.4 million in depreciation, and quickly the total annual deficit starts clocking about $4 million a year.

Who will pay for all of that?

According to a presentation made to the Fairgrounds Association by the Brooks Group, the Pittsburgh-based group with ownership stakes in the Pittsburgh Pirates and Pittsburgh Penguins, the Brooks Group has committed to making up any operating expense deficiencies - roughly $300,000 to $370,000 a year.

The remainder of the shortfall, presumably, would come from taxpayers.

Operational viability

Financial projections, of course, are just that. There's no certainty those numbers will be real. Indeed, they will hinge to a great degree on execution - how well or poorly such a facility is managed and operated.

And on this point, the consultants make note of some challenging issues. Take management. Because of the competitive nature of the event business, the consultants said the fairgrounds complex would need "a strong management team" that can operate the arena "in a first-class manner."

"Management will need to have established contacts and strong relationships with regional and national family show and concert promoters in order to maximize bookings," the report said. The consultants noted, too, the importance of management executing "aggressive marketing." That means the Fairgrounds Association will now enter national competition for the best managers.

Even with strong management, the consultants recognize their projections for the usage of the arena will require moving some existing events from one local venue to the fairgrounds - not an altogether easy proposition. "Future bookings will be impacted by changes in the local and regional market," the consultants say. "These changes may include the construction of the new convention/conference center in Sarasota County as well as a proposed new amphitheater at the Florida State Fairgrounds in Tampa."

What's more, the consultants note, Sarasota is considered part of the Tampa market in much of the entertainment business - "a major disadvantage for attracting certain events like concerts and family show." And they said this: Because of this sharing of the media market with Tampa, as well as other market characteristics, Sarasota would likely not be a stop on an event's initial concert route. Rather, performers and promoters usually prefer to play primary markets first then secondary markets."

Take the World Wrestling Entertainment, a professional wrestling company. The consultants say it "views Sarasota and Tampa as one market and prefers to host their events in markets with the greatest population base and larger facilities." Two of the most recognized ice-skating shows, Tom Collins' Champions on Ice and IMG's Stars on Ice concurred with the WWE's assessment. Count out, motor sports events as well. Clear Channel Entertainment-Motor Sports says in the report that it would likely choose Tampa's facilities because of their additional capacity.

VEE Corp., which promotes shows such as Sesame Street Live, Bear in the Big Blue House and Dragon Tales, and HIT Entertainment, which promotes Barney and Bob the Builder, were "skeptical about coming to the Sarasota market ¦ from the close geographic proximity of Sarasota to Tampa and the older age population in the Sarasota area." The Harlem Globetrotters said they would likely use the new facility, but they already use the existing fairgrounds facilities.

"We are trying to create a natural second stop to Tampa," says James Stevenson, a representative of the Brooks Group. "There are people in the Sarasota market that don't want to drive the hour and a half to go to a family show."

There is also the issue of the major tenant. While the report recommends a minor league professional hockey team as the primary tenant, it also hints that even stable sports leagues have a troubled history of success. "While a minor league professional sports tenant could provide an arena with as many as 40-60 guaranteed event dates, historically the minor league sports industry has been unstable and unreliable." The report officially recommends the East Coast Hockey League but says that three of its teams in Florida cities (in Miami, Jacksonville and Tallahassee) have closed since 1999.

Location viability

If money and geographic competition aren't enough to raise doubts, the close proximity of the fairgrounds to Lakewood Ranch should.

Schroeder-Manatee's Jensen is biased, of course. But as he notes: "Drive 40 minutes in any direction. You will get farther from our site. How do you expect to get people from Brandon, Bradenton or Venice to the fairgrounds?"

Stevenson disputes that traffic will pose a problem for the project. "This is a proven site," he says. "Our location is centrally located. We have great proximity to downtown and to all the hotels in the area. The county fair is held there, and there are hundreds of thousands of people who attend that event. To my knowledge there hasn't been any difficulty getting to the site. I think this is a tremendous opportunity for downtown."

The official position

Ultimately, the Sarasota County Commission will decide whether public funds will finance a new fairgrounds arena. And at this point, the commissioners appear undecided.

"I am not very confident on where I am on the progression of letter of intent," says Commissioner Jon Thaxton. "I need to hear more discussion and staff input. I just need more information to make a decision. They are asking for an extraordinary amount of money. But we are not in a rush."

"I haven't made a decision yet," says Commissioner Nora Patterson. "The timing of this (the announcement by Schroeder-Manatee Ranch) is most unfortunate. I would hate to see the two things go head to head."

Asked about the possibility of the arena being a drain on taxpayers, Commissioner Paul Mercier says: "Not on my watch. I'm not naive enough to believe that it can be done without any tax funding, but we will see what it takes to get it done. It has to be freestanding."

The commission will meet with representatives from the Fair Association at its Dec. 2 commission meeting.

ANOTHER 'TAX INHALER'

Rex Jensen, president of Manatee-based Schroeder-Manatee Ranch, says one of the differences between his company's proposed arena at Lakewood Ranch and the Sarasota County Agricultural Fair Association's arena is whether the arenas will be tax generators or tax inhalers.

Jensen, of course, says at this point it's evident a new arena at the Sarasota fairgrounds will be a "tax inhaler." It won't be alone.

Not far away, the city's Ed Smith Stadium, spring training home of the Cincinnati Reds, consistently operates at an annual deficit. Patrick Calhoon, facilities manager for Ed Smith Stadium, says the stadium has run annual operating deficits of nearly $250,000. In the past two years, the city has more than doubled its subsidy to address major capital improvement projects.

SUBSIDY FOR

ED SMITH STADIUM

YearSubsidy

1999 $300,000

2000 $165,587

2001$242,103

2002$624,678

2003$700,000

Estimate of Operating Revenues and Expenditures

Operating Revenues20062007200820092010

Ticket Sales/Facility Rental (net)$739,000$861,000$929,000$957,000$986,000

Food Beverage and Novelty (net)$446,000$473,000$490,000$504,000$519,000

Parking (net)$296,000$329,000$347,000$358,000$369,000

Box Suite Revenue (net)$203,000$209,000$215,000$221,000$228,000

Advertising$141,000$145,000$149,000$154,000$158,000

Fair Revenue (net)$113,000$116,000$119,000$123,000$127,000

Other$91,000$93,000$93,000$96,000$99,000

Total Operating Revenues$2,029,000$2,226,000$2,342,000$2,413,000$2,486,000

Operating Expenditures20062007200820092010

Salaries & Wages$748,000$795,000$853,000$878,000$905,000

Benefits$150,000$159,000$171,000$176,000$181,000

Unreimbursed Contract Services$187,000$199,000$213,000$220,000$226,000

Repairs & Maintenance$84,000$87,000$119,000$123,000$127,000

General & Administrative$141,000$174,000$179,000$185,000$190,000

Advertising & Marketing$197,000$203,000$209,000$215,000$222,000

Utilities$535,000$580,000$627,000$646,000$665,000

Insurance$154,000$161,000$167,000$173,000$179,000

Other$68,000$70,000$72,000$74,000$76,000

Total Operating Expenditures$2,264,000$2,428,000$2,610,000$2,690,000$2,771,000

Reserve for Replacement Fund$68,000$73,000$78,000$81,000$83,000

Excess (Deficiency) of Operating

Revenues Over Operating Before

Depreciation & Debt Service($303,000)($275,000)($346,000)($358,000)($368,000)

WHAT THE BROOKS

GROUP WOULD DO

If the Sarasota County Agricultural Fair Association Inc. goes forward with constructing a new arena, one of its partners will be the Brooks Group, a Pittsburgh-based sports and entertainment management firm.

The Brooks Group - a father-and-son team consisting of patriarch Bob Brooks and his sons, Robert and James - are part owners of the Pittsburgh Pirates and the Pittsburgh Penguins. The group is also involved in the operation of the Wheeling Nailers in the East Coast Hockey League and the Wilkes-Barre/Scranton Penguins in the American Hockey League.

For the Sarasota Fair Association, the Brooks Group outlined in a presentation what it sees as its responsibilities and financial commitment.

Responsibilities:

× Act as project manager - coordinating the efforts of the Fair Association, county and others.

× Act as the developer and operator of the new facility through a master lease. James Stevenson, a Brooks Group spokesman, says the group would likely hand off day-to-day management of the facility to a national management company. Terms of the lease arrangement have not been determined.

× Raise the necessary private equity and funding for the proposed facilities.

× Secure the ownership of a minor league hockey team. Specifics of the ownership agreement have not yet been defined.

× Cover projected annual deficit of operating expenses not covered by gross revenues.

Financial commitment:

The Brooks Group would consider committing up to $15 million of equity, with up to $11 million coming from other private sources.

Brooks Group projected funding sources

SourceRange

Brooks Group Contribution*$2.5-$5 million

Naming Rights$2.5-$5 million

Suite/Seat Licenses$250,000-$500,000

Facility Manager Contribution$1-$2 million

Concessionaire Contribution$1-$2 million

Private Donations/Rights$1-$1.5 million

*Additional investment by Brooks Group of $5-$10 million for minor league hockey team acquisition and working capital.

Related Stories

Advertisement