Color DeVos Place Red

April 18, 2003
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GRAND RAPIDS — A preliminary forecast has DeVos Place losing $1.8 million in the convention center’s first fiscal year, a loss that will largely be subsidized by profits from the Van Andel Arena.

Revenue for DeVos Place is expected to total $2.3 million in FY04, while expenses should reach $4.1 million. Doing the math leaves the building short $1.8 million.

The fiscal-year forecast includes seven months of operations for DeVos Place, which opens in December, and five months for the Grand Center. But for two of those months, July and August, the center will be closed for construction and without any income.

According to SMG Director of Finance Chris Machuta, revenue will be down because bookings at new convention facilities are typically low during a building’s first few months.

At the same time, he said, expenses will rise mostly due to increased labor costs coming from a dozen new employees, higher charges for utilities and security, and more expensive premium payments for workers compensation and property insurance.

Machuta felt the arena would have a surplus for the next fiscal year of $1.5 million; the same projection the building has for this year. The arena profit would cut the Convention and Arena Authority’s loss from $1.8 million to $300,000 for FY04, which begins on July 1.

SMG general manager Rich MacKeigan felt the upcoming loss likely would be the largest the building would experience. Once construction is finished in early 2005, he said revenue would rise because more space would be available for lease.

Still, news of the projected red ink and the promise of better days didn’t surprise CAA Finance Committee members, first to learn of the forecast last Thursday.

“It’s not unexpected. The plan all along has been that the excess revenues from the arena would cover the deficits coming from the convention center,” said Steven Heacock, finance committee chairman.

“In fact, you build convention centers not to make money, and the reason governments are involved is that they’re not profit-making entities,” he added.

“They’re entities that encourage economic development within a community. This center will do that, but in doing that it will have a loss.”

Heacock said the overall projected loss of $300,000 for the first fiscal year wasn’t bad and not very far from a break-even point, the goal the CAA has set for itself.

“I wish it was at break-even, but I understand why it’s not. And I think it’s a one-year phenomenon that will look better in future years,” said Heacock.

Heacock felt the forecast didn’t put the CAA or SMG under any more pressure to fill more arena dates with highly profitable concerts to make up for the loss coming from the convention center.

“The truth is we book every darn concert we can that we think will sell in this community. If they’re touring we get them and if they’re not we can’t,” he remarked. “So does this change that dynamic? I’m not certain it does.”

MacKeigan said for the past few years everyone involved with the convention center has focused on retaining the business the Grand Center had. Without that effort, he thought the shortfall would be larger than the $1.8 million that has been projected.

“What we were able to do is not lose business,” said MacKeigan. “I do think this number would be considerably higher if not for the effort taken.”

Machuta added that many of the conventions coming to the new building wouldn’t get here until 2005 and beyond, revenue that won’t be on the books until future fiscal years.

The finance committee will take a second look at the forecast next month before it goes to the full board.

The best revenue month of the seven for DeVos Place should be February with a profit projected at $57,401, the building’s only forecasted profitable month. The worst will likely be January, which should have a loss of $249,947. When DeVos Place opens in December with a trio of conventions, it should end the month $16,262 in the red.

“It’s an indicator that the convention center will never produce,” said Robert White, Kent County fiscal director. “We can only hope it breaks even.” 

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