By David Skolnick
Mayor Charles Sammarone is skeptical the Covelli Centre will end this year with enough money to make it profitable, is confident selling or leasing the arena is a good idea and says it hasn’t had a significant impact on downtown revitalization.
“It’s not an anchor for downtown,” he said. “It’s just another piece of the puzzle. It plays a role.”
Since its 2005 opening, there’s been as much debate about the facility’s burden on the city as there has been about the events that have filled it.
Sammarone announced this summer that selling or leasing the Covelli was in the best interest of the city due to its financial burden. That news came as the center emerged on pace for its best financial performance yet and as downtown showed continuing signs of a boom.
Eric Ryan, the center’s executive director, says the arena will end 2012 with about $475,000 in operating surplus and admission tax. That’s about $60,000 more than the $413,250 the city paid this year in principal and interest on the $11.9 million it borrowed in 2005 as its share of construction costs.
That profit would benefit the city’s general fund for the first time in the center’s history.
“I’ll believe it when I see it,” Sammarone said.
Sammarone says a lease would be a lot simpler than selling the center. Even if the city found a buyer, no council members want to sell the building.
Though all say they’ll keep an open mind about leasing, six of the seven council members said they currently don’t support renting the center because it’s turning the financial corner and/or it’s too important an asset to turn over to a company without city oversight.
Only Councilman Nate Pinkard, D-3rd, said he isn’t leaning one way or the other on leasing.
“I’d be willing to listen to a presentation or discussion on leasing it,” he said.
PA Sports and Entertainment, a company hired by the city for approximately $50,000 to assess operations at the center and recommend whether it should be put up for sale or lease, will issue a report at the end of the month, Sammarone said.
A $250,000 city government efficiency study by the PFM Group, released in September, recommends the city sell, lease and/or reduce its financing cost on Covelli to save money.
An official with PFM recommended the city seek proposals for a loan through competitive bidding for the debt service on the center. The city followed the recommendation and saw the center’s interest rate drop from 4.98 percent in 2011 to 1 percent this year. It was as high as 6.88 percent in 2007.
However, the PFM study inaccurately states “debt payments for the Covelli Centre are close to $1 million annually.” Until this year, the debt on the center ranged from $579,925 in 2011 to $818,720 in 2007. It is $113,250 this year.
As for the importance of the center to revitalization of downtown, all seven council members say it is a key component with some saying it’s the most important reason.
“It’s the core of downtown,” said Councilman Paul Drennen, D-5th. “The Covelli Centre is absolutely key to the downtown revitalization.”
“It has a lot to do with downtown’s success,” said Councilwoman Annie Gillam, D-1st, whose ward includes all of downtown. “I credit the Covelli Centre for the rebound of downtown. Somebody would have to show me something really good they could do for this city before I’d consider leasing.”
Sammarone sees the center differently.
The “key to turning downtown around” is the influx of daytime workers to the George V. Voinovich Government Center, the Youngstown Business Incubator, the 20 Federal Place office building, and other businesses, he said.
“Covelli has 90 shows and a big percentage of people park and then go home without going to restaurants,” Sammarone said. “Bars and restaurants didn’t locate downtown because of the Covelli Centre. A business can’t count on Covelli shows to survive. Everything downtown has a role in the revitalization. But the key was having people downtown with money in their pocket.”
There will be 101 events at the center this year with the expectation of 110 events in 2013, Ryan said. That doesn’t include the 85 rentals of the facility’s community room this year.
Downtown restaurant owners say business picks up on event nights at Covelli.
“We see an increase in business when there are events at the center,” said Dominic L. Gatta III, co-owner of the V2 Wine Bar Trattoria and the Federal Building on West Federal Street. “The big-name concerts are usually our best nights. Even with Disney on Ice, we get families. Every event downtown has an impact on business. But the Covelli ones are huge. Without some of those events, it would be a struggle. Without having those events, it would be such a different dynamic. It’s greatly benefited our business.”
Robert Faraglia, co-owner of Roberto’s Italian Ristorante on West Federal Street, said, “Every time they have an event, you can tell right away. We’re usually booked a week or two prior to an event at the Covelli Centre. Our business is doing really well with or without it, but the center gives us a major boost.”
Jacob Harver, who owns the Lemon Grove Cafe on West Federal, said the center is a “key and necessary part of the vibrant downtown. We absolutely see a pickup in business because of it. What’s good about Covelli is it’s a bridge for those in the suburbs to come downtown. People come from all over” for Covelli events and then go downtown before and after shows.
Chris Sammarone, the mayor’s son and co-owner of Dooney’s Downtown Grille on Central Square, says the center helps business.
“You see an increase in business, but the problem is there aren’t enough events there to sustain our operations and to rely on that exclusively,” he said. “We hardly see any increase with hockey games, but with major concerts, we’ve seen an increase.”
If the center is doing well, this is the ideal time to look at a sale or lease, the mayor said.
“I’m trying to prevent a deficit in the city’s general fund,” he said. “We’ll be OK next year, but we have to have the funding in place for 5, 10, 15 years down the road. We need a plan down the road for what’s best not only for now, but the future.”
The city didn’t start making principal payments on the $11.9 million loan until last year. Since then, the city has paid $575,000 toward that principal. The city has paid $5,141,395 in interest on that loan since 2005.
Any company wanting to lease the center would be required to pay enough money for the city to retire the debt, preferably in an immediate $11,325,000 lump-sum payment, Sammarone said. But a guaranteed structured deal over a period of years, perhaps as high as 15 years, could be done, he said.
The mayor said safeguards would be included in a contract to make sure the city would get its money if a company left early.
Also, a contract would require the company running the center be responsible for needed repairs to it, he said.
The center has had annual operating surpluses since 2009, but not enough to cover the debt service. The annual operating surplus was $153,950 in 2009, $110,434 in 2010, and $126,314 in 2011. Ryan is projecting a $300,000 operating surplus for this year.
Helping to lessen the cost of the debt service is a 5.5 percent admission tax the city includes on every ticket sold since 2009.
The amounts have ranged from $215,578 last year to $307,700 in 2009 — bolstered by Kelly Pavlik’s middleweight title fight. The tax will bring in about $175,000 this year with Ryan saying the amount will be higher in 2013.
That 5.5 percent ticket tax revenue would not necessarily go to with a new lessee. Sammarone said that’s a negotiable item. But without it, a company operating the facility would lose a major revenue source.
The center is the only entertainment/sports facility in the city that charges an admission tax.
If the city opts to not lease or sell the center, Sammarone said he would look to impose a ticket tax on all other entertainment/sports venues such as the DeYor Performing Arts Center, Stambaugh Auditorium, and facilities on the Youngstown State University campus.
Some council members say they are concerned that if the city leases the center to a company, and that business can’t succeed, it would result in a disaster for the city and the facility.
“My greatest fear is if we sold or leased it to a company and it’s not profitable,” the city would be stuck with a rundown building, said Councilman John R. Swierz, D-7th. “I’d have to be totally satisfied with the terms of a lease to approve it. It would be hard to make the guarantees I’d be happy with.”
Councilman Mike Ray, D-4th, said a lease proposal “would have to be a tremendous deal to get my support. It’s doing well as a city-owned facility. If you lease it and the condition of the center at the end of the lease is poor, what do you do with it?”
Councilman T.J. Rodgers, D-2nd, also says it benefits the city to have government control over the center.
“I don’t see the cons outweighing the pros of this,” he said. “The center is very critical to the revitalization of downtown. It’s no coincidence that downtown came back when the center opened.”
Councilwoman Janet Tarpley, D-6th, said the center “is too vital to the city to lease it, and if a lease doesn’t work, we get a facility in bad shape. I don’t think we need to lease it or sell it.”