Mayor Chris Beutler said today that a consultant's report on Pinnacle Bank Arena confirms that the facility is being managed well and is financially stable. The West Haymarket Joint Public Agency (JPA) hired Venue Solutions Group (VSG) in June to examine the Arena's operations. The JPA is responsible for paying its own operational expenses and the debt on the Arena, while the private management firm SMG has a contract with the City to operate the facility.
"The big picture is very positive, with more than enough funds for SMG to operate the Arena, to pay the JPA operating costs and to pay the bond debt," Mayor Beutler said. "Revenue from occupation taxes is much higher than projected at this point, and the Arena operation itself continues to generate revenue far above its operating expenses."
As part of its financial and operational review, VSG compared the operation of Pinnacle Bank Arena with four similar facilities - Ford Center in Evansville, Indiana; John Paul Jones Arena in Charlottesville, Virginia; Save Mart Center in Fresno, California; and Chaifetz Arena in St. Louis, Missouri.
"Pinnacle Bank Arena is performing as well as or better than the comparable arenas in terms of presenting great events and generating revenue," said Mike Wooley of VSG. "The management and staff take pride in the beautiful building, and it is being very well maintained, an important factor in extending the life of the facility."
Wooley said management needs to continue to be diligent on controlling expenses, including utility costs. Food and beverage sales are the Arena's largest revenue generator, and Wooley said it's important to get feedback from customers in order to continue quality and service improvements.
VSG did not make a recommendation on beer sales at University of Nebraska sporting events, but estimated that "selling alcohol in premium areas only during men's and women's Husker games would return a net income to the arena in the six figures." The University does allow beer sales at University of Nebraska - Omaha basketball and hockey games. Beutler said no discussions with University officials have taken place.
The occupation tax on hotels, restaurants, bars and car rentals is the major source for Arena bond debt payments. Occupation tax collections for 2015 were $15.3 million dollars - an amount the JPA did not project to reach until 2025.
"As we projected, Arena events have contributed to the success of these private sector businesses," Beutler said. "Their success will ensure that those fund balances continue to grow and keep the project on very solid financial footing."
In addition to the occupation tax, Arena revenues are also used to help pay debt payments. Total revenues at the Pinnacle Bank Arena were $6.8 million dollars, and the JPA initially collects about 50 percent of those dollars. A portion is used for debt service, and the JPA then returns funds back to the Arena to help cover its $5 million in operational expenses.
"Arena revenues outpaced expenses by about $1.8 million last year," Beutler said. "The Arena is not 'losing' money."
"The JPA structure has been very successful ensuring that debt payment finances are in great shape and taxpayers are protected," Beutler said. "We always anticipated we would return a portion of the Arena revenue back to operations, and this return - called the 'operational increment' - was built into the original JPA structure."
Former City Finance Director Don Herz, who was instrumental in formulating financial plans for the JPA and Arena, remains a consultant for the JPA. Mayor Beutler said the VSG report as well as the financial model that Herz maintains confirm that the operational increment does not negatively impact the bond repayment plan.
The operational increment has and will vary from year to year, and the proposed amount for the 2014-2015 fiscal year is $650,000. Beutler said the JPA's return of Arena revenue to Arena operations is not a "subsidy," and the system is working the way it was intended and designed.
The JPA will discuss the Arena budget at its next meeting at 2 p.m. Thursday, August 27 in the Bill Luxford Studio, County-City Building, 555 S. 10th St. More information is available at lincoln.ne.gov (keyword: west).