Click here for the the fiscal year ending June , 2014 financials.   First thing we need to review is the SMG management fee which has two components:

 

How to calculate it

Fixed fee  (page 18)

  • 2013  305,467
  • 2014   last year’s fee times CPI (1.4%)  = 309,744
  • Next year this fee will be 309,744 times CPI =  approximately $315,000

Incentive Fee (page 18)

  • 50% of all revenues that exceed $4,000,000
  • this amount can not exceed the fixed fee

 

SMG total fee in 2014  (page 19)

Incentive

  • revenues were $5,755,866
  • exceeded $4,000,000 by 1,755,866
  • 50% of that is 807,843
  • can not exceed fixed
  • incentive = 309,744

 Fixed

  • 309,744

Total

  • 619,480

 

There is nothing is these financial that refer to profitability of the DCU in reference to the SMG mgmt fee; for example, if there were no revenues next year, the City of Worcester would still owe the fixed fee which should be approximately $315,000.   On the other hand if the DCU had $10,000,000 in revenues and lost $2,000,000, SMG would get their fixed fee ($315,000) and max out of their incentive (315,000) for a grand total of $615,000.    The optimal target revenue number for SMG is $4,630,000 next year:

  • fixed fee:  315,000
  • 50% of the revenues that exceed $4,000,000 = $315,000
  • 630,000

Anything above $4,600,000 of revenues., SMG still get $630,000.

Profitability of the DCU (page 4)

  • 2013    $335,480 which (100%) was paid out to the City of Worcester
  • 2014    $488,098 which (50%) was paid out to the City of Worcester =  244,515

There is not splitting or profits between the DCU and SMG.   The remaining 50% of last year’s profit remained within the DCU center and increase the cash position of the DCU.    Neither component of the SMG fee, either the fixed or incentive again has anything to do with the profitability of the DCU.

As far as naming rights, we do see any splitting of that either but it appears to show up under revenues.  We need to look into this further, maybe it is ancillary or advertising income?

60,000,000 million more in investments

Right now we have over a billion dollars (B not M) in OPEB and unfunded pension liabilities, is it really a priority to invest another 60,000,000 into the DCU especially when the current profit based on the last two years is only $400,000 per year?    Consider this, we may be losing the Sharks.     If we do what will happen to the bottom line then???

 

Conclusion

Lets take off the table and all agree that everyone at SMG are great people and they do a good job.   Here, however,  are the questions:

  • How do you feel about an asset like the DCU that only returns 400,000 per year income to the City of Worcester?
  • Do you really think it makes sense to invest another 60,000,000 into it?

How is this any different then the airport?  We owned that and saw the advantage of selling it to Massport.  In this case what about the Mass Convention Authority?   Better yet, why do we not simply put out a bid for flat long term lease (privatization) of the DCU?    In the end a much as we did not belong in the airport business, the City of Worcester does not belong in the convention business when we have other pressing more important priorities like the unfunded pension and OPEB liabilities that exceed one BILLION dollars.