Kenner looks to save money in new Pontchartrain Center deal

Kenner Mayor Michael Yenni announced a new management contract for the Pontchartrain Center on Wednesday that is guaranteed to save the city roughly $95,000, and could finally turn the tide on the city’s substantial subsidies at the facility.

After months of negotiation, Yenni and SMG have agreed to a new deal that would eliminate the annual management fee the city pays the company and tie any future payments to how well the company reduces operating losses at the civic center, Yenni said.

In the past, the city has spent as much as $600,000 subsidizing the Pontchartrain Center, and in the fiscal year 2012-2013 budget the city projected about $443,000 in losses.

Under the new five-year agreement, the city still will be responsible for paying any deficits that Pontchartrain Center accrues while SMG manages it.

Right now, the center brings in about $1.3 million, and it costs slightly more than $1.7 million to run the facility, said Duke McConnell, Kenner’s finance director.

However, included in those operating expenses is the $95,000 management fee Kenner pays SMG, a fee that has been as much as $120,000 in the past, Chief Administrative Officer Mike Quigley said. The new deal eliminates that fee and instead says that SMG only receives a management fee if the deficit is less than $350,000.

The company would receive 100 percent of the first $75,000 it saves beneath that baseline and then a sliding portion of any additional savings.

McConnell characterized the deal as a win/win for the city.

“The city is going to pay less either way,” he said.

Yenni was more exuberant in his praise, calling the deal groundbreaking for the city. The Pontchartrain Center was built to be an economic driver for Kenner, but in recent years it’s come under fire as a financial albatross. Yenni said that when his office began renegotiating the deal in 2011, it was with the goal of helping Kenner financially, and he believes that’s been accomplished. The Kenner City Council will likely be presented with the agreement in April, although Yenni briefed all board members during the process.

“This is the best deal in the history of Pontchartrain Center,” Yenni said.

Kathleen Turner, SMG’s general manager of the Pontchartrain Center, said the company believes that it has a plan in place that will grow events at the facility and earn SMG a management fee. As part of the deal, SMG is dedicating $100,000 to a marketing fund that will be managed by the Jefferson Convention and Visitor’s Bureau. That’s in addition to $50,000 the city already dedicated to that agency last year to market the Pontchartrain Center as part of a new marketing deal for the city as a whole.

Turner said that with better marketing, the center can attract different sorts of events from the sporting tournaments that have dominated its offerings in the past, although those events will still be there. Last month the city announced new seating at the center designed to help in those efforts, and Turner said SMG is working to help new local events get started.

“With this marketing fund, we will be better able to compete with some of the other markets,” Turner said, noting that all of the facility’s revenue comes from rent to vendors and concession sales. “(The deficit) is not going to jump down immediately, but we are very confident with the partnerships we have.”

Both McConnell and Turner said it’s unrealistic to expect the civic center to ever turn a profit. Turner noted that the Ernest Morial Convention Center in New Orleans loses millions of dollars annually. However, civic centers can bring visitors to communities and benefit other businesses. That’s the goal for the Pontchartrain Center, McConnell said.

“The city didn’t build the civic center to make money,” he said. “It was done for economic impact on the city.”

If the deal is approved by the council, the new performance-based fee would begin in July. The contract also includes a five-year renewal option, and Quigley said that two companies were involved in negotiations for the management deal. McConnell said that in the history of the Pontchartrain Center the facility has never posted an operating loss of less than $350,000.