DRAW: Lincoln’s new arena has attracted a string of big name entertainers in its first few months of operation, but its manager says that doesn’t mean it’s swimming in money.
By Deena Winter | Nebraska Watchdog
LINCOLN, Neb. — The local newspaper called it “a hit,” declaring Lincoln’s new Pinnacle Bank Arena a success less than three months after it opened.
More than 100,000 people attended 10 major concerts in the arena’s first 80 days, generating $8 million in ticket sales — leading some people to assume the city or the arena operator is awash in money thanks to its new $186 million arena.
Not really, says the arena’s general manager, Tom Lorenz. Lorenz works for a private company called SMG, which managed the city’s old Pershing Center and now manages the Pinnacle Bank Arena. Since the city is not in the business of booking Katy Perry or running an arena, it hires a contractor to do it.
Despite the millions in tickets being sold for acts from Cher to Elton John, SMG gets paid $200,000 per year to operate the arena, although it can double that if it reaches certain goals.
It’s akin to hiring a management company to rent your condo, Lorenz said. SMG gets paid to book acts, market the arena, provide customer service, clean, maintain and run the arena.
Some people think if 13,000 people buy $176 tickets to an Eagles concert, SMG pockets $1 million in ticket sales. But that’s not how it works. Most of the money from ticket sales goes to the entertainer, and often, the bigger the act, the less money SMG makes. After expenses are paid, the entertainer gets much of what’s left — sometimes more than 100 percent of it when they want a cut of concessions, for example.
Lorenz is happy if he can pay all his expenses on an event and break even, or maybe make 5 percent.
“We live off ancillary income,” such as concessions, ticket fees and parking, he said. “We’re charged with breaking even.”
The way the city structured financing of the West Haymarket redevelopment, revenue from advertising, naming rights, suite sales, club seats and loge seating goes toward paying off the $378 million in construction debt. Those guaranteed revenue streams helped the city — through a joint public agency, to be precise — get low interest rates.
While other arenas use that revenue to help operate the facility, SMG does not. Lorenz said if all that revenue were going back into arena operations, “we’d look like we were making millions.”
“The amount of revenue that isn’t available to us is unusual,” Lorenz said.
For example, the cost to manage suites falls on SMG, even though it doesn’t get the revenue from suite sales. Lorenz used to trade services for ads at the old arena, but that’s not an option anymore.
The city also owns the new parking garages built and being built near the arena, and it gets that revenue. SMG only gets revenue from the VIP parking garage attached to the arena and an outdoor parking lot north of the arena, which can also be used for events.
Despite the limited amount of revenue available to SMG, Lorenz said things are going well.
“It’s not a raw deal,” Lorenz says, but adds, “It’s not a great deal.”
The city is raking in more than enough revenue from the arena and its new bar, restaurant, hotel and car rental taxes to make the annual payments on its construction debt. But it’s only paying on interest now, so the city plans to sock away excess revenue for the day when it begins paying on the principal in 2020 to avoid the situation in Omaha, where the city had to raise property taxes when that day came. Lincoln’s debt payments are about $15 million annually now, but they will increase to about $25 million in six years.
One of the reasons the city built a new arena was the old one was being subsidized by the city to the tune of about $500,000 per year. So a key question is whether the Pinnacle Bank Arena – given the amount of revenue it doesn’t get – will still require a subsidy despite its smashing opening. Lorenz said he won’t know until the end of the fiscal year. He expects he’ll make budget this year, but said in future years it’ll be “tight.”
“We had a great start, so we’ve made some money,” he said. “But during basketball (season) we’ll be spending some of that money.”
That’s because the University of Nebraska pays virtually nothing to rent the arena according to the deal it negotiated with the city to be the primary tenant.
At the December meeting of the joint public agency that oversees the West Haymarket and arena, Lincoln Finance Director Steve Hubka said ticket and concessions revenue could go toward paying off the project debt, but the arena needs to cash-flow so it’s not wise to take every dollar and give it to the JPA and leave the arena short.
That will be decided at the end of the fiscal year, Hubka said.
“They will operate it at either a profit or loss, and we anticipate it’ll be a profit,” Hubka said. “But I don’t anticipate operating revenues … to be a significant portion of future bond repayment.”
The bottom line is, public perception notwithstanding, neither SMG nor the city is swimming in money because of all the big name concerts that have come to town. Most arenas operate at a deficit, but the idea is to bring people to town to spend money at bars, restaurants, hotels and other businesses.
“We are here as the steward of the building,” Lorenz said. “And I think we’re good stewards.”
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