Heat’s Success Boosts Revenue at AmericanAirlines Arena

By Steve Harrison

Miami Heat’s success boosts revenue at AmericanAirlines Arena

Shaquille O’Neal’s arrival in Miami and the Heat’s playoff wins have been a boon to the AmericanAirlines Arena.

Revenues — including luxury suites, concessions and event rentals — have risen steadily since opening and are expected to climb another 16 percent this season.

But the arena has yet to turn a profit, meaning Miami-Dade County — which owns the arena — won’t share in the Heat’s success.

When the Miami Heat and the county partnered to build the state-of-the-art arena in the 1990s, the deal allowed the county 40 cents of every dollar in profit above $14 million annually over the team’s 30-year lease.

The arena operates in the black — until the Heat subtracts a portion of the cost of building the facility, which it’s allowed to spread over many years. That hefty expense so far has turned profits into losses.

For example, after the 2004-05 season, the arena showed an operating profit of $18.8 million. After the amortized expense, plus interest on outstanding loans, the arena’s bottom line for the year: A $3.69 million loss.

Heat executive vice president and chief financial officer, Sammy Schulman, said, "It’s hard to say" when the arena might clear $14 million.

"The building is doing well now," Schulman said. "We anticipate at some point we would have revenue sharing, but it’s hard to project."

The county isn’t counting on anything.

"It’s unlikely they’ll reach the $14 million mark," said Rachel Baum, finance director for Miami-Dade County. "But that’s the agreement."

When the Heat clamored to replace the Miami Arena, the county offered valuable bayfront land, which it bought from the city of Miami. It also agreed to contribute $8.5 million annually toward operating costs from hotel taxes, though it receives a $2.1 million annual credit for American Airlines’ naming rights payment.

The Heat financed and paid for the arena’s construction and assumed responsibility for cost overruns. The team has a 30-year management agreement to run the arena. The county will have full control of the building and land in 2030.

Like many NBA teams, the Heat are secretive about its finances. Arena revenues and expenses don’t include the team’s ticket sales, its TV revenue or player salaries, and owner Micky Arison has said the team loses money.

But documents detailing the arena’s finances required by the county give some insight into one slice of the basketball business.

The arrival of Wade and O’Neal — and the team’s resurgence after poor records in 2001-02 and 2002-03 — have helped generate business for the arena.

FIRST FULL SEASON

The Heat’s first full season at the AmericanAirlines Arena ended with a 36-46 record, after the team started 5-23. The team’s income from outside rentals, such as concerts, was $2.9 million.

Last year, it jumped to $3.8 million.

The team said positive exposure from O’Neal, and the team’s success, has helped raise its profile nationally, often from overhead blimp shots on national TV. With the Florida Panthers posting mediocre records — and the National Hockey League saddled with a low-profile TV contract on the Outdoor Life Network — the team’s Broward arena is rarely featured on national TV.

"The team’s success has raised our profile — it’s helped us get our message out," said Eric Woolworth, the team’s president of business operations. "For the MTV Video Music Awards, we can deliver an appearance from Shaq and Dwyane. We are the hot arena to be at. Look at our success — almost every major act has come here."

Overall, arena revenue has grown from $25.65 million after the 2000-2001 season to $36.64 million after the 2004-05 season — a healthy 43 percent jump in four years.

Revenue from food and beverage concessions increased from $554,000 to $4.2 million. That’s in large part driven by the number of people in the seats. The team says season ticket sales have gone from the bottom third of the NBA four years ago to "right near the top" this year.

The Heat’s struggles soon after the arena opened took a toll on the team’s corporate sponsorships.

SHAQ’S IMPACT

That revenue — much of it from advertising in the arena — fell from $3 million in 2000-01 to $2 million in 2003-04. But Shaq’s arrival the next year turned things around, with corporate sponsorship revenue jumping to $3.1 million.

With season ticket prices for 2006-07 already set, the Heat is hoping it can tap into the corporate market.

"We are continuing to aggressively pursue corporate partnerships," Woolworth said. "That’s what we spend a lot of our summer doing. We’re trying to think outside of the box."

Money made from the rentals of luxury suites and boxes also suffered during the lean years. Revenue from the premium seats fell from $14.8 million in 2000-2001 to $14.3 million in 2002-03. But the team’s resurgence brought back Miami’s high rollers and revenue jumped to $16.5 million last season.

The team’s budget for 2006 — set before the team advanced to the NBA Finals — projected those revenues to climb to $17.6 million.

Luxury suites and boxes was a key factor driving the Heat’s move from the old Miami Arena.

That building, built in the 1980s, didn’t have enough premium seating for the team to stay competitive, Heat officials said.

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Copyright (c) 2006, The Miami Herald

Distributed by Knight Ridder/Tribune Business News.

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