CAA And SMG Talking Deal

May 15, 2002
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GRAND RAPIDS—The Convention and Arena Authority has stepped-up its effort to retain SMG Inc. as the manager of the Van Andel Arena and Grand Center.

Last week, the CAA made it known that Rich Rumer, a former SMG employee who helped open the arena more than four years ago, was hired to assist the panel with the financial details of its ongoing contract negotiation with the management firm.

CAA Chairman Steven Heacock characterized the renewal proposal submitted by SMG as being “too rich” for the board, which owns and operates both buildings. Yet, he hopes the two sides can reach an agreement soon.

“That is the ideal situation and I hope we get there,” said Heacock of retaining SMG. “But, we need to get a fair deal.”

SMG has been running the Grand Center since 1994, when the convention facility had an annual deficit of $800,000. The building recorded a $270,000 surplus for the past fiscal year, which marked a turnaround of more than $1 million since the firm began running it.

SMG has also managed the arena since it opened in October 1996. Earlier this month, Amusement Business, a live-entertainment business publication, named the Van Andel as the top dollar-grossing arena in its class for the third consecutive year. The magazine’s ranking is based on the gross revenue that a building gets from concerts and family shows.

“We are hoping to make a major announcement within the next two weeks for a concert that will happen in May,” said Rich MacKeigan, SMG General Manager for the arena and Grand Center. “And, with any luck, we may have a major sporting event to announce before the end of the fiscal year.”

CAA Counsel Richard Wendt said he was waiting for Rumer to respond to the contract materials he sent him. Wendt, a partner at Dickinson Wright, did not disclose any of the financials being negotiated. Rumer works for Temple University in Philadelphia.

Under the current contract, the CAA provides SMG with a fixed fee to oversee daily operations at both buildings and an incentive fee based on performance.

The fixed fee has SMG receiving $160,000 annually for managing the Grand Center and $240,000 a year for running the arena. SMG also receives 20 percent of the first $500,000 above the contracted benchmark revenue figures for each building, and 25 percent of the amount over the $500,000 figure.

The revenue benchmarks are $1.8 million for the Grand Center and $3.7 million for the arena. For the incentives to kick-in, the net operating deficit at the Grand Center must be less than $500,000, while the net operating income at the arena must be more than $750,000.

According to audited reports, SMG earned nearly $353,000 for running the arena in FY00 and almost $500,000 the previous year. The firm received $260,000 for managing the Grand Center the past fiscal year and $215,000 for FY99.

The current contract, which was extended in December 1998, expires on June 30.

Heacock said that once the managerial agreement is settled the board can move onto other contracts that need to be completed. An important one still to be negotiated is the ticketing agreement. TicketMaster currently holds it and has already made a presentation to the CAA. Heacock said a few board members would be meeting soon with Tickets PLUS to get a better idea of the local firm’s  proposal.

In other news, the board choose Erhardt Construction, an Ada-based general contractor, and The Hunt Group of Indianapolis as its project manager for the $200 million expansion and renovation of the Grand Center. The firms worked as a joint venture to build the $75 million arena and have been the pre-construction manager for the convention center project. The first set of bids for the Grand Center project will go out in a few weeks.

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