NASCAR White elephant: Banks asked to take it on the chin for $17.6M (Update)
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| Like every other money losing business, the NASCAR Hall of Fame 'White Elephant' should be shuttered and the building sold so the banks can recoup some of their losses. |
The city of Charlotte has proposed making a one-time payment of $5 million to Bank of America and Wells Fargo on a construction loan for the NASCAR Hall of Fame – but the banks would be required to write off the rest of a $19.1 million loan.
In addition, NASCAR has agreed as part of the plan to waive $3.2 million in past royalties it was supposed to receive from the racing museum. The Charlotte Regional Visitors Authority, which operates the city-owned hall, hasn't been able to pay NASCAR any royalties on ticket sales, merchandise, and food and beverages because the hall has been losing more than $1 million a year since it opened in 2010.
The proposal is part of a city plan to get out of about $22.8 million of NASCAR hall obligations. If the deal is approved, the hall would also be given a break from future payments owed to NASCAR.
"The whole goal is to bring the hall into a break-even position," said Deputy City Manager Ron Kimble.
The City Council, which heard the proposal Monday, will vote on the loan modifications next week. But even if the agreement is approved, the hall is still estimated to lose between $200,000 and $500,000 a year in the future.
The hall was supposed to attract 400,000 visitors a year. Last year, it attracted 170,000 people. CRVA chief executive Tom Murray said he's confident that annual financial losses can be eliminated eventually.
The city's proposal comes as Charlotte is considering another private-partnership project to increase tourism – a possible $37 million investment in an amateur sports complex near Bojangles' Coliseum. Kimble, who is also working on that project, said he's still confident in that and other projects despite the hall's poor financial performance.
"We just have to do the best (financial) modeling possible," he said.
When the hall was built, the primary source of funding was a new 2 percent hotel/motel tax. But the city also took out two loans from Bank of America and the former Wachovia that were about $20 million each.
– One of those $20 million loans is backed by the sale of public land that surrounds the hall, near Interstate 277. The city has sold one piece of the land and has a contract worth roughly $10 million to sell another section of land on Stonewall Street. The city is confident that property will eventually sell and the full loan will be repaid.
– The other loan – worth $19.1 million – was backed by the sale of commemorative bricks and corporate sponsorships for the hall.
The hall sold far fewer bricks than expected. And the value of sponsorships has also declined, the hall acknowledged Monday.
The city hasn't yet paid any money toward that $19.1 million loan, and $3.5 million in interest has accumulated. The city said the value of sponsorships is now about $500,000 a year. That could decline if sponsors declined to renew their contracts.
As part of the deal, the CRVA would give Bank of America and Wells Fargo free corporate sponsorships, which the city said are worth $250,000 a year for each bank.
The two loans were "no-recourse loans," meaning the banks couldn't seize assets if the loans weren't paid.
The two sides were in a standoff. The banks could accept whatever sponsorship money trickled in. And the city could continue to have nearly $20 million in obligations it wasn't paying, an embarrassing situation.
The banks and NASCAR have agreed to the proposal, Kimble said.
The city and the CRVA could have chosen to pay off the loans from other sources, including hospitality tax reserves. Tom Murray of the CRVA said he felt the tourism authority had already contributed to trying to solve the hall's deficits.
Council member Ed Driggs, who supports the loan changes, said the banks had made a bad loan.
"This is not a $14 million gift from the banks," Driggs said. "They were looking at (a loan) that was uncollectable otherwise."
The $5 million payment to the banks would come from the city's hospitality taxes, which are levied on hotels and motels, as well as restaurant and bar tabs.
Under the original agreement, NASCAR was supposed to receive as much as 10 percent from hall revenues. Because the hall wasn't making money, those payments haven't been made.
In addition to wiping out past royalty payments, NASCAR agreed that its future royalty payments would be cut to 3 percent of revenues. But those royalties are only paid on hall revenues over $10 million.
That may not occur for a while. Hall revenues have been less than $9 million annually, the city said.
Kimble, Murray and hall director Winston Kelley all said Monday that the racing museum was a key part of the city's overall tourism strategy. Charlotte Observer
01/04/15 Efforts to persuade two banks to forgive a $19.1 million loan to the city of Charlotte that helped build the NASCAR Hall of Fame appear to have made progress, with City Council members set to hear about "proposed amendments" on Monday to that agreement.
On Friday, Deputy City Manager Ron Kimble wouldn't talk about the proposed amendment or the negotiations, saying council members needed to be updated first on the so-called sponsorship loan and another agreement concerning NASCAR royalties.
But an agenda item that Kimble wrote for Monday's meeting suggests that some agreement has been reached, with council members hearing the proposed changes. They won't take action until their Jan. 12 meeting.
In November, the Observer reported that the city and the Charlotte Regional Visitors Authority, which manages the racing museum, had begun negotiations with Wells Fargo and Bank of America to forgive the loan. Growing to $21 million with interest, it was supposed to be repaid from the sale of sponsorships and commemorative bricks. Yet money from those two sources hasn't come close to paying off the loan.
When the hall opened in 2010, NASCAR was supposed to get royalties on such items as tickets, T-shirts, and food and drinks – but only if the museum was making money.
The facility has lost money, according to the CRVA. It lost $1.4 million for the fiscal year that ended in June, and $1.6 million the previous fiscal year. But CRVA leaders are hopeful that the hall's finances are stabilizing with attendance essentially leveling off.
Still, no royalties to NASCAR have been paid.
Kimble wrote as background in his agenda that the city, CRVA, NASCAR and the two banks have discussed "strategies by which the financial performance of the Hall of Fame could be enhanced through mutual participation of all parties."
He declined to elaborate Friday.
But Wells Fargo spokeswoman Elise Wilkinson said the bank is working "closely" with the city "to reach a solution with regards to the sponsorship loan." She said the bank continues to support the hall.
Bank of America spokeswoman Nicole Nastacie said the bank doesn't typically comment on client relationships.
There is precedent to such loan restructuring. Four years ago, the U.S. National Whitewater Center persuaded banks to forgive much of its $38 million in construction debt.
Most of the $200 million hall is being paid for by a special 2 percent hotel/motel occupancy tax. However, the city and CRVA got the sponsorship loan and a second $20 million construction loan that is backed by the revenue from expected sales of city-owned land near the hall. Sale of that land near Interstate 277 stalled during the recession, but the city has started selling some parcels, including a 3.6-acre parcel across from the hall.
The discussions with the two banks about forgiving the sponsorship loan began last April, when Kimble emailed a now-retired Wells Fargo executive Carlos Evans to ask if the bank would consider the request. Kimble wrote that he hoped they could agree on "extinguishment of the sponsorship loan" before the executive retired.
A week later, Evans wrote a reply that he and others had discussed options for resolving the debt.
"We realize the hall is a problem," Evans wrote. "We are willing to do our appropriate share in helping put the hall on an even financial footing as we realize the hall benefits this community on many different levels."
He said none of the bank's proposals involved "a full forgiveness of debt. … That would tilt the scales too far with the banks doing way more than others in a situation where we all need to be sharing the pain." Charlotte Observer