Competition for concerts is undercutting revenues on the publicly owned buildings. Legislature considering integrating operations.
Lady Gaga regaled concertgoers with her hit “Bad Romance” when she came to the Xcel Energy Center in February, but she might as well have been describing the Twin Cities concert scene.
Xcel, in St. Paul, and Target Center, Minneapolis’ concert arena, have spent 13 years vying for the same acts. The unusual crosstown concert rivalry is subsidized annually by taxpayers because both buildings are publicly owned. With nearly 50 concerts at stake each year, any lost revenue adds up.
“In these facilities that are built with public dollars, it doesn’t do any of us any good to compete with each other,” said Minneapolis City Council President Barb Johnson.
Antitrust laws prevent the two entities from working together, giving concert promoters leverage to pit one against the other. A bill at the Legislature, backed by both cities, would change that.
“On a full-house setup, do I think that there’s anywhere from $25 [thousand] to probably a maximum of $50,000 that gets left on the table pretty consistently? I would say that would be the ballpark,” said veteran Minneapolis promoter Randy Levy, adding that regions with one arena generally charge 50 to 100 percent more in rent than the Twin Cities.
Avoiding a ‘messy divorce’
The legislation, written by Reps. Jim Davnie and Tim Mahoney, would integrate scheduling, marketing and promotions activities for the two facilities by 2015. They must also, in the next year, study combining financing and daily operations.
The logistics of joining the two rivals, which are privately operated, remains to be seen. Minneapolis pays AEG, which owns several concert facilities around the world, to manage and operate Target Center, while the Minnesota Wild’s parent company pays rent to St. Paul to operate Xcel.
“They would have to figure out how to get along with each other while also being competitive nationally for shows,” said Davnie, DFL-Minneapolis.
Mahoney, DFL-St. Paul, said the timing of the study and subsequent implementation gives the Legislature room to ensure a deal is workable. “Shotgun marriages never work,” Mahoney said. “They always end up in a messy divorce.”
The Twin Cities is an outlier for having two similar arenas so close together in one metropolitan area. Gary Bongiovanni, editor of Pollstar, which tracks concerts globally, said people building arenas usually plan for the demise of an existing facility. Last year, the Legislature gave Minneapolis authority to tap tax dollars to pursue a $100 million public-private renovation of Target Center.
“It isn’t very common simply because it’s difficult to make the economics work,” Bongiovanni said.
The Target Center comes to the negotiating table at a competitive disadvantage. Minneapolis’ taxes are higher, the venue’s shows generate fewer ticket sales and the acoustics are generally considered better at Xcel.
“They’ll do whatever they can to get the show, even though they see the same numbers we’re looking at,” said Jerry Mickelson, founder of Chicago-based promoter Jam Productions, which promotes shows in the Twin Cities. At some point, he said, “the Target Center started giving the building away.”
Minneapolis pays an annual operating subsidy to AEG, depending on how the building does financially — expected to be about $1.47 million for 2013. It also will pay about $5.2 million in debt payments from deferred property taxes and about $4 million for capital in 2013.
Steve Mattson, Target Center’s general manager, said that revenues are back at levels reached before Xcel’s opening in 2000 but that the building still operates at a deficit.
Xcel’s arrangement is different, since the operator pays rent to the city. St. Paul annually uses about $1 million in sales taxes and $1 million in deferred property taxes to fund debt and capital, respectively.
Level playing field
Jack Larson, Xcel’s general manager, said the public isn’t affected by revenues from concerts. At the same time, St. Paul is asking the state to forgive about $30 million in public loans that helped build the facility 13 years ago.
While they study joint governance, the cities also must examine the possibility of folding both venues into the Minnesota Sports Facilities Authority, which is overseeing development of the Vikings stadium in Minneapolis.
Ted Johnson, senior vice president of the Minnesota Timberwolves, who play in Target Center, said the intent of the bill is to level the playing field.
“It’s not like Target Center or Xcel are trying to gouge them,” he said, referring to promoters. “They are simply asking to be paid the same as an arena in Kansas City or any other city where there’s only one building.”
Eric Roper • 612-673-1732