By DAVID SKOLNICK
CITY HALL REPORTER
YOUNGSTOWN – Looking back, 2006 was both the best and the worst of times for this city's downtown arena. That year, the Covelli Centre – then known as the Chevrolet Centre – saw its highest attendance, but by far, its worst financial outcome: a $541,298 operating shortfall.
Flash forward three years to 2009, and the Covelli posted its first operating surplus in its four-plus-year history – $153,950 – after its first full year of operation by JAC Management of Struthers and SMG, a Philadelphia company.
Tack onto that surplus an additional $307,000 from a 5.5-percent admission tax on center events that goes straight to the city's general fund.
While still a long way from being a profit center, rather than simply an event center, for Youngstown, in three years, the center has decreased its drain on city finances by $1,002,948.
Much of the credit for the turnaround, city officials say, belongs to Eric Ryan, the head of JAC and the center's executive director – the Million Dollar Man.
"Eric knows we have to be careful with the finances," Youngstown Mayor Jay Williams said. "Eric and his staff have shown themselves to be first-class. To see such a financial swing and improvements from a management standpoint gives us more confidence in the success of the arena than at any time in its existence."
Problems four years ago
Not only was the center losing money in 2006, but there was no indication that enough money would be made to help pay any interest on the city's facility debt. The city pays $750,000 to $800,000 annually to cover the interest on $11.9 million it borrowed to help fund the $45 million center.
The city realized drastic changes had to be made. So, in October 2007, Youngstown ended its rocky relations with International Coliseums Co., the Phoenix-based company that had managed the center since its inception in 2005.
City officials repeatedly expressed concern to ICC about failing to meet its financial projections. The company had initially said the center would make more than $1 million in operating profit in its first year, and then adjusted that amount to about $600,000. The center lost close to that amount in its first full year.
Other complaints from city officials included ICC's struggles to sell club seats, luxury suites and indoor advertising as well as turnover at the executive director position with five people holding the job when ICC ran the facility.
The city hired Ryan's JAC as the center's interim manager. Ryan was essentially an event promoter who ran a bar and small concert venue in Struthers.
Interim became permanent in June 2008 when the city hired JAC and SMG to co-manage the center.
The center still isn't earning enough to cover the interest paid on its $11.9 million loan, let alone pay down any of that loan.
But the admission tax revenue and the operating surplus could pay more than half of the $802,060 in interest the city currently owes.
Why the turnaround?
What happened to cause the swing of $1 million?
The contract the city signed with ICC permitted the company to partner with promoters on shows at the center using the facility's money, said Ryan and Kyle Miasek, the city's deputy director of finance.
That put the center at financial risk, they said, if a show it co-promoted failed.
"The way we operate now, the center receives rent and can't lose money on shows," Ryan said, discussing limiting the city's risk. "If I co-promote a show, it is as JAC and not the center."
Also, rather than just fill up dates with shows that won't do well, the center carefully picks events that attract larger crowds, Ryan said. Of 90 events last year, 12 were sell-outs.
Because of its financial failures, there was a negative perception by the public of the facility, he said.
"We wanted to change that and make it a positive place," Ryan said. "We understand this Valley. We understand people's discretionary dollars are precious. We know to stay away from the Canfield Fair week. We understand that we need to make this a place where people want to go."
Projections for future
As for what Ryan expects five years from now, he said: "I believe we can continue to get better. I'd love to see us cover the entire debt. I think it can be done in five years."
Ryan also wants to add more on-site parking in the future. There are 350 on-site parking spots, and Ryan said he¡¯d like to see 800 spots added.
"Parking could be a major revenue stream," he said.
Williams said he'd like to see the center generate enough money in five years to also make principal payments on the $11.9 million.
If the center doesn't turn a profit – and is not a significant financial drain on the city – it's like other "quality of life" programs that cost the city to operate, Williams said.
"Besides being an important part of the community's quality of life, [the center] also brings people downtown," he said.
Williams and Miasek said they would have preferred to not go through the headaches they experienced early on with the center, but said they learned from those challenges.
"It provided a foundation to prepare us for the future," Miasek said. "We got an education on what was best for the center."
Other arenas take notice
The turnaround at the Covelli Centre received praise from operators of other indoor sports and entertainment facilities in similar Rust Belt cities.
"In these economic times, they have a very credible operation," said Casey Wells, executive director of the Erie County Convention Center Authority which oversees the Louis J. Tulio Arena in Erie, Pa.
"It's very difficult to make sufficient revenues to meet your expenditures in any economy. You need to be very competitive. There are more buildings than shows to put them in. Costs continue to escalate across the board. It makes it very difficult to make a profit. The larger benefit is the contribution these facilities make to the quality of life and to downtown."
Tulio lost about $400,000 last year, he said. Of that amount, $50,000 was to repay money the facility borrowed for equipment upgrades.
Also, the Erie arena doesn't receive any money for naming rights, a major source of income for such facilities, Casey said.
Youngstown received nothing for its naming rights during the first half of 2009.
General Motors paid $175,000 annually for having the arena called the Chevrolet Centre until its three-year deal expired in September 2008.
The city's naming rights deal with Covelli Enterprises for $120,000 annually for three years didn't start until July 2009. Because of that, the center received $60,000 in naming rights last year.
The WesBanco Arena in Wheeling, W.Va., is in the seventh year of a 10-year, $3.2 million naming rights deal with the bank. The minor-league hockey team that plays at the arena receives 75 percent of the money with the center receiving the rest, said Dennis Magruder, executive director of the Wheeling Sports and Entertainment Authority, which oversees the facility.
Even with the naming rights revenue, the WesBanco Arena lost about $50,000 last year, he said.
"It's difficult in these economic times," Magruder said. "We do the best we can. A $1 million turnaround [in Youngstown] is something to be proud of."
Unlike Youngstown, the Wheeling facility doesn¡¯t carry any debt. Voters in Wheeling agreed to repay the money needed to build and upgrade the WesBanco Arena through a tax, he said.
John Siehl, executive director of the Nutter Center on the campus of Wright State University in Dayton, said the turnaround in Youngstown is impressive.
"If you're very proactive and have a decent year, you can break even," he said. "On the surface, it looks like Youngstown is doing well. Those sound like good numbers" for the Covelli Centre.
But Siehl said the Covelli Centre will be hard-pressed to make enough money to pay off the principal and interest on the $11.9 million it borrowed.
"Anybody who thinks they'll build a building, make a profit and pay off the loan is out in left field," he said. "You need a tax of some sort – an admission tax, beverage tax, hotel bed tax – to retire the debt. To pay it off without another tax is not going to happen."
Because Nutter is on the campus of Wright State, its construction and improvement debt is paid by a student fee, Siehl said.
Nutter was supposed to make a profit of $80,000 to $90,000 last year, but finished 2009 with a "very small deficit," he said.
IDEAS THAT WORKED
Covelli Centre management and Youngstown administrative officials implemented new ideas that helped create a $1 million positive financial swing in the past three years. Some of the ideas were:
• Focusing on booking events that are popular with patrons. Classic rock concerts have proven to be consistently strong draws.
• There are rarely any events held at the center during the summer. One simple way the center has reduced expenses is turning off the utilities to the arena when nothing is happening there.
• The city added an admission tax on each ticket with the money going directly to Youngstown’s general fund to help pay the interest on the money borrowed to fund the building’s construction. The tax brought in $232,468 in 2008 and $307,700 last year.
• The city changed its ticketing agency.
Until 2008, the center’s ticketing agency was GetTix.Net, a sister company of ICC.
The GetTix.Net contract didn’t call for the city to receive any of the surcharges on tickets. On top of that, GetTix charged the facility 3 percent for each ticket purchased with a credit card, about $75,000 annually.
The center received $176,147 last year in ticket surcharges from Ticketmaster, which now handles the center’s ticketing, and the facility doesn’t pay the credit card surcharge.
Sources: JAC Management and Youngstown Finance Department
EVENTS AND ATTENDANCE
Since it opened in October 2005, nearly 1 million people have attended events at the Youngstown-owned Covelli Centre. Here are the number of events and attendance for the facility by year. Because it was opened for only three months in 2005 the number of events and attendance is much lower than the other years.
Year Events Attendance
2005 30 88,041
2006 90 230,149
2007 103 227,103
2008 91 197,423
2009 90 220,759
Source: Covelli Centre management
Last year was the best
year for Youngstown's
Covelli Centre. The cost
to operate the center,
along with income from a
5.5 percent ticket tax
[started in 2008], and
interest the city pays
each year on the $11.9
million it borrowed to
help fund the center’s
construction, all have
impact on the bottom
line which is still not
operating loss $541,298
interest cost $747,386
impact to city —$1,288,684
operating loss $247,510
interest cost $753,551
impact to city —$1,001,061
operating loss $310,435
ticket tax profit $232,468
interest cost $764,509
impact to city —$842,476
operating loss $153,950
ticket tax profit $307,700
interest cost $802,060
impact to city —$340,410
2006 to ‘09
loss in ’06 —$541,298
surplus in ‘09 +$461,650
Sources: Covelli Centre, Youngstown Finance Department, analysis of center data by The Vindicator