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Officials say a new admissions levy is costing the XL Center shows and revenues at a crucial juncture

BY Matt Pilon

5/28/2018
HBJ Photo | Steve Laschever
HBJ Photo | Steve Laschever
The rock band Journey kicked off its 2018 tour at the XL Center May 21, performing after Def Leppard.
The overseers of the XL Center in Hartford say the venue is feeling the sting, in more ways than one, from a 10 percent state admissions tax that kicked in six months ago.

The levy has played a role in the 16,000-seat arena striking out on as many as a dozen events, mainly concerts, that it bid on, according to Michael Freimuth, executive director of the Capital Region Development Authority (CRDA), XL Center's management overseer.

The situation has put further financial strain on a venue that's lost money in at least each of the last four years, and is projected to do so again this year.

The problem, Freimuth said, is that the tax curtails a show's potential profit margin "by such a degree that it results in the building losing actual events and the subsequent revenues."

Those lost concerts and shows could have amounted to as much as $650,000 in revenues for the arena spread across the current and coming fiscal year, Freimuth said.

It also means fewer hours worked by XL Center staff, less state tax revenue, and slower business for nearby parking-lot operators, restaurants and bars.

The admissions tax impact is being felt ahead of the slated August opening of the MGM Springfield casino, which is expected to present increased competition to Connecticut venues for concerts and entertainment. Casinos are more inclined to grant artists big revenue guarantees, which makes it easier to attract acts, because they earn the money back at gaming tables and slots.

CRDA is also seeking a private buyer for the XL Center, at the legislature's direction. An RFP went out in late April, with responses due in late June.

It's not yet clear how potential bidders view the tax, but Freimuth said it would affect any bidder's calculations regarding return on investment.

"It takes money out of the bottom line, so that will impact anyone playing the very simple ROI game," he said.

XL impact

Connecticut first created its admissions tax in the early 1970s. It covers certain sporting events, theaters, movies and amusement parks.

But legislative exemptions have meant the tax hasn't applied to all venues equally over the decades.

The XL Center (formerly called the Hartford Civic Center), first received an admissions tax exemption in the early 1980s, which held until lawmakers repealed it in 2011. The venue was exempted again in 2014, with lawmakers reversing that decision last year.

Bridgeport's Webster Bank Arena and minor league baseball games at New Britain Stadium and Dunkin' Donuts Park also lost tax exemptions last year.

Meanwhile, the Oakdale Theatre in Wallingford has been paying the tax all along, while live performances at various nonprofit theaters remain exempt.

Admissions taxes brought approximately $14.2 million to state coffers in fiscal year 2016, according to state figures, and the recent elimination of exemptions is expected to raise an additional $4 million over two fiscal years.

The admissions tax, which kicked in Dec. 1 for the XL Center, is expected to cost the venue about $300,000 this fiscal year, contributing to a projected operating deficit of $3 million — which would be the venue's worst operating performance since 2014, and a tab the state is required to pick up.

In the full fiscal year to come, the tax impact on XL is expected to be approximately $400,000, Freimuth said.

Of that amount next year, $200,000 will come from Hartford Wolf Pack hockey games — a cost XL Center must eat, under its affiliation deal with the team's ownership. Meanwhile, UConn hockey and basketball games at the XL Center remain exempt from the tax.

The levy also makes it tougher for the arena to turn a profit on events it does book.

Freimuth said some promoters, mostly for concerts, have demanded that the venue split the added costs, either by agreeing to take less revenue or more risk.

"They say 'you just took my margin down, split it with me,' " Freimuth said. "If we can, we do it. To the extent we can't do it, we may lose an event."

He declined to name particular events XL Center has missed out on this year, for fear of damaging future prospects and relationships with promoters.

"We're constantly negotiating with these guys," he explained.

A promoter adjusts

The tax levy on the XL Center follows an unsuccessful attempt this spring to convince lawmakers to repeal it.

Among those who lobbied for the tax repeal in March were XL Center operator/manager Spectra Venue Management, Webster Bank Arena operator Harbor Yard Entertainment, and Live Nation, the world's largest concert promoter as ranked by concert trade publication Pollstar.

They told lawmakers the venues would be at a competitive disadvantage to Connecticut's casinos, which don't pay the admissions tax, as well as Massachusetts and New York, which are among a minority of states that don't levy an admissions tax.

A Harbor Yard representative didn't respond to a request for comment for this story.

But Jim Koplik, Connecticut and upstate New York president for Live Nation, said he has slowed the pace of his Connecticut events, particularly in Bridgeport, which also assesses a 5 percent local option admissions tax, authorized by the legislature in 2016.

"We have nothing scheduled at Webster," Koplik said, adding that Live Nation had recently promoted three to five events there per year.

Koplik said he has also been forced to be more selective about the XL Center, where he's expecting to promote six to eight shows this year.

"It would be more and has been more in the past, if it weren't for the tax," he said.

On May 21, Live Nation presented a Journey and Def Leppard concert at XL, which Koplik said was booked prior to the tax taking effect. He estimated the show grossed over $1 million in revenue, which would generate $100,000 for the state's coffers. But if those bands tour next year, a Hartford visit might be less certain, Koplik said.

"We really haven't seen the full impact yet. Some of these shows were already scheduled," he said.

Meanwhile, Koplik said he has been trying to convince Trans-Siberian Orchestra to return to the venue this Christmas, where it has played a number of times over the past decade. But he is skeptical about his prospects because of the tax.

And while Live Nation routinely tries to get Paul McCartney to play the XL Center (where he last visited in 2002), Koplik said the tax has reduced his confidence. This year, he decided not to put in an offer with the musician's management bookers.

Koplik said Connecticut is a secondary market where artists might need some enticing to perform.

He thinks it's ironic that the state would add a tax to a venue in which it has invested tens of millions of dollars in renovations and upkeep.

"As a businessman, I would never fund a business and then cripple it by putting a tax on it," he said.