CANTLON’S CORNER: XL CENTER REMAINS ALIVE AND KICKING 

CANTLON’S CORNER: XL Center Remains Alive and Kicking

BY: Gerry Cantlon, Howlings

HARTFORD, CT – Despite a never-ending drama replete with plenty of dire predictions about the future of the XL Center, the building continues to live and breathe – for at least two more years.

Despite all the existing problems, the CRDA acknowledges they have been able to secure the short-term future of the building after getting all the current parties to sign new contracts despite the building’s future remaining as nebulous as ever.

In a wide-ranging interview with CRDA Executive Director, Mike Freimuth, he remains pragmatic and sanguine about the building. It has been a major emphasis for the CRDA in its entire tenure and without an elusive final resolution, they are doing their best to maintain the facility and improve it as best they can.

The first deal was in getting MSG to agree to a five-year deal, but just the first two years are locked in. There are three option years in the deal, all of them controlled by MSG and that depends on the building’s status. There is a re-negotiation clause should the building be sold.

Both the UConn men’s and women’s basketball, and men’s hockey programs do not as of yet have a done deal in place.

We’re still in discussions,” Freimuth said. “We have a lot of areas of agreement and there are some details still to be hammered out. Its really about what their rights and obligations should be if the building is sold. Every party had a different viewpoint, so, it has been a lot to address and the only unique twist to it.”

UConn signed an LOI (Letter of Intent) agreement nearly two years ago, It only goes into effect if the building is fully renovated.

“Unless the legislature grants the money to be appropriated, the deal doesn’t go into effect. If it was granted, and the $250 million is approved, they would have a twenty year and at least 30-game commitment.

“The key word is IF the legislature makes the commitment. The word IF is a very big word here and it hasn’t manifested itself at all.

“Any investor would want to see how that could play out.”

“The RFP (Request For Proposal) process that will seek to open to the wider business community to come in to purchase the XL Center as per the last bonding issued for the building. Not that the state and city will sell its interest but they’re seeking to find a majority owner with deep pockets to deal with the gargantuan task of rebooting the arena who’s plan is now nearly three years old and has only gotten a fraction of the revenue they need and the clock is ticking on the XL Center.

“The target date to get it on the street is at the end of April. The request will be for private investment that could manifest itself as a sale or could manifest itself as a public-private partnership which we attempted last summer (and received just one response). The question still outstanding is, ‘how this will take shape?’

The idea is we’ll have it out for sixty-days and by mid-summer, so over the summer period we can review the applicants and go forward sometime in the fall.”

When asked if his preference was a public-private route, Freimuth was indifferent. “I’m pretty agnostic on that. Either pathway is going to be complicated financially and legally. Neither looms as an easy pathway, any way you look at this. We’ll wait to see what materializes first and move forward from there.”

The time frame was slightly extended.

“People have to go through the books, review the building and the application. In reality, we hope to catch some people’s attention, like I said review things in the summer and hopefully and put something in place in the fall.

“We have some complicating factors, like an election in the fall, because in all likelihood, there will be legislative changes required on this, regardless of which we way we go, and whoever is here (both the new governor and legislature).

“We have to play it by ear as to how much public money might be available or necessary. Right now, we really have more questions than answers at this point. These are notoriously difficult deals, generally very complex. It takes a learning curve, not only at the management level, and it would require legislative approval and/or changes to the statute.

“It will take major work and will take place in a transition period in leadership (in state government).”

It will take a company or individual with very deep pockets to get this project across the finish line. Companies like an MSG or a Comcast would certainly qualify as prospective suitors. Freimuth was asked if they have had any contact with the CRDA.

“We have had inquiries, but neither from MSG or Comcast. We have been approached by groups that do investments in public projects and several large ones from across the country. It’s an unconventional investment and its different from the standard public-private partnership. Things like investment strategies, risk tolerance, and the nature of the business they want to get into and is it a complementary business-like business or entertainment and these play out on a variety of platforms. That all doesn’t show on the mast of the building.

“It’s real estate 101. Those that are probing on this realize we want to know about them and have conversations with them. At this point, the conversations are very, very preliminary and superficial.”

The other contract that was finalized was on the naming rights of the XL Center. It will remain that way and they too wanted a re-negotiation clause in their renewal. Read about that HERE.

The other elephant in the neighborhood is the atrium portion of the XL Center. It’s still owned by Northland Corporation and its been in the discussion stage for two years and still with no resolution in sight.

“We haven’t spoken in a bit, but that doesn’t mean there hasn’t been any activity. We have completed the two appraisals (one from each side) the second one (of the CRDA’s) just came in last week. The board met last Thursday (in executive session) and voted for me to proceed with a formal offer, so that’s what we’re about to do.”

The chances though the two sides might come to a quick, equitable agreement look bleak at this point, with a thorny dispute ongoing about the YMCA building that has now gone public.  Read about that HERE.

The Wolf Pack attendance numbers are down to 3,500 per game, and that’s boosted by a recent wave of strong crowds. Prior to that, it was hovering around 2,700 per game for most of the season. The Pack presently sit 22^nd  in attendance in the AHL. They are at a 4,132 per game average with three home games left.

UConn men’s basketball attendance sits at around 7,200 with some good crowds such as Wichita State and the new national champion, Villanova. The women’s squad, who went to the NCAA semi-finals before losing to the eventual champion, Notre Dame, comes in at 8,600 per game with good dates against ND and Cincinnati.

UConn hockey attendance was at 2,300 per game with a peak at 4,300 per game for the last quarter prior to their last three home games at the close of the books in February.

“We made some progress late in the season with the hockey (Wolf Pack and UConn). The per caps are up on all events.”

Per caps refers to the concession side of the attendance ledger.

“We have seen an improvement in the food and beverage area. There has been some creativity and performance increase there,” Freimuth said.

Freimuth was referring to the introduction of the Meriden-based, “Ted’s Nationally Renowned Cheeseburgers,” and the “Chick-Fil-A” stand.

“The biggest problem over the last year was that we had some poor performing teams. The Wolf Pack, men’s basketball (and UConn hockey for a period of time). The women’s basketball numbers are actually up.  It’s a mixed bag on performance on the sports team front. You can’t fault any one person or management group for that. The other thing is we didn’t land any big concerts this year of consequence. Next year is a different story. We lost a lot of concerts and there are other factors that hit our operating budget hard.”

The big concerts set to come for 2018 and 2019 to the XL Center include the Eagles, Journey, Def Leppard, Maroon 5, and the Elton John’s Farewell Tour.

“That’s a very nice calendar to have, but to be honest, we lost quite a few shows because of the state admission tax. It really hurt us. While next year promises to be a very good one, and we did secure an NCAA Round 1 men’s basketball tournament. That will be of help, and with an improved men’s basketball team performance (under the guidance of new head coach Dan Hurley), I have a lot  more of an at ease feeling about next year’s budget than where our current one is going to end,” Freimuth said with a duly noted level of sarcasm and laughter.

“So, with us securing some good concerts and a trending forwards in our sports team’s performances next season, those combinations bode well. All of those are measured up against our breakdown in equipment and other repairs as they crop up and that you really can’t forecast that either.

Since he mentioned the state admission tax, Freimuth was asked how much impact that has on the bottom line. “The tax takes $500 million out of our pockets every year.”

Freimuth, XL Center GM, Chris Lawrence, and Live Nation Connecticut president, Jim Koplik, recently testified before a legislative committee to the draconian and onerous nature of the 10% tax.

“The right hand and left hand are working against each other. There is no doubt to the presence of it. It affects our budget and creates a hole in it which in turn forces us to subsidize some of the operations here. It’s counter-intuitive, to say the least.”

The CRDA budget loss of $800K last year will likely surpass a million this year.

“Easily sail north of a million.”

Potentially between $1.4 to $1.6 million?

“That’s a fair assumption.”

U2, the famous Irish rock band on tour and who have played the XL Center their entire thirty-year career, will now be playing at Mohegan Sun in early July is indicative of a number of things.

The tax does hurt and the future of the marketplace will only get tighter. They will soon also be competing against the MGM casino in Springfield when it comes online in September, not to mention the marriage between the Mohegan Sun and Webster Bank Arena in Bridgeport that starts on July 1^st.

“You can never really tell why you might gain or lose a show. However, casinos, generally speaking, have the ability to write checks and present guarantees that we can’t. They can use that as a way to invest in getting people into gaming rooms and they don’t have the admission tax.

“Throw what it takes to bring a show in and out and, the man-hours involved in those areas alone, the sound systems, the light systems. Throw in having to rewire a place for a new show or concert. It’s easier in a new state of the art building than an old one. Building obsolesce issues play a part here. Complicating it is having just one loading dock and the costs they present and put the old building with a 10% admission tax side-by-side with a new building and no 10% tax making most of its money down the hall, not in the concert hall, it doesn’t take a hell of a lot of thinking. The XL is at a serious disadvantage.”

For Freimuth, the future looking forward is clear.

“Future budgets can’t count on concert revenue. We can count on maybe one or two concerts, maybe (like this year) and get half a dozen. We’re not getting the concerts by the dozen like we did years ago. The marketplace has changed and will be changing. You always had certain size shows play Springfield, Bridgeport and when we had New Haven. Now, New Haven is gone. Springfield is owned by the casino, and you have the relationship at Webster with Mohegan. The market is now slicing and dicing into different parts.

“What is different is when Springfield was just another building up the street or Bridgeport is the casino’s, they can underwrite things. There are more places to hold shows like the Meadows, the new place in Bridgeport, and we can offer 15 or 16,000 seats. We pickup 50% more revenue because we have 50% more seats. They aren’t putting those kinds of shows on anymore. We caught some lightning in a bottle for next year.”

Spectra’s relationship with Live Nation is critical to this small wave of concert good fortune.

“Chris Lawrence (XL Center’s GM) has developed a good relationship with Live Nation. They have tilled the soil very well over the last three-or-four years. Maintaining this relationship that we have had concerts three or four years in the pipeline. That has helped us make a nickel and kept us in the picture for shows and that is a lot of investment and ground work and it’s starting to pay off in securing shows in our portfolio. However, it doesn’t change the reality of dealing with and competing with a casino checkbook.”

The recent budget announcement with the CRDA requesting a $100 million dollars, follows last year’s similar request that was whittled down to a $40 million dollars, might seem a bit crazy.

“It’s a big ask in an election year, but we need the money. I can spend $25 million on an electrical upgrade tomorrow morning. That is the type of money and issues were dealing with here. I have no idea where the private partnership RFP process is going to end up. Honestly, the building is going to need some heavy cash one way or the other. The larger macro picture is as important of all the micro stuff we have just been talking about.

“The macro economics of the building plays a very important role in Hartford. People are just not prepared to say, ‘shut it down.’ There is a hope that direct private capital can complement public capital to maintain this facility. It’s going to require some public investment and that’s what we have been doing over the last four or five years. We wouldn’t be asking for it if we didn’t need it.”

Freimuth elaborated more on his public testimony regarding the building’s structural issues. “It’s just not we need to replace a 40-year-old roof, we need a new kind of roof. These are the things we are up against in seeking shows and other events.”

Anybody with a flat roof knows how limited a lifespan they have.

“(The CRDA) added a lot of extra Arnold Schwarzenegger muscle to the roof 40-45 years ago and water still gets in. Its liners are torn and broken hoses need to be replaced, not as a super structure, but the basics. It leads to some unique issues. We had rigging for the (the recently departed Ringling Brothers) circus but today you need a certain type of rigging system for certain shows and it can be designed and added, but you have have a roof that can support and handle it. That makes you ask, ‘Does getting those shows or shows to pay for that addition of a new system?’

“If you had 30 of those shows, and you were making money, it changes the rationale of doing the work and pursuing those shows or somebody comes along an outbids you for those shows and that is the fundamentals built into this business.

“There are constant changes in this business. In fact, at the Comcast Center in Philly, which is half the age of the XL, they’re rebuilding their systems to accommodate the new shows and their requirements. Over at the Convention Center, every week we’re going over changes; plugs, wirings, adapters, and all the components to keep it operating. It just was never done at the XL Center over the years.”

The $250 million figure of three years ago clearly had to change given the ever-rising costs of construction, materials, and labor. Adding in the interest rates to borrow the money must be an additional cost.

“Well, if I had a crystal ball, I could give a full forecast, but the question was  valid number three years ago. It could creep up in some spots. We have never gotten to the hard construction phase yet. It was just bare bones. It was strategic in what we wanted to accomplish. We just haven’t gotten down to hard construction data to take this out and add this in. When you have a budget you always have a contingency there. The longer it sits on the shelf, naturally it will cost more.”

With the $40 million in bonding, the CRDA received, they’re now working on using it to address serious long term pieces of the XL puzzle that have been ignored.

New elevators, LED lighting for the arena, and the purchase of a new modern chiller system for the ice surface will turn force them to find a new and larger spot to house the newer and bigger chiller to replace the present vastly outdated one.

“We have a lot of things in the pipeline, things that just have to get done. We put off LED lighting and we put off this capital investment, but we’re at the point where lights are failing and to put the same old lighting back in doesn’t make sense. Now you can’t find stuff or complimentary pieces (in some cases its classified under EPA guidelines as light pollution and are no longer available).  Whenever we get the new building, they’re going to have to live with it.”

So, while the short-term future of the XL Center is secure, the long-term remains very unsettled.

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