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Wednesday, April 5, 2017

Q Deal Negotiators Are Fudging Numbers — Again — And This Time it's Serious

Posted By on Wed, Apr 5, 2017 at 10:29 AM

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On Saturday, the Cleveland Gladiators arena football team will play their 2017 home opener at the Quicken Loans Arena. It's one of seven games, through July 8th, that the Gladiators will play on their home turf. (In 2016, they played eight games at the Q).

The Gladiators are one of three teams owned by Dan Gilbert, along with the NBA's Cavaliers and the AHL's Monsters, who play on the hardwood and ice, respectively, of Cleveland's Living Room. And as City Councilman Zack Reed confirmed at a hearing yesterday, all three of those teams will continue to play their home games there (at the Q) whether or not the proposed $140 million upgrade is approved.

This upgrade, as you know by now, could cost the public something like $160 million after interest payments through 2034, and it could be rubber-stamped, despite ongoing confusion, as early as next Monday.

One of the central talking points by the Cavaliers has been that a facility upgrade is necessary to keep the venue competitive. As Len Komoroski has stated, the Q must be able to compete "not this year, not next year, but in the short-term years ahead."

The regional competition for concerts and events, say the Cavs, is "fierce."

The "Greater Cleveland Sports Commission and our community marketers need a transformed venue to preserve and enhance our ability to compete over the next two decades at the highest level," reads the justification on QTransformation.com; though "two decades" is a stretch, given that the proposed agreement only comes with seven additional years on the Cavs' lease. That contractually keeps them in town until 2034, and says absolutely nothing about conversations regarding a new arena.

This slippery handling of numbers, (always to the Cavaliers' advantage), or a complete disregard for them — two decades schmoo schmecades! — has become a signpost of the pro-deal propaganda, and it complicates things further for onlookers, and indeed, for legislators, trying to understand the nuts and bolts.

"We’re up against other markets to bring conventions, concerts, sports, and other major, impactful events to Cleveland," the Cavs' literature continues. "To put us in the best position to compete and WIN, we need to responsibly modernize and transform this key public asset now. Without this, our community’s marketers will be at a significant disadvantage when competing to host major events in Cleveland."

(Another thing, of course, that really puts our community's marketers at a disadvantage is the $44 million from Destination Cleveland's budget over the next 17 years that the Q is absconding with as part of the renovation package. (Len Komoroski serves on the Destination Cleveland board.) Councilman Mike Polensek suggested yesterday that Cleveland might see a serious dropoff in Destination Cleveland's performance due to this cleaving of its funding.)

"While The Q is well-used and has been well maintained, it is a venue that must be transformed to remain competitive if the City of Cleveland, Cuyahoga County and the public are going to benefit from its maximum potential and impact going forward," the Q Transformation explanation concludes.

But the vast majority of events at the Q are sporting events that would happen anyway. Len Komoroski suggested Tuesday that without the upgrade, the Q's annual events would likely dip from 200 per year to 160 per year.

We wanted to check those numbers, because they are crucial to the proposed financial arrangement, one that has already been okayed (despite some misgivings) by county council.

Here were the total events at the Q in 2016, per the Quicken Loans Arena's publicly accessible calendar. For ease, we counted an "event" as a single day on the Q's calendar, so if "Disney on Ice" was in town for two days, we counted it twice. (If, however, events had multiple performances or games in a single day, we only counted it once. If, however, the Gladiators and the Monsters played on the same day, as occurred on Sat. May 7, 2016, we quite naturally counted those as discrete events.)

JANUARY, 2016
Total Events: 14

Cavs: 6
Monsters: 5
Gladiators: 0
Concerts: 0
Other: 3; (Disney on Ice (2); CSU Basketball v. YSU)

FEBRUARY, 2016
Total Events: 19

Cavs: 8
Monsters: 5
Gladiators: 0
Concerts: 1 (Bruce Springsteen)
Other: 5; (Monster Jam 2016 (2); CSU Basketball v. Valpo; 2016 Bridal Show; WWE Fastlane)

MARCH, 2016
Total Events: 17

Cavs: 8
Monsters: 7
Gladiators: 0
Concerts: 0
Other: 2 (MAC Tournament (2))

APRIL, 2016
Total Events: 17

Cavs: 5
(Cavs Watch Parties: 2)
Monsters: 4
Gladiators: 4
Concerts: 1 (Justin Bieber)
Other: 1 (Moondog Coronation Ball)

MAY, 2016
Total Events: 19

Cavs: 5
(Cavs Watch Parties: 5)
Monsters: 5
Gladiators: 3
Concerts: 1 (Carrie Underwood)
Other: 0

JUNE, 2016
Total Events: 10

Cavs: 3
(Cavs Watch Parties: 4 (The Warriors Blew a 3-1 Lead in the NBA Finals))
Monsters: 2
Gladiators: 1
Concerts: 0
Other: 0

JULY, 2016
Total Events: RNC PREP / RNC
(Not sure how to quantify)

AUGUST, 2016
Total Events: 2

Cavs: 0
Monsters: 0
Gladiators: 0
Concerts: 1 (Paul McCartney)
Other: 1 (Z107.9 Summer Jam)

SEPTEMBER, 2016
Total Events: 5

Cavs: 0
Monsters: 0
Gladiators: 0
Concerts: 2 (Honda Civic Tour Feat. Demi Lovato, Nick Jonas; AC/DC)
Other: 3 (UFC 203; Dr. David Jeremiah; WWE Smackdown)

OCTOBER, 2016

Total Events: 17

Cavs: 6 (Wine & Gold scrimmage; Pre-season (3); Regular Season (2))
Monsters: 4
Gladiators: 0
Concerts: 1 (Kanye West)
Other: 6 (Amy Schumer; Comedy Get-Down; Ringling Bros. (4))

NOVEMBER, 2016
Total Events: 16

Cavs: 8
Monsters: 5
Gladiators: 0
Concerts: 1 (Maxwell & Mary J. Blige)
Other: 2 (Evening with Scott Hamilton; Disney Live!)

DECEMBER, 2016
Total Events: 21

Cavs: 9
Monsters: 8
Gladiators: 0
Concerts: 1 (Trans-Siberian Orchestra)
Other: 3 (CSU Basketball (2); Harlem Globetrotters)
—-

Not including the RNC, the year's events totaled 157. Even if you added 21 events (the number of events in 2016's densest month, December) to the year's total, that would still only bring us to 178. And that math is highly unlikely, given that summer months are much less busy at the Q.

***UPDATE: One reader noted that this total was deceiving because of events, like Disney on Ice, that perform multiple times on a single day. Though we intentionally didn't count, e.g., individual games at the MAC Tournament, we agree the number is deceiving.

The modified number, accounting for the multiple performances on single days, is 177. That's a dramatic increase, and much closer to the Cavs' projections. We certainly should have accounted for that in our initial reporting — we admit we were perhaps too hastily combing through the events calendar during hours we have no reservations characterizing as wee.

An additional note, though, if we're gong to get technical: Seven out of that 177 total belong to the Ringling Bros. circus, which has been discontinued.

***

Based on the arena's current activity, then, projecting 200 events per year, as the Cavs have, seems absurdly optimistic. Among other things, it presupposes not only championship runs by both the Cavaliers and the Monsters, but also watch parties for Cavaliers' away games during the run of the playoffs.

Not only are these projections dangerous because they mesmerize our leaders into believing the propaganda; they're also dangerous because the admissions tax projections were likely also based on this math.

If that's the case, we can surely expect shortfalls in the admissions tax revenue projections. And don't forget, despite the Cavaliers repeated claims to the contrary, the county will pay for those shortfalls out of a dedicated reserve fund. When those funds are exhausted, the Cavaliers will "cover" additional shortfalls in the form of "contingent rent," which means they advance the funds — "We're the last line of defense," said Komoroski yesterday — until the reserve is replenished and the Cavs are reimbursed.

In fact, the event projections are so high as to seem designed to create shortfalls (which of course is more money out of the public's pocket). And these shortfalls may be significant, especially if the post-LeBron Cavaliers fail to make the playoffs in repeated years.

It's also worth noting that the Q hosted only 10 concerts in 2016, a low year to be sure, but the RNC buildout and weeklong occupation meant fewer available dates. In 2017, the number is closer to 20, with major acts like Coldplay, Bruno Mars and Bon Jovi playing this summer. That's surely a testament to the Cavs' marketing and events team, aggressively pursuing acts in a competitive market. But it's difficult to reconcile 2017's all-star concert lineup with the notion of a "functionally obsolete" facility, as dubbed by Len Komoroski.

City Council ought to have financial people all over these questions and concerns, but it turns out that the city administration is working for the other side.

At yesterday's hearing, the Cavs' presentation opened with a slide featuring a graph of the city's tax sources and expenditures. It was a visual version of a Cleveland.com story that appeared in yesterday's Plain Dealer, the gist of which was: most of the city's tax revenue comes from Wards 3 and 6 (downtown and University Circle) and 90 percent of its capital expenditures occur in the neighborhoods. (FYI: THE POLITICAL LAYERS TO ALL THIS WERE MIND-BOGGLING, ESPECIALLY VIEWING THE PROCEEDINGS ON TV20's LIVE-STREAM.)

Multiple pro-deal parties had referenced the story already yesterday, including slyly by labor rep Terry Joyce, who said he'd "never seen" numbers about where the city gets its tax revenue, but he'd sure be interested! Kevin Kelley responded that it was in the paper that morning. Go figure.

But Cleveland.com's story, by Bob Higgs, came directly from information that Kelley provided in a press session with four reporters last week. I was one of them. Due to regulations about the release of tax info, Kelley's insight was admittedly not all that specific, but he spoke in the context of countering his colleagues who have argued that more spending is necessary in the neighborhoods.

Polensek was confused when the Cavs presented the slide yesterday, asking where they obtained the information. We're not allowed to see that, he said, because of regulations. The Mayor's Chief of Staff Ken Silliman said that Polensek was correct, but that city finance director Sharon Dumas had prepared the numbers for the Cavs, using percentages to mask individual taxpayers. Polensek was baffled.

"If these numbers are true," he said. "It's an indictment." He was suggesting that fewer taxes were coming from many of the city's other wards because of an inability by the city to create jobs.

But the more pressing point is that a city official — the finance director herself, if Silliman is to be believed — hasn't charged her staff with the meticulous dissection of the flimsy financial paperwork provided by the Cavs to determine if the city is getting a bum deal. Instead, she is working, intentionally or not, to promote the deal at the behest of Quicken Loans Arena.

Public-private partnership indeed.

—-
*Correction: This article has been updated to correct an error in basic arithmetic. One hundred and fifty seven plus 21 is 178, not 177.

Contact author Sam Allard on Twitter @SceneSallard or by email at sallard at clevescene dot com.



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