Kent City Council approves new contract for ShoWare Center operator

The Kent City Council voted 7-0 to extend the contract of the accesso ShoWare Center operators for another five years.

A few council members last month delayed the vote on the amendment to the contract to Tuesday from Jan. 21 because they wanted to hear from SMG, operators of the city-owned arena, at a workshop prior to the regular council meeting.

The council liked what they heard at the workshop as well as what a few of them found out in private meetings over the last couple of weeks with Tim Higgins, ShoWare Center general manager.

“We sat down and you were very thorough and helped me understand what is a truly unique business model,” Councilmember Marli Larimer said at the meeting. “It was really eye opening. It’s a tough business. I want to thank you for the time you took to help me understand and answer my questions.”

Higgins spoke at the workshop about an increase in the number of events at the $84.5 million arena as well as the economic impact from people who come to the ShoWare. He said the arena had 152 events when it opened in 2009. That number increased to 214 in 2019.

Higgins, who has been the general manager since the arena opened, quoted a 2012 economic impact study paid for by the city that showed visitors to the arena in 2011 spent an estimated $23.9 million.

That included an estimated $12 million on dining and shopping at businesses in and around Kent while attending events at the arena.

Higgins also addressed the challenges to draw concerts and other events in a competitive market. He said there are 20 venues within a 50-mile radius of the 6,200-seat ShoWare Center.

“All of these venues, we compete with them,” Higgins said. “Some of these buildings have more seats than us. So a show is going to go to a building where they can make the most revenue.”

Higgins said Cher will perform later this year at the Angel of the Winds Arena in Everett over Kent because it has 10,000 seats.

“They want capacity,” he said.

One topic Higgins didn’t address during his council presentation is how much money the arena has lost each year since it opened, a total of more than $4 million that the city covers with general fund revenues. No council members asked abt the year-after-year losses.

The arena may have had its worst year yet in 2019 but those final numbers aren’t yet available from SMG. SMG typically reveals its annual income statement at the January meeting of the city’s Public Facilities District, which helps oversee arena operations. But that meeting was cancelled last week because the income statement wasn’t ready.

“We are trying to get the numbers, we want to make sure they are right on,” Higgins said in an interview after the workshop.

“No reason, we are just trying to make sure they are done,” Higgins said when asked why it took SMG longer to finalize the annual income numbers this year compared to other years.

The arena lost $852,825 through the first nine months of 2019, including $554,441 in the third quarter alone, according to the ShoWare Center’s income statement through September. The arena had expenses of $2.77 million and revenue of $1.92 million in the first nine months.

Under the new contract, SMG, which is now part of ASM Global which operates more than 300 venues worldwide, will receive from the city an annual payment of $145,624, adjusted each year by the Consumer Price Index (CPI). The annual payment was at $135,252 under the contract approved in 2015, with the built-in CPI increase.

The amendment extends the contract through Dec. 31, 2024 and allows the contract to be extended for two additional five-year terms. The current contract expired Dec. 31.

The contract also will pay SMG an annual incentive fee in the amount equal to 20 percent of operating revenues that exceed an annual benchmark of $2.15 million. In return for that money, SMG will provide an interest-free loan to the city of $500,000 to purchase a new scoreboard later this year. The city also owes SMG $420,000 from a prior interest-free loan for capital improvements, making the total of $920,000 that the operator can earn in incentive fees.

“It changes to removing a cap from any operating revenues above $2.1 million on an annual basis,” said Kurt Hanson, city economic and community development director to the council. “The previous contract had a cap at $52,000. This removes the cap and allows a duel incentive for the contractor. It’s great for SMG because they are more incentivize to perform to get more out of the building. It’s good for the city on our side of the contract because we want more revenue out of the building.”

Council President Toni Troutner said just prior to the vote that the city’s contract with the Seattle Thunderbirds junior hockey team as the anchor tenant of the arena makes a difference.

“They do generate a lot of revenue for ShoWare and bring a lot of business to the city,” Troutner said. “There are a lot of good things going on because we have this venue in our backyard. I hope that all of you will support me in moving this forward.”

Prior to the vote, Councilmember Bill Boyce spoke about the economic benefits of the ShoWare Center.

“We are paying it forward,” Boyce said. “There is a lot of money going to downtown Kent. Think about it, if we didn’t have that I don’t think Kent Station would survive. …It’s a good thing for the city. ShoWare is a landmark here.”

Councilmember Satwinder Kaur, who had several questions about the arena last month, liked what she heard about more events coming to the arena.

“We’ve seen an increase and I hope we will continue to see an increase,” said Kaur, who also met privately with Higgins to discuss the arena. “But it’s time to do another economic benefit study. It would be beneficial for the community to see how much revenue is generated by local businesses because of the ShoWare Center.”