Construction Means Black Ink Again For Grand Center

June 5, 2002
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GRAND RAPIDS — Convention and Arena Authority Chairman Steven Heacock said he felt that the immediate fiscal outlook for the Grand Center would be grim. But a projection of less revenue for the Van Andel Arena admittedly took him by surprise.

“The convention center numbers are what we all expected. That wasn’t a surprise,” he said. “But not the arena.”

Heacock and other board members got that dose of startling news last week from SMG, the firm that manages both the convention center and the arena.

SMG has projected that the Grand Center will lose a little more than $500,000 over the coming fiscal year, which begins on July 1. It will be the first deficit for the building in at least three years.

Making matters worse, board members also learned that the Grand Center may only show a profit of $7,600 for this fiscal year, a major letdown from last year’s record-setting margin of $270,000.

As for the arena, SMG reported the building’s revenue stream is expected to fall by about $400,000. Event income should be down by $340,000, with ancillary income at $48,000 less next year.

The causes? The arena has 40 fewer dates booked right now, while the three-year work plan to expand the convention center has begun taking its toll on the Grand Center.

“Construction is already impacting our operational side,” said SMG General Manager Rich MacKeigan, who has had to shift a few of the building’s smaller events to the banquet rooms in the arena.

With not as much meeting space available next year, SMG Director of Finance Chris Machuta estimated that the Grand Center will lose about $250,000 in rental and ancillary revenue for the next fiscal year. He also projected that expenses for the building will increase by $130,000. Rising utility costs are expected to account for $43,000 of that jump.

An additional expense will arrive later this year when a new position is filled. The board plans to hire a director of sales for the Grand Center at a cost of $82,000. The person hired will be responsible for convincing trade groups to use the building, while the Convention and Visitors Bureau will continue to sell convention dates.

Machuta said the fewer arena dates was largely due to the Grand Rapids Hoops moving to the DeltaPlex Expo and Convention Center in Walker, accounting for 28 of the 40 fewer events estimated for the building next year. In addition, he said eight dates were lost when the Ringling Brothers Circus decided to perform here every other year instead of annually.

MacKeigan said it wasn’t likely that SMG could fill all the dates. But he noted that adding some concerts and family-oriented shows would make up for the income loss faster, as both types of shows are more profitable than sporting events.

Despite the revenue loss, the arena is still projected to show a $1.2 million profit for the next fiscal year — but less than this year’s expected margin of $1.45 million. Part of the arena’s $400,000 dip in event revenue is expected to be offset by a $124,000 increase in luxury seating charges and lower indirect expenses that may reach $100,000.

MacKeigan reminded board members that earlier profit margins for the arena included a cut of the parking revenue, money it no longer receives. During the building’s first three years, that figure totaled between $200,000 and $300,000. So MacKeigan said the current projection is similar to past budgets, minus the income from parking.

But the fiscal projections do show that city likely won’t make its $1 million contribution to the $219.5 million convention center expansion project. The city pledged $10 million to it, a million dollars from arena profits each year for 10 years.

And City Fiscal Services Director Robert White said another casualty may be SMG. Based on the current projections, White said the management firm wouldn’t earn its incentive fees.

Last year, SMG earned $353,000 for running the arena and $260,000 for managing the Grand Center. Of the $613,000 the company received last year, $213,000 was in incentives.

SMG began managing the Grand Center in 1994, when it had a deficit of $800,000. The $270,000 surplus it had last year marked a $1 million turnaround for the building. SMG has managed the arena since it opened in October 1996.

The CAA, which owns both buildings, is expected to vote on the fiscal year budgets and the management renewal agreement with SMG next month.

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