VenuWorks gets 5-year contract to continue running Alerus Center

VenuWorks, which has been running Grand Forks' Alerus Center for the past eight years, since the place opened, will be running it for at least another five years. The events center commission approved the contract extension with one modification this morning.

While I don't have anything against VenuWorks, it occurred to me that maybe the commission might have waited until we know how finances look after the Britney Spears concert Sept. 12. If it's a disaster, that would probably color the commission's judgement of VenuWorks' performance.

That's the angle I took with the story today and the question I put to commission Chairman Curt Kreun.

As I wrote in my story, Curt noted that:

• It doesn't really matter when the commission votes because both parties can back out of the contract at anytime.
• Britney Spears ticket sales are going about as expected and the events center is "very close" to that break even point where it doesn't have to pay promoters AEG Live anything. Remember that the Alerus Center has guaranteed AEG would make something like $750,000 to $850,000. I had thought maybe there was still quite a ways to go, but maybe I was wrong. I told Curt that when I last checked, there seemed to be an awful lot of cheap seats in the bleachers left and I assumed those would sell first. He indicated that a lot of the tickets for the floor had sold. Those are more expensive.
• Even though the Alerus Center is in the hole by $258,731.75 as of the end of July and the budget said it's only supposed to be in the hole by $73,206.08, things are looking up. July itself showed a turn around. The Alerus Center was expected to lose $87,800.80 but lost only $2,120.58. Big losses are typical in the summer months because there's usually not that much going on. This summer's different with lots of catering activities from weddings and conferences.

Still, there's that $225,000 that the city has transferred to the Alerus Center so far out of the $250,000 fund the City Council set aside in May. Of that, $125,000 was for Britney Spears, which, if the concert breaks even, the city will get back, and $100,000 to help with payroll. Normally, I'd think this is very serious, but given the uncertainties in this industry and the fact that this is nothing new and may be less than transfers in other years, I'm not very concerned yet.

By the way, in case you've forgotten as I kind of have, the existing VenuWorks contract from 2007 says the company will give up a significant portion of its management fee if it loses a lot of money at the end of the year. A reader called to ask about that and I was ashamed that I couldn't remember exactly how the contract was structured.

This is relevant because the new contract modifies the condition for the contract a bit. So here's what it says in the 2007 contract (I would copy the contract verbatim, but the PDF that I have doesn't allow that, so I'm summarizing). It is fiendishly complicated:

• The fee is called the "performance management fee." The regular fee to pay employees at Alerus Center is separate and not subject to penalties. The maximum performance fee is a percentage of gross revenues -- not net revenues -- minus the hospitality tax. It's structured this way:
  • Revenues up to $4.5 million: 4.5 percent. [At $4.5 million, that's $202,500.]
  • Revenues $4.5 million to $5.5 million: 4 percent. [At $5.5 million, that's $220,000.]
  • Revenues exceeding $5.5 million: 4.25 percent. [At $5.5 million plus $1, that's $233,750.04.]
• The maximum fee is modified in two ways:
  • The first 75 percent is based on gross revenues and structured this way:
    
    • Revenues up to $4.5 million: 3.37 percent. [At $4.5 million, that's $151,650.]
    • Revenues $4.5 million to $5.5 million: 3 percent. [At $5.5 million, that's $165,000.]
    • Revenues exceeding $5.5 million: 3.188 percent. [At $5.5 million plus $1, that's $175,340.03.]
  • The remaining 25 percent is based on what's known as the "balanced performance model," which includes, among other things financial performance, customer satisfaction and the commission's assessment.
  • The 75 percent and the 25 percent together shall not exceed $250,000.
• The city pays the fee every month. The finance office tells me that it assumes that the management fee will be 4.5 percent.

Are you still with me? No? Don't worry, there's only a few more rules to go.

• At the end of the year, if the Alerus Center fails to achieve a "balanced financial outcome," meaning if it doesn't break even, then whatever amount the events center lost will be refunded to the city. The maximum refund is the entire performance management fee. Break even includes both revenues earned and revenues from the hospitality tax.
• If both sides agree that this refund is very likely, then VenuWorks will stop receiving the monthly performance management fee until break even appears achievable again or the year ends.
• The latest contract modifies all this by removing revenues from locally-generated events, such as the Beer Fest and the citywide rummage sale, from the performance management fee equation.

 I tried to get the performance management fee for last year, but City Hall had a bit of trouble finding the documents and Alerus Center's finance chief was on vacation. I would try to figure it out from the year end financial data I collected in February. Unfortunately, I don't know what the balanced performance model score was and I'm not sure if the Alerus Center subtracted the losses to the concert fund from net revenue or not.

Posted by: Tu-Uyen on 8/19/2009 at 9:13 PM | Comments (26) | Permalink

Tags: alerus center, britney spears, budgets and taxes, gf and egf