March 19, 2009 City of Sioux Falls, South Dakota Purchasing Office 224 West Ninth Street P.O. Box 7402 Sioux Falls, South Dakota 57117-7402 RE: Sioux Falls Arena and the Orpheum Theater Management Proposal Dear Sirs/Madams: SMG, the nation's first and leading public assembly facility Management Company, and a 20-year partner of the City of Sioux Falls, is pleased to respond to your Request for Proposal No. 09-0021 for management of the Sioux Falls Arena and the Orpheum Theater. On the following pages you will learn in detail what SMG can offer going forward to the City of Sioux Falls and its populace. Our management strength, local experience and industry leverage is now, more than ever, absolutely necessary to effectively and efficiently operate the Arena and the Theater and project them into the next phase of excellence. Only SMG can provide a clear understanding of where the business has been, and a ciear vision of forthcoming opportunities and attainable goals. We are the industry experts in partnering with city management to develop, implement and facilitate a business model that is tailor-made to meet or exceed the objectives and goals of the City and its constituents. As a dynamic, growing city, yet rich in tradition and customs, Sioux Falls is on the precipice of significant economic and cultural change. SMG's existing local staff is a true reflection of Sioux Falls' local flavor and zest for distinction. All long-term residents of Sioux Falls and its surrounding communities, our local management staff is ready and exceedingly able to keep the Arena and the Theater to the forefront of the region's entertainment landscape while maintaining a homegrown appreciation for its founding values and culture. Our long-term commitment to the community, and our successes at the Sioux Falls Arena and the Orpheum Theater, demonstrate that SMG has in place a management team which combines the strength of the local staff with the national, corporate support that facilities of this scope require. One need only ask the tenants and users of the Arena and the Theater to understand what our management has meant to the City of Sioux Falls. WE HAVE BEEN A BIG PART OF BRINGING LIFE TO SIOUX FALLS. From basketball to concerts, football to family shows, hocl\ey to theater, or the RibFest to jazz, we have been a part of bringing entertainment and culture to Sioux Falls. SMG always has been an advocate for Sioux Falls using our leverage and relationships to bring in top quality entertainment, and keeping the Arena busy with more than 200 events per year. WE ARE AN INTEGRAL PART OF THE SIOUX FALLS COMMUNITY. SMG has been supportive of the City's initiatives beyond its responsibilities, taking on the management of the Orpheum Theater and operation of the Overlook Cafe at no expense to the City. Good partnerships are built on earned trust and performance, and are not established overnight. Over the years, SMG has been more than a partner to the City, its stakeholders and institutions in its management of the Arena and the Orpheum Theater. We value our partnersllips with the Skylorte, the Stampede and the Storm, the Community Tileater, tile SPOl'ts Autllority, tile Convention ami Visito!'s Bllreau, tile Chamber III Commerce, the,liu:z and Blues Sodety, and our other hmi'mts ami Ilsers. Tllose relationsi1ips have tha'l tile stay busy and vibrant providilJlj a variety 01 sports and entertainment opportunities to the i:llmmunity. We understand the goals of the City, and offer significant resources and know-how combined with reverence for a sense of place that will support these efforts. Our interests are in your success, and in the satisfaction of the citizens of Sioux Falls. Based on past experience, and recent discussions we understand that: THE CITY OF SIOUX FALLS SEEKS TO: Operate the Arena and Theater in a manner in which the revenues generated by the Arena and Theater equal or exceed the operational expenses. SMG'S BUSINESS PROPOSAL OFFERS; SMG that the CiJln'0Tlt eC©1t1\©TrlJC @D11VJ1h!l!fffil h-BlS ~Jacef1 ath~itk~n©l~ finv1~dBl pii"e5§~n'es Oin aB of {»liH' ftvunk~paa jJBH"tners" an Bn to trues(i; 'pressu~~e5 ii!iifld m',m1ii~l", zldtlitio!lai hmtis, S,MG is tl1e i',ina! 2009 delldt 01 tl1e An2na am! Theall)!'. This proposal will meeil ilO wm be Irom the Cay 'lor the 'Ii§~ai V'?ili' 2009. NEW CONTRACT TERM 2010 - 2012 A competitive base management fee which has been significantly reduced from $173,000 to $50,000, saving the City $123,000 per year. A commitment to rebate of up to 100% of the base management fee in the event the facilities do not break even. A considerable increase in food service commissions payable to the City from 36.8% to 43% and 47% depending on sales level. A $500,000 annual guaranteed minimum food service commission regardless of economic circumstances. This guarantee will be paid in advance to the City, with 50% paid on January 1and 50% paid on July 1of each year. This is designed to enhance the City's cash flow. Aggressive cost saving measures whkh will directly benefit the operation of the Arena and Theater. Through staffing realignments including reallocations of corporate resources, reductions in part-time labor and reductions in other non-personnel expenses, SMG believes we could achieve $200,000 of annual savings. Increased revenues through our new partnership with Live Nation, the power of our National Theater Network, and other new sales and marketing initiatives. In addition to the elimination of the City's 2009 subsidy, this business plan will provide ongoing financial benefit to the City of more than $500,000 annually, thus achieving the City's goal to operate the Arena and Theater at an operating profit. This proposal also puts SMG's fees at risk if this goal is not achieved. AU:lllmlaol,ity amI Fiscal Respllnsibility. A key component of SMG's industry leadership and success is the continued ability to meet and exceed expectations for our venue clients. To this end, SMG ensures financial accountability, timely and professional reporting, and secure financial systems for the City of Sioux Falls. ThrllllglHml lhe years, lhe Clly's hJlenla! am;l,l III SMG's 'llperatillns has Tl.llllillely pTllvh:iled "dean" and "'lransparenl" resulls, Our success is measured both qualitatively and quantitatively as we implement best practices, from our 219 facilities, which increase revenues and identify, develop and enhance event opportunities. Similarly, SMG is uniquely skilled in operating an efficiently maintained building and boasts a long and 'Impressive track record of implemented procedures designed to protect and enhance the City of Sioux Falls' assets. In addition, SMG holds itself to the highest ethical standards, working with our municipal partners in a cooperative fashion, adhering to all policies and utilizing the uppermost operating principles. THE CITY OF SIOUX FALLS SEEKS TO: Maximize facility utilization, booking a broadly appealing, widely varying event calendar. SMG OFFERS: The Mosl Shlnilkalll BoohimJ PowerhmAse lor aH of EVlmls, SMG manages 1.7 million entertainment seats and more than 12 million sq. ft. of exhibit space. SMG is the only professional management company with a distinct, dedicated, regional and corporate Sports and Entertainment Division, with a singular mission to solicit and book sports and entertainment events for our client venues. Our record of success with programming and events is due to the relationships, brand and leverage we have in the sports and entertainment industry, which is unmatched by any other firm. SMG is 10 have !(.,n'''''ill1·' to the S~r)),i1lx fa~~s .Arena f:H'H,~ U10 OfjPn.eufInJ Theater and events swch as the Sum,ITaH ElLas}~et[aaJ~ l'©~n'~~fti8lmeirut~ E1ton <J~hilll~ Chef, ff\io't~t~V Cn,H?v O,1er~is tarrv the \Cab~e Gtj¥y mue I"lim GrOl.lp, !{ellh llrl:liJltJ, "lames Tay!or, Biil &. Tom's C'omedy A!! Slars and NPR's brD01vkast ~'\Ji]~t1 'IJlJBJ~t lC);Qrr1l 1 t TeH ~\)h?? ;:;;mnlOng others ~« Bln1ti1 wah §MG~ therB are ;nll©re to iCom(d A~1f,1 ill' lhe tourin!j contert iiltJlls'Cape doa!1!jed Il'Ver lhe severil! yeilrs, SMiG hilS !jlme @'l Tlsh more thaill ThlJg~on of offers t@ fHE3ure that entertflih"ilment C«H1HJrHJJfH] t.o *~{jlW to the market cI",,",,jj'" from newer :and h'jH::~HHes9 (,;hr0n Hu; Oj1~oiitijJrl~tv to m~nage the OT;Jile,Jm Theilll," h~ ~nBif'e €V0~t '~99 renta~ 20031 we home :usage l1nnn a. B tn '[1 200B; an BHYilZlZhH] Lf1l(:f0i':H3C oN _21:H3B1JA)~ Significantly, we have met with and spoken to the top event and show promoters and producers in the region regarding Sioux Falls, and we have received positive commitments from them about reenergizing the facility if we are the selected firm; and further positioning Sioux Falls for the time when there is a new facility. To date, some of the confirmed, upcoming events to be held at the Arena include: Alan Jackson in concert (promoted by SMG) Professional Bull Riding Harlem Globetrotters Daniel O'Donnell in concert • 12th Annual with Survivor and the Paintin' the Town Country Music Tour As one recent example of our industry clout. Pollstar Magazine just published the list of the top 100 arena venues WORLDWIDE ranked by ticket sales for all of 2008, and 19 of the arenas are managed by SMG. No other private management company came remotely close. With SMG, the City of Sioux Falls and its constituents will benefit from a powerful booking force.