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Phoenix XCVII: Forget it, Jake. It's Glendale.

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Old
07-07-2013, 08:44 PM
  #151
fishbert
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Originally Posted by barneyg View Post
But since we're talking about it.. what do you think of MNNumbers' demolition option?
Already said reducing operating expense to zero was SMG's maximum profit option if we are to assume (as CF suggested) that they perform to the same level as the NHL has.

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07-07-2013, 08:45 PM
  #152
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Originally Posted by fishbert View Post
The historical performance of the arena is an operating loss of $190,000 per event (first 7 months of FY 2013; cleanest period we have that excludes hockey events).
It would help if you started with accurate data.

$2,621,700 > $1,440,013

That's a profit, not a $190k loss.

Quote:
How many events losing $190k each does it take to make a revenue-neutral arena? I run that math and it seems SMG's best profit comes with shuttering the arena and pocketing $6.5M over the 5 year period.
FYI: snarky works better if you don't botch the $190k loss thing.

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I know perfectly well how to read the bid.
It doesn't seem like you do. In fact, not only are you unable to read the bid but, as indicated above, you're not exactly ace at pulling the relevant data sets either.

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07-07-2013, 08:51 PM
  #153
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Let me just get in here a little more, Barney.

Obviously, demolition is not a serious option.

1) It would probably be the best, financially, but
2) The 'vision' that moved Glendale to build it (and every city, really) won't allow them to see that they are losing money on it.

I offered the suggestion as a way to point out that there really are more than one level of choice here:
Level 1: Do you want the safest choice financially in the short term? If so, demolish!
Level 2: You have now admitted that you want the risk of driving Westgate and the surrounding areas to be a 'big deal.' Now, the question becomes, "Do you want the safest risk while still using the Arena for something?" If so, then I believe that SMG offers that. I could offer more detail about why I think that if someone wants.
Level 3: If you still don't want the safest, then you want the NHL. How much $$ are you willing to risk losing to keep the NHL and hope they will be the driver of the area?

These are the questions. GCC made their decision. I disagree with it, but it is made. Only things that might hinder are found in another post - Referendum, GWI, legal action because of violation of 24 hrs clause, effect of audit...

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07-07-2013, 08:53 PM
  #154
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Originally Posted by CasualFan View Post
It would help if you started with accurate data.

$2,621,700 > $1,440,013

That's a profit, not a $190k loss.

FYI: snarky works better if you don't botch the $190k loss thing.

It doesn't seem like you do. In fact, not only are you unable to read the bid but, as indicated above, you're not exactly ace at pulling the relevant data sets either.
CF, please tell me why the $3.3M in non-event arena operating expenses and overhead are valid things to ignore when discussing arena management costs.
I'm rather confused as to why you continue to not account for them.

Perhaps "an ace at pulling the relevant data sets" such as yourself has an explanation for why line items like "security", "parking", "housekeeping", "arena managment" don't factor in to the cost of arena management? Perhaps you don't believe these costs scale with the number of events being held?

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07-07-2013, 08:53 PM
  #155
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Originally Posted by fishbert View Post
Yes, they'll have to still pay this back over the following 4 years, but without FY 2015-2018 budgets available to look at, it's wild conjecture (at best) to say how they might account for it. As each year's $5M payment is about 0.8% of the FY 2014 city budget, though, I doubt it will be a difficult task.
It certainly wouldn't be the first time they raided the enterprise funds to pay off the NHL; I wouldn't expect it should be particularly difficult for the next five years. Moody's and the bond market should be thrilled...

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07-07-2013, 08:58 PM
  #156
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Originally Posted by fishbert View Post
The historical performance of the arena is an operating loss of $190,000 per event (first 7 months of FY 2013; cleanest period we have that excludes hockey events). How many events losing $190k each does it take to make a revenue-neutral arena? I run that math and it seems SMG's best profit comes with shuttering the arena and pocketing $6.5M over the 5 year period. Great for SMG; not so great for economic growth at Westgate (the entire reason to do any of this).
Quote:
Originally Posted by fishbert View Post
CF, please tell me why the $3.3M in non-event arena operating expenses and overhead are valid things to ignore when discussing arena management costs.
I'm rather confused as to why you continue to not account for them.

Perhaps you don't think line items like "security", "parking", "housekeeping", "arena managment" factor in to the cost of arena management?
http://en.wikipedia.org/wiki/Straw_man

Events make money. Enough events = fixed costs may be covered. Obviously if you treat all Jobing.com expenses as variable costs, the optimal number of events is 0. Nobody claimed that, but thanks for showing it anyway.

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07-07-2013, 09:04 PM
  #157
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Originally Posted by barneyg View Post
http://en.wikipedia.org/wiki/Straw_man

Events make money. Enough events = fixed costs may be covered. Obviously if you treat all Jobing.com expenses as variable costs, the optimal number of events is 0. Nobody claimed that, but thanks for showing it anyway.
Yes indeed, events make money... they made $2.6M in revenue over the first 7 months of FY 2013.
Unfortunately, it also costs money to put on events... $4.7M over the same period ($2.1M operating loss).

You know how much money events made in the benchmark year SMG uses in their bid? $4.1M.
Unfortunately, it still cost $9.6M to put them on ($5.5M operating loss).

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07-07-2013, 09:05 PM
  #158
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Originally Posted by fishbert View Post
CF, please tell me why the $3.3M in non-event arena operating expenses and overhead are valid things to ignore when discussing arena management costs. I'm rather confused as to why you continue to not account for them. Perhaps "an ace at pulling the relevant data sets" such as yourself has an explanation for why line items like "security", "parking", "housekeeping", "arena managment" don't factor in to the cost of arena management?
I didn't ignore anything. I already explained it once in #147. I shouldn't have had to explain it at all. If you knew how to read the bid, you would have understood the structure based on the info in the SMG RFP response.

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07-07-2013, 09:06 PM
  #159
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Originally Posted by fishbert View Post
Yes indeed, events make money... they made $2.6M in revenue over the first 7 months of FY 2013.

Unfortunately, it also costs money to put on events... $4.7M to put on over the same period, to be precise.
What's the evidence for your claim that those non-event costs are variable?

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07-07-2013, 09:08 PM
  #160
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Originally Posted by barneyg View Post
Events make money. Enough events = fixed costs may be covered. Obviously if you treat all Jobing.com expenses as variable costs, the optimal number of events is 0. Nobody claimed that, but thanks for showing it anyway.
That's not a strawman at all. If you have numbers that demonstrate him to be wrong, feel free to show them.

If the arena management proposals have all embedded the assumption that CoG is pitching in $6M, then none of the proposals were clearly and obviously better than the arrangement they worked out with RSE.

 
Old
07-07-2013, 09:16 PM
  #161
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Originally Posted by CasualFan View Post
I didn't ignore anything. I already explained it once in #147. I shouldn't have had to explain it at all. If you knew how to read the bid, you would have understood the structure based on the info in the SMG RFP response.
In #147 you point to a budget allocation of $6M and then assume operating expenses are capped at this amount. They are not; the $6M is budgeted to cover operating losses (i.e., the overall impact to the general fund). SMG's bid makes no claims that operating expenses will be capped at $6M (the FY they use as a performance benchmark had operating losses of $9.6M!); they only claim operating losses will be reduced by some nebulous amount.

Event revenues were 50% the level of operating expenses in FY 2011.
Event revenues were 43% the level of operating expenses in FY 2012.
Event revenues were 55% the level of operating expenses in FY 2013 (first 7 months).
This does not add up to a revenue-neutral arena "if SMG were to duplicate what the NHL accomplished" (as you appear to be continuing to claim).

I shouldn't have to explain the difference between operating expenses and operating losses to you. If you knew how to read the bid, you would've understood the distinction based on the info in the SMG RFP response.


Last edited by fishbert: 07-07-2013 at 09:26 PM.
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07-07-2013, 09:20 PM
  #162
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Originally Posted by Dado View Post
That's not a strawman at all. If you have numbers that demonstrate him to be wrong, feel free to show them.

If the arena management proposals have all embedded the assumption that CoG is pitching in $6M, then none of the proposals were clearly and obviously better than the arrangement they worked out with RSE.
Dado,
I don't have them at hand. I will agree with your statement, but I would like to allow a few exceptions:
1) Although they are not clearly and demonstratively better, they are clearly and demonstratively of lower risk. This is because their is no guarantee on the ticket/parking revenues and also the 'make whole' provision has not been fleshed out well enough yet to call it without risk.

2) The SMG bid 'COULD", repeat "COULD" be clearly better, if it operates in the following way:
Year 1 - 6M AMF from Glendale. Shared revenues/expenses. We call it a wash.
Year 2 - 6M AMF, but now SMG guarantees a floor in net profits (means event rev - event exp) to come back to Glendale.
Year 3-5, etc. More and higher of the same.

Now, I don't know what the bid actually looks like. I have lost the link, and it's buried too deep here to make it worth finding.

But, please allow these exceptions to your statement, correct?


Last edited by MNNumbers: 07-07-2013 at 09:26 PM.
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07-07-2013, 09:21 PM
  #163
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Originally Posted by MNNumbers View Post
Let me just get in here a little more, Barney.

Obviously, demolition is not a serious option.

1) It would probably be the best, financially, but
2) The 'vision' that moved Glendale to build it (and every city, really) won't allow them to see that they are losing money on it.

I offered the suggestion as a way to point out that there really are more than one level of choice here:
Level 1: Do you want the safest choice financially in the short term? If so, demolish!
Level 2: You have now admitted that you want the risk of driving Westgate and the surrounding areas to be a 'big deal.' Now, the question becomes, "Do you want the safest risk while still using the Arena for something?" If so, then I believe that SMG offers that. I could offer more detail about why I think that if someone wants.
Level 3: If you still don't want the safest, then you want the NHL. How much $$ are you willing to risk losing to keep the NHL and hope they will be the driver of the area?

These are the questions. GCC made their decision. I disagree with it, but it is made. Only things that might hinder are found in another post - Referendum, GWI, legal action because of violation of 24 hrs clause, effect of audit...
You forget one scenario. "Sell the damn building for a buck, eat the bonds and move on." I bet at that price they get a buyer willing to retrofit the building to fit some other business venture but not on Glendale dime.

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07-07-2013, 09:25 PM
  #164
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Originally Posted by madhi19 View Post
You forget one scenario. "Sell the damn building for a buck, eat the bonds and move on." I bet at that price they get a buyer willing to retrofit the building to fit some other business venture but not on Glendale dime.
Correct, perhaps, Madhi.

But then we would get into an argument about this:
If I demolish and lease the land, can I make more in Present Net Value (or whatever that expression is that accounts for the time value of money) than I can by simply selling it for a buck.


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07-07-2013, 09:29 PM
  #165
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Looking for a little help on the numbers. Wondering what Ice Arizona/RSE will need to fund team and operations for the first year.
Please correct the numbers if they are wrong

44-64M - CAP Payroll
12M - Fortress...That is just interest (real number who knows)
??M - Global Spectrum ...(Still a payment if its percentage or bill)
5.5M - Real cost to run the Arena
??M - Coyotes staff:Coaches, GM, trainers, office personnel, scouts
??M - Team operation/other: travel, equipment, prospect salaries.

WAG 90-100M+ to cover all expenditures.

So, they have 80M for operations loaned from NHL, 15M from COG AMF and ??? revenue streams from hockey and non-hockey events. With 8-11M of the streams being payed back to COG for the huge AMF. That is if the revenue streams pan out as RSE assumes.

Just not seeing how they are going to pay off NHL starting in year five and Fortress over the term. Even with Gary promising max revenue sharing to the Yotes.

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07-07-2013, 09:31 PM
  #166
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Originally Posted by fishbert View Post
In #147 you point to a budget allocation of $6M and then assume operating expenses are capped at this amount. They are not; the $6M is budgeted to cover operating losses (i.e., the overall impact to the general fund). SMG's bid makes no claims that operating expenses will be capped at $6M (the FY they use as a performance benchmark had operating losses of $9.6M!); they only claim operating losses will be reduced by some nebulous amount.

I shouldn't have to explain the difference between operating expenses and operating losses to you. If you knew how to read the bid, you would've understood the distinction based on the info in the SMG RFP response.
I have no assumption nor did I make any statement that expenses were capped. Fixed arena expenses are, however, an easily estimated element. Also, SMG doesn't just claim operating losses will be reduced by some nebulous amount; they tied their income to it via the incentive structure.

If you aren't capable of understanding the SMG bid and you'd rather call it hand-waving voodoo magic, who am I to question you? It's your story, tell it however you want.

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07-07-2013, 09:36 PM
  #167
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Originally Posted by CasualFan View Post
I have no assumption nor did I make any statement that expenses were capped. Fixed arena expenses are, however, an easily estimated element. Also, SMG doesn't just claim operating losses will be reduced by some nebulous amount; they tied their income to it via the incentive structure.

If you aren't capable of understanding the SMG bid and you'd rather call it hand-waving voodoo magic, who am I to question you? It's your story, tell it however you want.
CF - Now you went and got my curiosity all up again. Can you give a link to the SMG bid?

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07-07-2013, 09:39 PM
  #168
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http://www.glendaleaz.com/purchasing/Beacon.cfm bids

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07-07-2013, 09:42 PM
  #169
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Originally Posted by Dado View Post
That's not a strawman at all. If you have numbers that demonstrate him to be wrong, feel free to show them.
It's a strawman because "how many events losing 190k each does it take to make a revenue-neutral arena?" is a point that nobody attempted to make.

You're right that the demonstration wasn't really made before. So here goes..

(most data from RFP, except where noted)
FY 2009 events = 44, attendance = 440,000 (+hockey) (source)
FY 2011 events = 34, attendance = 212,709 (+hockey)
FY 2012 events = 22, attendance = 147,740 (+hockey)
FY 2013 events (first 6 months) = 11, attendance = 106,434 (+no hockey)
..annualized: 22 events, 212k attendance

FY 2009 non-event expenses = 5,342,730
FY 2011 non-event expenses = 5,216,766
FY 2012 non-event expenses = 4,937,556
FY 2013 (first 6 months) non-event expenses = 2,124,229
..annualized = 4,248,458

Clearly, the overwhelming majority of non-event expenses is fixed, not variable:
FY 2009 vs FY 2012 =
- 50% decline in # events
- 67% decline in attendance
- 7% decline in non-event expenses

FY 2009 vs FY 2011 would be more striking. Regarding FY 2013..

A note that may be new to Fishbert but not to CF and others who were there when we discussed this back when the RFP was disclosed: FY 2013, which has the only figures without hockey, has the lowest non-event expenses by far.. this suggests non-event expenses attributable to hockey are around $700k-$1M/year (difference between FY 2013 and FY 2012 or 2011.. 2012 had as many non-hockey events, 2011 had similar attendance to such events)

* Disclaimer: I excluded overhead allocation because (a) it was obviously fixed throughout NHL tenure, (b) it cannot be compared to Moyes-era overhead allocation, and (c) both Moyes and the NHL had an incentive to overstate the arbitrary allocation of expenses to the arena, therefore who knows what the 'true' number is, assuming such a true number exists.

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07-07-2013, 09:46 PM
  #170
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Originally Posted by CasualFan View Post
I have no assumption nor did I make any statement that expenses were capped. Fixed arena expenses are, however, an easily estimated element.
Hmm...
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Originally Posted by CasualFan View Post
The expenses are not ignored. Glendale allocates $6MM up front to cover the expenses. Essentially, Glendale covers the expenses which allows SMG to divide the revenues as indicated in the table.
So, you're not ignoring expenses above $6M (or assuming there aren't going to be any) here by saying SMG can just divide up the revenues cleanly because Glendale budgeted $6M for expenses?

Tell me, what happens to those revenues "if SMG were to duplicate what the NHL accomplished" in FY 2012 and operating expenses were $9.6M instead of $6M. Do you think some of the revenues might go toward paying that missing $3.6M in expenses instead of being divided as indicated in the tables?

Oh, and remind me again how an operating loss of $2.1M in the first 7 months of FY 2013 means SMG would run a revenue-neutral arena...

-------

Quote:
Originally Posted by CasualFan View Post
Also, SMG doesn't just claim operating losses will be reduced by some nebulous amount; they tied their income to it via the incentive structure.

If you aren't capable of understanding the SMG bid and you'd rather call it hand-waving voodoo magic, who am I to question you? It's your story, tell it however you want.
So because SMG gets a cut of savings, those savings (if there are any) are suddenly not nebulous in their amount? Interesting theory you've got there.

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07-07-2013, 09:47 PM
  #171
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Originally Posted by Govment Cheese View Post
Looking for a little help on the numbers. Wondering what Ice Arizona/RSE will need to fund team and operations for the first year.
Please correct the numbers if they are wrong

44-64M - CAP Payroll
12M - Fortress...That is just interest (real number who knows)
??M - Global Spectrum ...(Still a payment if its percentage or bill)
5.5M - Real cost to run the Arena
??M - Coyotes staff:Coaches, GM, trainers, office personnel, scouts
??M - Team operation/other: travel, equipment, prospect salaries.

WAG 90-100M+ to cover all expenditures.

So, they have 80M for operations loaned from NHL, 15M from COG AMF and ??? revenue streams from hockey and non-hockey events. With 8-11M of the streams being payed back to COG for the huge AMF. That is if the revenue streams pan out as RSE assumes.

Just not seeing how they are going to pay off NHL starting in year five and Fortress over the term. Even with Gary promising max revenue sharing to the Yotes.
~55M - Payroll (phx is sitting at 51.5M right now, needs to re-sign boedker and add another forward or two)
12M - Fortress...That is just interest (real number who knows)
??M - Global Spectrum ...(Still a payment if its percentage or bill)
5.5M - Real cost to run the Arena
10M-15M - Coyotes staff:Coaches, GM, trainers, office personnel, scouts
??M - Team operation/other: travel, equipment,
2-3M Prospect salaries (most ahlers make 60-70k. They only have one guy with a 1-way right now but might end up with more later on.) AHL revenues mitigate these costs though.

I've got somewhere around 85M before operations (we can just stick global spectrum together with that). Operations costs a lot - like 20M, minus that 5.5M to run the arena.

I see 110M in expenses easy, possibly more.

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07-07-2013, 10:24 PM
  #172
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Oh, and remind me again how an operating loss of $2.1M in the first 7 months of FY 2013 means SMG would run a revenue-neutral arena...
Sure, I'll remind you.

1) The "operating loss of $2.1MM" you refer to comes from this summary statement.

2) It's important to note that January 2013 had no non-hockey events. It only had Coyotes games. So that $523k loss in the left column? That's all on the Yotes.

3) After you remove the Coyotes losses from January, the net result of the summary report: six months of non-hockey programming produced a loss of $1,592,308. That's a pretty useful data element because if double it, you have a forecast for the year. The operational loss for non-hockey events would be approx $3.2MM.

4) SMG estimates there are $1.6MM - $1.9MM in best practices that would reduce overhead expenses. To be conservative, let's use the low number of $1.6MM. That brings the operating loss down to $1.6MM

5) SMG estimates they could bring in an additional $1.6MM - $4MM in naming rights and suite/premium seat sales. If we take the middle of that range at $2.8MM, we're now at an operational profit of $1.2MM on the arena

Not rocket science. Uses actual data. Makes no invalid assumptions. Waves no hands. Uses no voodoo.

It also doesn't account for any parking revenue. Further, it also assumes that SMG produces nothing more than the NHL did during their tenure as arena manager. SMG would certainly exceed that though, right? Or in your opinion is it only RSE/Global Spec that could improve non-hockey event bookings?

Quote:
Interesting theory you've got there.
Only half as interesting as yours.

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07-07-2013, 10:42 PM
  #173
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Whoops. I made a mistake in the above:

@ 2
I cannot attribute the entire Jan 2013 loss to the Coyotes. I should have taken 1/7th of the Non-Event and Overhead expenses into account.

Of course, that makes no difference because even if you take the entire $2.1MM and double it to $4.2MM annual loss, the SMG bid still includes enough revenue and expense best practices to run net neutral.

Fishbert, if you want to post a few more links that prove my point, please go ahead.

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07-07-2013, 10:43 PM
  #174
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Originally Posted by barneyg View Post
It's a strawman because "how many events losing 190k each does it take to make a revenue-neutral arena?" is a point that nobody attempted to make.
Well, except CF in claiming that SMG could operate a revenue-neutral arena by matching what the NHL did in the first 7 months of FY 2013 (i.e., operating losses of $190k per event).

Quote:
Originally Posted by barneyg View Post
You're right that the demonstration wasn't really made before. So here goes..

(most data from RFP, except where noted)
FY 2009 events = 44, attendance = 440,000 (+hockey) (source)
FY 2011 events = 34, attendance = 212,709 (+hockey)
FY 2012 events = 22, attendance = 147,740 (+hockey)
FY 2013 events (first 6 months) = 11, attendance = 106,434 (+no hockey)
..annualized: 22 events, 212k attendance

FY 2009 non-event expenses = 5,342,730
FY 2011 non-event expenses = 5,216,766
FY 2012 non-event expenses = 4,937,556
FY 2013 (first 6 months) non-event expenses = 2,124,229
..annualized = 4,248,458

Clearly, the overwhelming majority of non-event expenses is fixed, not variable:
FY 2009 vs FY 2012 =
- 50% decline in # events
- 67% decline in attendance
- 7% decline in non-event expenses

FY 2009 vs FY 2011 would be more striking.
FY 2009 had a different arena manager than the following FYs, didn't it? (AMG vs Arena Newco)
That's a significant variable to introduce when trying to suss out non-event expenses.

FY 2013 is such a dramatic outlier that I'm not sure it can tell us much without introducing significant confounding variables, even if we try to extend it out to a full FY.

Comparing expenses under a different arena manager to an odd-ball outlier season is questionable, as is the exclusion of hockey events... surely they require additional security, housekeeping, etc. ("non-event" spending).

That leaves FY 2011 and FY 2012 to look at with hockey events included...

FY 2011 events = 78, attendance = 747,021 (including hockey)
FY 2012 events = 74, attendance = 823,671 (including hockey)
Change in number of events: -5.1%
Change in event attendance: +10.3%

FY 2011 non-event expenses = 5,216,766
FY 2012 non-event expenses = 4,937,556
Change in non-event expenses: -5.4%

When you limit your variables it looks clear to me like non-event expenses scale quite closely with the number of events being held (I would love to have FY 2010 data to see if the trend continues). And this makes sense when you look at what line-items comprise "non-event" spending (event services, guest services, security, parking, housekeeping, facilities, operations, booking, box office, etc.).


Last edited by fishbert: 07-07-2013 at 11:08 PM.
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07-07-2013, 10:44 PM
  #175
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OK, I read the SMG bid. The financials are fairly easy to digest, it seems:
SMG:
We will start from a historic baseline of Glendale's net losses associated with the Arena. We will say at this point that 5.5M/yr makes sense. But, we can negotiate that with CoG and adjust according to other financial information, if necessary.
Then,
Year 1: CoG will pay SMG 300K as a base fee for services.
Then, SMG will manage the Arena. It will be on a profit sharing basis. It is difficult to describe easily. It seems to work like this:
1) Glendale is responsible for all net Arena operating losses.
2) If Losses come in at between 2.5M and 4.5M, SMG will be paid (as their Incentive Fee) {4.5M - (Whatever the net losses are)} x 20%
3) If Losses come in at between between 2.5M and break even, then SMG will be paid (Incentive Fee) 400K(Covers section 2) + {2.5M - (whatever net losses are)}x30%
4) If the Arena comes in without losses, then SMG will be paid (Incentive Fee) 400K + 600K + Net Profits x 40%
5) In the event of Net Profits, SMG is willing to negotiate a cap to their Fees in this scenario.

Year 2: Base fee decreases to 225K
Year 3: Base fee decreases to 150K
Year 4: No base Fee.

Other parts:
SMG will invest 500K into a Fund for use to promote new events coming to Arena and Westgate.

Guarantee: If 5.5M - Net Losses > Base Fee + Incentive Fee for any fiscal year, SMG will refund their fees to make whole.


Comments by me:
This proposal has no guarantee in it. There is a chance in this proposal that Glendale could end up paying more than 6M (I use that because it is the budget number).
There are no estimates of events or attendees.

The great upside to the proposal is that SMG has financially incentivized itself to make money.

I suppose it would be possible to say there is risk here as well.

However, SMG will get literally 0$ in year 4 and 5 if they don't reduce the losses to Glendale. This means that effectively, the proposal is a loser for SMG because they have to pay their people, if they can't reduce the losses to the city. For this reason, it seems reasonable (although not guaranteed) that SMG as a manager would reduce city costs.

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