Timeline of contract negotiations for use of Edge Ice Arena
The Executive Director of Foothills Park & Recreation District (FHPRD), Ronald Hopp, was contacted on February 14, 2020 by a person affiliated with Littleton Hockey Association (LHA). They represented LHA was informed by South Suburban Parks and Recreation District (SSPRD) they were not going to be part of the new ice arena being built. They inquired if we would be willing to meet to discuss the possibility of providing ice to LHA at the Edge. Of course, we were willing to meet to discuss this opportunity, and the Executive Director directed the management of the Edge to explore this possibility.
Over the next week, staff met with leadership of LHA to discuss the feasibility of providing ice hours. This due diligence process included determining what their needs were, as well as evaluating our current primary tenant, Foothills Hockey Association (FHA), and comparing and contrasting the pros and cons of continuing to work with FHA versus potentially changing to LHA as the primary tenant. The District had concerns related to FHA’s declining ice hour usage, poor communication, organizational fiscal stability, timeliness of payments, negative feedback about the organization, and our perceptions of a lack of opportunities for enhanced growth from recreational users from the District and lack of potential viable growth. Based on our due diligence, we did not have these concerns with LHA.
In addition to our evaluation of both organizations, LHA expressed a strong desire to commit to a long-term contract at a higher ice rental rate and guaranteed terms. The guarantee was especially attractive to our team as we had been experiencing a reduction with FHA in ice use hours for leagues and practices over the past four years. The bottom line for us, we were concerned about FHA’s multi-year declining usage and the impact that was having on the District both for users of our facilities and financially. The Edge is one of the District’s greatest assets in terms of revenue generation. If we did not act to ensure its continued viability, including maximizing revenues, we would be doing our 93,000 District residents a disservice by not exploring this opportunity.
With these thoughts in mind, we evaluated the financials based upon our preliminary discussions about the number of potential hours that LHA requested. We compared the increased number of ice hours at a higher rate, and we also forecasted the impacts on other services at the Edge like the Penalty Box, Performance Training, other program utilization, blade sharpening, etc. These additional forecasts were based upon a presumption of increased numbers of people at the Edge and the anticipated increased utilization of these services. Based upon these projections, this equates to between $2.5 and $3 million dollars over the next decade in ice hour rental alone, and with the other aforementioned revenue streams included, a total of $4.5 to $5.0 million in potential additional revenue over the 10-year agreement.
The District as a whole derives 43% of its revenues from property taxes through a mill levy imposed on the assessed valuation on the property of District Residents. An additional 5% of the revenues are realized from grants and other taxes and the remaining 52% of revenues is derived from earned income like programming revenue, rentals and user fees. As a result of revenues being generated by different types of uses and programs, every facility and program area varies and some facilities require more tax subsidy than other facilities, or don’t require any tax dollars to operate. In the case of the Edge, the revenues generated from the utilization of the various revenue streams are higher than the funds required to operate the building as a whole. Therefore, the Edge requires no tax dollars to fund its operation and the net revenue is used for other areas of the District that require a subsidy to operate like parks, trails and swimming pools. Additionally, the operational costs of the Edge specifically continue to go up every year. To demonstrate, in 2015, the Edge netted $654,876 in operational revenues, after the allocation of maintenance and administrative costs. Because of static revenue and increasing operational costs, the operational net revenue has shrunk to approximately $393,000 in 2019 and is expected to continue to decrease. Creating additional sustainable revenue streams is important to the District and all of the taxpayers of the District.
With these estimates of revenue and the other information we gathered, staff presented the information as Contract Negotiations to the FHPRD Board of Directors during an executive session on February 25. Subsequent to the conclusion of the executive session, the staff proceeded pursuant to plan.
In the ensuing days, discussions with LHA increased. LHA was highly motivated to secure ice time for their 800+ members, and presented the District with a non-binding Letter Of Intent that addressed the general terms that both parties agreed would be the basis for an agreement if both parties decided it would be feasible to continue discussions. The LOI was executed on March 2. From there, we negotiated a contract with LHA. The number of hours initially discussed with the Board, based upon our conversations to that date with LHA, were 1,988 guaranteed hours annually. During the next several days, our discussions ranged from 1,600 to 2,100 hours. Knowing that staff presented 1,988 to the Board, we were focused on trying to negotiate to that number. We were able to negotiate 1,950 hours, and offered other revenue streams such as logos in the ice and office space that would make up some of the difference. Once the 1,950 ice hours annually with a ten-year guarantee and other core terms were agreed upon, lawyers from both entities worked through finalizing the agreement, and it was executed on March 5, 2020.
The prior day, March 4, three of our staff members met with leadership with FHA and informed them that we would no longer be allocating ice to FHA, and we gave them notice to end the lease of the office space at the Edge.
At the March 10 FHPRD Board meeting, the Board listened to impassioned families and young hockey players for over three hours. It became increasingly obvious that District staff should have handled this differently regarding communication with our long-term tenant FHA. During that meeting, several Board members offered their sincere apologies. In a face-to-face meeting with Don and Gabe on March 12, the Executive Director directly apologized to them as well. The apologies have continued as part of continuing discussions and responses to FHA individuals in emails and on social media. Even with this fast-moving development, the District should have engaged in conversations with FHA and given them the opportunity to provide a counter or matching proposal. However, we did not out of a sincere belief that there was, essentially, no likelihood FHA would be able to match LHA. Again, FHA’s usage had been steeply declining for several years, it was paying a lower rental rate, and it has only a fraction of the teams compare to LHA. The District sincerely believes that even if we had given FHA an opportunity to make a proposal, we would have come to the same conclusion.
Immediately after the March 10 meeting, which included an executive session, the Board gave the Executive Director direction to try to make something work and get FHA hours back at the Edge. Given that we were already under contract with LHA for 1,950 hours, there was not the simple option of giving the hours back to FHA because ice time is a limited resource. This was a complicated task that would require many steps and nuanced discussions with both FHA and LHA. The first discussions were had with a face-to-face meeting with FHA leadership. Through that meeting and follow-up e-mails, FHA advised that the maximum hours they could use would be roughly 1,000 (which would have been the same total usage from the prior year), and that they had hopes of bringing Junior Hockey to the Edge in the future that would perhaps generate another 1,000 hours. We believe the Junior Hockey option is highly speculative and does not promote the youth hockey options promoted by the District and lauded by FHA. Speaking frankly, this confirmed that FHA could not have matched the hours and revenue provided by LHA. In a later e-mail, FHA President Don Codner stated that they needed 40% of their total ice time to be at the Edge in order to consider the Edge their “home.” We projected the target 40% range would be somewhere between 260 hours (for team practices and league games) and 400 hours (if tournaments are added to practices and games).
From there, except for updates provided to FHA, discussions turned to LHA since the District needed to ask LHA to give back contractually allocated ice time. As a result, we met with LHA on several occasions primarily via telephone and Zoom conferences to limit in-person meetings due to COVID-19. Hundreds of hours were spent related to these discussions: staff-to-staff, lawyer-to-lawyer, board-to-board, FHPRD Board-to-constituent and combinations of all of these participants. We also spoke with Colorado Amateur Hockey Association (CAHA) to gain assurances that statewide regulations would not be an impediment to any deal that could be structured. We were advised they will not. Also, although under no obligation to do so, we had direct and indirect communications with other arenas to ascertain the availability of ice hours elsewhere for FHA. It is available. To everyone’s frustration, but borne of absolute necessity, this process took several weeks because of the number of moving parts.
After weeks of discussions, on April 23, LHA agreed to reduce their contracted guaranteed hours from 1,950 to 1,750 for the purpose of providing ice time to FHA. Having secured that commitment, the District then got to work evaluating potential internal programming adjustments. Understanding that all internal adjustments displaced other youth participants, those adjustments were not easy. However, through other sacrifices within the Edge ice schedule, the District identified an additional 150 hours for use by FHA at the Edge. We successfully executed an amendment to the LHA agreement that formally reduces its hours so that we can offer them back to FHA.
We offered 350 hours to FHA leadership on Saturday, April 25 to be used towards leagues and practices. This represents about 53% of the ice hours used by FHA for leagues and practices this past season, and more than satisfies the “home viability” FHA stated it needed. We presume FHA would need to secure additional hours at different rink(s) for remaining ice time needs, including games, practices and tournaments. We provided a contract for 350 annual hours for 10 years to FHA for their consideration on April 30. On May 14, FHA responded to the contract with a redlined version and the District responded with an updated contract on May 18. FHA responded with additional comments on May 22, and the District provided a final contract for execution on May 23. The District is committed to having the contract with FHA finalized and signed before its Board meeting on May 26, and has communicated that to FHA. FHA’s comments have not deviated from the 350 annual hours, but have questioned and commented on other contractual terms. The structure is in place to have FHA participants back in the Edge as their “home” ice.
Update #1: The District did not hear from FHA prior to the May 26 Board meeting as required.
Update #2: On May 28, the District received correspondence from FHA about the agreement. Despite being past the May 26 deadline, the District agreed to consider entering into the agreement and requested a response by 9:00 p.m. on Friday, May 29. The District received a signed agreement from FHA on May 29; and it executed and provided the finalized agreement on June 3. The District looks forward to working with FHA in the future.
Update #3: On September 22, 2020 the Board approved a 10 year contract with Colorado Select Girls Hockey Association which provides a guaranteed revenue stream to the District in exchange for guaranteed ice hours provided to their association. This contract was approved by the Board because of a new policy approved by the Board on July 28, 2020 at the request of the community which requires Board approval for contracts over four years and/or over $150,000 in revenue.