BEMIDJI — The Bemidji City Council voted to cover the Sanford Center’s cash flow issues through the city’s reserves after much discussion over its management company’s contract.
The city-owned, privately operated venue has been an expensive and controversial venture for Bemidji since it first opened nearly 14 years ago.
While the Sept. 16 vote was not a lengthy part of that meeting’s agenda, a Sept. 9 work session detailed a proposal that would have relinquished the elimination clause within the city’s contract with ASM Global, which spells out a means to initiate a mediation procedure if the city or company opted to part ways.
“In the event that the net operating loss for both of the first and second full fiscal years fails to meet or exceed the applicable benchmark ... the city shall have the right, within 60 days after completion of the second fiscal year, to initiate the mediation procedure,” the clause in the contract states.
The net operating loss benchmark in this part of the contract for 2023 was $190,359, plus a cushion of 25% or $50,000, whichever was greater. For fiscal year 2024, the net operating loss benchmark is set at $6,735.
The projected 2024 deficit is nearly $442,000, with 2023’s net loss totaling more than $706,000. The center’s annual operating losses were brought up again in the Sept. 9 work session as Bemidji City Council members discussed the separate cash flow issue.
“You're talking money that we terminated our last company [over] because they couldn't get below $450,000,” said council member Ron Johnson. “I mean, you're doing worse, and you sold us on doing better.”
While the city’s subsidy in 2023 for the Sanford Center was $288,000, the city budgeted $350,000 for the subsidy in 2024. Bemidji pays ASM Global a fixed $120,000 annual fee for management of the Sanford Center.
The council vote to use city reserves to cover the $350,000 shortfall on Sept. 16 follows advice from city staff, with City Manager Rich Spiczka advising against the ASM Global proposal for the company to cover the losses if the city gave up its termination clause.
“That was not a working agreement that I thought was amenable to the city. I didn't think it was a worthwhile endeavor as presented,” Spiczka said. “I think we need to try to find a solution that makes sense for ourselves so we can operate the center appropriately.”
With Bemidji State as a core tenant, the Sanford Center serves as a home for Beaver hockey, but even with community events, conventions and arena shows, the center's annual operating deficit continues to be a point of contention in Bemidji city politics.
ASM Global has managed the Sanford Center since April 2022, after the council — in a split decision — voted to terminate its contract with prior company VenuWorks in late 2021.
While 2023 initially looked like it would be a better year for the Sanford Center, some shows that year depleted the center’s working cash balance that’s available to pay bills, according to ASM Global financial director Justin Jokovich.
“I don't want to go down into the past of 2023, but ultimately there was a working capital balance in 2023,” he said. “The operations did not do well in 2023 and ultimately eroded the working capital, which is why we're facing this challenge here today.
“Looking forward into 2024, the current financial forecast ... we do expect to be short on the budget numbers as you've seen in the latest financials.”
ASM Global Regional Vice President Dave Jolette said the company was willing to loan the Sanford Center the cash through the end of the year, but with a condition.
“If Bemidji is not happy with us and they have a different direction to go, we don't believe putting money in there is going to be the answer for three to four months,” Jolette said. "If we're all going to continue this relationship and we want to put that money in to get it back out, then they would need to be willing to relinquish that first two years net operating clause.”
Council member Emelie Rivera called for up-to-date information about what the Bemidji market can handle.
“The main thing that's missing is we have no way to see an updated version of what our community can support financially... and to give us a sense of what we realistically need to budget for as far as subsidizing losses,” Rivera said.
“Do we have the capacity, as a community, to fulfill what we're both trying to achieve? I don't know that we have updated those numbers in well over a decade.”
While some council members suggested the city run the center internally, Sanford Center General Manager Bobby Anderson shared some of the tactics ASM Global is using to get more profitable shows to Bemidji.
“[They’re] putting together a demographic packet, who is in Bemidji, who is our market? ... Also looking at past shows that we've done, what they've sold, analyzing that and looking for what genre does that fit into and how well does it sell in Bemidji?” Anderson said. “So it's a lot of us analyzing what is Bemidji capable of.
“We do performance [projections] for all our shows to go, ‘Here's the potential risk. Here's what we need to sell.’ It's not necessarily about can we get the show, but can we get the right show.”
Jolette acknowledged the ASM Global officials responding to Bemidji's request for proposals, or RFP, in 2022 to run the center may have given better projected operating numbers than what was possible.
“Listen, I'll be honest. Yes, there are times when people are responding to RFPs, that different human beings paint pictures differently,” Jolette said.
Bemidji Mayor Jorge Prince expressed concern about how trustworthy ASM Global was, given recent miscalculations.
“We've had two pretty significant financial miscalculations between the end of last year and where we are now and at some point, we end up in a place where we're having conversations about this contract in the future,” Prince said.
“There's a part of me that at least would want to see the financial part of this brought into the city because there's only so many times that you can look at any external party and have a miscalculation because that's just not acceptable.”
