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Most significantly, an underutilized arena hurts taxpayers. Along with the 5 percent ticket fee, the coliseum authority receives revenue from parking and concessions. According to authority documents, the ticket tax on non-basketball events at the arena generates about $700,000 annually, and the authority's share of parking and concession revenue from arena events totaled close to $1.5 million last year. Those numbers would increase dramatically if the arena were to attract as many shows as HP Pavilion does now.
But can it? According to the audit and Perloff, it may prove difficult because of the tax itself and the cost of union stagehands. The tax, which is referred to as the facility fee, has been around since the late 1990s as a way to help pay back the $140 million renovation bonds. Originally, the Warriors proposed to pay off the bonds through the sale of personal seat licenses. But after the Raiders' debacle with personal seat licenses, the Warriors chose to help finance the bonds with the ticket tax and by sharing revenues with the authority in the form of rent.
Consequently, the authority would be hard pressed to eliminate the ticket tax, especially considering the $20 million annual subsidy that taxpayers continue to provide to the coliseum and arena. The city and county split the subsidy by each paying about $10 million from their general funds. The payments have been especially painful at a time when both public agencies have had to make severe cuts in services because of the recession and housing collapse. According to the authority documents, the total public subsidy has amounted to more than $240 million on the two facilities since they were both renovated in the mid-1990s.
Most of that money, however, has gone to pay off the bonds on the coliseum and not the arena. That's because the authority's deal with the Warriors is much better than its deal with either the Raiders or A's, who essentially pay no rent at all. Besides the public subsidies, the revenues generated by the Warriors' rent payments, the arena ticket tax, naming rights, concessions, and parking make up the lion's share of the authority's revenues. So to kill the ticket tax would mean eliminating one of the few ways that the complex actually produces money. Moreover, if the authority were to do away with the tax, budget documents indicate that the arena might have to double the number of concerts and non-basketball events just to compensate.
The issue of union costs appears to be no less problematic. According to the audit, it costs at least $15,000 more to put on a show at the arena than the HP Pavilion, and the arena has among the highest costs in the nation. The Shark Tank also uses union stagehands, but the contract in Oakland is a much better contract for workers. In a pro-union town like Oakland, there is little likelihood that this will change any time soon. Stagehands at the arena have a much older contract than the one in San Jose, and according to several authority members, convincing the union to take a pay cut would not be realistic. "There's really nothing we can do about the labor costs — not in Alameda County; no way," said Gail Steele, a county supervisor and longtime authority member. "This is a strong union area — not that there is anything wrong with that, but there are side effects."
So is Oakland forever doomed to take a backseat to San Jose? Authority members said they plan to talk about the audit at their upcoming meeting this Friday. But even though it strongly criticizes SMG, it doesn't appear to provide sufficient cause to fire the company or evidence that the Warriors could do a better job of managing the facility. After all, the Warriors aren't exactly a model sports franchise. The team hasn't won a championship in 34 years and appears headed for another disappointing season.
Oakland City Council President Ignacio De La Fuente, who has been an authority member since its inception in 1995 and is currently it's vice chair, said the audit has some good recommendations and valuable findings, but he refused to blame SMG for the arena's shortcomings. He also said he wouldn't be interested in handing the arena over to the Warriors unless they bought it and assumed all debt payments on the bonds. "I'm open to anyone taking it over, if they're willing to pay the bills," he said.
Meanwhile, authority Chairman and County Supervisor Scott Haggerty said the panel should look at possibly capping the ticket tax or adopting a sliding-scale fee to make the arena more attractive to high-profile acts. But he also appears satisfied with SMG's performance, especially over the past couple of years.
To be fair, even the audit acknowledges that SMG has done a better job of attracting concerts and other events in recent years. For example, the Madonna concert earlier this year was a huge money maker. Moreover, SMG's Kaufman said he does not believe the ticket tax hurts the arena, and the complaints by promoters, agents, and artists are simply about the bottom line. "Let's face it," he said, "they grumble because they want every dollar they can get their hands on."
Still, the HP Pavilion continues to outperform Oracle Arena, as it has for the past fifteen years. And according to the audit, the management in San Jose remains more aggressive in landing concerts, family shows, and other events.
One reason for this could be because SMG's contract with the authority doesn't appear to encourage improvement. As it stands, the authority pays SMG about $500,000 a year in management fees. Although that fee fluctuates depending on total ticket sales, it is capped at $750,000. The contract appears to lack strong incentives for SMG to attract more shows — or severe penalties if the company fails to do so. That could be a mistake, considering the taxpayer dollars in play. At a minimum, when SMG's contract expires in 2012, the authority should rewrite it or put it out to bid to see if we can get a better deal. Maybe the Warriors will step up after all.
In the meantime, Oracle Arena likely will continue to lag far behind HP Pavilion as the Bay Area's best place to catch a concert. And we'll have over-the-hill rockers like AC/DC to remind us of what the arena once was and what it is today.
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