Wolves' partnership will now operate languishing arena, hopefully boosting the team's take -- and the city's
The city of Minneapolis approved a Target Center management swap April 2 in hopes of boosting the arena's entertainment business -- and the city's bottom line.
Entertainment giant Clear Channel Entertainment, which has run Target Center, 600 1st Ave. N., since 2000, is leaving the building. Now playing is a 50-50 partnership of the Minnesota Timberwolves and the James M. Nederlander Company, a Los Angeles-based firm that owns or operates 37 entertainment venues worldwide.
Did the city just score a management coup -- similar to the Wolves dealing injury-prone Terrell Brandon and signing Sam Cassell and Latrell Sprewell -- or did it unwittingly release superstar Kevin Garnett?
Management matters. If Target Center suffers, Warehouse District bars' and restaurants' business suffers -- and so do city taxpayers.
The city bought Target Center in 1995 from the financially strapped former Timberwolves owners to keep the team in town. Target Center activity generates money for the city through such things as the entertainment tax and parking revenue in city-owned ramps.
City Councilmember Lisa Goodman (7th Ward), chair of the Community Development Committee, praised the new deal for linking the city's and the team's interests.
"The team doesn't make money off its spin-off revenues from boxes and concessions unless people are in the arena. And the city doesn't benefit by collecting sales tax unless people are in the arena," Goodman said. "The best outcome possible is when the city's and public's interests are aligned with the team's interest."
The City Council approved the deal 13-0 on April 2. Negotiations point to a May 1 management transfer date, according to one city official.
Follow the bouncing ball
Target Center's contract has had its share of turnovers.
When the city initially bought the arena, it contracted with a company named Ogden to operate it, according to a city memo. Ogden decided to sell its entertainment division in 2000, and Timberwolves ownership asked the city to shift management to SFX Entertainment. Clear Channel later acquired SFX.
Clear Channel wasn't sorry to exit the deal. Pat Born, the city's finance director, said the entertainment conglomerate relinquished Target Center management without compensation.
"They have been losing money recently," Born said. "I think they want to spend their time doing other things."
A Clear Channel spokesperson said the company could not comment on deals under negotiation.
Born said managing Target Center was two distinct jobs: running the arena and booking events. Handling the day-to-day operations is outside of Clear Channel's core business.
Phil Handy, project coordinator for the city's department of Community Planning and Economic Development (CPED), said the Timberwolves partnership would have more incentive to book Target Center than Clear Channel. Clear Channel, as well as Ogden, had a number of arenas in various markets.
"Their financial motivation was not so centered on having a specific act play a specific arena as it was maximizing their return from the concert business nationally," he said.
The Timberwolves partnership would focus solely on Target Center, he said.
As an example, Born said the Timberwolves own the right to sell the luxury suites -- not only for basketball games but concerts and other events.
The luxury suite business has softened to the point where it is better to sell them event-by-event rather than for a whole season, he said. If Target Center books more and better entertainment events, it will increase the suites' value and put the Timberwolves in a better position to sell suites as a yearlong package.
City costs and benefits
The city has no estimate of Target Center's untapped economic potential.
"What the upside is it is hard to know," Born said. "Nobody is trying to guess at that."
The city is paying for Target Center in two different ways.
The city spent approximately $80 million to buy the building and will be paying off bonds until 2025. The annual debt payments -- $4.5 million in 2000 -- comes from Target Center property tax, portions of the parking fund and entertainment tax, and a $750,000 state
In the best-case scenario, more Target Center events would boost the city's parking and entertainment-tax revenue. The money would increase the city's General Fund, which pays for police, fire and public works.
Second, the Timberwolves lease requires the city to maintain and improve the arena on par with other National Basketball Association (NBA) venues. The city pays for those upgrades from the Common Project, a dedicated pool of property taxes from city-backed development projects.
The Common Project also pays for the city's Neighborhood Revitalization Program (NRP) and new development subsidies. State commercial property tax reductions in 2001 decreased Common Project money.
In 2003, the City Council approved a plan to resolve the competing demands. It set aside $14 million to cover Target Center upgrades through at least 2009, Born said. It also reduced previous NRP funding projections and left a few million for new developments.
Any new Target Center business would not significantly help NRP, Born said.
Federal laws restrict the Timberwolves' ability to pay for arena upgrades because the city used tax-exempt bonds to buy it.
The city and the Timberwolves are negotiating what improvements the city should pay for from its $14 million set-aside, Born said. The team is particularly interested in fan amenities; its top priorities now are new seats and acoustical improvements.
This is one area where city priorities might differ.
"The city though, as the long-term owner of the building, is also concerned about things like the roof and electrical system and the plumbing and the behind-the-scenes needs of the building that aren't directly related to customer appeal," Born said.
Handy said he expected the City Council would get a proposal in April for the city to pay for new Target Center seating.