March 16, 2014 in City

Spokane Arena still paying off after 18 years

By The Spokesman-Review
 
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2014 The Spokane Veterans Memorial Arena is seen from the air on Tuesday. It will be hosting the NCAA men’s basketball tournament this week.
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Here are links to the Spokane Public Facilities District’s year-end reports from 2008 to 2012 (click “history” at the top of the page) and to the 2010 Eastern Washington University economic analysis.

As the final seconds ticked away, an unguarded Freddie Owens caught a pass and sank a 3-pointer to launch Wisconsin past Tulsa and into the NCAA Tournament’s Sweet Sixteen.

The heroics capped a slate of college basketball games at Spokane Veterans Memorial Arena in March 2003, the first time the city played host to the tournament.

The Arena continues to bring flashy events to Spokane, which by national standards is an isolated midsize city nearly 300 miles from big-time professional sports. This week, eight college basketball teams and loyal fans will arrive in Spokane for their first games of the tournament, the fourth time in 11 years. The U.S. Figure Skating Championships have graced Arena ice twice in the past seven years. And concerts ranging from Pearl Jam to Elton John to Taylor Swift to Garth Brooks, who sold out five straight shows in 1998 near the peak of his fame, have filled the seats.

Opened in 1995 with a $62.2 million price tag ($95.5 million today when adjusted for inflation), the Arena was part of a boom in sports venue construction.

But unlike other facilities built in the last two decades, the Arena has exceeded expectations: It is profitable and sees regular use by professional teams as the home of the Spokane Chiefs junior hockey team and the Spokane Shock arena football franchise.

Though the Arena has consistently made money and brought in big events, its operators and main tenant have begun to make a succession plan.

Replacing the Boone Street Barn

By the late 1980s, the Spokane Coliseum had reached the end of its usefulness. New Kids on the Block, then one of the country’s hottest acts, opted to play in Pullman’s Beasley Coliseum instead of in Spokane because of the so-called Boone Street Barn’s modest 5,400-seat capacity. And on Aug. 14, 1990, Cher told a sold-out Spokane Coliseum crowd that she wouldn’t return to the city until there was a new facility.

About a year later, on Sept. 17, 1991, voters approved a 10,000-plus-seat replacement coliseum after four previous measures had failed. The Spokane Public Facilities District, an autonomous municipal corporation, would reap the tax money collected by raising an extra 0.1 percent sales tax and a 2 percent room tax on hotels with more than 40 units.

The Coliseum was used for four more years before it was leveled and replaced by what is now the Arena’s parking lot.

Cher has performed at the Spokane Arena three times since it opened.

For a midsize market with a modest-size venue, bringing in a headliner on tour isn’t as simple as calling the act’s manager and telling them there is an opening. Years of relationship-building and months of planning go into a large-scale show, Spokane Arena General Manager Matt Gibson said.

“Along with the relationships, it’s also a matter of dollars,” he said. “These concerts, they run because someone wants to make a living. And if they can make a living playing L.A. five times in a row in a week, then clearly secondary markets like Spokane aren’t going to get as much business.”

One thing the Spokane Arena has in its favor is its reputation: The venue is consistently ranked among the top 10 arenas of its size by Billboard Magazine. Another is its location. Being the biggest city between Minneapolis and Seattle means the arena hosts some acts that can’t afford not to play along the way, said Kevin Twohig, the Public Facilities District’s chief executive officer.

“We end up picking up that extra night, where they need some revenue to afford to be on the road,” Twohig said. “But it’s not a bargain. If somebody wants $1 million a night, we have to pay them $1 million a night here just as they would somewhere else.”

Big-time sporting events arrive

When the late Gonzaga University men’s basketball coach and athletic director Dan Fitzgerald lobbied for a replacement to the Coliseum in the late 1980s as a way to keep pace with sports venue competition, his comments proved prescient about 15 years later.

“It’s obvious that with a better facility, the city could go after some major events,” Fitzgerald told The Spokesman-Review in April 1989. “No matter what size building we get, we’re never going to get the Final Four. But if Boise can get an NCAA regional, I think a city three times the size could get one too.”

Each year, there are eight NCAA men’s basketball subregional sites. The winners then collide at four regional sites for a trip to the Final Four. The Arena landed its first subregional in 2003. Since then, it has hosted subregional games three more times, a feat matched only by the First Niagara Center in Buffalo, N.Y. Spokane also hosted the NCAA women’s basketball tournament regional rounds in 2011 and 2013.

The NCAA is in the bidding process for men’s basketball tournament subregional and regional sites in 2016-18, according to David Worlock, the association’s director of media coordination and statistics. The last bid cycle drew nearly 60 city applicants; he expects a similar number of bids for this cycle. When picking host sites, the NCAA looks for an arena with at least 10,000 sellable seats, a city with adequate hotel space for each of the eight traveling schools, and an airport with sufficient inbound and outbound traffic to handle the influx in visitors, Worlock said.

The need to add 750 seats to keep the NCAA’s interest was one of the reasons given when the PFD asked voters in 2012 to extend sales and use taxes for another 10 years to fund $65 million in facility expansions and upgrades.

After the measure passed, the NCAA changed its mind and decided not to establish a higher seating minimum because the organization didn’t want to disqualify so many potential sites, said Twohig, the Public Facilities District CEO. The PFD, however, has spent $2.2 million of the voter-approved funds to replace every seat in the Arena. Most of the rest, which ended up totaling $60 million, has gone to expansion of the Convention Center.

Spokane’s reputation as a place with passionate fans and sold-out crowds helps it continue to land NCAA subregional games.

“Spokane’s been one of the earliest markets to sell out every time we’ve done the show, so they like that,” Twohig said. The same qualities the NCAA looks for in a host city made Spokane attractive to U.S. Figure Skating, the governing body for the sport, which brought its championships to Spokane in 2007, then returned in 2010 during the run-up to the Vancouver Winter Olympics. Both times the arena hosted the events, the organization’s event attendance records were broken.

To Gibson, the Arena manager, drawing a big-time sporting event is similar to bringing in a big-name performing act: Build relationships with decision-makers, then sell them on the building and the city.

In 2010, the Arena’s best financial year, more than 160,000 people attended the U.S. Figure Skating Championships, more than 20,000 attended the NCAA Tournament subregional and more than 10,000 attended Arena Bowl XXII, which the Shock won 69-57 over the Tampa Bay Storm.

A base to build from

Junior hockey puts the most people in the stands and the most events on the calendar. The Spokane Chiefs are considered the Arena’s primary tenant, which means they receive scheduling priority for most Friday and Saturday nights during the Western Hockey League regular season, which runs from late August through mid-March.

“We’re responsible for a sizable amount of their gross income on an annual basis and they do a really good job of managing buildings,” said Dave Pier, chief marketing officer for Brett Sports, which owns the Chiefs and the Spokane Indians baseball team.

Part of the income the Chiefs generate for the PFD comes from sales of suites, club seating and advertising within the Arena.

During Chiefs games, the Arena gets 8 percent of Chiefs ticket sales, 22 percent of gross concessions sales, 11.5 percent of gross catering sales and 70 percent of gross parking sales.

Spokane Arena’s deal with the Shock, its secondary tenant, is based more on services provided and less on tickets sold. For each of the nine home games, the Arena collects at most $6,000 in ticket revenue but has to pay for security and ushers. It keeps 32 percent of gross concessions sales and 23 percent of gross catering sales, plus all game-day parking revenue.

Twohig expected the Shock, originally a second-tier arena football team, to play for two or three years given the instability of the sport. The 2014 season, which began at the Arena on Saturday, is their ninth.

“We were just looking for a way to get more things going in the building,” Twohig said. “We make our money off of parking, peanuts and beer for their games, but it’s worth doing because otherwise it would be sitting empty, and we’ve figured out how to make a little money doing it.”

From 2008-12, the Chiefs have brought about 280,000 fans per year into the Arena, and the Shock have averaged about 84,000 fans per season; combined, they make up a little more than half of the average attendance at the Arena in the past five years.

Financial details

Bonds backed with sales taxes and hotel room taxes paid for the Arena’s construction. The debt service was later subsidized in 2003 with a 0.033 percent state sales tax rebate available only to public facilities districts. The city, which had been running the Arena until that point, passed management to the Spokane Public Facilities District in exchange for the district taking ownership of the Spokane Convention Center and what is now the INB Performing Arts Center.

The district’s debts are now about $300 million, according to Twohig, who said the voter-approved revenues are sufficient to service it. He expects Spokane Arena’s part of the debt to be paid off within three to four years.

From 2004-12, the PFD has reported an average operating profit of $962,000 at the Arena despite half of those years being mired in recession and slow recovery.

The district has reported more than $1 million in profits at the Arena each year from 2010-12, the most current data available, including a $2.2 million profit in 2010, when it held the U.S. Figure Skating Championships for the second time. Average attendance from 2008-12 was just over 700,000 people, peaking in 2010 at 879,813.

The PFD asked EWU’s Institute for Public Policy and Economic Analysis for a study, which was released in October 2010. Researchers found that the Arena added $41.8 million to Spokane County’s economy from February 2009 through January 2010, $25.8 million of which went to wages.

“We did this study in some of the worst economic times this country and this city have recently seen,” said Patrick Jones, the director of the institute and lead author of the analysis. “In terms of willingness to spend, if I had to guess, my guess would be that there might be a higher daily rate of spending now than in 2010.”

Geoffrey Propheter, a researcher at George Washington University in Washington, D.C., who studies the economic impact of basketball arenas, says such venues have two types of economic benefits: tangible, such as the money spent in the local economy, and intangible, such as the civic pride a city gets from national exposure or the happiness generated for attendees at an event. His research showed that tangible economic benefits of arenas were generally negligible, but ones that were centrally located, built to fit their market and completed in the early 1990s were most likely to have a positive economic effect. The Spokane Arena meets all three of those criteria.

Propheter’s study of professional sports arenas found all arenas built from 1988-94 produced a $660 increase in per-capita income. Arenas built from 1995-2009 without the presence of a National Football League or Major League Baseball team produced a $1,438 increase.

Taking the $25.8 million added in wages from the EWU study and dividing it by the more than 470,000 residents of Spokane County in 2010 gives a figure of $55 per capita added to wages countywide by the Spokane Arena, which has smaller capacity, fewer people and less prominence than a National Basketball Association arena.

The intangible benefits of the Arena are by definition difficult to measure, but they include public use of the facility for events such as graduations or the Washington State B basketball tournaments it hosts each year. If arenas are built with public money and those aims in mind, Propheter said, the goal is more focused on the intangible benefits than the tangible ones.

“The policy objective is not to increase the amount of cash in someone’s pocketbook or jobs,” he said. “Instead the goal is to give the community a place to engage in certain activities, and that makes people happy. That happiness is difficult to quantify, but it is a real sense of happiness for the community.”

The future

Twohig said the Spokane Arena, at 18 years old, is already more than halfway through its usable life span.

“You’d have a hard time finding a 30-year-old arena in a major market right now in the U.S. There’s not many of them,” he said. “I mean, Portland’s is only 18 years old. Seattle’s was torn down and rebuilt 18 years ago. The only thing left up was the cross girders.”

Pier said the Chiefs’ 15-year use agreement shows how committed the franchise is to staying in Spokane, where it has played since 1985. The team is counting on working with the district to design its eventual replacement.

Twohig, Gibson and Pier all said the building’s upkeep makes it seem much newer than it is, confusing clients and visitors alike. Because the PFD does not answer to stockholders, it is able to reinvest its profits into its buildings.

“The old building only lasted 40 years and it was a dump for the last 10 years,” Twohig said. “Now, this building will never be a dump; we take great care of it and have the money to do it. But what happens is the programmatic uses of the building change over time, and they change fairly quickly.”


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