When the city of Charlotte won the bidding for the NASCAR Hall of Fame, it designed several layers of protection if the hall should post an operating loss. The firewalls were designed to keep the hall from eating into money designated for other tourism venues, as well as the city's general fund, which funds police, fire and roads.
With the hall having lost $280,000 in August, some City Council members are concerned about its finances.
Democrat Nancy Carter said she believes the hall will improve financially, but is worried about its impact on other venues operated by the Charlotte Regional Visitors Authority (CRVA), an arm of the city. Two of those venues are Bojangles' Coliseum and Ovens Auditorium in east Charlotte, which Carter represents.
"I think (the hall's finances) are going to be fairly scrutinized," said Republican council member Edwin Peacock about a scheduled City Council discussion about the hall in late November.
City officials have said emphatically that the city budget isn't at risk, with Assistant City Manager Ron Kimble promising "there will be no invasion of the general fund."
First-year attendance was estimated as high as 800,000, and the budget was based on an attendance of between 575,000 and 600,000.
So far, the hall has fallen short.
Attendance has been just under 57,000 for July and August, the first two months of the fiscal year, and the hall said unofficial numbers for September are a little more than 16,000. That suggests that in September the hall could have also run a deficit.
The hall's net deficit after July and August is $190,000.
More visitors in October
But the hall has had a much better October, boosted by the Bank of America 500 in Concord on Oct. 16. In the 10 days before and after the race, from Oct. 9 to Oct. 18, the hall said it had 16,500 visitors, its best period since the spring races in May.
"We were packed," said Tim Newman, chief executive of the CRVA.
Earlier this month, the CRVA said it might cut up to $3million in expenses and would revamp its marketing strategy to focus on locals.
The CRVA hasn't said the rock-bottom monthly expense that the hall needs to operate or whether the hall's projected revenue will match that.
The hall's initial budget calls for $16 million in expenses. Some of those expenses aren't fixed costs and will drop if revenue does. For instance, the city's agreement with NASCAR calls for the sport's governing body to receive about 10 percent of all hall revenue. If revenue is down, so is NASCAR's royalty.
It appears the hall has already begun cutting. The hall budget called for $2.4 million in expenses for July and August, while actual expenses were $1.6 million.
If those expenses were consistent throughout the year, the hall's annual expenses would be around $9.5 million.
The hall so far is on pace to produce about $8.6 million in revenue if numbers for July and August are consistent for the rest of the year. But it will be difficult to maintain July and August numbers in the winter. The hall has said its attendance for the year could be as low as 250,000, which would translate to roughly $6 million in annual revenue.
How would the CRVA handle an operating deficit that could be as high as $3.5 million?
Hall officials have said they might continue cutting and might even close one day a week, according to the Charlotte Business Journal.
But they declined to say how else they might tackle a deficit, saying it would be a "decision that would have to be made by the CRVA Board."
After cutting hall expenses, the CRVA's first strategy would be to handle the deficit internally. If that doesn't work, the CRVA would have to ask the City Council for extra money from the hotel/motel occupancy tax and the 1 percent prepared food and beverage tax.
It appears that those taxes - which don't fund general city services - have produced enough money to keep the hall afloat for several years.
Ways to fight a deficit
Some ways the CRVA could fight any deficit would include:
In the agreement with NASCAR, the city said it could use NASCAR's royalty to cover any operating loss. But when the city agreed to spend an additional $31 million on the hall in 2008, NASCAR agreed to give the city the first $1 million in royalty payments it receives from the hall each year for the next five years. Until the hall reaches $50 million in revenue, which could take as long as eight years, the city would be taking money from itself to pay any operating loss.
Tim Newman, chief executive of the CRVA, declined to say whether the hall might ask NASCAR for financial help.
When asked by the Observer whether NASCAR would help the hall financially, spokesman Scott Warfield said: "We are fully committed to the success of the NASCAR Hall of Fame and anticipate many great years. Any additional support we provide is something we'll decide upon down the line if needed...."
The CRVA has a reserve fund of $3.4 million, and tourism officials have said that could be used to cover an operating shortfall. The problem is the hall could exhaust that fund quickly, and there are signs that other CRVA facilities are also struggling with the recession.
Ovens Auditorium and Bojangles' Coliseum are city-owned and operated by the CRVA. The city gives them a combined annual operating subsidy of nearly $600,000, but after the first two months of the fiscal year, the coliseum and Ovens were running an operating deficit of $356,000, suggesting the two venues might need more financial assistance.
In an e-mail, the CRVA said "there is no concern" because summer is typically slow for the buildings. Newman added the CRVA has a new booking agent for the buildings, and that he expects more business.
The CRVA said its reserve fund would cover any shortfall from Bojangles' and Ovens.
The CRVA said it doesn't have a policy on how much its reserve fund must hold.
Another option is to shift money from the Convention Center to the hall, something the CRVA has done. The original pre-opening budget for the hall was $5 million.
But the CRVA budget lists $7.6 million in expenses on the Hall of Fame before it opened May 11. The CRVA used $2 million from the Convention Center to help pay the extra costs.
The CRVA said much of those additional expenses were for a convention center ballroom attached to the hall.
The next level of protection after the CRVA reserve fund would be a special NASCAR Hall of Fame reserve, which is now at $23.5 million.
That fund has been built over the last three years from the special 2 percent hotel/motel tax dedicated to the hall. That reserve could help the hall in a short-term pinch, but much of the money is needed for other uses.
For instance, NASCAR and the city agreed that the reserve fund would pay for maintenance on the hall, as well as exhibit changes, which will be necessary to keep attracting visitors. An agreement with NASCAR calls for the fund to start at $10million and grow each year.
In addition, the reserve fund must help pay for any expected shortfalls in the city's debt payment on the $200 million hall. In the next few years, the hall might not have enough sponsorship revenue to pay part of its construction debt, and the reserve fund would have to cover that.
The City Council would have to approve any payment from the reserve fund.
If the CRVA doesn't tap into the hall reserve fund, it could ask the city to tap a $54.6 million Charlotte Convention Center Fund.
City policy is to have at least enough money to pay for a year of debt service on the convention center, which is currently $22 million.
City officials say there is no cause for alarm, and there are several ways to cover any operating loss without using general tax dollars.