IV. Financial Analysis
This section of the report examines the financial performance of the Southeastern Kentucky Agricultural & Exposition Center.  Specifically, it looks at the revenue and expense potential, and resultant surplus/(deficit) for the Corbin facility.  It is based on the assumption that the facility will be approximately 115,000 square feet, which includes a fixed seating capacity up to 5,000 and 30,000 square feet of exhibit space.  Several meeting rooms will also be available for small local meetings and social events.

No assumptions have been made about funding of the facility’s capital costs, or the ability of the facility to service any short-term or long-term debt obligations issued for its development.  The analysis incorporates the experience of other similar facilities, as well as the pricing structure of existing regional facilities. All dollar amounts are expressed in 2005 dollars.

Financial Parameters
The analysis of financial performance has been structured using revenue and expense parameters that were developed by ERA based on the following: fees and charges at comparable facilities, modified to meet local requirements and needs; and the operating experience of comparable civic center facilities in terms of event financial performance.  ERA assumes a “bare box” management strategy, where the facility is provided to others who organize, sponsor and promote events.

Financial projections are based on a stabilized performance in year three.  Events in years one and two were discounted to reflect the realities of attracting and retaining events and attendants during the initial opening of the facility.  A moderate estimate of attracting one to two events per year after the facility is stabilized is also reflected in the financial model.

Revenue Parameters
The two principle revenue categories are rental and non-rental revenue.  Rental revenue was estimated based on the following daily rates: commercial arena configuration, $2,500 or 10 percent gross ticket sales; non-profit arena configuration, $500; exhibition configuration, $1,000; and meeting space, $250 for a large gathering (up to 200 people) and $100 for a smaller gathering.  It was assumed that concerts and family shows would generate overage rental, therefore rental revenues from these events are based on 10 percent of projected gross ticket sales.  Other commercial arena events, including performing events and religious meetings, were charged a flat fee of $2,500.  The rental rates selected for the proposed facility reflect what ERA believes to be a competitive rate in this market context, and rates which reflect the location of the facility.

Non-rental revenue covers concession sales, which is expected to be the facility’s largest source of revenue and sponsorship. Concession sales revenues were based on estimates of per capita expenditures, which vary by event-type.  ERA estimates that concession expenditures will range from $1.00 per capita for performing arts events to $2.00 per capita for family shows, sports events, and concerts.  Sponsorship revenue was based on a lump sum budget estimate of $45,000 in the first year, $47,500 in the second and $50,000 in each year thereafter.

Expense Parameters
Operating expenses can be divided into two principle categories, salaries and wages and other expenses. The majority of expenses within this category are fixed, representing the annual salaries of full-time and part-time personnel.  Fringe benefits were estimated at a fixed percentage of 30 percent of total salaries.  Security is the one variable component in this category, estimated at two man-days per event at $10.00 per hour.

The other expenses category also has fixed and variable components.  The largest single expense in this category is concessions, a cost factor estimated at 80 percent of gross concession sales. The fixed components include the following: supplies and materials, a lump sum budget estimate of $20,000 in the first year and $20,000 each year thereafter; maintenance and repair, estimated at $1.20 per gross square foot of building area at stabilized year; and the promotional budget, $40,000 allotted to cover press kits, brochures and general area promotion for the first year with $35,000 during stabilized year.  Utilities were estimated at a fixed $1.35 per square foot.  Miscellaneous expenses have been computed at five percent of gross revenues.  Miscellaneous expenses would cover all expense items not included in individual accounts above, such as, travel, dues and subscriptions, audit, legal expenses and miscellaneous supplies.

Facility Utilization
Based on the stabilized year projection of 149 event days, ERA estimates that during the first year of operation, the facility could generate roughly 123 event days. Local and non-profit events will likely utilize the space at a higher percentage than outside events during the initial start up years.  The larger spectator events will take more time to attract and therefore were discounted by 20 percent and 10 percent respectively before estimated stabilization in Year 3.
Table 8:  Event Days by Utilization, Years 1 - 5

Pro Forma Analysis
Tables 9 through 11 present ERA’s analysis of the financial performance of an 115,000 square foot facility.  This analysis incorporates the revenue and expense parameters discussed above and is based on the schedule of events outlined in the market analysis.  As shown in Table 9, total revenues are estimated to be $566,510 in the first year, rising to $737,420 by Year 3.  Concession sales represent the largest revenue source, approximately 55 percent of the total, while rental revenues account for 38 percent of total revenues.  
Table 9:  Estimated Operating Revenues, Years 1 -5
Year 1 Year 2 Year 3 Year 4 Year 5

Operating expenses are estimated to total $902,988 in Year 1, growing to $1,056,061 by Year 3. Salaries and wages account for 31 percent of total expenses, while other expenses account for nearly 70 percent.  Concessions represent the largest single expense. See Table 25 in Appendix 3 for expense input assumptions.

Year 1 Year 2 Year 3 Year 4 Year 5
Table 10:  Estimated Operating Expenses, Years 1 - 5

The Southeastern Kentucky Agricultural and Exposition Center is expected to operate at a deficit of $336,478 in its first year, decreasing slightly by Year 3 to $326,424. This can be attributed to the stabilization of the facility through the addition of revenue-generating event days. As is typical for almost all civic center facilities, the deficit must be made up from a dedicated funding source, such as the restaurant tax, and if necessary, through public appropriations.
Table 11:  Financial Feasibility, Years 1 - 5
Year 1 Year 2 Year 3 Year 4 Year 5