Kansas City’s Sprint Center (that’s their new downtown arena) is suffering from underuse.
The Atlantic article The Empty Arena tells the story. Its subtitle is “If you build it, they might not come.” Despite being managed by a well-connected and experienced management group, no professional basketball or hockey team has moved in. Here’s bit more:
For now, Kansas City remains cautiously optimistic that the decision to build the Sprint Center was an enlightened one. The taxes that fund it are largely being paid by visitors, after all, and the concerts and NCAA games it has already attracted would have bypassed the old, outdated Kemper Arena. Mayor Mark Funkhouser, formerly the city auditor, had struggled to understand how spending $222 million on an arena made economic sense. “Now that I’ve inherited it,” he says, “I tell people it’s a shotgun wedding, but I have to make the marriage work. And if you look at it just in terms of the performance of the facility itself, it has exceeded expectations. It’s shiny and new. People like it.”
Who paid for the arena? As the snippit above approvingly states, someone else besides the people of Kansas City did. $222 million from hotel and car-rental taxes funded the arena.
In Wichita, the Intrust Bank Arena (formerly known as the downtown Wichita arena), set to open next year, was paid for largely by its own hometown, as it was funded through a sales tax.
The Wichita arena, unlike Kansas City’s, has a tenant, a minor league hockey team. Even though the arena is owned by the citizens of Sedgwick County, details are kept secret from the people.
A few months ago in March, SMG, the company that is managing the Intrust Bank Arena (formerly known as the downtown Wichita arena) signed a lease with the Wichita Thunder Hockey team.
Details of that lease weren’t made available to the public. Not to Sedgwick County Commissioners, either. So the public and even elected government officials don’t know anything about this contract, except for its term of five years.
This strikes me as bad government. The county has a deal with SMG that gives the management company broad latitude in operating the arena, including some profit-and-loss responsibility.
The arena, however, is still taxpayer-owned property. Furthermore, reading the management contract between SMG and Sedgwick County, I can see several ways in which SMG can wrangle free of its obligations. Believe me, the taxpayer is still on the hook.
An inquiry sent to Assistant Sedgwick County Manager Ron Holt, the county’s point man for the arena, produced a response (see below) that indicates that the county has no intention of disclosing the terms of this lease agreement. Citizens must simply trust the county.
Part of the problem is that the arena has a competitor in the private sector, the newly-opened Hartman Arena. SMG is justifiably concerned about its contracts with tenants, which it considers proprietary information.
That’s fair enough — if SMG was a private company. But it’s one-half of a public-private partnership. It gets to use an asset valued at roughly $200 million, provided at no charge by the taxpayers of Sedgwick County, to see if it can earn a profit for itself. Our stake in this means we should get a look. The fact that SMG and the county will not disclose means that citizens will always wonder about the details of the deal.
This is especially true when government competes with private industry. Holt is already on record as being opposed to the privately-held Hartman Arena, remarking “overall, it would not be in the best interest of the community.”
Without disclosure, there will always be questions. It would be in the best public relations interest of SMG to agree for public disclosure of the terms of the Wichita Thunder lease.
Bob Weeks Inquiry The Thunder – SMG Lease May, 2009 Issue # 1: Since SMG has committed to a contract/lease agreement with the Thunder in which there is a major revenue stream for the facility and with terms greater than one year, does the County have to approve the Thunder contract/lease agreement? Response: No, the County does not have to approve the Thunder contract/lease agreement because it is in the sole discretion of the Contract Administrator whether or not to approve the agreement, and even then such approval cannot be unreasonably withheld. It is important to understand that there are two types of contracts covered by section 2.3 (c) of the agreement—contracts that involve paying money out (Section 2.3 (c) i), and contracts involving a revenue stream for SMG (Section 2.3 (c) ii). Contracts that involve paying money out, such as a contract to provide security for the facility, must be approved in writing by the County if it involves a term beyond the management term of SMG. As will be discussed later, this approval can be a simple letter from the Contract Administrator and such approval cannot be unreasonably withheld. The Thunder agreement involves a revenue stream and Section 2.3 (c) ii provides that “SMG and the County will have joint approval rights (which approval right shall be at each party’s sole discretion, not to be unreasonably withheld) for all major revenue streams that can impact the profitability of any Facility …with terms of greater than one year.” Section 2.1 (d) provides that “to the extent that the approval of the County is required under the terms of this Agreement, the written approval of the Contract Administrator shall constitute the approval of the County,” Under the definitions in Section 1, the “Contract Administrator” is defined as – the senior administrative official of the County as from time to time appointed by the County Manager, or such individual person as may from time to time be authorized in writing by such administrative official to act fro him/her with respect to any or all matters pertaining to this Agreement. So to address the first issue, it is in the discretion of the Contract Administrator whether or not to approve the agreement with the Thunder. This approval could take many forms and could be established by policies within the County Manager’s Office. While the initial review of the Thunder contract/lease agreement was limited to a discussion between the Contract Administrator and the SMG’s General Manager, subsequently a more thorough review by the Contract Administrator and an Assistant County Counselor with the SMG General Manager revealed the following notable provisions of the agreement: 1.) The term of the agreement is for 10 ½ years with provisions to terminate in the event of default by either party. 2.) There is a provision for a base rental that we agree is standard in the market with accelerators for future years based upon established indicators. 3.) There are other provisions in the agreement for revenue to be derived by SMG to cover staffing costs and other maintenance considerations. 4.) There is appropriate insurance coverage to protect the operator of the facility. After such subsequent review it is our opinion that the agreement provides adequate protection for the County for the entire term of the agreement and there is no reasonable basis for exercising our discretion to disapprove the agreement. For future contracts/lease agreements that fall under the conditions of the SMG Agreement as identified above, the Contract Administrator will meet with the SMG General Manager of the INTRUST Bank Arena and review any agreement in order to understand the terms and conditions of the agreement and how this might affect the County’s interest. Issue # 2: How can Sedgwick County give its approval to a contract/lease agreement that SMG will not let the county see (wouldn’t approval in a meaningful way mean that the commissioners and the public can read the contract/lease agreement)? Response: Obviously the County can’t give meaningful approval to a contract that we can’t see, but our agreement with SMG specifically allows us to review any agreement in order to understand the terms and conditions of the agreement and how this might affect the County’s interest. See Section 2.6 (a) (i) which provides:. (i) To the extent that SMG has any confidential or proprietary information that it reasonably believes is a privileged trade secret and/or should not be disclosed to a third party to protect the privileged, confidential and/or proprietary nature of such information, and upon the approval of the Contract Administrator, which shall not be unreasonably withheld, SMG shall not be required hereunder to deliver such information to the County, but instead, will afford the County an opportunity to review such information at the Facility during reasonable business hours and upon reasonable advance notice, or on terms mutually agreed upon by the parties in order to protect the privileged, confidential and/or proprietary nature of such information. As mentioned above, we have had the opportunity to review this agreement with SMG in a meeting with the General Manager of the Intrust Bank Arena. In our negotiations with SMG, we intended to give SMG significant authority to run the business of the new arena as they deem necessary as a means for them to sign off on an agreement that puts the risk of losses solely on them. The only reason we wanted the authority to review/approve long term agreements was for the purpose of making sure that SMG wasn’t putting the County in a bad financial position for years that they might not be operating the arena. While initially this is a five year agreement, we have provisions in the agreement that will automatically extend the agreement for an additional five years if they meet certain performance criteria. In other words, there is no reason at this point in our business dealings to think that SMG is operating in anything but the best interest of SMG and the County and such there would be little reason to formally approve the Thunder agreement – let alone have a reasonable basis to withhold approval. With Hartman Arena and Sprint Center (non SMG operated facilities) as competitors in this market, it is of high importance to SMG of keeping their proprietary information from being disclosed publicly. In addition, the County’s financial interest is protected with a provision in the agreement requiring SMG to maintain a system of bookkeeping adequate for its operations and for the use of our auditors. SMG is furthermore required to give the County’s authorized representative access to such books and records. The County has the right at any time, and from time to time, to audit and/or cause nationally recognized independent auditors to audit all the books of SMG relating to the operating revenues and operating expenses of the arena.
A letter in today’s Wichita Eagle places a lot of faith on things not yet seen, and in things we know don’t work.
“I think it is dumb that people are complaining about the new Intrust Bank Arena. It will bring money and tourists to Wichita, not to mention great entertainment. That means more money brought to our government, and that’s a good thing. — Caleb Beeson, Wichita”
First, since the Intrust Bank Arena is not yet open, it has no track record. We have absolutely no idea how well it will do, financially or otherwise. A lot of people think it’s “dumb” to count chickens before eggs have hatched.
Then, there’s this letter writer’s idea that more money in the hands of government is a “good thing.”
To believe that paying taxes to the government is good requires believing that government spends wisely. There’s little evidence of that.
Perhaps the writer means that when tourists from out of town travel to Wichita and spend money, our local government will be gathering tax revenue from out of our area. Better to tax someone else than ourselves — that’s the underlying message.
These taxes serve to suppress travel to cities that levy them. How does it feel to have a city add 13% to the cost of your hotel room, as I have paid in some cities? Or how do you think travelers feel when a city levies fees and charges that add 26% to the cost of renting a car, as some places do?
Since demand falls with rising prices, these high taxes reduce demand for travel to high-tax cities. Probably worse than that, they leave a bitter aftertaste for those who pay them. Do we want travelers to Wichita to feel that they’ve been soaked by our local taxes? They won’t feel good about coming back again.
Education’s Ground Zero (Nicholas D. Kristof in The New York Times) Describes the efforts of Washington D.C. public schools chancellor Michelle Rhee to reform the system. She’s fired one-third of the principals. Kristof reminds us of the importance of teachers: “The reform camp is driven partly by research suggesting that great teachers are far more important to student learning than class size, school resources or anything else. One study suggests that if black kids could get teachers from the profession’s most effective quartile for four years in a row, the achievement gap would disappear.” In Wichita, however, USD 259 is taking the opposite approach.
Details of Intrust Bank Arena contract with Thunder are a secret (Bill Wilson in the Wichita Eagle) This is an earlier story, interesting for the confusion it raises or exposes, I’m not sure which. Reported in the story: “The arena’s financial performance would be monitored by the county through what [Sedgwick County assistant manager Ron] Holt characterized as limited records access. But [Sedgwick County Commissioner Gwen] Welshimer said she didn’t know how the county would track the arena’s financial performance. ‘We don’t have any access to their books that I know of,’ she said.” Read the county’s contract with SMG, however, and you learn that SMG will maintain accounting records, have them audited, and give Sedgwick County access to them “upon reasonable advance notice.” Also, the county has the right to audit the records at any time.
Why state smoking ban seems inevitable Rhonda Holman in the Wichita Eagle Editorial Blog) In this post, Wichita Eagle editorialist Rhonda Holman makes explicit the connection between state-paid health care and the state’s interest in controlling behavior: “That’s [passing the statewide smoking ban] the only responsible action the Legislature can take, given the increasing cost burden of smoking-related illnesses on the state …” If the state (that includes the U.S. Federal government) starts taking responsibility for more health care, smoking bans are just the start of state meddling in behavior.
Minnesota Guys ready to start face-lifts of downtown Wichita buildings (Bill Wilson in Wichita Eagle) Real Development starts work on the improvement of facades of some of its buildings. In the article developer Michael Elzufon manages to use the word “iconic” twice. This article doesn’t tell how these improvements are paid for: a confusing arrangement where the city loans money and recoups it in special assessment taxes. A hefty development fee is being paid to the developers, which allows them to profit for fixing up their own buildings. But they’ll pay that back in the form of the special taxes — or will they? It’s hard to tell where the money is going in these agreements. This benefits developers like Elzufon and politicians on the Wichita city council, as if citizens knew what was really going on, they wouldn’t be happy.
Sedgwick County, owner of the Intrust Bank Arena (the downtown Wichita arena), has a five-year contract with SMG that outsources the management of the arena.
Yesterday, SMG announced a 10.5 year lease with the Wichita Thunder hockey team. Terms of the deal weren’t disclosed, and SMG is resisting their release, as explained in Wichita Eagle reporting referred to in my post Wichita downtown arena open records failure.
But this much is clear: SMG has committed to a contract that lasts longer than their contract with the county.
Sedgwick County could choose to renew SMG’s contract, of course. The contract also contains a provision where if the county receives at least $1,700,000 from the profit sharing agreement with SMG, the contract automatically renews.
But it seems like SMG is getting a little ahead of itself.
It also appears that the lease contract SMG made with the Thunder requires approval by Sedgwick County.
The management agreement between Sedgwick County and SMG grants authority to SMG to negotiate contracts without county approval, but there is an exception: “… if any such license, agreement, commitment or contract other than those involving the license, lease or rental of the Facility in the ordinary course has a term that extends beyond the remaining Management Term or, if this Agreement has been renewed, the Renewal Term, such license, agreement, commitment or contract must prior thereto be approved in writing by the County (which approval shall be at the County’s sole discretion, not to be unreasonably withheld) …”
(The management term referred to is five years.)
So it seems that this contract, extending beyond the management term as it does, is subject to Sedgwick County approval.
There’s more from the SMG-Sedgwick County agreement: “SMG and the County will have joint approval rights (which approval right shall be at each party’s sole discretion, not to be unreasonably withheld) for all major revenue streams that can impact the profitability of any Facility, including ticketing, sponsorships, food and beverage, and tenant leases with terms of one year or greater.”
The Thunder is certainly a major revenue stream for the arena. In fact, they’re the anchor tenant. The lease, at 10.5 years, is much longer than the one year mentioned.
So there’s another clause of the contract that seems to indicate that Sedgwick County has approval rights for this lease agreement.
Here’s a question: can Sedgwick County give its approval to a contract that SMG will not let the county see?
Yesterday, the company that manages the Intrust Bank Arena (the downtown Wichita arena) announced a lease with the arena’s flagship tenant, the Wichita Thunder hockey team. But we don’t know the details of the lease. Unbelievably, some Sedgwick County Commissioners and managers are okay with that.
I believe that the Eagle will be successful in pursuing a copy of the lease agreement from SMG (the company managing the arena for Sedgwick County) under the Kansas Open Records Act. Here’s why:
The KORA states that “‘Public agency’ means the state or any political or taxing subdivision of the state or any office, officer, agency or instrumentality thereof, or any other entity receiving or expending and supported in whole or in part by the public funds appropriated by the state or by public funds of any political or taxing subdivision of the state.”
Although immediately next comes an exception, excluding “Any entity solely by reason of payment from public funds for property, goods or services of such entity.”
I believe the exception is meant to prevent a company who, say, sells pencils to the county from being subject to KORA.
But the relationship between SMG and the county is different. Sedgwick County has outsourced the management of the arena to SMG. The county is paying SMG, too. According to the contract, $8,000 per month at this time.
The county and SMG have a broad nondisclosure agreement in their contract, although this can’t override the KORA.
Besides the legalities of this, SMG and Sedgwick County need to find a way where this lease agreement can be made available to the public. I recently obtained a copy of the existing lease agreement between the Thunder and the county in anticipation of comparing it with the new agreement, the one shrouded in secrecy.
If SMG decides to keep this contract secret, it will be a public relations disaster for them.
It’s also a strike against the Sedgwick County managers who negotiated the contract with SMG that contains this provision, and against the commissioners who voted for it. Sedgwick County Commissioner Tim Norton seems to be the prime apologist for the secret contract.
Let’s hope that SMG changes their mind soon and releases the contract.
We shouldn’t be surprised at this. Expect more price increases.
Some of the comments left by readers should remind us of the issues surrounding this arena.
“Get over it, you lost the arena vote” wrote one person. I hate it when democracy produces winners and losers. Especially when we’re quarreling over an entertainment facility.
“That’s great! The more people who come downtown, the better.” I wonder what people who have invested in areas other than downtown think when government builds and/or subsidizes attractions that compete with their bars, restaurants, and other businesses?
Evidently there’s a new type of raised seating that makes for a better audience experience for those seated on the floor.
The problem is that having built the arena, we need to do what we can to see that it earns a profit and doesn’t become a burden to the taxpayers. (I’m aware that there’s a contract with the management company that shields the county from losses. I’m sure that if there are several years of losses, that contract won’t be renewed under those terms.)
Even new commissioner Karl Peterjohn realizes this. The Wichita Eagle story reported “New Commissioner Karl Peterjohn prefaced his affirmative vote by saying that although he opposed the arena before voters approved it, now that it’s being built, he wants it to be the best it can be.”
Evidently some people aren’t satisfied with this. A comment left to the news story interpreted his words to mean “if this fails miserably, I will accept no blame and quickly point fingers. But if it turns out to completely revitalize downtown and be a huge success like I hope it’s not, I’ll gladly take responsibility for it.” The commenter added “What a joke.”
Besides this commenter’s inability to accept victory and move on, some comment writers are terribly confused, one blaming Wichita city government for the mess. The arena is entirely a project of Sedgwick County.
Here’s a photograph I took of the spire on the Intrust Bank Arena now under construction in downtown Wichita. You may be excused for confusing it with a non-functional flagpole.
There was actually a ceremony surrounding the raising of this pole. Here’s what one Wichita Eagle letter-writer thought of the spire and Sedgwick County Commissioners.
Signatures on spire reflect arrogance
How dare our local elected officials write their names on any part of the people’s arena, as the Sedgwick County commissioners did on the downtown arena’s “spire” this week? This is called graffiti, and if anyone else were caught putting this visual garbage on anything, he would be arrested for it, as our officials should be. The arena is not their personal property to deface. I have little doubt they already had grand plans to prominently place their names on the arena, bragging about “their” accomplishment, so writing on the arena was unnecessary as well as improper. This is just one more example of how completely out of touch and arrogant they all are and why they should all be removed from office. I truly believe the future will show the harm they have caused to this community when it comes to the white elephant they refer to as the Intrust Bank Arena.
