Lincoln arena board moves money to plug budget gap

By Deena Winter | Nebraska Watchdog

LINCOLN, Neb. – The board overseeing Lincoln’s new Pinnacle Bank Arena voted Wednesday to transfer $465,000 from its bank account to help plug the arena’s projected operating deficit for its first year of operation.

The West Haymarket Joint Public Agency – comprised of University of Nebraska Regent Tim Clare, Lincoln Mayor Chris Beutler and Lincoln Councilman Doug Emery – made the move to shore up the arena’s balance sheet, despite a sold-out NU mens basketball season and impressive string of big name concerts in the arena’s first seven months, from Cher to Elton John.

The JPA gets most of its revenue from new taxes on restaurants, bars, hotels and car rentals – as well as advertising, naming rights, suite sales, club seats and loge seating. That money is used to pay off the $378 million in construction debt for the whole West Haymarket redevelopment of a railyard into an entertainment district anchored by the arena.

However, many arenas get a bigger piece of that advertising and seating revenue, and it has become clear with each passing month that Lincoln’s arrangement was going to leave the arena with a deficit by the end of the fiscal year.

So the JPA voted to plug the budget gap by moving advertising revenue that the JPA gets from IMG, a huge international sports and media company that sells advertising and sponsorships in the arena. IMG then pays the JPA a set amount annually, $750,000 this year.

In order to plug the arena’s operating deficit, the JPA had to amend the operating budget it passed in December. Lincoln Finance Director Steve Hubka said it made sense to transfer sponsorship revenue to help the arena, since that typically stays with arenas and the arena operator, SMG, has responsibilities related to the sponsorship deals.

In exchange, Hubka said SMG has agreed to renegotiate the provisions of its agreement that allow it get earn incentive payments.

In a shocking display of his ignorance about the arena he oversees, Regent Clare said he was bothered by the implication that the arena is “losing money.”

“As I understand it, the arena is not losing money,” he said, saying the arena operator, SMG, had some unanticipated costs that caused them to operate “in somewhat of a deficit right now.”

The finance director had to correct him, saying, “The arena operation taken in isolation shows a loss.” The arena is projected to end the fiscal year with a loss, Hubka said, although the JPA (which is akin to a parent company for the arena) is “doing well,” taking in more occupation taxes than expected.

Clare then tried to spin the situation as a the JPA simply carrying out a provision that requires it to step in if the arena’s checking account goes into the red, and moving money around to reflect what most arenas do.

Assistant City Attorney Rick Peo said the facilities agreement requires the JPA to pay utilities, taxes and other operating costs if the arena doesn’t generate sufficient revenue. Plugging the budget gap now prevents the JPA from doing so at the end of the fiscal year, he said.

“Ultimately one way or another it’s going to fall back on the JPA’s shoulders,” Peo said.

Jane Kinsey, spokeswoman for a government watchdog group, accused the JPA of using semantics to try to cover up the fact that the arena is indeed losing money.

“Anyway you look at it, it hasn’t been in the black,” she told the arena board. “I feel that you don’t want people to speak up against this, and you want it to look good.”

Sharon Wherry, a member of the arena’s advisory board, credited SMG and general manager Tom Lorenz with keeping the arena’s expenses as low as possible.

“The arena has been extremely successful and we have done our part to keep expenses where they should be,” she said, noting she’s “so glad the JPA has enough cash flow to pay down the debt.”

Councilman Emery asked whether it’s fair to say this has been a learning year for the new arena. Wherry said the budget was crafted two years before the arena was built and before contracts were negotiated with the University of Nebraska, for example, whose basketball teams are its primary tenants. Revenue that typically helps arenas pay cover expenses were instead diverted to the JPA to pay down its debt, she said.

“This resolution will bring some of those resources back,” she said. “We have really learned quite a bit.”

Contact Deena Winter at deena@nebraskawatchdog.org. Follow Deena on Twitter at @DeenaNEWatchdog

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