Global Entertainment's Decade Of Bad Business: Part 4 Goes To Rio Rancho, New Mexico

OSG Sports continues its month-long investigation into Global Entertainment and their efforts, mostly failing, in the construction, operation, and vertical integration of ten mid-sized arenas in secondary markets- mostly in the mountain west portion of the United States.

When the ten arenas are analyzed, OSG Sports will look at the possible future of Global and a possible scenario for their future...

Part 1 Of The Series discussed their past
Part 2 Of The Series discusses the arena in Allen, Texas
Part 3 Of The Series discusses the arena in Dodge City, Kansas

"We got sold a bill of goods..."

The Santa Ana Star Center was the fourth of the ten Global Entertainment buildings to go on line in October of 2006, but this project seemed an uphill battle from its beginnings as a US$37-million, 8,000 seat complex.

The city of Albuquerque was in the process of developing an idea for a new arena to replace the aging "Pit." 15 miles away, the emerging suburb of Rio Rancho thought a new arena to draw traffic and, possibly, development would be a good idea under then-City Manager Jim Palenick. Palenick brought in Global Entertainment to help in the construction and operation of the building.

According to an Albuquerque Journal interview in 2011, former City Councilor Michael Williams said no marketing study was ever presented to the council:

“Palenick handled all that,” Williams said to the Journal.

In an interview with OSG Sports, however, Palenick (now the Interim City Manager of Dallas, North Carolina) said he was party to tours of the Hidalgo, Texas Dodge Arena and the Covelli Center in Youngstown, Ohio and was impressed with Global's vertically-integrated approach:

"Their model was solid," Palenick said. "What they said they would provide was the design, financing, management, and most importantly, an anchor tenant in a Central Hockey League franchise. That is very important in a market that size. The series of arenas they managed in the mountain west made it to where you would look for traveling acts that you would be likely to book. They brought to the table what they said was an ability to book acts that were one day's travel away from the arena by bus."

After a loss of confidence, Palenick was fired in December of 2006 and wouldn't even be around for the fireworks. In 2007, there were very few events brought into the arena and concerts were even cancelled while the arena worked under a $250,000 loss.

Rosalie Rayburn of the Albuquerque Journal detailed how Global failed miserably from the start of the arena until their removal 27 months after the Star Center opened:

In a January 17, 2009 article Rayburn disclosed:

"...Global predicted the Star Center would turn a profit ($1.6-million). Instead, the 6,500-seat arena has had low attendance at events and numerous canceled concerts, and has lost more than $580,000 since it opened in late 2006.
 
The city has a big stake in the arena. It sold $36 million in bonds backed by gross receipts tax revenues to build the Star Center. During the past 18 months, the city has had to use more than $1.5 million in tax revenues to help make the bond payments."

Rayburn also wrote that Global was close to $43,000 in arrears to several clients at the time of their firing- almost $4,500 to two television stations, both 112 days past due, and over $11,000 to the Journal newspaper itself. And since local vendors had problems finding Global representatives, the bills had to be handed over to collections agencies in the attempt to get bills resolved.

"One of the other firms, we've talked to about running an arena presented it to me this way,” Rio Rancho City Manager James Jimenez admits. “Take your operation cost plus your debt service and divide it by the number of operation days and that should equal what you think you need to generate per event. If we had done that, we would have found out that the building would have had to be subsidized for a long time- possibly forever."

Jimenez may be more right than he wants to be...

Annually, it appears that the city of Rio Rancho is on the hook for around US$3-million to keep the arena (pictured right, thanks Santa Ana Star Center) around and US$14-million since 2006 overall to do so. Jimenez hopes that the figures can be offset by event income and it will have to be that way for the foreseeable future. And the Star Center is looking for 115-125 dates a year.

These numbers fly in the face of what a Global spokesman said in 2008 when discussing the company's overall success and desire to add more venues to their portfolio in Yuma and Scottsdale, Arizona. In a November 2, 2008 interview with Joyce Lobeck of the Yuma Sun, Global spokesman Steve Bielewicz said that Rio Rancho lost money their first year, but is "now is doing much better. It's been in the black all year."

In the same interview, Bielewicz admitted that Global "always projects (buildings) won't make money the first year" and they "set aside a reserve."

That would be a news flash to Rio Rancho...

The Star Center would end up with the standard anchor tenant in the CHL's New Mexico Scorpions and, later, the D-League New Mexico Thunderbirds. But the Scorpions would only last for three seasons- the last in 2007-08 after attendance figures of 3,217 per game (14th of 17) in 2006-07, 2,979 in 2007-08 (13th of 17), and 2, 791 (12th of 16). Junior hockey and indoor football franchises would follow, but none would create enough buzz for profitability.

Here's the story from KRQE-TV when the Scorpions had to cease operations from July 2, 2009

No sale; Scorpions' season goes dark: krqe.com

"Our first goal is to meet 100-percent of our operational costs annually and be able to set aside money for capital improvements," Jimenez admits. "Will the building be profitable in five years...? Probably not..."

And Rio Rancho is a city that's caught in the in-betweens...

"What we need is a really unique anchor tenant and combine that with shows that are really family-oriented."

Jimenez admits that the Star Center is lucky to get three or four big-named concerts a year since his building is, an "odd size." Even in a half-house situation (3-4,500 tickets), the question has to be "Who draws in that range?"

There are certain acts that work like electronic music acts and comedians, but he's looking for that narrow niche to come into the Star Center and try and catch major acts as they're on the road somewhere in the Phoenix-Denver-Dallas triangle. The issue with that, he is finding, is tracking down a touring act that is available on a weeknight.

"We're lucky if we get a Friday night," Jimenez says.

The end result was a settlement of $100,000 on January 3, 2012. Rio Rancho had, initially, claimed that Global owed the city over $360,000 in unpaid bills involving everything from pest control to operation of the Zamboni for the ice surface.

Two weeks later when Global, in turn, sued for breach of contract to the amount of $500,000, the city of Rio Rancho responded in District Court with the following- once again from Rayburn and the Albuquerque Journal from August 20th where the City was:

"...countering that the Arizona company’s actions constituted fraud and negligent misrepresentation, which have caused the city financial harm.

...Global Entertainment presented inflated projections of the revenues it could generate from events at the 6,500-seat arena the city planned to build.

City officials relied on Global’s purported experience in the arena management business and these projections in deciding to proceed with the project.

Global Entertainment intentionally made “false representations” that were “unsound and wildly optimistic”

The principal on the Star Center is set to be paid off by 2027, but with interest the amount Rio Rancho will have been saddled with will be just under US$61-million for the US$35-million arena.

"What they (Global) proved over time," Palenick admits, "is that they cut corners and got rid of people. All the people that had the skills necessary to do the job left fairly quickly. They weren't skilled in booking acts and the people who were running the arena were barely a shadow of themselves. They couldn't prove they could do the job."

Palenick admits that an arena like Star Center has to come with a question of "What's the reason to do this?" It was set to be the cornerstone of a development that didn't exist. He also admits that for cities the size of Rio Rancho you have to do proper feasibility studies, be very conservative with financing, and make sure that an anchor tenant is going to be there for a long time- something the Scorpions were not.

The lesson from Jimenez: "Understanding your market... Not until Global Spectrum came in to help run the building did we understand the "guarantee" structure for musical acts. The biggest guarantee we ever put out there was for Zac Brown, and then we had to ask if we were going to fill our building while we were competing with an outdoor venue- the Journal Pavilion.

"You have to understand your alternatives and vet any proposal for any project like this. You have to figure out who is willing to operate as an agent versus any risk involved. No one was willing to come in here and operate on a risk basis. There were not going to be any guarantees..."

One last note from the city of Rio Rancho, Jimenez is set to retire Wednesday...

“On the agenda for Governing Body consideration (their 7/11 meeting) is a resolution conferring severance benefits to City Manager James Jimenez upon his retirement effective July 11, 2012. Also on the agenda is a resolution appointing City Attorney James Babin as acting city manager until a permanent city manager can be selected.

Both items noted above have to be voted on by the Governing Body on 7/11…”

Next up: An update on Global Entertainment and activity inside its home state...