Finance Department Memorandum

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Finance Department Memorandum DATE: August 20, 2014 FROM: SUBJECT: Tom Duensing, CPA, Director, Finance and Technology IceArizona Manager Co LP - FY14-15 Budget Package Summary On May 30, 2014, the

1 Finance Department Memorandum DATE: August 20, 2014 FROM: SUBJECT: Tom Duensing, CPA, Director, Finance and Technology IceArizona Manager Co LP - FY14-15 Budget Package Summary On May 30, 2014, the City received the proposed Fiscal Year (FY14-15) budget from the IceArizona Management Co. LP, (IceArizona). In accordance with Section 8.14 (Annual Budget) of the Professional Management Services and Arena Lease Agreement (Agreement), the City did not approve the proposed Annual Budget due to reasons outlined in a June 12, 2014 letter (Attachment 1) and requested that IceArizona work with City staff and submit a revised budget. A revised budget was submitted by IceArizona on July 24, This information, along with information provided by IceArizona staff, was used to develop newly forecasted revenues which could then be compared with the current FY14-15 City Arena budget figures. Based on this comparison, no adjustment to the City budget will be made at this time. Further, the City accepts the submitted budget from IceArizona for the fiscal year ending June 30, It is our goal to work with IceArizona to ensure future budget processes are smooth and timely going forward. It is important to know that the revised revenue estimates do not include revised revenues due to the proposed naming rights agreement with the Gila River Indian Community announced by IceArizona on August 13, Initial estimates provided by IceArizona would increase the total naming rights revenues. Highlights of the IceArizona and City budgets, relative to the agreement, are summarized below. The total FY14-15 revised budget deficit is $8,798,122 versus the adopted budget deficit $8,646,089 as detailed in Attachment 2 The methodology of the revised FY14-15 revenues from IceArizona is detailed in Attachment 3 Attachment 4 is the revised FY14-15 budget submitted by IceArizona and used to prepare the revised FY14-15 revenue estimates 1

2 Detailed Information On July 15 and July 24, 2014, City staff met with Stephanie Johnson, Controller for the Arizona Coyotes to discuss the proposed FY14-15 budget submitted by IceArizona on May 30, As a result of these meetings, each of the items outlined in the June 12, 2014 letter were addressed as follows. The management fee of $15 million is now included in the budget submitted to the City as requested. This fee is a requirement of the Agreement with the City, and based on the submitted budget, a like amount is budgeted as Distribution to Holdings. IceArizona s Working Capital Funding from the Team is budgeted at $5,769,196. The Capital Improvement Contribution of $500,000 is now included on the budget sheet submitted by IceArizona. This is not presented as a budgetary line item as it is reimbursed capital improvements per Section 11 Capital Improvements of the Agreement based on approval from the City. The budget also included a detailed breakdown of capital improvement requests that total $500,000 that will need to be further reviewed and approved by the City before moving forward with the improvements. As stated in the June 12, 2014 letter, the City developed a budget template that captured the necessary elements of a budget that meets the standards set forth in the Agreement. This template provides the information needed for the City to accurately forecast the City s budgetary revenues and expenses received from and paid per the Agreement. This template detailed the projected revenues the City receives from ticket surcharges and parking revenue from hockey and nonhockey events, naming rights, and other revenues to ensure the City accurately projects the excess or deficiency of the Arena Agreement for FY The FY14-15 budget estimates for this template were a result of a collaboration of the City s historical revenue and expenditure information as well as input from IceArizona. Attachment 2 compares the City s adopted FY14-15 Budget for the Arena Agreement and FY14-15 Budget Template, again with input from IceArizona. The results are as follows. The total FY14-15 City adopted Arena Agreement Revenue Budget is $6,853,911 compared with revised estimated revenues of $6,701,878. This includes base rent for the arena, ticket surcharges and parking revenues for hockey and non-hockey events, naming rights, unrestricted General Fund sales taxes at the Arena and reimbursed public safety expenditures. The expenditures include the $15 million arena event management fee and the potential $500,000 capital improvement expenditures. The total FY14-15 City adopted deficiency of revenues over expenditures budget is $8,646,089 compared with a revised estimated deficit of $8,798,122 (highlighted in pink on Attachment 2). This is a difference of $152,033 Attachment 3 is the detailed FY14-15 Budget Template which includes revenue estimates for ticket surcharges, supplemental surcharges, and parking for Hockey Events and Non-Hockey events. This provides the detailed data for the $6,701,878 revised revenue estimate. The Budget Template estimate was a result of actual FY13-14 activity for Hockey and Non-Hockey events as well as input from IceArizona. 2

3 As a result of a lower revenue projection and unchanged expenditure estimates, the projected deficit is now $152,033 higher than the City s FY14-15 adopted budget. However, no adjustments will be made to the City s budget at this time. Overall, revenues for hockey are coming in as planned. Parking, non-hockey event revenue, and naming rights continue to be a concern and staff is currently working with the IceArizona to address these issues. The IceArizona FY14-15 Budget (Attachment 4) that was submitted (and subsequently revised) is only for Arena Manager revenues and expenditures; not the operation of the hockey team. The submitted budget complies with the requirements of the Agreement. The City will continue to monitor Agreement revenues and expenditures. Additionally, the City released a letter dated June 3, 2014 of our intent to audit Arena and Team Owner operations for FY We anticipate the audit to be completed this fall. Attachments 3

4 ATTACHMENT 1 June 12, 2014 Anthony LeBlanc President and CEO lcearizona Manager Co LP Arizona Coyotes Hockey Club 9400 West Maryland Avenue Glendale, Arizona Dear Mr. LeBlanc, On May 30, 2014, the City received your proposed Fiscal Year Annual Budget. This was within the May 31 due date. In accordance with Section 8.14 (Annual Budget) of the Professional Management Services and Arena Lease Agreement (Agreement), the City does not approve the proposed Annual Budget and hereby requests that lcearizona Manager Co LP work with City staff and submit a revised budget. The primary reasons for the disapproval include: The Management Fee of $15 million payable from the City to lcearizona Manager is not identified anywhere in the budget. The Capital Improvement Contribution of $500,000 payable from the City to lcearizona Manager is not identified anywhere as revenue in the budget. Please note, the individual Capital Improvement items, per Section 11Capital Improvements, must be approved separately. A budget for the following items is not separately identified. We request that these items be included in the Annual Budget, in detail, in order for the City to properly budget and forecast city revenue from the agreement. o Total parking revenue and subsequent amounts remitted to the City from both hockey and non-hockey events o Ticket surcharge revenue and subsequent amounts remitted to the City from both hockey and non-hockey events o Naming rights revenue and subsequent amounts remitted to the City from both hockey and non-hockey events o Annual rent, safety, and security amounts remitted to the City for both hockey and nonhockey events City of Glendale 4 us

5 To assist you in understanding the City's concerns and how they may be alleviated, the City will be forwarding a draft budget template that we believe captures the necessary elements of a budget that meets the standards set forth in the agreement, including consistency with Appendix G of the agreement. In order to ensure compliance, avoid untimely delays, and clarify expectations, Iwill be contacting Stephanie Johnson with lcearizona Manager to set up a meeting. Any assistance that you may offer in scheduling the meeting timely would be appreciated. If you have any questions, please feel free to contact me at (623) (office) or (480) (cell). Respectfully, Tom Duensing, CPA Financial Services Executive Director cc: Avik Dey, General Partner Stephanie Johnson, Controller Brenda S. Fischer, ICMA-CM, City Manager Nicholas J. Wood, Snell & Wilmer L.L.P. Joyce Kline Wright, Snell & Wilmer L.L.P. of Glendale 5

6 ATTACHMENT 2 Comparison of FY14-15 Budget to FY15 Budget Template FY14-15 Budget FY14-15 Budget Template FY14-15 Budget to Template Variance Revenue - Arena Agreement Hockey: Ticket Surcharge ($3.00 each) $ 1,553,490 $ 1,635,000 $ 81,510 Sup. Ticket Surcharge ($1.50) (1) - 817, ,500 Parking 820, ,060 (51,940) Sub-Total Hockey Events 2,373,490 3,220, ,070 Non-Hockey Events: Ticket Surcharge ($5.00 each) (2) 1,725,000 1,100,000 (625,000) Sup. Surcharge ($1.50 each) - 330, ,000 Parking (3) 1,423, ,500 (782,625) Sub-Total Non-Hockey Events 3,148,125 2,070,500 (1,077,625) Base Rent 500, ,000 - Naming Rights (4) 108,000 60,000 (48,000) Safety & Security Reimb. 283, , ,522 General Fund Sales Tax 440, ,826 - Total Revenues -Arena Agreement 6,853,911 6,701,878 (152,033) Expenditures - Arena Agreement Arena Events Capital Maintenance (500,000) (500,000) - Arena Events Management Fee (15,000,000) (15,000,000) - Total Expenditures - Arena Agreement (15,500,000) (15,500,000) - Excess (Deficiency) - Arena Agreement $ (8,646,089) $ (8,798,122) $ (152,033) NOTES: (1) The City did not budget for supplemental ticket surcharges to be conservative. (2)The FY14-15 Budget was based on original Renaissance Sports & Entertainment, (RS&E) estimates (23 events with 15,000 attendees per event). (3)The FY14-15 Budget was based on original RS&E estimates (23 events with 5,500 cars per event). (4) The FY14-15 Budget was based on actual amounts received through January 2014 (the initial year of the agreement). 6

7 ATTACHMENT 3 IceArizona Manager Co, LP FY14-15 Budget Template Summary Amounts Paid to City of Glendale Category Amount Calculation per Agreement Notes Annual rent $ 500,000 $500,000 per year Goes up to $650,000/year in FY18-19 Hockey Event Parking Paid to City 768,060 gross less $20,000/event Gross est. is $14.65 average per vehicle on Arena Property Non-Hockey Event Parking Paid to City 640,500 gross received X 75% Gross est. is $17.50 average per vehicle on Arena Property Naming Rights Paid to City 60,000 Contract Amount X 20% City Ticket Surcharge Hockey Event 1,635,000 $3.00/ticket City Ticket Surcharge Non-Hockey Event 1,100,000 $5.00/ticket City supplemental surcharge income 1,147,500 $1.50/ticket Subtotal Management Agreement 5,851,060 City annual safety and security fee 156,948 City police/fire actuals City hourly security costs police 200,000 reimbursement City hourly security costs fire 53,044 reimbursement Subtotal Safety & Security 409,992 Total amounts paid to City of Glendale 6,261,052 General Fund Sales Tax Estimate 440,826 Total Revenues - Arena Agreement $ 6,701,878 Example: Hockey Event, Non-Hockey Event, and Naming Rights Revenue Calculations Hockey Event Revenue Parking - Hockey Ticket Surcharge - Hockey # of Number of Vehicles No. Tickets/ Parking - Gross Less $20,000 Net Revenue $3.00 Surcharge $1.50 Supplemental Surcharge per Events Date Hockey Events Parked/Event Event Receipts per event * to City per Ticket Ticket 2 Pre-Season * 1,200 6,000 $ 35,160 $ (8,790) $ 26,370 $ 36,000 18, Regular Season - Premier Games 2,600 13,000 $ 685,620 $ (360,000) $ 325,620 $ 702, , Regular Season 2,600 13,000 $ 876,070 $ (460,000) $ 416,070 $ 897, ,500 - Post-Season * - - $ - $ - $ - $ Total Hockey Parking Revenue 6,400 32,000 $ 1,596,850 $ (828,790) $ 768,060 $ 1,635,000 $ 817,500 * For Pre-Season & Post-Season events, the city receives 75% in gross parking receipts. Non-Hockey Event Revenue Parking - Non-Hockey Ticket Surcharge - Non-Hockey # of Number of Vehicles No. of Estimated Total Gross Less 25% of Revenues Net Revenue $5.00 Surcharge $1.50 Supplemental Surcharge per Events Date Non-Hockey Events Parked/Event Tickets Receipts Per Event to City per Ticket Ticket 1 8/9/2014 Justin Timberlake 20/20 Experience 2,600 14,000 $ 45,500 $ (11,375) $ 34,125 $ 70,000 21, /30/2014 Marc Anthony Cambio de Piel ,800 8,000 $ 31,500 $ (7,875) $ 23,625 $ 40,000 12, /31/2014 Ed Sheeran Multiply ("x") Tour 1,800 8,000 $ 31,500 $ (7,875) $ 23,625 $ 40,000 12, /25/2014 Katy Perry Prismatic World Tour 2,600 14,000 $ 45,500 $ (11,375) $ 34,125 $ 70,000 21, /12/2014 Judas Priest 1,500 5,000 $ 26,250 $ (6,563) $ 19,688 $ 25,000 7,500 6 Premier Events 2,600 14,000 $ 273,000 $ (68,250) $ 204,750 $ 420, ,000 5 Other Events (Lower Bowl sales only) 1,800 8,000 $ 157,500 $ (39,375) $ 118,125 $ 200,000 60,000 4 Theater Events 1,200 4,000 $ 84,000 $ (21,000) $ 63,000 $ 80,000 24,000 2 Sports Events (i.e. PBR, Nitro Circus) 1,300 6,000 $ 45,500 $ (11,375) $ 34,125 $ 60,000 18,000 5 AIA High School Basketball 500 2,800 $ 43,750 $ (10,938) $ 32,813 $ 70,000 21,000 2 Family Shows (i.e. Harlem Globetrotters) 500 2,500 $ 17,500 $ (4,375) $ 13,125 $ 25,000 7,500 3 Other Events 1,000 $ 52,500 $ (13,125) $ 39, Total Non-Hockey Parking Revenue 19,200 86,300 $ 854,000 $ (213,500) $ 640,500 $ 1,100,000 $ 330,000 Naming Rights Naming Rights Gross Naming Rights Revenue Received $ 300,000 20% Due to City $ 60,000 Naming Rights - City Stage $ - 7

8 ATTACHMENT 4 IceArizona Manager Co, LP Annual Budget For the Fiscal Year Ending June 30, 2015 REVENUE Rental and Co-pro. Revenue 1,549,042 Other Revenue 2,467,684 Reimbursed Labor 1,937,000 Reimbursed Expenses 1,071,800 Management Fee 15,000,000 Total Revenue 22,025,525 EXPENSES Event Labor 2,941,996 Event Expenses 2,598,945 Total Event Expenses 5,540,942 Non-Event Expenses Guest Services 103,200 Security 725,737 Parking 252,557 Housekeeping 414,125 Facilities/Engineering 2,308,418 Operations/Conversions 451,478 Arena Hockey Operations 141,477 Marketing and Booking 105,539 Box Office 117,189 Productions 437,901 Executive Management 965,293 Total Non-Event Expenses 6,022,913 Overhead Allocation Finance & Administration Allocation 390,074 IT Allocation 344,793 Executive Allocation 411,070 Legal Allocation 84,929 Total Overhead Allocation 1,230,866 Total Expenses 12,794,721 Distribution to Holdings (15,000,000) Working Capital Funding from Team 5,769,196 NET OPERATING PROFIT / (LOSS) 0 Renewal & Replacement - Funded by COG $ 500,000 8

9 IceArizona Manager Co, LP Event Income Budget FY 2014/2015 REVENUE 4000 Arena Rent 864, Individual Suite Rentals 767, Ticket and Rental Taxes (82,694) Total Rental and Co Pro. Ticket Revenue 1,549,042 Other Revenue 4300 Concessions Royalty 726, Merchandise Royalty 100, Event Sponsorships 6, TM Convenience charge % 1,406, Parking Fee Income 214, Facility Fee 14,000 Total Concessions and Other Revenue 2,467,684 Reimbursed Labor 4800 Reimbursed In House Labor 432, Reimbursed In House Labor Coyotes Games 1,505,000 Reimbursed Labor 1,937,000 Reimbursed Expenses 4905 Catering 126, Stagehands 475, Advertising 392, Group Sales Expense Equipment Rental 38, Commission Programs 2, Credit Card Fees 36,600 Total Reimbursed Expenses 1,071,800 Total Revenue 7,025,525 EXPENSES Event Labor Front of House Labor 421, Medical, Event Security & Police 828, Production 235, Housekeeping 508, Operations/Conversions and Ice Crew 207, E. PT Labor Facilities/Eng. 31, E. PT Labor Parking Attendants 234, Contrd Srvs Stagehands 474, Total Event Labor 2,941,996 Event Expenses 5802 Promoter Revenue Sharing 1,959, Escrow Fee 42, Catering 126, Commission Programs 1, Credit Card Fees 37, Advertising & Marketing 392, Equipment Rental 38, Misc. Show Expenses Total Event Expenses 2,598,945 Total Expenses 5,540,942 Net Event Income 1,484,583 9

10 IceArizona Manager Co, LP Department Operating Budget FY 2014/2015 Guest Services Total Salaries and Benefits 80, Operating Supplies 2, Uniforms/Laundry 4, Training 15,500 Total 22,410 Total Guest Services 103,200 Security Total Salaries and Benefits 238, Non Event PT Wages and Taxes 240, Office Supplies 4, Repair and Maintenance 31, Annual City Police Fee 174, Operating Supplies 16, Uniforms/Laundry 3, Training 16,500 Total 246,467 Total Security 725,737 Parking Total Salaries and Benefits 106, Membshp Fees/Dues & Subscriptions Professional Services 24, Repair and Maintenance 3, Landscaping Maintenance 70, Utilities Water 30, Operating Supplies 9, Gas 4, Light Tower Fuel Uniforms/Laundry 3, Training 750 Total 146,125 Total Parking 252,557 Housekeeping Total Salaries and Benefits 134, Non Event PT Wages and Taxes 78, Repair & Maintenance 11, Contracted Maintenance 68, Operating Supplies 120, Uniforms/Laundry 800 Total 201,656 Total Housekeeping 414,125 10

11 Facilities/Engineering 220 IceArizona Manager Co, LP Department Operating Budget FY 2014/ Total Salaries and Benefits 375, Non Event PT Wages and Taxes 46, Postage/Courier/FedEx 7400 Repairs & Maintenance 327, Contracted Maintenance 199, Licenses & Permits Electricity 1,083, Gas 79, Water 127, Equipment Rental 5, Operating Supplies 60, Generator Gas 2, Uniforms 500 Total 1,886,252 Total Facilities/Engineering 2,308,418 Operations/Conversions Total Salaries and Benefits 403, Non Event PT Wages and Taxes 8, Repairs & Maintenance 11, Operating Supplies 25, Uniforms/Laundry 1, Hotel & Other Airfare Meals and Entertainment 250 Total 38,550 Total Operations/Conversions 451,478 Arena Hockey Operations Total Salaries and Benefits 88, Non Event PT Wages and Taxes 5, Membership Dues & Fees Repairs & Maintenance 15, Equipment Rental Operating Supplies 27, Uniforms & Laundry 1, Business Conferences Hotel and Other Airfare Meals and Entertainment 50% 200 Total 47,500 Total Arena Hockey Operations 141,477 11

12 IceArizona Manager Co, LP Department Operating Budget FY 2014/2015 Booking and Marketing Total Salaries and Benefits 65, Printing 4, Membshp Fees/Dues & Subscriptions 2, Marketing/Advertising 19, Website Development 7, Business Gifts 5, Business Conferences Meals & Entertainment 600 Total 40,325 Total Marketing and Event Development 105,539 Box Office Total Salaries and Benefits 49, Non Event PT Wages and Taxes 49, Office Supplies 7405 Contracted Maintenance 3, Armored Car Service 3, Operating Supplies 11, Uniforms/Laundry 500 Total 18,300 Total Box Office 117,189 Productions Total Salaries and Benefits 306, Non Event PT Wages and Taxes 5, Repairs and Maintenance 46, Contracted Maintenance 58, Operating Supplies 19, Uniforms/Laundry 1, Hotel and Other Airfare Meals and Entertainment 50% 250 Total 126,515 Total Productions 437,901 12

13 IceArizona Manager Co, LP Department Operating Budget FY 2014/2015 Administration Total Salaries and Benefits 271, Membership Fees/Dues 1, Professional Services 279, Insurance 238, Business Conferences 2, Hotel and Other 5, Airfare 2, Meals and Entertainment 5,050 Total 534,419 Total Admin 805,665 Finance FT Taxes and Benefits 27, Professional Services 10, Payroll Processing 44, Licenses/Permits/Fees Bank Fees 13, Operating Supplies 1,000 Total 69,616 Total Finance 97,028 Overhead Allocation (HR & IT) Postage 10, Office Supplies 21, Printing 2, Telephone Cell Phones 12, Professional Services 5, Drug & Background Checks 8, Meals & Entertainment (Staff Recognition) 3,000 Total 62,600 Total Overhead 62,600 Total Administration 965,293 Total Department 6,022,913 13

14 IceArizona Manager Co LP Sources and Uses of Cash For the Fiscal Year Ending June 30, 2015 Sources of Cash from Operations Operating Revenue $ 22,025,525 Less: Non cash Revenue Item: Coyotes reimbursed Labor (1,505,000) Add: Cash Contribution from Team 5,769,196 Add: City of Glendale Renewal & Replacement Contribution 500,000 Total Sources of Cash from Operations 26,789,721 Uses of Cash in Operations Event Expenses 5,540,942 Non event Expenses 7,253,779 Capital Expenditures Renewal & Replacement Capital Repairs/Additions 500,000 Distribution to Holdings 15,000,000 Less: non cash expenses (overhead funded by Team) (1,230,866) Total Uses of Cash in Operations 27,063,855 Net Cash Requirement $ (274,134) 14

15 ARENA NEWCO, LLC Potential Additions and Capital Repairs For the Fiscal Year Ending June 30, 2015 The following additions are currently under review and have been deemed necessary by the Arena Manager and the Team This list is meant to serve as a preliminary listing of items the Arena Manager is currently aware of which may require a Captial Repair as defined in the PMSALA. The Arena Manager contemplates payment of these Capital Repairs from the Renewal and Replacement account persuant to the provisions of the PMSALA. Additional Capital Repairs the Arena Manager is not currently aware of may come to the Arena Manager's attention during the course of the fiscal year and will be submitted to the City accordingly. Capital Additions Comments Amount Plumbing Isolation valve $ 15, It is necessary to install an isolation valve on the main domestic cold water loop. This will give us the ability to isolate sections of the building to complete a repair. We currently do not have the ability to isolate the building, and in a needed repair situation, it would be required to drain the entire building. Purchase Deko/ Chryon Computer 60, (Character Generator) The CG computer is used to create animations, characters, and graphics overlay on live video, such as lower 3 rd graphics, ingame statistics, charts, scores, etc. The new system will have both Standard Definition and High Definition capabilities. Examples of Industry Standard systems are Chyron HyperX3, Ross Xpressions, and Avid AMG. (Graphics Computer) The new computer will replace the current Pinnacle Deko II. The current system is 10 years old and is no longer supported by the manufacturer. This system is crucial to live event video production. The age of the computer and graphics system are obvious in its limited graphics and interface capabilities. Food and Beverage Point of Sale System 315, Replace the existing POS system with state of the art POS system. The average life cycle of a POS system is 5 years, our current system is 10 years old. Over the past 12 months the current POS system has crashed 8 times during sold out hockey games or concerts. The lost revenue associated with a crash during an event pales in comparison to future loss in revenue based on a poor customer service experience because a customer(s) do not return to the arena. Currently we are unable to accept credit cards at all locations. Credit cards account for 35% of total tenders. IT Point of Sale Data Switches The current concessions data switching network in the arena is 60, end of lifecycle. Replacement of this networking equipment is recommended to keep the current and future points of sale functional. Additional network cabling runs are also needed. Contingency for emergency repairs $ 50, Total Renewal & Replacement for FY 2014/2015 $ 500,

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