A few Kent City Council members want more information before they sign off on a contract extension with SMG to operate the city-owned accesso ShoWare Center.
The council had been scheduled to vote Jan. 21 on an amendment that includes a five-year extension of the contract. But that vote got postponed to Feb. 4 after Marli Larimer, Satwinder Kaur and Les Thomas said at the council’s Committee of the Whole meeting on Jan. 14 that they wanted more information.
“It’s a five-year contract, and staff is satisfied with SMG and all they’ve done, but I don’t remember hearing about their progress,” Kaur said at the committee meeting. “We need to know what they did, what changes were made. …I think we need a workshop on SMG.”
Philadelphia-based SMG manages the day-to-day operations of the arena, including event booking, the budget, vendor selection, public relations and marketing, and event staffing. The company also has the food and beverage contract. SMG has operated the $84.5 million arena since it opened in 2009.
Councilmember Bill Boyce responded to Kaur’s comment.
“We could have a workshop in February,” Boyce said. “I proposed that (ShoWare general manager) Tim (Higgins) and team come and update council about what they are doing and the progress they’ve made. A lot of good things are happening but we have not heard about those.”
New Council President Toni Troutner then asked the council if they were ready to move the contract approval forward to the Jan. 21 meeting.
Larimer responded that she would rather have the workshop first. Troutner and Boyce supported a vote on Jan. 21.
“I want to know more,” said Larimer, who later added a few things stood out in the contract that she wants answers to.
Kaur agreed with Larimer.
“I’m looking for a comprehensive report and then moving forward,” Kaur said.
Councilmember Brenda Fincher joined the conversation.
“I come down on the side of waiting,” Fincher said. “We’ve kept up on the impact to businesses, and I understand wanting all the information. It’s important to make sure all of us are comfortable with our vote.”
The council will hear from SMG during a Feb. 4 workshop at 5 p.m., prior to the regular council meeting when it could vote on the contract.
Earlier in the meeting, Larimer raised questions about SMG after City Attorney Pat Fitzpatrick went over the contract changes.
“Have we gotten a satisfactory report that the vendor fulfilled the contract?” Larimer asked.
Fitzpatrick quickly responded.
“We would not be moving (the contract) forward if we were not happy with the services of SMG,” Fitzpatrick said. “We went through the full RFP (request for proposal) process when we originally did the contract, SMG was far and above the best contractor for the city.”
The amendments to the contract include an annual payment of $145,624 to SMG, 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 thing that jumped out at me is the contract expired Dec 31 2019,” Thomas said to Fitzpatrick. “Why are we coming at it in January? Why was this not taken care of?”
Fitzpatrick said city staff and SMG were in negotiations.
“The amendment has been discussed the last several months, we didn’t get done in time,” Fitzpatrick said.
The contract 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. 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.
The city and SMG began the incentive program in 2015 with the same operating revenue benchmark of $2.15 million. Boyce and then Councilmember Dana Ralph questioned at that time whether the amount was high enough, but the council signed off on it.
SMG has exceeded the $2.1 million mark four consecutive years, including $3.1 million in 2018 and $2.7 million in 2017 and 2016.
Thomas questioned the plan to replace the scoreboard in the center of the arena.
“Can you tell me why the scoreboard needs replacing?” Thomas asked. “It seems to be working fine.”
Higgins, the ShoWare general manager who attended the committee meeting, responded to the question.
“It’s going on 12 years,” Higgins said about the original scoreboard. “Daktronics (the manufacturer) no longer has hardware for the scoreboard, technology has exceeded the scoreboard, there are no parts. It’s similar to Everett (Angel of the Winds Arena). They replaced their scoreboard after 12 years.”
Higgins said the marquee outside the ShoWare also needs updating, so SMG plans to replace it along with the scoreboard.
Fitzpatrick explained the loan and incentive fee.
“It allows the city to make immediate improvements that are needed and it’s a mechanism to pay back SMG,” he said.
Troutner acknowledged the arena changes.
“I know past improvements, such as the suites, it makes a noticeable difference,” she said.
Troutner wondered when the scoreboard would be replaced.
“We are looking late 2020 or early 2021 depending on financials,” Higgins said.
ShoWare money problems
The arena has lost money each year since it opened in 2009, total of more than $4 million. The council covers the losses with money from the general fund, setting aside as much as $500,000 annually in recent years after paying off a large portion of the deficit. A 5 percent city fee on each ticket sold helps raise funds to cover the losses and pay for capital expenses.
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, putting it on a trend for one of its highest annual losses since it opened in 2009.
The income statement for 2019 will be released by SMG at the end of January. Higgins said the snowy weather last February impacted revenue with three Seattle Thunderbirds hockey games and two concerts hampered by the weather.
The arena’s highest loss was $752,324 in 2014. Its best year was a loss of $155,268 in 2016. Higgins said strong ticket sales for events in the fourth quarter this year will lower the losses from the third-quarter figure of $852,825.
Kaur said in an email to the Kent Reporter after the committee meeting that she has concerns with the financial losses, which is one reason she requested a workshop with SMG.
“Since their contract is up for renewal, I want to hear the progress they have made in the past five years,” Kaur said. “What changes did the make? What lessons they learned and have they implemented them going forward. I want to see if and when accesso ShoWare will improve financially. I want to hear if this is the right team to take care of this venue. We have a majority of council members who were not here when the last contract was signed, so I believe it is our chance to ask questions and make an informative decision regarding renewal.”
Sikh security issue
Kaur said at the committee meeting she has another issue with SMG.
“I have had conversations (with SMG) about a population being left out from ShoWare events because of security issues,” Kaur said at the committee meeting.
In an email after the meeting, Kaur explained what she meant and that the group is initiated Sikhs (some call them baptized Sikhs). She said new security measures at the ShoWare no longer allow Sikhs, who carry a small dull knife on them, to enter the building. Initiated Sikhs carry five articles of faith with them at all times and a small knife is one of those.
“My father is an initiated Sikh and we have been to T-bird games before without any issues,” Kaur said. “But some time in the past two years they changed their policies. My family had tickets to the game and we had to return from the gate as we were not allowed to go in unless my father removed his kirpan (knife). We have never had these issues before at any public building/venue. I was disappointed to not be able to attend any events at the ShoWare.”
Sikhs are allowed to attend the Khalsa day celebration at the arena.
“I have been working with SMG management for the past two years to no resolution,” Kaur said. “I will continue pursuing this as this was never an issue before.”
Higgins had the following response when asked by the Kent Reporter for a response to the contract renewal delay and the Sikh security issue.
“Understandable, and looking forward to meeting with all council members,” Higgins said in an email.