Hoffman Estates taxpayers could owe $88 million for Sears Centre

In the likely event Hoffman Estates takes over the Sears Centre, getting the arena off the tax rolls would help it pay its bills and stay afloat, Executive Director Jeff Bowen said.

Any reduction in expenses would be welcome, as the arena had an operating loss of more than $500,000 for 2008 and a net loss of $9.4 million, according to a third-party audit.

Though the latter figure includes things like property depreciation and the annual payment on a $55 million construction loan, it's still a stark contrast to the lofty projections officials made in 2005.

That's when a feasibility study predicted the arena, which opened in 2006, would bring in $1.4 million in both 2008 and 2009, even after its annual loan payment of about $3.9 million.

Projections made at the outset also assumed a constant stream of concerts and sporting contests, about 135 per year. Instead, with fewer musicians on tour during the economic downturn and with three of the Sears Centre's sports teams folding, the arena hosted 84 events in 2008.

Mayor William McLeod, Trustee Gary Pilafas and Deputy Village Manager Dan O'Malley are looking for answers this weekend in Boston at the International Association of Assembly Managers annual conference. The trade show brings together arena managers and concert promoters from across the country.

The village board could also discuss a proposal from Ryan Cos. behind closed doors on Monday. A deal doesn't look eminent, Pilafas said in a phone conversation Saturday from Boston.

Who'll be on hook?

The loan repayment looms large for Hoffman Estates, whose taxpayers could be on the hook for up to $88.4 million over the next 22 years, including interest, if the village takes over the Sears Centre, according to village financial documents.

That's more than $4 million a year, or 3 percent of Hoffman Estates' current total operating budget of $129.9 million.

Village officials wouldn't speculate on how taking over that loan could affect taxes or services. Already, the economy has forced the village to roll back services like tree-trimming and leave police department vacancies unfilled.

Hoffman Estates' ability to make the arena profitable - or at least break even - will largely determine the extent to which taxpayers are affected by the arena takeover.

The village wants to bring in a national arena management firm that could tap larger networks to draw performers. Three such companies - AEG Live, SMG and Global Spectrum - have shown interest, and the village could look at others while at this weekend's trade show.

But if bookings and ticket sales still don't pick up, the village will have to look at other repayment options - including a property tax increase.

Where talks stand

A deal could be reached by fall for the village to take over the Sears Centre from its primary owner, the Ryan Cos.

Both sides have been reluctant to say how talks are going, though when village officials announced on July 7 they were eyeing a takeover, they acknowledged they still had many hurdles to cross.

The loan that paid for the arena's construction was a village-backed bond issue from August 2005. The Ryan Cos. has made its payments - almost $12 million over the last three years - on time.

But the Midwest president for the Ryan Cos., Jeff Smith, said the firm has had to make cash calls to partners to pay its bills. Ryan has a 75 percent stake in the arena, its first, and Smith said it has no plans to acquire another.

One benefit to taxpayers is that the $1 million Sears Holding Corp. pays yearly for the arena naming rights is due to continue for seven more years.

Officials are confident they'd find another sponsor if Sears falters on the deal or declines to renew it. But for now, with the Sears Tower recently becoming the Willis Tower, the arena is the only building in the area that sports the retailer's moniker, besides its stores.

A spokeswoman for Sears, which also has a 25 percent stake in the arena, declined to comment on its likely public takeover.

But both the village and the Ryan Cos. officials have stuck to the idea that a public takeover of the arena places it in the best position for future success. They say the property tax break - the arena paid $1.8 million in 2007 - would help it compete.

Reassuring taxpayers

Right after announcing they were in talks to take over the arena, village officials sought to quell concerns they'd have to raise property taxes to pay off the Sears Centre loan. But they wouldn't say if they'd cut services or raise taxes first, if either becomes necessary.

Still, residents have fired off angry phone calls and e-mails to village hall calling trustees reckless in approving the deal four years ago. Some residents also see the village's move to take control of the venue as a governmental bailout.

The 2005 arena development agreement guarantees the Ryan Cos. will repay the loan through April 2011 - when the village's financial responsibility for the loan repayment would kick in.

Village officials say that timeframe gives them a chance to make the Sears Centre profitable, and they're banking on an economic recovery to help. They want residents to give them that chance, too.

"Our goal is to not have this go on the property tax bill, obviously," Village Manager James Norris said.