Virginia Beach Sports Center: City to pay operator before center is built, but make up for it later

Rendering of what the Virginia Beach sports center could look like (Courtesy of Eastern Sports Management via the City of Virginia Beach)
Rendering of what the Virginia Beach sports center could look like (Courtesy of Eastern Sports Management via the City of Virginia Beach)

VIRGINIA BEACH — City Council was briefed Tuesday on a comprehensive agreement for the operations of the The Virginia Beach Tournament and Event Center, commonly referred to as the “sports center.”

The agreement between the City of Virginia Beach and Eastern Sports Management solidifies a 10-year partnership for operating the sports center, with options for additional five-year terms if both parties agree.

As part of the agreement, the city will need to pay ESM at least $420,000 in “management fees” before the facility is open.

During the first 12 months of construction, ESM will receive $15,000 per month from the city, according to a summary of the agreement, for a total of $180,000.

In the following year of construction, the city will pay ESM $20,000 per month — a total of $240,000.

Once the center opens and begins generating revenue, the city will pay ESM $30,000 a month indefinitely, according to the agreement.

However, ESM will be required to make quarterly payments to the city based on gross revenues, less operating expenses and other fees.

Deputy City Manager Ron Williams said the type of bonding the city used — public facility revenue bonds — is what dictated the payment structure with ESM.

ESM will also be required to repay the $4.2 million in start-up costs paid by the city for furniture, technology, and fixtures, according to the agreement.

Related story: Virginia Beach moves forward with sports complex at Oceanfront

“We knew that this was a public-private investment going into this,” Williams said. “We estimated that investment being $2 million going into this, but after learning more about how things work, that number is now $4.2 million.”

Part of that deal involves an incentive structure that will pay ESM 6 percent of gross revenues during the first two years of operation. After that, incentive fees fluctuate between 4 and 7 percent, depending on how much revenue the sports center generates.

“The purpose of the management fee payments prior to opening is to offset some of the startup costs associated with hiring of staff, marketing and systems development required to be fully operational by opening day,” Williams said.

According to ESM’s operations proposal to the city, the sports center will “likely generate approximately $6 million in gross revenue when it approaches capacity in year 4 or 5 of operation.”

ESM’s proposal also forecasts the city receiving “approximately $56 million (in fees and tax revenue) over 20 years.”

The city will see many revenue streams with the sports center, including business license fees, hotel taxes from visitors attending sports center events, business property taxes, as well as meal taxes from the center and elsewhere.

ESM’s proposal estimates the city will generate $2.5 million in tax revenue annually by year five and $3.8 million annually by year 20.

Virginia Beach already has a field house on Landstown Centre Way, off Princess Anne Road. But a 2016 study concluded the city needs more space for traveling amateur teams, and building a new facility near the Oceanfront’s hotels would be most beneficial.

A tentative vote on the operator agreement is scheduled during City Council’s Dec. 4 meeting.

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