Bernard F. Lynch

City Manager

TO:                  Mayor William F. Martin, Jr.

                                    And

                        Members of the Lowell City Council

FROM:            Bernard F. Lynch, City Manager

DATE:             September 27, 2007

SUBJECT:        COUNCIL MOTION OF 1/9/07 BY COUNCILLOR RITA MERCIER

 “REQUEST THE CITY MANAGER CONDUCT A STUDY THROUGH A COMMITTEE AS TO THE PROS AND CONS, FEASIBILITY AND/OR BENEFITS OF KEEPING OR RELEASING THE LELACHEUR BALLPARK AND THE TSONGAS ARENA

___________________________________________________________________________

Regarding the above-mentioned matter, I assembled a staff committee consisting of LZ Nunn, Director of COOL; Matt Coggins, Assistant City Manager/Director of Planning & Development; Andy Sheehan, Assistant to the City Manager; Theresa Park, Economic Development Director; and me. The committee evaluated the measurable costs, revenues, and benefits to the City of the three entertainment venues, LeLacheur Park, Tsongas Arena, and Lowell Memorial Auditorium. The committee also looked at other factors that are more difficult to quantify, such as the civic pride, elevated stature, and branding that such facilities bring to the City.

Introduction

Downtown Lowell has experienced a renaissance in recent decades using a successful strategy that combined historic preservation, entertainment, athletics, and cultural attractions with economic development. The Paul E. Tsongas Arena, Lowell Memorial Auditorium and LeLacheur Park have contributed a great deal to brand Lowell as a “Destination City,” and helped spur the boom in condominiums, apartments, and artists lofts. With hundreds of events

per year in the downtown, these venues attract tens of thousands of visitors from throughout the Merrimack Valley and beyond.

Contracts for management of these facilities were structured in such a way as to be self-reliant. That is, according to the contract terms, it was clearly the City’s intent to make the facilities financially attractive to the tenants and get the facilities up and running and profitable to the tenants. Instead of structuring the contracts so the facilities would be revenue generators for the City, the City’s aim was to glean the economic development benefits of the facilities. This goal has clearly been achieved, for as will be shown, the facilities generate tremendous ancillary economic benefits.

Venue Summaries                                          

Paul E. Tsongas Arena

Seating Capacity:                                   7,800 (6,300 stands, 1,500 floor)

Number of event days/year:                   140-180 (40 Lowell Devils games, 16 UML Riverhawks games, and approximately 100 other event/days)

Cost to build:                                         $28,000,000

Date Completed:                                   1998

Lowell Devils rent:                               $250,000 per year (will increase to $275,000 per year in FY08)

Parking revenue in FY07:                       $197,705 (approximately $46,000 for Devils hockey games, $11,000 for UML hockey games, and $141,000 for other events)

Total City Expenditures:                         $1,959,453

Budgeted Revenue in FY 07:                  $1,038,000

Budgeted Surplus (deficit) in FY07:        ($921,453)

The Paul E. Tsongas Arena opened in January 27, 1998. The 7,800-seat arena is managed by SMG, a Philadelphia-based management company, under a management contract that runs through June 30, 2008. Home to the UMass Lowell Riverhawks Hockey Team and the Lowell Devils (the minor league affiliate of the New Jersey Devils), Tsongas Arena is also host to various concerts, family shows, conferences, trade shows, and festivals, as well as public events like the graduations of several local high schools. An outdoor event venue accommodates up to 3,500 people on the back lawn overlooking the Merrimack River. The lawn is illuminated, allowing for nighttime concerts and events.

The Tsongas Arena differs significantly from other venues in the area, making comparisons difficult. The Verizon Wireless Arena in Manchester, NH, has a capacity of 10,000 to 12,000 depending on the event. It has the luxury of being the only venue in the area and therefore, unlike Tsongas Arena, does not face competition with other facilities (e.g. venues in Boston). The recently opened Agganis Arena at Boston University, capacity 6,300-7,200, is owned by the University and is part of the University’s sports complex. Finally, Worcester’s DCU Center has a capacity of 14,800 with an adjacent convention center and hotel, which puts it in a different category from Tsongas.

As noted above, the City does not make a profit off Tsongas Arena. Understandably this is a concern to taxpayers, the Council, and the administration. However, when considering the costs to the City, one must keep in mind that the UMass-Lowell Riverhawks use of the facility does not generate significant revenue for the City. However, the City recognizes the larger benefits of UML’s use of the facility. It is reflective of the strong partnership between the City and the University, a partnership that both entities want to strengthen. Finally, as will be noted below, the Tsongas, like the other venues, generates economic activity for area businesses, which benefits the City and its taxpayers.

LeLacheur Park                                         

Seating Capacity:                                   5,000

Number of event days/year:                   56: 38 Lowell Spinners and 18 UMass-Lowell Riverhawks

Cost to build:                                         $10,000,000

Date Completed:                                   1998

Lowell Spinners rent:                            $0 *

Parking revenue in FY07:                       $0 Parking is at UML garage or surface parking

Total City Expenditures:                         $0 (City is responsible for capital improvements)

Budgeted Revenue in FY 07:                  $0

Budgeted Surplus (deficit) in FY07:        $0

*The Spinners contribute $250,000 to the facility’s capital fund, payable over 8 years

Edward LeLacheur Park is located on the banks of the Merrimack River between the Tsongas Arena and the UMass-Lowell North Campus. The ballpark was designed by the HOK Sports Facilities Group, well known for creating modern ballparks with the nostalgic charm often associated with older facilities.

In 1998, the Lowell Spinners, the Boston Red Sox’ Class-A affiliate in the New York-Penn League, moved into LeLacheur Park, which seats 4,767, and has a standing room capacity of 5,000. Since its opening, the Spinners have steadily grown their attendance. The Spinners fill LeLacheur Park to 102% of its capacity, ranking them second among the nearly 200 Minor League baseball teams across the nation. Since August 2, 1999, the Spinners have sold out every game and have a current sell out streak of more than 300 games.

Under the terms of its lease with the City, the Spinners assume all operating costs and retain all revenues from the Park. In addition, they make an annual contribution to the City to fund capital improvements at the Park. The initial annual payment was $25,000 and will increase to $40,000 in the final year of the lease. The current capital fund balance is $180,647.85. To date, the lease terms have worked well for both the team and the City.

Like the Tsongas Arena, LeLacheur Park hosts a UMass-Lowell team, the Riverhawks men’s baseball team. This arrangement further exemplifies the strong partnership between the City and the University.

Lowell Memorial Auditorium                                 

Seating Capacity:                                   2,800

Number of event days/year:                   close to 200

Cost to build:                                         N/A

Date Completed:                                   1922

LMA rent:                                           $0 *

Parking revenue in FY07:                       $130,595

Total City Expenditures:                         $400,000 **

Budgeted Revenue in FY 07:                  $0

Budgeted Surplus (deficit) in FY07:        ($400,000)

* LMA contributes $100,000 to a capital improvement account, consisting of $30,000 in profit sharing and $70,000 in ticket surcharge

** The City budget includes $50,000 for the Merrimack Repertory Theater

Lowell Memorial Auditorium, with a capacity of 2,800, excellent acoustics, and clear sight lines hosts a variety of events, including concerts, conventions, expositions, Broadway shows, and sporting events. Renovations have made the LMA convenient, flexible, and handicap accessible.

Mill City Management, under the terms of their lease with the City, is responsible for the management of LMA. Since taking over management, they have increased the event days from 25 per year to nearly 200 event days per year, making LMA significantly more financially stable. LMA attracts over 250,000 patrons per year, many of whom patronize local eateries and retail establishments, supporting the City’s economy. The City pays $400,000 per year to Mill City Management and $50,000 to Merrimack Repertory Theater. Mill City Management contributes $100,000 annually to a capital account for improvements to the facility. Mill City Management also manages the Lowell High School auditorium.

Economic Impact Analysis of the Tsongas Arena, LeLacheur Park, and the Lowell Memorial Auditorium

The Division of Planning and Development (DPD) researched the economic impact of the Tsongas Arena, LeLacheur Park, and Lowell Memorial Auditorium to better gauge the benefits derived by local retail businesses and the overall impact of the venues on the City’s economy. DPD evaluated the economic benefit to downtown businesses and new money pumped into the City’s economy.

In conducting its research, DPD selected a methodology that involved reviewing related publications, conducting surveys of event attendees, and obtaining direct feedback from local businesses. Additionally, a simplified economic impact analysis was completed utilizing a national standard for its formula.

There is no single acceptable method for conducting an economic impact analysis. Some analyses attempt to measure the direct, indirect and induced effects (direct effects stem from meeting the increased demand for goods and services by visitors; indirect effects result from recirculating visitors’ spent dollars; and induced effects are felt from increased employment and household income spurred by the direct and indirect effects), whereas others consider the total economic impact (total impact of all spending related to a facility) and marginal impacts (money that would not be in the local economy if the facility did not exist).

Many of the modeling techniques apply a form of input-output modeling analysis, a time-consuming and costly practice. The National Association of Sport Commission (NASC) gathered formulas used to conduct economic impact analyses of sports venues. These formulas follow a standard format:

Economic Impact = (no. of visitors) x (no. of days) x (spending/person/day) x (multiplier score) 

According to NASC’s report, average spending/person was $146.89 across the United States and the average multiplier score was 2.37. To localize the analysis, DPD staff did two things: (1) adjusted the “spending/person/day” figure in the economic impact formula to reflect local ticket prices and (2) conducted interviews of event attendees at the Tsongas Arena (Lowell Devils game on March 7, 2007) and the Lowell Memorial Auditorium (Irish Tenors concert on March 8, 2007). Since there were no events at LeLacheur Park during the analysis period, DPD staff instead surveyed the Merrimack Repertory Theatre (“Dinah Was” on March 8, 2007). The economic impact analysis was refined by taking into account the percentage of those people who responded that they frequented a local restaurant either prior to or after the event. Finally, the analysis was further refined by excluding the cost of tickets, thereby measuring the economic benefits that accrue outside the venues.

Tsongas Arena

v      (average of 3,116 visitors/hockey event) x (56 hockey events) x (average ticket price of $11.14) x (2.37) = $4,607,008

Ø      Thirty-six percent of 119 surveyed attendees of the Lowell Devils game frequented a local restaurant either prior to or after the hockey game. Revised economic impact is $1,658,523 ($4,607,008 x 36%).

§         Discounting the cost of the tickets to focus the measurement of economic impacts on area businesses, the net impact is $958,724.

v      (average of 1,984 visitors/non-hockey event) x (92 non-hockey events) x (average ticket price of $29.37) x (2.37) = $12,705,208

Ø      If one were to apply the same 36% adjustment based on survey response to the Lowell Devils game, the revised economic impact becomes $4,573,875.

§         Discounting the cost of the tickets to focus the measurement of economic impacts on area businesses, the net impact is $2,643,970.  

LeLacheur Park

v      (average of 5,030 visitors/game) x (38 games) x (average ticket price of $5.50) x (2.37) = $2,491,510

Ø      If one were to apply the same 36% adjustment based on survey response to the Lowell Devils game, the revised economic impact becomes $896,944. (Note: Riverhawks games were not included in the calculation)

§         Discounting the cost of the tickets to focus the measurement of economic impacts on area businesses, the net impact is $518,486.     

Lowell Memorial Auditorium

v      (average of 2,200 visitors/event) x (180 events) x (average ticket price of $45.00) x (2.37) = $42,233,400

Ø      Thirty-seven percent of 94 surveyed attendees of the Irish Tenors concert frequented a local restaurant either prior to or after the hockey game. Revised economic impact is $15,626,358 ($42,233,400 x 37%).

§         Discounting the cost of the tickets to focus the measurement of economic impacts on area businesses, the net impact is $9,032,958.

Merrimack Repertory Theatre

v      (average of 169 visitors/show) x (178 shows) x (average ticket price of $28.28) x (2.37) = $2,016,204

Ø      Fifty-eight percent of 50 surveyed attendees frequented a local restaurant either prior to or after the event. Revised economic impact is $1,169,398 ($2,016,204 x 58%).

§         Discounting the cost of the tickets to focus the measurement of economic impacts to other area businesses, the net impact is $675,981.

The annual economic impact for all venues, without taking into account the survey of event attendees, is $64,053,330; adjusted for the survey the figure is $23,925,098. Taking into account the survey and discounting for ticket prices, the impact on local businesses totals $13,830,119. The following chart illustrates the analysis.

To verify or counter this initial analysis DPD staff interviewed downtown businesses for their feedback on correlation between event occurrences to sales receipts. The following feedback was offered by one of the downtown businesses:

v      “The Auditorium has been a great venue for us through the years, offering any number of events on a consistent basis that brings us substantial business.  The Arena impacts us moderately due to hockey (and some nights are fantastic) and we have some of our biggest nights of the year when a show is right for our demographic.  Most importantly, both venues bring tens of thousands of potential customers to the downtown every year introducing these folks to our exits, the directions to downtown, our parking alternatives, our "quaint" and attractive streets and canals, our historic characteristics and our restaurants, pubs, bars, etc. which in turn creates the better likelihood that they will return again in the future. This is invaluable!!! Not to mention that both venues employ staff members that frequent our establishments regularly with friends and family members while promoting all of downtown by virtue of their positions.  The Arena and Auditorium's value reaches well beyond the additional revenue they provide my business, which alone is substantial.” (Scott Plath, Cobblestones Restaurant)

The evidence suggests that downtown businesses benefit economically from the presence of sports and cultural facilities. There is another important consideration that cannot be quantified but should be factored in, and that is of noneconomic impacts. These impacts include the enjoyment available to community citizens, increased sense of civic pride and community identity, and potential to jump-start other development projects in the area. The importance of noneconomic benefits is substantiated in a study completed by Davidson-Peterson Associates for DPD in 2002. The study attempts to better understand public sentiment regarding the City of Lowell and its report findings are based on two focus group sessions with Lowell residents. The report revealed that “…the Tsongas Arena and the LeLacheur Park were seen as very positive additions to the City. They offer fun for people of all ages. Residents enjoy the venues and especially like that the games are easy to get to (as compared to going into Boston) and are inexpensive.” Direct comments include “Young kids and families benefit”, “Very affordable”, “Kids love it”, and “Everyone in the city benefits from these events.”

The DPD analysis finds, therefore, that for both economic and noneconomic reasons, there is value to the City of Lowell in the presence of Tsongas Arena, LeLacheur Park, and the Lowell Memorial Auditorium. DPD further feels that more can be done to connect downtown businesses to these venues by raising awareness and utilizing cross-promotional opportunities. The City, in conjunction with venue representatives and downtown businesses, will explore how event attendees may be further encouraged to expand their Lowell experience to include both dining and recreation.

Summary and Conclusion

The three City-owned entertainment venues, Tsongas Arena, LeLacheur Park, and Lowell Memorial Auditorium, are positive attributes for the City of Lowell. The venues generate almost $24 million in total economic activity in the City including nearly $14 million when ticket revenues are excluded; contribute to the City’s image, stature, and branding; and are a source of pride to City residents.