Is Virginia Beach Ready for the Big Leagues?

From VBGov

Comcast-Spectacor, Live Nation and the Virginia Beach Development Authority recently made a presentation to the VA Beach City Council outlining the possibility of a 750,000-square foot, 18,500-seat arena adjacent to the Virginia Beach Convention Center.

Warren Harris, director of Virginia Beach Economic Development and Peter Luukko, president and CEO of Comcast-Spectacor, which owns the Philadelphia Flyers and the Wells Fargo Center in Philadelphia, made the presentation to Council on behalf of their organizations as well as Live Nation. Live Nation is the leading entertainment and e-Commerce company comprised of Ticketmaster.com, Live Nation Concerts and other subsidiaries.

If the city can reach a satisfactory agreement with the two companies, the new arena would be slated to open in 2015 and would host a professional sports team. The deal is contingent upon this happening. If it does, Comcast-Spectacor would lease, manage and operate the arena for at least 25 years.

Exactly who the sports tenant might be is unknown at this point. “Right now, there have been no discussions with any teams. We’re just getting started, we’re very positive, but we’ve got a ways to go,” Luukko said.

The venue could also host other events, such as college basketball tournaments, concerts, family-oriented shows and trade shows throughout the year, which Economic Development suggests would help us achieve Council’s long standing goal of making the resort area a true year-round destination.

Currently, southeastern Virginia is the largest metropolitan area without an existing major-league professional sports team. Hampton Roads has flirted with major professional sports in the past without success, but Harris explains why this time, things could be different.

“This proposal was brought forward by two giants in the sports and entertainment industries, something that has not happened in the past,” said Harris. “Previous proposals in the region, while they enjoyed strong local support, were missing the strength and experience that the Comcast-Spectacor/Live Nation team brings to the table. Our market has grown as well, with stronger demographics and corporate presence than many locales that currently host one or more professional franchises.”

“Second,” he continued, “by locating at the resort oceanfront, it’s possible to leverage a synergistic relationship among an arena, the convention center and the dome site’s proposed entertainment complex – that’s a trifecta few other locations can claim, and when you add our fantastic beaches to the mix, you can understand why we’re optimistic about its potential. Finally, we have the interest and support of two huge players in Comcast-Spectacor and Live Nation – both of which have a proven record of success in these types of ventures. I think these combined factors give us an added edge and a greater likelihood of closing a deal that is good for the city, and on a broader scale, the region and the state.”

Altogether, the presenting groups project that if an NBA team moves to the region, 700,000 would attend NBA pre-season and regular season games, and 1.3 million individuals will attend an event at the arena in a typical year. They also forecast that the venue will host as many as 200 events annually.

Projections used in the presentation cited a total fan base of 3 million. How did they reach that number? The groups investigating the potential of the arena in this market are looking at Virginia Beach within a regional context. They are working from a fan-base of 3 million because they’ve combined Hampton Roads, Richmond and Williamsburg. Using these figures, the market for the arena would be larger than 22 cities that are currently home to major league teams.

Further, this is one of the few remaining virgin markets without an indoor arena that seats more than 12,000. “We’ve been here, we’ve done business here, and we believe in the marketplace,” Luukko said. “This is such an untapped resource.”

When asked if he believes people will really drive from Richmond to the beach for a game or performance, Harris was confident that fans will make the trip based on the fact that 15-20 percent of ticket sales for shows at the Farm Bureau Live Virginia Beach Amphitheater originate from the Richmond area.

In fact, Live Nation books concerts at nearly 100 venues in North America, and the Virginia Beach Amphitheater is among its top five most successful. However, because it is an outdoor venue, the market here cannot enjoy big shows during the colder months.

HKS, Inc., lead consultant on the project for the Virginia Beach Development Authority, retained the services of Dr. James V. Koch, an economics professor and President Emeritus at Old Dominion University, to develop an economic impact study for the arena.

According to Dr. Koch, the economic impact of the new arena would be quite significant, even after accounting for “displaced” expenditures – that is, a local reallocation of disposable income. He believes that people will actually increase their spending on entertainment beyond what they might have otherwise spent if the arena did not exist, and that the direct operation of the arena will generate net new (non-displaced) economic activity of nearly $98.5 million in 2015 in Hampton Roads, $66.25 million of which would be in Virginia Beach.

Dr. Koch projects that the additional economic activity would generate 1,230 net new jobs in Hampton Roads, 839 of them within the City of Virginia Beach.

The report also indicates that a new arena would increase property values on a one-
time basis within Hampton Roads by an estimated $54,207,960 of which $49,771,305 will occur in Virginia Beach.

Finally, the estimated “amenity value” (enhanced quality of life) of the new arena is approximately $30 million in the region and $20 million in Virginia Beach.

In sum, Dr. Koch believes the city will capture 67 percent of the total economic impact of the operation of the new arena and 92 percent of incremental tax revenues generated from that operation.

In 2011, tourists spent a record $1.2 billion in the Virginia Beach economy. The resulting tax revenue for that single year for both the city and the Commonwealth was $98 million.

At this point, Governor Bob McDonnell, Mayor Will Sessoms and Vice Mayor Louis Jones support attempting to reach a deal that benefits Virginia Beach. Statements of support have also come from Norfolk Mayor Paul Fraim, Hampton City Councilman Chris Stuart, Fred Whyte (President of STIHL Inc.) and numerous other residents and business leaders throughout the region.

Harris said the next step will be the development of a formal proposal. “There was no proposal today, it was really just a broad outline of some principles that they would bring to the table. The guarantees we’d need to move forward are important, but right now they’re making some pretty big offers – such as agreeing to a 25-year lease. Those payments would cover the life of any potential debt service. These two companies would also make certain guarantees in terms of operating costs. But we’ve got to get to the financial details. There are questions that must be answered – such as what does the cash flow look like? For us, the revenue streams must cover the debt service. These could include sales, tax revenue, merchandising, concessions, admissions tax, potential naming rights, club seats and suite sales. We would look to negotiate with Comcast and the team that would end up being the tenant to share in the benefit of those revenues.”

Some questions still need to be answered. Among them, how much would the city be expected to contribute to build the facility? What expenses would the city incur in order to make necessary infrastructure improvements? How would transportation and parking be addressed? How do locals feel about the possibility of a professional team and a new arena? Harris anticipates the presentation of a formal proposal in the next couple of months. If it is a good one, it will address these and other issues of concern to taxpayers.

For more information, visit www.bringitva.com.