The Broward County Civic Arena: 2 History, Facts and Opportunities
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Contributors Purvi Bhogaita, Director of Real Property Public Works Department Leah Brasso, Assistant to the Department Director Finance and Administrative Services Monica Cepero, Assistant County Administrator County Administration Marcie Gelman, Assistant Budget Director Office of Management and Budget Services Roberto Hernandez, Deputy County Administrator County Administration Carol Hudson, Vice President, Sports Development Greater Fort Lauderdale Visitors & Convention Bureau Izadora Isidore-Thomas, Graduate Intern Office of the County Administrator Scott Miller, Chief Financial Officer Finance and Administrative Services Bob Miracle, Deputy Chief Financial Officer Finance and Administrative Services Noel Pfeffer, Deputy County Attorney Office of the County Attorney Henry Sniezek, Director of Planning and Redevelopment Environmental Protection and Growth Management Department We also appreciate assistance provided by the County Attorney’s Office, the County Auditor’s Office, and the Office of Public Communications. The Broward County Civic Arena: 2 History, Facts and Opportunities EXECUTIVE SUMMARY In September 2013, the Florida Panthers hockey team was sold for the fourth time in its twenty-year history. The new owners, assumed responsibility for the team’s parent company – Sunrise Sports & Entertainment and several of its subsidiaries, including, the Arena Operating Company (AOC), the Arena Development Company (ADC) and the Florida Panthers Hockey Club. Immediately upon the sale, SSE approached Broward County with a request to revise the company’s various agreements for several reasons including claims of recurring operating losses experienced by the Panthers in excess of $25 million yearly. As such, SSE requested modifications to the various agreements and economic terms in order to “create a sustainable business model for the BB&T Center that is comparable to other NHL venues, significantly reduce losses on a consolidated basis, provide for a competitive hockey team, and first class concerts and shows.” SSE’s proposal identifies certain issues that could serve as the basis of a new agreement. However, our review of comparable franchises suggests that their request in its totality may not be warranted. Further, there are additional provisions that should be included for the public’s benefit. This request is important to Broward County, since the County owns the Arena and the approximately 140 acres that comprise the Arena site. The facility is managed and operated by the AOC under a 30-year operating agreement. The Florida Panthers are contractually obligated to play all of its pre- season, regular season and playoff games at the Arena through the 2028 hockey season. ADC initially constructed the Arena and holds, subject to further negotiation, certain rights to develop a specific 12-acre parcel adjacent to and south of the arena. The Florida Panthers hockey team is the venue’s sole professional sports tenant and is responsible for programming at least 44 dates yearly. Almost one million spectators attend events at the facility each year, with hockey games attracting the majority. Furthermore, Broward County receives an annual state sales tax rebate of $2 million, which is used to pay debt service at the facility, as a result of the team playing its home games there. Broward County’s BB&T Center is a major multi-purpose entertainment and sports venue. It was designed and constructed for professional hockey, sports, 3 The Broward County Civic Arena: History, Facts and Opportunities entertainment, and community events. Completed in 1998, it is roughly half way through its estimated economic life of 35 years. As an operating professional sports arena, the property is valued as of May 2013 at $220 million; without a professional sports team, its value drops 73% to $60 million. At 872,000 square feet, the BB&T Center is reportedly the largest arena in Florida and second largest in the southeast. It is the fourth largest NHL venue in the United States and sixth largest NHL venue in terms of spectator capacity. As a major arena, the facility is best suited for a mix of sporting events, major artists and performances that attract large audiences. The BB&T Center, along with other major arenas in Miami, Tampa and Orlando are in the top 30 arenas in the United States based on Pollstar’s 2012 list of the world’s top 200 venues. The Miami-Fort Lauderdale-West Palm Beach metropolitan area is a highly competitive market for sports and entertainment. As such, the BB&T Center faces stiff competition. Its most direct competitor is the AmericanAirlines Arena (AAA) in downtown Miami. To a lesser extent, the facility also competes with larger South Florida venues such as Sunlife Stadium and potentially Marlins Park for large events/performances. It must also compete head on with smaller venues including the Broward Theatre for the Performing Arts, the Seminole Hard Rock Hotel & Casino, and the Cruzan Amphitheater, among others. As the BB&T Center’s owner, Broward County must ensure the long-term economic viability of the facility to ensure the payment of outstanding bonds, which mature in 2028, that were issued to finance the Arena’s construction. The AOC is responsible for paying approximately $4.6 million annually of the facility’s debt. Broward County is responsible for another $10 million, which is made up of $8 million in tourist development tax proceeds and $2 million of the annual state sales tax rebate to pay its portion of the annual bond payment. A reduction or loss in AOC’s annual contribution and/or state sales tax rebate requires the County to find alternative funding sources. Currently, the two cents originally enacted for arena debt service is sufficient to pay full debt service, with each penny generating approximately $9 million yearly. Moreover, the County has agreed to budget and appropriate non-ad valorem revenues for its debt service reserve requirement should all other pledged revenue be insufficient. Hockey is a business first, a sport second. Despite the NHL’s recent success, many of its franchises are struggling. Thirteen of the league’s 30 teams lost money during the 2011-2012 hockey season. There is revenue disparity The Broward County Civic Arena: 4 History, Facts and Opportunities between large market teams (New York, Los Angeles and Toronto) and small market teams (Florida, Tampa Bay, Columbus, Raleigh and others). Although professional sports teams are not major economic drivers, the team does generate some positive economic benefits to the county’s economy in terms of employment, direct local spending, support for charitable causes, sales taxes, and other intangible benefits. Despite the fact that the Panthers have negotiated a more lucrative naming rights contract, increased revenues from local broadcasting, and receives more funding through the NHL’s revenue sharing program, profitability evades the team. Before the recent purchase of the Panthers by the new ownership group, the Panthers were widely considered to be a prime candidate for relocation. A major league professional sports franchise is a prized corporate and community commodity with communities willing to entice teams to relocate. Areas frequently mentioned as contenders for a hockey franchise include Quebec, Toronto, Hamilton, Las Vegas, Seattle, Portland, Houston, Oklahoma City, and Indianapolis. We can assume that any of these cities would offer substantial public subsidies and inducements to entice the Panthers or any remnants of the team should it fold. Since the Arena’s opening, facility operating revenues totaled $511.4 million ($34 million annual average), operating expenses totaled $312.7 million ($20.8 million annual average), and net operating income total $127.5 million ($8.5 million annual average) all of which was remitted to the team to support its activities pursuant to the Operating Agreement. The County has received one “profit sharing” distribution during the past 15 years: $331,000 in 1999. In comparison to the 1996 projections, revenues were within 12% of projections, expenditures were 44% over projections, and the projected $76.6 million in “profit sharing” for the County did not materialize. Although the Operating and License agreements provide for the sharing of revenues once they reach a certain threshold, currently $12 million, given the economic nature of the NHL and the realities of operating a one sport arena, it was contemplated that SSE/AOC/Team would retain the majority of the revenues generated. In other words, profits from the AOC would support activities of the team including helping offset losses, and the County would receive a relatively minor (20%) distribution if funds were available. The County received this profit share once in FY1999 in the amount of $331,000. Similarly, Miami-Dade received its first revenue sharing distribution of $257,134 from the Miami Heat late last year, despite the Heat’s success and three championship seasons. 5 The Broward County Civic Arena: History, Facts and Opportunities Remaining balances on the various arena related debt payments (principal and interest) equal $225.1 million as detailed below: County State Sales Debt Type AOC Total TDT Tax Rebate County Preferred Revenue $59,217,822 $120,000,000 $26,000,000 $205,217,822 Allocation (CPRA) – arena bond payments Arena Completion Debt $9,145,959 N/A N/A $9,145,959 2010 Loan $4,127,251 N/A N/A $4,127,251 2012 Loan $6,685,632 N/A N/A $6,685,632 Total Amount $79,176,664 $120,000,000 $26,000,000 $225,176,664 Many professional sports teams are mobile. The mobility of these teams is based on the nature of their relationship with the facility they occupy: this relationship is similar to a landlord – tenant one. As a tenant, with little or no equity in the facility, teams can, and often do, test the waters to seek more advantageous business terms. Other areas are eager to lure a professional team to their facility and go to great lengths to offer incentives and subsidies.