Sports center operating at profit

On Nov. 25, 2013, after many months of controversial discussion and public debate, Forest Lake Area School District officials finalized the purchase of the Forest Lake Area Athletic Association Sports Center.

One of the main concerns from those opposing the district’s plan to purchase was a fear that the sports center and ice arena would not be able to turn a profit for the district, but the arena is now taking in more money than it costs to operate the facility.

“We were able to make $50,000 in operating income in the first year, and we are estimating that number to increase to $90,000 in year two due to the fact that there are (fewer) scheduled repairs to the facility,” Business Director Larry Martini said. “What that means is that we put enough money into the general fund in year one to buy a teacher.”

The facility includes a year-round ice rink plus a multipurpose domed structure that offers a second ice rink in the winter and artificial turf for field sports the rest of the year. There are locker rooms for home and away teams, plus rooms for coaches and officials. Forest Lake Cycle and Skate sells hockey equipment in a pro shop on the ground level. On the second story are a concession area with windows that overlook both playing surfaces, offices, and a conference room.

Though the arena is bringing in money, Martini noted that “operating income” does not take debt service into account.

“Because of the way school districts are structured, you have the general fund and then you have other funds,” Martini said. “This is an opportunity for us to add revenue to the general fund as debt service is handled in a completely different fund.”

History

The Forest Lake Area Athletic Association originally built the sports complex in 2008 after the school district closed its Maroon and Gold Arena located on Southwest Fourth Street due to the expenses associated with operating that facility as a hockey venue. It is now used for school district offices.

FLAAA started fundraising in 2007 for the new facility, located near the Forest Lake Airport at 5530 N. 206th St. The group accepted grants from the Hallberg Family Foundation, the Fred C. and Katherine B. Andersen Foundation and the Hardenbergh family. The Lichtscheidl family, owners of Forest Lake Cycle and Skate, donated money for naming rights, and other businesses bought advertising rights and hosted fundraisers. The local soccer association provided used turf for the floor of the fieldhouse, and the land the facility sits on had been sold at a bargain price to the city by former airport owners Tom and Kay Doherty.

FLAAA raised more than $1 million on its own and borrowed $4.5 million to build the ice arena complex in 2008. However, four years later, the group approached the school district and offered to sell.

As a mostly volunteer organization with only one actual employee, FLAAA found it difficult to keep up with the administration and accounting aspects of owning the facility. The weak amount of summer income was not enough to cover debts, so a large part of the burden was laid upon the hockey-heavy winter months.

After hiring a consultant to predict operating expenses and income, the school came up with a financing plan to purchase the arena. The plan was rejected twice by the Minnesota Department of Education. The City Council also nearly refused to waive $117,000 in development fees for fear of setting a precedent, which put the plan in doubt. Eventually, the council voted 3-2 in favor of waiving the fees, and the school came up with an alternate financing plan that was approved by the Department of Education. The district agreed to buy the ice arena through a 20-year lease purchase agreement for $3.3 million. The difference between the purchase price and outstanding debt was absorbed by the four local banks – Village, Frandsen, Mainstreet (now Central) and Patriot (now First Resources) – that financed the building project.

Debt service

The first-year debt service on the ice arena’s 20-year financing deal is approximately $100,000. If debt service is considered along with operating costs and revenues, the arena would be considered to operate at a net loss of $50,000. However, Martini said there are multiple ways to look at the situation.

“People will say that it is not profitable, and I will say that I am able to fund a teacher, and almost two teachers in the second year,” Martini said. “We were transparent with everyone involved that it was our goal to get more money for the general fund.”

With a plan already in the works to add solar panels to the ice arena property both on top of the building and mounted to the ground, Martini predicts that future revenues will rise even higher.

“We know we are going to make a big splash once all of the solar is interconnected,” he said. “A hockey arena is a big electricity user. The ice-making plant uses quite a bit of electricity. It is likely that I could see a $40,000 to $60,000 saving.”

According to Martini, the facility was originally built for $5 million, and the school purchased it for approximately $3 million. The property’s value will increase soon as the school paves some of the parking lot around the building. The city of Forest Lake is the landlord for the land that the building sits on through 2046. After that arrangement expires, the school could look to own it all. The appraised worth of the facility and the land is currently $11 million.

“With a plan for increased advertising, more rentals, and less money spent on repairs, we are looking at an eventual profit to the operating income of $150,000 per year,” Martini said.