Alerus Center numbers

Update 11:49 p.m. Feb. 25, 2009: Ah, sorry readers, I would've updated this thing earlier but I haven't had a chance to update the blog. This monster story took a ton of time to write and now that I'm nicely fortified by Pinot Noir, I'm ready to write some more.

There are really four different stories:

1. The achievements of the past year.
2. The losses in the concert fund.
3. The questions raised about why the city is in the concert business if it's gonna be losing money like that.
4. The official mea culpa from City Hall about that $872,000 that the Alerus Center was suppose to transfer to City Hall but now can't.

This was roughly how I organized my story anyway. So let's start from the top.

Achievements

Breaking even in operations is nice, even with that screwed up concert fund. No, Whistler, this is not "fraud." Fraud is when you make up stuff. This is "framing," which is another word for interpretation of the facts. If it were fraud, it wouldn't have been so easy for us to notice it.

(For all data, see tables below.)

Unfortunately, earnings are much lower than the year before. Since the Neil Diamond concert had such a big financial impact and the low attendance is at least in part because of the lousy economy, we can put some of the blame on the economy. I'll explain what else we can blame it on below.

Attendance is growing, which we can attribute to more usage of the convention center side of the house. The number of events at the Alerus Center grew, with conventions that had not been in town before. This is important because we maybe seeing a reversal of the pattern where the arena side subsidizes the convention side. A lot of credit goes to CanadInns because a convention center attached to a hotel is twice as nice as an unattached convention center.

Because attendance is growing, so is economic impact, which is based on the number of visitors to the Alerus Center. Because those visitors dine, shop and stay at local hotels, they help local businesses. How does the Alerus Center figure out how visitors spend? A UND economics professor, Lloyd Blackwell, did this survey a few years back and figured the average spending by visitors based on different kinds of events.

Concert fund losses

The fund started with $250,000 but ended with $469,017.67 in the hole. That's $719,017.67 spent altogether. Michael W. Smith, Lifehouse, Disturbed and Neil Diamond all lost money.

The Alerus Center would like you to realize that the economic impact of all these concerts totaled $1.4 million.

Why bother with concerts?

These losses, Alerus Center Executive Director Steve Hyman said, should be expected because the concert fund is a "risk fund." The expectation is that concerts are basically loss leaders. You lose money on them but you expect to make money on other things, such as advertising and suite leases.

I pointed out to Steve that when the Alerus Center commission started the fund back in 2004, several commissioners including David Evenson and Randy Newman said they hoped the fund would make money and not only replenish itself from concert profits but even subsidize other events center operations. One of the advantages of covering a beat for a really long time like I have is you sometimes have more institutional knowledge than the people involved. I still checked our archives to see if my memory was true and it was.

Here's a line from my story in Aug. 19, 2004:

Newman and the finance committee agreed to set a goal of building up the fund to $350,000 by making money from concerts. Any additional money would go toward off-setting the city subsidy of the center.

Commissioners originally wanted the fund to buy concerts, but now say it would be a kind of insurance should the center lose money on a concert.

Here's a story former Herald reporter David Dodds wrote in July 22, 2004:

Evenson said the commission wants to get away from requesting help from the City Council every time it needs a little cash. The $250,000 infusion would be a step in setting up more flexibility for the commission and Alerus managers.

"It acts like a line of credit," Evenson said. "We'll take the money and go get concerts, and when the shows make a profit, we'll pay it back."

The point is, we're seeing a policy shift here. It's generally good practice in government to publicly discuss policy shifts before taking them. Perhaps it's time that discussion take place?

Given the revelation by Steve that concerts are very likely to lose money, why would we the taxpayers want to take that risk?

Steve gave two reasons. First, whenever previous events centers got on the ballot, voters kept turning them down until they got an events center that includes an arena. So providing concerts is a function that voters wanted. I, ah, will have to look into that.

Second, concerts are what will help sell ads and suite leases. It's hard to sell when you have to tell customers that all they can expect to get are a few UND football games and boat shows.

Well, I think we as a community need to talk about this. We've assumed all this time that concerts will subsidize conventions but now the situation appears to have reversed itself.

There is another issue that I didn't dwell too much on in my story being that I try to avoid turning myself into the story. One interpretation of the Neil Diamond concert's lackluster ticket sales is that people in this town are just really fickle about music.

I've seen lots of bands come to Grand Forks from places like the Twin Cities or Winnipeg and they just don't get much of an audience. How many times has some bar owner tried and failed to fill Town Square? Similar bands would pack the house in Fargo. I've seen a one-man junk band by the name of Bob Log III fill a bar in Fargo.

I told Steve all this and asked him if the Alerus Center had done any consumer research to see what kinds of concert Grand Forkers have actually paid to see. He indicated that the center didn't have such a study. Well, darn it all, why not??

I can't be too harsh because surveys and focus groups are a pain in the rear. Not all companies do them, even news media companies that have, as a group, proven painfully ignorant about their own customers. Still, spending a little money to avoid losing a lot of money seems like a good idea, doesn't it.

Mea culpa

OK, so City Hall has decided to take the blame for the $872,000 that was misallocated. Maybe we in the news media have failed to explain it in a way that people can understand or maybe some people deliberately want to not understand.

So understand this: This money is not missing. It's not money that we now have to scramble to find. It is simply money that the city moved from one fund -- the economic development fund -- to another -- the Alerus Center fund. It thought it could move the money back at a later date using the 3/4-percent sales tax revenue but it was wrong. So now the economic development fund takes a hit.

Taxpayers are not liable for any of this because we have already paid for it. It's just a question of where the money was supposed to go and where it ended up. So instead of having more money for fireworks and jobs development, we're just not getting it back.

I know Mayor Mike Brown felt bad about it because he used words like "betrayed" and "mad," which he never uses. It certainly makes him look like he was out of touch, but then so was every single City Council member who didn't see this coming even when they knew the Alerus Center was losing money and the difference had to come from somewhere.

I have not gotten too excited about this $872,000 because I wouldn't get too excited if the money was from, say, the sewage fund or the street repair fund -- and I would imagine not a whole lot of readers would get excited either.

As I mentioned in this post, the solution to the financial confusion is more financial information such as cash flow statements. I'm pleased to see that the Alerus Center had those statements in its report yesterday. Hopefully we will see those statements and more at least once every quarter.

There was also some discussion at the commission meeting yesterday about putting the Alerus Center budget in with the rest of the city budget. It's now treated like some sort of subsidiary. If it were in the budget then whenever it exceeds budget, it would have to ask for more money from the council like other departments. That's a process called a budget amendment.

I think this is a valuable lesson for the city and I wished that I'd had the foresight to demand the cash flow statement and other info years ago. I was a little too obsessed with operational finances, which is becoming less meaningful because the concert fund is not in it.

The City Beat has now been awake for 19.5 hours and I sense that I'm starting lose focus so my apologies if I've been rambling like an idiot. This was a total brain dump and there's not a whole lot left.

OK, readers, are you ready for this? Here comes some numbers from this morning's Alerus Center meeting: 

Also, it's not a financial thing but attendance is a key indicator: 

I'm still collecting data. But that's what I got right now.

Posted by: Tu-Uyen on 2/25/2009 at 1:33 PM | Comments (16) | Permalink

Tags: alerus center, budgets and taxes, concert fund