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RSL's numbers add up - barely

Published December 12, 2006 12:26 am

$110M 'Project Beehive' to be tight on cash even if all the 'ifs' work out
This is an archived article that was published on sltrib.com in 2006, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

Real Salt Lake penciled an equation Monday for a successful Sandy stadium: Tap $57 million from a Wall Street powerhouse, add $45 million from taxpayers, boost attendance by 72 percent, push up ticket prices by 81 percent, and book three dozen other events a year, including star-studded concerts.

Oh, and land teen sensation Freddy Adu. The soccer phenom, acquired Monday, is sure to sell seats and stimulate peripheral interest.

RSL unveiled 50-plus pages of long-awaited and oft-promised financial data Monday to government number

crunchers and news reporters, proving "we're in this with all our heart," team CEO Dean Howes said.

The figures are "all real," he added, "not fluffy, upside opportunities for us."

But if Salt Lake County signs off on the stadium funding, RSL's finances still will be tight, according to a forensic accountant who reviewed the team's fiscal documents at the request of The Salt Lake Tribune.

"There isn't a lot of working capital in their model," said Ray Strong, a director with Salt Lake City-based LECG.

The documents for RSL's $110 million stadium plan - dubbed "Project Beehive" - show the team is counting on:

* Goldman Sachs - as half owner of the team along with Dave Checketts' SCP Worldwide - to supply $24 million from the firm's Whitehall real-estate fund. The investment giant also will secure a $33 million construction loan for the Sandy stadium, still scheduled to open in July 2008 for an exhibition with Real Madrid.

* Surging paid attendance, projected to leap from 9,861 a game this past season to nearly 17,000 in 2013.

* A steady uptick in ticket prices, bouncing from an average of $16.94 in 2006 to nearly $31 in 2013.

* A public purse of $45 million ($30 million from the county and $15 million from Sandy) along with a $15 million loan arranged by Sandy to be repaid through $3 ticket-surcharge fees.

* About $3 million a year from sponsors, including XanGo, which will see its company name stretched across player jerseys.

* College and youth sports organizations to rent the stadium for big games.

* Thirty-one high-priced stadium suites, including at least one to be available for public rent.

* Cross-promotion from radio station KALL-AM, which Checketts' company bought earlier this year.

* Up to 20 concerts a year, with an average attendance of 17,500 at a price of $35 to $45 a ticket in the stadium's first six years.

* Merchandise sales and concessions - although the team has yet to decide whether to sell beer, a staple at professional sporting events.

* And $1.5 million per year for stadium naming rights. The team points to Denver, whose Major League Soccer franchise has a $30 million, 15-year contract for Dick's Sporting Goods Park.

RSL ownership will be split 50-50 between Goldman Sachs and SCP Worldwide, though Howes insists the team will retain control.

"We want operational control," he said. "They want 50 percent ownership."

The team already has invested $24 million in the 2-year-old franchise, notes Howes, who points to a lucrative TV deal through the league as a means to retire some debt.

Still, after taxes, interest and depreciation, RSL does not project an annual profit - a mere $88 - until 2010. Three years later, RSL expects to net nearly $5.5 million.

Doug Willmore, the county's chief administrative officer, says county leaders haven't done enough analysis to form any judgments or conclusions. Along with Los Angeles-based consultant Economics Research Associates, the county number crunchers will take four to five weeks to review the business plan.

"We don't have any reason to doubt them at this point," Willmore said. "But we'll be doing our own verification."

Beginning next month, the county's Debt Review Committee will scrutinize the new spreadsheet before making a nonbinding recommendation to county Mayor Peter Corroon.

"This is a good, solid business plan that has been vetted over and over again," Howes said. "We believe ERA will say that as well."

Since the start of the stadium drama, county officials have maintained they must own whatever assets taxpayers help subsidize - in this case, the land and infrastructure, including parking.

The land estimate comes in at barely $12 million, meaning the county needs $18 million more in nonstadium assets.

That remains possible, according to Dave Kerschner, SCP vice president of development.

"We think there is $30 million [which the county has pledged] in value that they can own," he said, noting yet-to-be-named infrastructure upgrades near 9400 S. State do not factor into the $12 million.

Willmore says he wants to see an exact project list, not just numbers on a page.

"We haven't seen that yet," he said. "They're clear that they'll have to be able to provide that. And we'll have to verify it."

The presence of Goldman Sachs is reassuring for some observers.

Former Salt Lake Organizing Committee President Fraser Bullock, now a venture capitalist, is well-acquainted with the firm from his post-Olympic service as board chairman of the Utah Athletic Foundation, the nonprofit organization that oversees the Utah Olympic Park outside of Park City and the Utah Olympic Oval in Kearns.

The UAF retained Goldman Sachs to help invest the $76 million endowment left by SLOC after the 2002 Winter Games, an endowment that has swelled to $80 million.

"Goldman Sachs is clearly a world leader in the financial industry and has a stellar reputation," Bullock said. "They served as an investment adviser to the Utah Athletic Foundation and did a very good job for us. We still have some alternative investments through them that are performing well."

Even though Goldman Sachs has signed on, RSL's financial statements suggest the team may be in chronic need of cash to pay short-term operating expenses through at least 2013.

In that year, the company projects readily available cash assets of $828,000 to pay its ongoing expenses, such as utilities and payroll. At the same time, though, the company expects more than $6.8 million in short-term debts coming due.

That shortage of working capital could leave little wiggle room for the team to cover its day-to-day operations.

Strong, the forensic accountant, says RSL officials are short on cash because they appear to be using every available dollar to pay down debt - construction loans, stadium debt, radio-station-acquisition costs and more.

"If they're required to do so [use most of their available money to pay debts] things will be really tight for them," Strong said. "If they're not required to do so, they will have the option of using some of that money to pay their ongoing operating expenses."

He also questions some of RSL's "aggressive" projections - pumping up attendance by 72 percent in seven years while jacking up ticket prices by 81 percent.

"Their projections will need to be carefully analyzed and validated," Strong said. "Projections and forecasts are only as good as their underlying assumptions and they [county and Sandy officials] will want to make sure they fully understand how Real Salt Lake arrived at those numbers."

Gary Reimer, the team's chief financial officer, says he is confident government leaders will be satisfied with RSL's fiscal position.

"We'll make enough money to more than cover our debt service and have a cushion."






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