Poor Predictions

That was the prevailing philosophy in the heady days mid-decade when the housing market and construction were booming and Rio Rancho’s then-Mayor Jim Owen was predicting the youthful city would one day be the Dallas to Albuquerque’s Fort Worth.

But since its opening in 2006, the 6,500-seat, multi-purpose arena has lost hundreds of thousands of dollars annually, forcing the city to spend millions in tax revenues to cover operational costs and bond debt — city spending that’s projected to add up to more than $14 million by next summer.

The city’s current Mayor Thomas Swisstack acknowledges the difficulties, but points out the radically changed economic circumstances since the global financial meltdown of late 2008. He and city staffers remain confident the arena has had an overall positive impact on the city.

“The Santa Ana Star Center has been the pioneer of creating the City Center as a destination for employment, education and entertainment,” Rio Rancho’s Convention and Visitors Center director Matt Geisel said in a recent interview.

Geisel and Swisstack say the Star Center is fulfilling its role as an anchor for the new city center, an area that was previously an undeveloped expanse of mesa several miles north of Rio Rancho’s main commercial activity.

Central New Mexico Community College and University of New Mexico campuses, a UNM hospital and a Hewlett-Packard technical support center have all come there since 2008, despite the tough economic conditions, Swisstack said.

A heavy burden

The original Star Center management company Global Entertainment of Tempe, Ariz., predicted activities at the center would generate more than enough to cover annual payments for bonds the city planned to sell to finance the building.

“Those original financial expectations were not realistic at all,” said Gunnar Fox of Global Spectrum, the Star Center’s current general manager.

Before it was built, a major credit rating agency also expressed doubts that the arena would be profitable on its own.

Moody’s Investors Service gave the $35.75 million in bonds the city sold to build the center an A2 investment-grade rating. The agency’s report said that was based on Rio Rancho’s creditworthiness and because the city backed the bonds with gross receipts tax revenues.

It warned, however, that events and a related surcharge on tickets and merchandise sold might not cover the debt obligation.

“Moody’s does not expect the revenues derived from the activities at the Star Center and the 12 percent surcharge will be sufficient to pay debt service,” said the Moody’s evaluation dated June 6, 2005, a few days before the city broke ground on the Star Center.

Covering the costs of the Star Center has become a heavy burden for Rio Rancho.

The budget for this fiscal year alone was $3.7 million; $2.7 million for bond debt and $1 million for operational expenses. That’s roughly 7 percent of the city’s overall $50.8 million budget.

By the end of this fiscal year, in June 2012, the city estimates it will have spent $14.3 million to keep the Star Center afloat.

The long-term goal is for the arena to be self-sufficient, Rio Rancho spokesman Peter Wells said. But the city now views the Star Center as a city-supported amenity, like the Rio Rancho Aquatic Center where charges for swim time don’t cover the facility’s costs.

The Star Center picture looked very different in 2004, when the city signed a 10-year agreement with Global Entertainment expecting it to be a self-sustaining facility. The city’s pledge to back the bonds with tax money left Rio Rancho on the hook when Star Center revenues felt short.

“The Santa Ana Star Center — it’s going to cost the city $3 million a year whether the doors are open or the doors are shut until the bond expires (in 2027),” Geisel said.

The June 2005 pricing summary for the bonds prepared by RBC Dain Rauscher showed the total cost of the financing would be about $60.9 million.

Tenant trouble

Global Entertainment’s tenure was marked with numerous key staff changes, lackluster attendance at Scorpions (the key tenant) hockey games, canceled events and unpaid bills.

Its contract with the city made the company responsible for the financial viability of the building, including covering operating expenses. Global Entertainment’s own records showed it owed $151,000 to New Mexico vendors when it left the Star Center in early 2009.

That was when city intervened, firing Global Entertainment and hiring Comcast Spectacor subsidiary Global Spectrum to run the center.

Global Spectrum’s contract differed significantly from Global Entertainment’s contract in that it obligated the city to subsidize operating costs.

Most event center contracts make the facility owner responsible for operational expenses, said Roger Swanson director of business development for VenuWorks, which manages arenas, theaters and convention centers nationwide.

“Most facilities lose money, but they’re considered a good lifestyle asset for the community,” Swanson said.

Fox said Global Spectrum has similar contracts at more than 99 percent of the 108 facilities it manages worldwide.

While Rio Rancho is still embroiled in a lawsuit with Global Entertainment, claiming the city was misled on the potential profitability of the Star Center, a former tenant believes the Star Center’s location in far north Rio Rancho has affected its ability to attract a crowd.

The Scorpions disbanded in 2009, after three seasons with declining attendance at the Star Center, and Bregmen sold the Thunderbirds basketball team after their season there.

But Global Spectrum has attracted a new sports anchor in the New Mexico Mustangs hockey team, which plays October through March, and New Mexico Stars indoor football team, which plays March through June.

And Fox said attendance at arena events has increased by 34 percent under his watch, with shows like Muse, Walking With Dinosaurs, World Wrestling Entertainment and Monster Trucks bringing sell-out or near-capacity crowds.

More big shows, like Cirque du Soleil and comedian Jeff Dunham, are scheduled for early 2012. Between the big dates, the Mustangs and Stars and other sports events will generate revenue.

“Essentially every event that the Star Center hosts makes money on an event basis,”Geisel said.

Fox is projecting the arena will host 116 shows this fiscal year. That number would have to be around 160 for the center to cover costs. But it’s the mix of entertainment, not the overall total, that makes the critical difference, Fox said, adding that major concerts and shows bring in much more than miscellaneous sporting events and banquets. His goal is to attract 10 to 12 of those “top of mind shows” each year and to reduce the amount the city has to subsidize operating costs.

In a recent presentation to city councilors, Fox said he hopes to reduce the $782,778 projected operating deficit for fiscal year 2012 by a modest $14,000.

“People see it’s going to be a journey,” Swisstack said.
— This article appeared on page A1 of the Albuquerque Journal