The events center was supposed to breathe new life into a midsized, waterfront community, luring new businesses, professional sports teams and concerts.
Local officials jumped at the chance to invest $42 million — much of it coming in the form of free government money — to build it. “This is beyond my wildest dreams,” the city’s mayor gushed at the ribbon-cutting ceremony.
Once it opened, though, the center failed to draw the numbers of events or fans needed to make it financially viable. It lost more than $250,000 in its first year, and has never come close to the million-dollar revenues that the developer projected.
The developer-manager was fired. The city took over operations after two years of losses. The city has been covering debt payments, which are expected to jump next year once the current interest-only bonds are refinanced to include the principal.
It isn’t Wenatchee’s Town Toyota Center. It’s the Covelli Center, which opened in Youngstown, Ohio, three years before the Wenatchee arena. But the story would sound familiar at all 10 of the events centers Global Entertainment built during a frenzied eight-year construction period between 2003 and 2011.
The centers were billed as sound investments that would infuse the economies of midsized communities, most projected to turn roughly $1 million in profits annually. None have even come close.
In some cases, cities have stepped in to cover debt payments. Lawsuits have been filed. Budgets have been strained.
Of the 10 arenas, just one is still managed by Global, and that’s because the company partially owns it.
In November, Global bowed out of the arena management business altogether, issuing a public statement that while it has “excelled in developing and building first-class events centers … our company has faced challenges in managing these buildings and we have concluded that this is not our core strength.”
Kozuback’s dream takes shape
Long before Global Entertainment began its quest to become the premier arena builder of midtown America, its general manager, Rick Kozuback had a dream. He wanted to bring professional hockey to cities in the South and Midwest that didn’t have much to offer in the way of weekend entertainment.
After taking a road trip through both regions in the mid-1990s, he convinced a group of investors to support his idea for a new 12-team hockey league in 1996. A few years later, the league acquired arena builder International Coliseums Co.
The new company billed itself as one-stop shopping for entertainment. It could build an events center, place a hockey team there, book events and sell tickets for the team, and manage the facility.
In fall 2003, the first arena built by the company opened in Loveland, Colo. But before it even opened, Global parted ways with its subsidiary, Global Spectrum, which took with it management of the center.
A month later, Global’s second arena opened in Hidalgo, Texas.
Between November 2005 and November 2006, the company opened centers in Youngstown, Broomfield, Colo., Rio Rancho, N.M., and Prescott, Ariz.
By the time the Town Toyota Center was under construction in Wenatchee, problems were starting to come to light at some of the other centers and within Global itself. The city of Hidalgo fired Global as manager of its arena, and the Broomfield center was having trouble booking events and filling seats. The Prescott center lost $2 million in its first year and construction bonds went into default.
Meanwhile, a petition was being circulated in Youngstown asking the city to fire Global as manager of its center because financial projections were off by millions.
The city asked Global to cover the losses the first year, and ended its contract with Global after a second losing year. The city has paid up to $720,000 a year to cover the arena’s debt payments, but that will go up to more than $1 million next year when the bonds are refinanced.
Now the city might spend another $750,000 to add an outdoor amphitheater to attract more summer concerts because the center has sat largely empty through the summer months.
“I think the former city administration was sold a bill of goods that the facility would pay for itself and cover the debt,” said Kyle Miasek, Youngstown deputy director of finance who oversees the arena’s finances.
Global opened three more centers in a year’s time between fall 2008 and fall 2009, including Wenatchee’s Town Toyota Center.
Coming up short
Overlapping the building boom, though, Global was fired as manager of four of the arenas in a little over a year’s time because the arenas were either losing money or not meeting projected revenues.
In Wenatchee, Global was fired eight months after the center opened when serious accounting problems were found. The center was supposed to make $800,000 in profits its first year, but fell far short of that. The city has paid $1.6 million a year for the past two years to help cover the current interest-only debt payments, and that is expected to climb to between $2 million and $3 million next year if the bond issue is refinanced to include payment on the principal.
Despite the troubles, Global continued to build arenas.
As the company was kicked out of Wenatchee, it was preparing to open two new arenas in Independence, Mo., and Allen, Texas.
The Independence Events Center struggled from the minute it opened in 2009, booking fewer events and selling fewer tickets than projected, and experiencing a serious parking shortfall. It lost about $370,000 in is first year. Global and the city parted ways less than a year into a 10-year management contract.
Then the city of Allen ousted Global for financial shortcomings just seven months after its arena opened. The city had originally signed a 15-year management contract with Global that required the manager to generate enough revenue that the city would not have to subsidize it. Global was fired after it asked the city for a loan to meet payroll last June. The city agreed, as long as Global left.
City officials in Allen said Global did a good job building the arena but failed in managing it.
As the luster faded from Global’s new events centers across the country, city leaders in Dodge City, Kan., were in talks with Global to build an arena. By the time construction began last year, though, neither the city nor Global had any illusions that it would be a moneymaker. The city conservatively factored in a $500,000-a-year subsidy, at least for now, said City Manager Ken Strobel. Global predicted the shortfall would be even greater.
“We felt we could handle it, though,” Strobel said.
The city-owned United Wireless Arena opened in February.
“It is the premier entertainment center for southwest Kansas,” he said. “Of course, we hope that someday it will break even or at least have a smaller subsidy.”
While 10 U.S. cities bit the carrot that Global dangled, many more did not. Kozuback went to at least a dozen other cities during the same time period trying to convince officials to build arenas. The City Council in Yuma, Ariz., approved a $60 million arena deal, but it was overturned by voters in 2008. The city of Show Low, Ariz., turned down a similar proposal, in part because city officials weren’t confident that revenues would be sufficient to cover bonds.
In Kozuback’s hometown of Penticton, B.C., he was able to convince city leaders to build a new events center and convention center complex, but the city ultimately decided to go with a different developer to build it and a different company to manage it.
Paying for the dream
Wenatchee is paying a high cost for jumping into the arena business and it’s not alone.
The city of Rio Rancho is paying more than $2.5 million this year toward debt service on its arena and another $1.1 million this year to subsidize its operating costs. The New Mexico town has had to subsidize the center since it opened in 2006, even as the city’s overall tax revenues dropped from $32.9 million in 2007 to $21.4 million in 2010. The city has been unable to fill 83 positions as they became vacant.
Elsewhere, three years after spending $43 million on a multipurpose events center, the community of Broomfield, Colo., spent another $1 million to convert the facility into a music center in the hopes of making more money on concerts than it had on sporting events.
But the biggest problems are in Prescott, Ariz., where the Global-built arena was projected to turn $2 million in profits the first year. Instead, it lost $2 million. Bonds sold to pay for construction of the center went into default a year later and have since been downgraded to junk status. Subsequently, the city of Prescott’s credit rating was downgraded. Now in its fifth year of operation, the arena has yet to break even.
Allstate Life Insurance Co., which invested in bonds to build the center, sued Global, Prescott Valley and other involved entities, alleging the defendants misrepresented attendance and cost projections for the arena. The lawsuit claims that a 2001 study showed the arena could draw about 78 events and 202,500 attendees annually. But the defendants used a more optimistic projection of 133 events and 486,000 attendees, with $5.8 million in revenue the first year, numbers which Allstate contends were fraudulently inflated.
In a telephone interview from his Phoenix office last week, Kozuback said no one defaulted on the bonds, despite bondholder claims to the contrary. Kozuback said it was all a misunderstanding.
Global has not been hired to build a new arena since January 2009. The company has been bidding for two years to build one in Scottsdale, Ariz., a suburb of Phoenix, a project the company says would be an anchor for redevelopment and spur private investment in the community. But so far the city has not acted on the company’s proposal.
“This (proposal) assumes no ongoing subsidy for the event center operations, although that assumption may change,” Global said in its development plan.
The company is in talks with about a half-dozen cities right now, but Scottsdale is the only one where they have submitted a proposal, Kozuback said
The company continues to lose money and has taken two loans from Boston Pizza, whose owner is a Global board member, to stay afloat. In the financial quarter ending Feb. 28, Global reported that its revenues dropped 52 percent from the same time the previous year.
Global’s website claims that the company “supplies community leaders with the most current and appropriate information required to make the best decisions possible avoiding costly design, construction and operational errors.”
It goes on to say, “An events center transforms your community.”
In his company’s defense, Kozuback said he believes the bad economy has played a big role in many of financial problems the arenas are experiencing. Although he said his company was not able to sell as many suites and other moneymaking amenities as some of the facilities.
“Looking on the positive side, every building we built opened on time, came in at or below budget — including Wenatchee — and they are all functional, good buildings,” he said. “Do we feel good that the buildings don’t meet expectations? No. But we believe we delivered a good product for a good price.
“Now we have to hope that their operations will someday meet all the expectations, including financial expectations,” he said.
Michelle McNiel: 664-7152