SMG will get at least another six years to try to bring acts to Intrust Bank Arena after Sedgwick County commissioners approved an amendment Wednesday to its current contract to manage the downtown venue.
Commissioners voted 3 to 2 to approve the changes, with Karl Peterjohn and Richard Ranzau voting against.
Ranzau said later that the deal was bad for the county.
The new agreement changes the way SMG and the county split profits. The original contract between SMG and the county had SMG keeping the first $450,000 of profit in any given year and the next $450,000 going to the county. After the $900,000 mark, 60 percent of profits went to the county and 40 percent to SMG.
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Profits have gotten past that $900,000 threshold only once, in the first year. In 2010, the county received just more than $1.1 million of the arena’s total net income. The new agreement gives SMG the first $400,000 of profit. Anything above that will be split evenly between SMG and the county.
Assistant County Manager Ron Holt said that if the new formula had been applied the past three years, the county would have received about $200,000 less, a point Ranzau stressed.
“How is that good for us?” he asked after the meeting. “Why would we want to do that?”
Charles Peaster, who lives in Ranzau’s district, went so far at the meeting as to call the agreement “a piece of trash.”
Holt said the county heard from some in the community that the old arrangement didn’t give SMG much incentive for the arena to net more than its first $450,000.
County leaders didn’t believe that to be true, but Holt said the goal of the new agreement is to bring in more money for everyone.
A proposed promotion fund would aid in bringing in more shows, Holt said.
The fund aims “to address the only reoccurring dissatisfaction of the arena operations that we have heard: the variety of acts for concerts, particularly rock and pop genre events, and the scarcity of summer bookings,” Holt said.
The county initially proposed a $200,000 promotion fund that would be paid by SMG but replenished at the beginning of each year by the county.
On Wednesday, Holt put forth a last-minute deal struck with SMG. It would have SMG put up $200,000 one time with no expectation of the county contributing to promotions. Commissioners left the fund on the table Wednesday and are planning to talk more about it at a staff meeting Dec. 2.
Ranzau complained during the meeting that commissioners had not seen details about the new deal in writing.
Holt said later there wasn’t enough time to brief commissioners. He also said the newly proposed promotion fund is better for the county because SMG pays for it.
Morrie Sheets, director of operations for the Hartman Group of Companies, including Hartman Arena, expressed concern that the fund would give the arena the ability “to buy down acts that we would be getting, that the Cotillion could be getting.”
Arena general manager A.J. Boleski has said the fund could help the arena sweeten the pot to get bigger acts that wouldn’t go to a venue such as Hartman Arena.
The deal approved Wednesday still makes SMG responsible for operating losses.
Holt noted that the county’s arrangement with SMG has been unique.
“Based on the county’s experience of having to provide financial subsidies for operations at the Kansas Coliseum as well as the challenges with finding the funds to keep up with capital improvements as the facility aged, we were able to negotiate a very unique arrangement with SMG with respect to their management fees.”
Rather than giving SMG a flat fee for managing the arena – which would have been in the $300,000 to $350,000 range annually – and the county agreeing to make up any losses, “the unique agreement called for a revenue-sharing formula for SMG and the county with SMG taking all of the financial risk, which included being responsible for covering operating losses in any and all given years,” Holt told commissioners.
With SMG covering potential losses, the county won’t have to dip into the reserve fund set up to maintain and upgrade the arena as the building ages, he said.
Ranzau and Peterjohn also expressed concerns about the new agreement having an automatic renewal for another five years. Peterjohn noted that the agreement gives SMG managing rights out to 2025, or the next 11 years, when commissioners only serve four-year terms.
Holt stressed renewals are tied to financial performance. The county’s initial agreement with SMG provided an automatic renewal if the county received at least $1.7 million during the arena’s first full five years, which end Dec. 31, 2015. By the end of last year, the county had $1,625,380, just $74,620 short of the threshold.