Year one was a big one for UNO’s Baxter Arena.
The gleaming new facility wowed fans of the school’s hockey team, hosted commencement ceremonies for most of the metro area’s high school grads and even welcomed a visit from the president of the United States.
But there’s one thing Baxter failed to do its first year: turn a profit.
The university-owned arena recently ended its first fiscal year $1.5 million in the red, forcing campus officials to infuse $1.4 million in university funds into the operation to help cover construction bond payments.
The disappointing results aren’t just a first-year blip. It’s expected that $1.5 million in university dollars will need to be tapped to balance this year’s books, with $1 million kicked in by UNO and $500,000 committed by NU central administration in Lincoln.
University of Nebraska at Omaha Chancellor John Christensen last week defended both the arena’s performance and the unplanned university subsidies going toward it.
While the school had projected the 7,900-seat arena would break even from the start, he said it was always known there were potential challenges as the facility got up and running. He also said the costs borne by the university are well worth the benefits the arena is bringing to UNO in terms of enhanced public profile, engagement of students and campus pride.
“My personal feeling is this was and is an important part of the transformation of UNO into a leading urban metropolitan institution,” Christensen said. “The (UNO) brand has been expanded tremendously. Long story short, this is a remarkable addition not only to UNO, but the community.”
The arena’s red ink also contributed to what turned out to be a less-than-banner financial year for Maverick athletics in 2015-16, its first year competing as a full-fledged member of NCAA Division I.
The athletic department had been counting on roughly a half million dollars in arena profits to help fund its own operations, dollars that did not materialize. That shortfall and myriad other budget issues left athletics with a $1.8 million budget deficit of its own.
The big budget hole has prompted athletic director Trev Alberts to target $600,000 in budget cuts this year — none of which, he said, will directly impact personnel.
Of course, financial struggles for an arena aren’t anything new around here.
Ralston Arena — a 3,500-seat venue, built by the Omaha suburb, that’s less than 5 miles from Baxter — has hemorrhaged millions since it opened four years ago. In fact, there are many parallels between how the two competing facilities have fared since they were launched.
As with Ralston Arena, the final price tag for UNO’s venue ended up higher than expected. While Baxter often has been referred to as an $82 million facility, it turns out the final cost was actually closer to $88 million.
University officials say the added costs were largely due to some enhancements added late to the plans, including ribbon boards, additional suites and hoisting equipment to better handle concert equipment. But the add-ons forced the university to borrow $7.6 million more than expected, raising the annual arena bond payment from $3 million to $3.4 million.
Ralston and UNO were both also wildly off in their estimates of how much it would cost to operate their facilities. And both also saw notable shortfalls in key revenue areas, with Maverick hockey fans not downing as many of those $7 beers as had been expected.
However, compared with Ralston, UNO has more resources to draw on in dealing with the financial challenges.
Ralston’s entire city budget is $18 million. That makes million-dollar arena shortfalls a huge budget problem, as they’ve forced the city to raise taxes, borrow money and cut city budgets to meet bond obligations.
Conversely, UNO’s total annual budget exceeds $220 million, so this year’s arena subsidies amount to a fraction of 1 percent. So far the costs have been covered relatively easily using discretionary funds Christensen has at his disposal.
Given how the new arena has enhanced campus life, increased alumni engagement and helped recruit new students, Christensen said he has no problem justifying the expense. And he said the financial challenges will be addressed.
NU officials say system President Hank Bounds also stands firmly behind the arena — and is putting his money where his mouth is. Bounds has committed $2.3 million of NU system reserve funds between now and 2022 to help meet arena bond obligations.
“In the business world, we call this a developmental-stage enterprise,” said David Lechner, the NU system’s top finance officer. “Yeah, there are going to be bumps and bruises and the numbers won’t flow across as nice as we’d like to see. But we are growing, we are trying, and the guys (at UNO) are doing a pretty bang-up job of getting an operation started and growing to Division I. I support this effort, and I know the president does, too.”
There’s no question UNO has grown in prominence and stature over the past two decades, transitioning from a commuter school to join the class of “metropolitan universities’’ that serve the needs of big cities.
The Division I hockey program that the school launched in 1996 has long been seen as both part of and a symbol of that growth, giving the Omaha school a unique athletic niche next to University of Nebraska-Lincoln football and Creighton University basketball and helping connect students and alums.
A decade ago, a campus commission recommended that the school build a hockey facility as an on-campus home for its signature sport.
But the thought was clearly an ice folly at a time when the school was struggling financially with its other sports competing at the NCAA Division II level. Those problems in 2011 prompted the school to drop football and wrestling, with Alberts and Christensen deciding to move all the school’s sports up to Division I.
Looking to the school’s Division I future, Alberts and his department began studying the feasibility of an on-campus arena. If the school could harness the revenue streams from its hockey team that were largely flowing as rent to the CenturyLink Center — including the dollars from suites, club seats and concessions — could the school finance an arena?
His staff generated some projections, and over time they were refined in consultation with Omaha business leaders and NU finance officials. Alberts did not utilize an arena management consultant.
The final pro-forma projections anticipated that the arena would generate enough revenue to cover the $3 million annual bond payments and still leave a cushion of about $400,000. UNO officials viewed their projections as conservative, because they assumed there would be only four events besides Maverick athletic contests in the arena in the first year.
“I’m accountable to it,” Alberts said last week of the projections. “I own the pro-forma.”
A key development came in 2013 when the project was embraced by Heritage Services, which harnesses the wealth and clout of many of Omaha’s most prominent philanthropists. Heritage studied the numbers and determined that the project was no white elephant, with the potential to grow UNO’s prominence and serve as an asset to Omaha.
Heritage pledged to privately raise half the money for the project, using the projections to help sell the arena to potential donors.
The NU regents also endorsed the arena. In the end, the regents formed a special development corporation headed by Christensen, Alberts, Regent Howard Hawks of Omaha and Heritage’s John Gottschalk and Ken Stinson to see the project through to completion.
Baxter opened last October to much fanfare, becoming the home to Maverick hockey, basketball and volleyball.
Baxter also hosted dozens of other community events, including concerts and 13 high school graduations.
And the arena made history in January when President Barack Obama came to visit right after delivering his final State of the Union address.
“Go Mavericks!’’ Obama called out. “This is quite a place you got here. It’s still got the new arena smell.”
A consultant estimated that the media exposure UNO received from the presidential visit was worth $6 million in ad buys.
The first sign that something was amiss at Baxter came in May when Alberts announced the departure of the arena’s first manager, Mike Cera. Alberts — at the time and now — says the change was not due to finances. Instead, the athletic director cited a need to better integrate the arena into the campus.
Still, the arena’s first-year financials — released by UNO at The World-Herald’s request — showed the arena fell short. It posted a nearly $2 million swing from the earlier projections, the actual $1.5 million loss instead of a $400,000 gain.
Revenues wound up slightly above projections, largely because the arena hosted many more outside events than the conservative estimate. Concession revenue missed the mark by nearly $500,000, while ad dollars were about $300,000 short.
The big problem was expenses, with the arena’s $3.9 million in operating costs exceeding projections by $1.6 million — or 66 percent. Some of the added costs simply related to the additional events the arena hosted, but most were unexpected cost overruns on things like personnel and equipment purchases.
UNO officials say lots of maintenance equipment and supplies had to be purchased when the building opened, likening it to all the little extras you need to buy when you move into a new house. Alberts said the overruns could also be traced to the fact it was the school’s first experience operating an arena.
“We didn’t know what we didn’t know,” he said. “We have learned a lot.”
The final results would have been even worse had a UNO donor not pledged before the arena opened to put $250,000 a year as part of a multiyear gift into assisting arena operations. That donation helped operating revenues exceed operating costs by almost $2 million. But that still wasn’t enough to cover the $3.4 million bond payment. That’s where Christensen needed to step in with university funds.
It was always known the arena would help UNO save $400,000 on parking, since the arena lots allowed the school to stop renting spaces at Crossroads Mall. Those savings weren’t credited to the arena in original plans but, given the shortfall, school officials decided to dedicate $300,000 of those dollars to the arena debt. Christensen then tapped $1.1 million in discretionary funds he had available to pay the rest.
Campus leaders in the NU system have such discretionary funds to pay for special projects like campus beautification, equipment purchases or other needs to move their campus forward. Christensen is given $600,000 a year for those purposes, and at times his budget is supplemented by savings from other parts of the university budget.
Even with the infusion of $1.4 million in university funds, the arena still finished the year with a small deficit of $64,000 that carries over into this year.
So what will year two hold? University officials do expect improvements in some areas.
A new media rights contract with Learfield Sports kicks in, boosting ad dollars by $300,000 a year. Concessions should increase slightly through operational improvements. But expenses are projected to eat up those gains, again leaving the operation about $1.5 million short.
The budget calls for $1 million of that shortfall to be covered by UNO, with Christensen again tapping the parking savings and $300,000 from his discretionary funds. The other $400,000 in UNO money will come from one-time savings related to the refinancing of bonds that funded past construction projects that benefited students and were paid for by student fees.
President Bounds is providing the final $500,000 by tapping NU system reserve funds. In fact, plans are for him to pay a total of $2.3 million over the next six years to help UNO make bond payments.
University officials say the NU system currently has $17 million in reserves — dollars tapped to fund one-time strategic priorities and initiatives. Such dollars, for example, helped start up the university’s Buffett Early Childhood Institute.
Finance officer Lechner said Bounds sees the UNO arena as a likewise important university initiative worthy of startup support. In this case, Bounds’ support is akin to a loan. By 2023 it’s expected that UNO will be able to refinance the initial 30-year bonds issued on the arena and pay back Bounds’ office.
Alberts said UNO plans to continue to improve arena operations. For example, the school is working with its conferences to align future basketball, volleyball and hockey schedules to avoid having to flip the arena setup as often for different sports. It recently saved money by paying the campus police force to provide security at the arena rather than hiring an outside firm.
Alberts has no immediate plans, however, to change arena management. The current plan is to have athletic administrator Mike Kemp, the school’s former hockey coach, continue to run the arena.
Gottschalk, who remains the vice chair of Heritage Services, said he’s not disappointed to hear the arena’s first-year operating results. And he said he’s yet to talk to any donors who feel that Baxter has been anything but a great new asset for UNO and the city.
“I can’t think of any startup where there isn’t a, quote, loss the first year,” he said. “From a student life standpoint, it’s been spectacular. I think our donors are proud and pleased with the project and what it has brought to the community.”
Christensen also expects to see arena finances improve. Five years from now, Christensen said, he thinks people will look back with pride at all the arena has done for the school.
Said Christensen: “I am really excited about the future, which I think is going to be very bright.”