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SMG And Local Producers At Odds About Coliseum Management

SMG willing to work with local producers; expects coliseum to turn a profit


April 8, 2004
Copyright © 2004 CARIBBEAN BUSINESS. All Rights Reserved.

The new Puerto Rico Coliseum is an excellent opportunity for the island to fall into step with the thriving worldwide entertainment industry. SMG Entertainment, which signed a government contract to manage the coliseum, claims it will do just that. Local producers and artists, though, have criticized SMG’s involvement, saying it will strangle local producers’ business.

According to Jay Hagerman, the coliseum’s interim manager, for the island to offer world-class entertainment events, it must adopt the modern standard operating procedures used stateside, in Canada, and in many countries in Europe.

That is why the local government has signed a three-year contract worth $900,000 with Philadelphia-based SMG. Under this contract, the world’s leading company specialized in operating, administering, and maintaining convention centers, arenas, stadiums, coliseums, and the like, will have the rights to operate the soon-to-open facility.

Hagerman considers that with SMG, the coliseum is in good hands. According to him, the Government Development Bank’s (GDB) contract with SMG wasn’t a reckless gamble and SMG’s successful record acts as its letter of recommendation.

SMG manages 168 entertainment, sports, and convention facilities in Alaska, Hawaii, and other states on the U.S. mainland. According to Hagerman, who has worked at SMG for 17 years and has led SMG operations in England, Alabama, Los Angeles, and Missouri, the company manages 99% of the government-owned sports, convention, and entertainment facilities stateside. In addition, it runs facilities in England, Northern Ireland, Norway, and Germany.

"We will act as agents of Puerto Rico’s government. We aren’t producers, and we don’t intend to be producers here," said Hagerman. He said he can’t fully understand what motivates local producers to criticize SMG’s plans to operate the coliseum. "We are willing to work with every local producer," he said.

According to the coliseum’s Marketing Director Jochi Davila, for the past two years, SMG has met with local producers to explain the ins and outs of the coliseum’s operations and SMG policies. He claimed producers had never complained or voiced major concerns till now, right when the coliseum is set to open on June 29.

During the past weeks, the well-known producer Angelo Medina has led others in the local entertainment industry, including Danny Rivera, Andres Jimenez, Tego Calderon, and Ednita Nazario, in denouncing SMG, saying their requirements and limitations for local producers would strangle their business. Under SMG management, local producers would have to pay rent for using the stadium, and would lose control over the box office and the choice of sponsors, among other things.

The local artists and producers urged the legislature to create a board of directors to oversee the coliseum’s performance and to give preferential treatment to local producers in scheduling events at the facility. In response, Sen. Jose Ortiz Daliot has filed a bill to create a government agency to run the coliseum. The Legislature is now conducting public hearings on the issue.

Nonetheless, the requirements SMG would place on local producers are standard for coliseums elsewhere, and Hagerman pointed out that Medina is well aware of that. The promoter, who was Ricky Martin’s agent till last year, has done business with SMG during one of Martin’s stateside tours, scheduling a series of concerts for him at five facilities operated by SMG.

Davila agreed. "Some of our producers have scheduled events stateside. They go over, and they follow the rules, whether they are dictated by SMG, Radio Music Hall, or Madison Square Garden," he said.

Hagerman believes it is unnecessary to create a board of directors for the coliseum. "We already have a board of directors: the Industrial, Tourist, Educational, Medical & Environmental Control Facilities Financing Authorities [Afica by its Spanish acronym] board," he said. The government board has the responsibility of ensuring the coliseum turns a profit. "This coliseum cost $230 million; the government is required to make this facility a profitable venture, because [it is using] taxpayers’ money," he said.

The Puerto Rico Coliseum, recently renamed Jose Miguel Agrelot Coliseum, is a multipurpose facility that can serve as an exhibit hall, basketball court, skating rink, and concert stage. The project came to a halt when Gov. Sila M. Calderon took office in 2001. The Calderon administration claimed the coliseum had multiple problems and considered demolishing it.

Promotion & profits

Hagerman explained that throughout the years, governments have realized that transferring some of its responsibilities to the private sector is a good move to reduce bureaucracy and run properties more efficiently using business-oriented policies to make a profit.

"We operate on a fixed budget," he said. Following the terms of the contract, the government pays the coliseum $300,000 per year. If profits exceed the predicted sales figure, it could rake in up to $100,000 in additional profits. Hagerman said the Puerto Rico government’s contract terms are similar to those in other accounts SMG operates stateside.

He said the coliseum is a world-class entertainment facility that is comparable to others on the U.S. mainland in quality and construction. Because SMG operates numerous facilities worldwide and its marketing efforts promote all the company’s properties, it is in the position to attract more business to Puerto Rico.

In fact, the company is already in negotiations with a series of event producers to bring several events to the island this year. These include an important boxing match, an exhibition NHL hockey game, major family shows, some corporate exhibits, and a special show to inaugurate the coliseum to replace Ednita Nazario’s presentation, cancelled by Medina.

A state-of-art facility requires new ways of doing business

Hagerman noted that in Puerto Rico, show business is still run as it was in the States during the ‘70s, when producers had control over all aspects of the event.

At that time, producers worked under a four-wall rental concept: they rented facilities, had control over the box office, ran the food & beverage sales, handled sponsorships, and dealt with the overall logistics of the event. These are some of the things SMG will no longer allow producers to control.

"We are changing the way a facility operates in Puerto Rico and that change is necessary to ensure a high-quality product. People will be able to enjoy events they had never seen before on the island because there was no facility for them. More importantly, we are ensuring that the coliseum will make a profit for the people who paid for it, i.e., the taxpayers," Hagerman said.

Running the coliseum and maintaining it in optimum condition requires an annual investment of $5 million dollars. The coliseum must also earn money to ensure its basic operations, and it is projected that the property will generate up to $2 million to repay its $230 million debt with Afica. The money will come from the concession stands, sponsorships, and the coliseum’s rental.

Hagerman said the old way of running a coliseum, where the producer pocketed much of the profits from the four-wall rental, won’t work under this model "You can’t have a $230 million building run as it was in the past because the revenue must return to the building’s owner [in this case the government] to ensure its proper operation and maintenance. Puerto Rico will benefit from SMG’s accountability and operating procedures, which will ensure the coliseum’s successful operation," he said.

Producers willing to present their events at the coliseum will pay a minimum of $24,000 in rent or 30% of the event’s box offices sale up to $85,000, whichever is greater.

Hagerman disagreed that offisland producers will adversely affect local producers’ operations. "If off-island producers want to do business here, they need to hire a local producer to do so; when we promote the coliseum abroad we give our potential customers a list of Puerto Rico producers. We tell them they have to get a Puerto Rico producer’s license and must hire a local producer as their agent," he said.

He also emphasized that if the coliseum’s operation is to be successful, the coliseum operator has to provide a high-quality product. He added that for that to happen, there has to be continuity at the management level.

He used concession stands as an example. The local coliseum’s concessions operator, Chicago-based Levy Restaurants, was hired by the government and will be responsible for 138 points of sale, 22 suites, and four party suites. "The four party suites that have to be given VIP treatment…for a producer [to do this] every time there is an event, they would have to hire a new food & beverage operator," he said. In his opinion, the task would be impossible.

SMG will also hire a company to provide security and usher services at all events, which will give continuity to the events. "We will train our staff in customer service and in evacuating people if there is an emergency. We can’t take any chances. People will see familiar faces each time they visit the coliseum. This will provide them with better experiences," said Hagerman.

This Caribbean Business article appears courtesy of Casiano Communications.
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