Arena feasibility study still valid?

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Last Tuesday there was a discussion in the Tulsa City Council committee meeting about the lack of a firm cost estimate on construction of the new downtown sports arena and the lack of a business plan to account for annual operating revenues and costs.

Assistant Public Works Director Mike Buchert told the Whirled that the city is relying on the feasibility study done by Conventions, Sports, and Leisure prior to the Vision 2025 sales tax vote. That study is dated March 23, 2003.

Here's how the story in the Wednesday Whirled characterizes the study:

The study by Conventions, Sports & Leisure International determined that Tulsa's market can sustain an 18,000-seat arena, allowing it to operate in the black by up to $1.2 million.

This was based on the arena hosting about 138 events and drawing 570,000 spectators annually. Such a scenario would bring in up to $4.6 million in revenue to offset about $3.4 million in expenses.

Buchert said there are no plans for additional studies.

"Everything has been based on that in terms of planning the efficiencies of the arena."

The single biggest revenue line item is premium seating -- $1,667,000 per year. CSL assumes that the arena will be able to sell 20 luxury suites at $32,500 and 2,000 "club seats" at $1,100 each annually for 40 minor league hockey and arena football games. This represents a premium -- over and above normal ticket prices -- of $26,164 per luxury suite and $572 per club seats. The revenue estimate also includes $250,000 per year for naming rights.

Are these estimates reasonable? I have my doubts that so many companies and individuals will be willing to pay for premium seating for minor league sports. But even if the predictions are fulfilled, the assumption is that all premium seat revenues will go toward annual operating costs. If those revenues are instead pledged against the cost of construction, the arena will have an annual deficit of $481,000.

What about annual revenue for naming rights? Based on a survey of recent naming rights deals, we'd be doing well to get $500,000 a year in a multi-year deal -- 15 years seems typical. Once again, if we pledge the entire $7.5 million toward construction, none of it will be available for operations. That means the $250,000 CSL figured in toward annual operating revenue. Combined with the shortfall if premium seat revenues are diverted to construction, that would make the annual deficit $731,000.

There are a couple of other factors that CSL couldn't have known about that city officials should take into consideration.

In March 2003, a barrel of West Texas Intermediate went for $33.55. On Friday, August 19, 2005, the price was $65.35. CSL estimated annual utilities costing $600,000. If oil prices have nearly doubled in little more than two years, does that estimate still make sense? And what impact will a doubling of oil prices have on construction costs?

The other factor: Casinos. Although Indian gaming was a growing industry before the November 2004 election turned bingo halls into full-fledged casinos, it has exploded in the months since then. March 2003, the date of the feasibility study, was early enough in Brad Henry's term as governor that no one, not even CSL, could know if the expansion of Indian gaming had the legislative support to go forward, much less popular support for passing a referendum. There's anecdotal evidence that gaming is hurting the restaurant business, and if so, it's more likely to affect other leisure spending. A 10% drop in minor league sports attendance would mean a $320,000 drop in arena revenues, based on CSL's sensitivity analysis.

We don't necessarily need a new study done from scratch, but at the very least, city officials should examine the assumptions that went into the CSL bottom line and ask if those assumptions are still valid. If more accurate assumptions show a shortfall in the construction budget or the operating bottom line, it's time now to figure out how to close the gap.


susan said:

Chris Medlock and other Tulsa City Council members should SERIOUSLY QUESTION THESE "ESTIMATES" OF PROFITABILITY written in the one and only feasibility study done for the arena. TULSA WORLD is biased and WANTS THE ARENA STARTED AS SOON AS POSSIBLE. The arena will boost their property value. On the Arena project, they had to tear down a lot of old stuff that did nothing for the Tulsa World property value. Tulsa World feels their opinion on the front page and editorial section INFLUENCE the public to VIEW OPINION THEIR WAY. Let BATESLINE BE THE SOURCE FOR CITIZENS TO COME TO FOR FAIR AND BALANCED NEWS! The TULSA WORLD especially in this arena project is completely not looking out for the taxpayers that will end up losing a lot of money if the arena operates in the red. Let's look at the FACTS! The beautiful
already established P.A.C. downtown since 2001 has steadily seen a decline in ticket sales. Ice Hockey sales are already not that terrific. Ask them how often since 2002 or 2003 they have sold out in ticket sales. Isn't Henry P. one of the owners of the hockey team and supporter of the Vision project? Was the lack of P.A.C. decline in ticket sales and the lack of huge ticket sales in the already on-going ice hockey home games by chance noted in the feasibility study? When there was any big ticket sales, did they have to lower their ticket prices in order to get people to come or offer lower price discounts. The Tulsa City Council should question the REAL ATTENDANCE FIGURES FROM 2002 - 2005 of the homes games of the ice hockey events to get some REAL DOLLAR ESTIMATES. The art design of this arena also will look horribly out of place in the area planned in this feasibiity study. Look at the buildings all around this arena site, and do you see that this arena will stick out like a sore thumb? The Arena would look much better in South Tulsa area and people would feel safer about attending this Arena if it was in the South Tulsa area. It's a pain to drive through downtown because there always seems to be streets under construction in some way and one-way streets also being a frustration. Do you honestly think people are going to make a special trip to do shopping in this arena considering the part of town it is in? They already tried to put shops and an ice arena and places to eat in other idea that went bust and is no longer in business downtown not too far from where the Arena is to be built. Do they think business will want to to business in this Arena when there are already good buys in the downtown area for office space because the place practically has been deserted by the late great
companies that made downtown a hopping busy want--to- be down there in the excitement of it all place. This arena should not be started until a successful business plan is put in place.
Susan Easter

McFloyd said:

You cite the increase in oil price as a concern for a rise in utility costs. Electricity in Oklahoma is coal-fired, and natural gas provides heat. I don't see the correlation between the price of a barrel of oil and the cost of utilities.

I do, however, see a correlation between oil prices and the profitability of Tulsa area businesses. Wouldn't the rising cost of oil, with its positive effects for the Tulsa economy, actually make the arena business plan *more* feasible?

susan said:

They also need to get with the management of the Talons to see what their ticket sales were (average price per ticket and number of tickets actually sold from 2001 - 2005.

I actually saw the model of the arena at Philbrook, and it will take an enormous amount of heating and cooling costs. Will the arena be in constant use bringing in enough money to compensate?

Do they have plenty of security systems in place considering the area of downtown it will be in?

Downtown has a generous number of homeless people that roam the streets. Remember the problem at the Tulsa downtown library where a homeless man was in the library bathroom and he was arrested for what happened with an innocent child? When there was an ice arena that is no longer in business downtown that had shops and many different kinds of choices to eat, homeless people would come in and wash their hair in the bathrooms leaving the sinks clogged with hair and dirt. Not enough security was in place.

McFloyd, good question. Coal prices have gone up as well, as have natural gas prices, albeit not as dramatically. Dept. of Energy figures ( show coal increasing $27.03 per thousand tons in April 2004 to $31.29 this past April, and natural gas going from $5.92 to $7.46 per 1000 Mcf. A dramatic increase in the cost of one significant energy source is going to increase demand for other energy sources as those energy consumers who can convert will. People buying hybrid cars or CNG vehicles are switching part of their energy consumption from oil to coal (indirectly, at least in this part of the country) or natural gas. Beyond utility costs, rising oil prices affect the cost of all goods that have to be shipped and the cost of operating construction equipment.

Back in the '70s you might have had a point about rising oil prices helping Tulsa more than they hurt, but oil isn't the big deal in Tulsa that it once was. The big oil-related businesses moved headquarters to Houston a long time ago. More businesses and individuals in Tulsa are hurt by higher oil prices than are helped.

Susan, I wouldn't worry about the homeless in the new arena. Unlike the Williams Center Forum or the library, you won't have people getting in without a paid admission. As for Talons and Oilers attendance, the official numbers for this last season are very close to CSL's projections. Whether those numbers are accurate or not is a different question. Someone noticed that the Talons' attendance numbers seemed a lot lower for the same crowds when the playoffs started and the Talons had to share revenue for each game.

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