The proposed Transformation of Quicken Loans Arena will continue to generate powerful ROI for Greater Cleveland

Quicken Loans Arena is the second oldest arena in the NBA that has not had a major structural renovation. Now nearly 23 years old (the average life of an NBA arena is 22 years), The Q is one of the most vibrant, active buildings in the world in terms of live entertainment activity, according to Len Komoroski, CEO of the Cleveland Cavaliers and Quicken Loans Arena. To preserve this community asset, The Q is preparing to undergo a Transformation that would extend the useful life of the arena to 40 years — one of the longest terms for an NBA arena.

“The arena, as a venue, has been called the largest driver of economic activity in Cuyahoga County,” Komoroski says. “These renovations are a means of preserving a return on investment that generated $245 million in direct spending in 2016, and $44 million in state and local taxes, of which $20 million was local. Any public dollars that have gone into the arena have come back in multiples relative to the tax impact alone, not accounting for the direct impact.”

Addressing the challenges

Komoroski says the arena has structural challenges that restrict its available public space. There’s a lack of ingress and egress space, which means attendees are often waiting outside in lines to get into the building. The concourses are narrow, there are way-finding challenges and the arena lacks spaces to gather before and after events.

With the renovations, the interior would be more visible from the outside, giving The Q a more inviting, marketable and contemporary look. Adding 75,000-square-feet will help remedy its space constraints, growing the public areas by 40 percent across multiple levels of the arena. There are also planned ingress and egress improvements, and the creation of neighborhoods and gathering areas will open up The Q and alleviate bottlenecks.

“The renovations are based on taking this publically owned facility that is a major asset for our community marketers and making the necessary enhancements that allow it to continue to compete for some of the country’s biggest events over the long-term,” he says.

The price tag

As it pertains to comparable markets, Komoroski says Quicken Loans Arena has among the most public-friendly sports leases in the country. Ownership has privately invested more than $400 million into The Q since its inception, paying for 100 percent of its operating, repair and maintenance expenses (including the public’s portion), all capital repairs up to $500,000, and even half of its landlord’s expenses with Gateway Economic Development Corp. For public/private partnerships, the Cavs have spent more on The Q than any other NBA team has on their respective arena in comparably sized markets.

“That would remain in the new agreement, along with paying for 50 percent of the Transformation costs with all improvements being owned by the public in the form of a lease amendment to finance it,” he says.

The Cavs organization would also take on any construction cost overruns to mitigate the public risk and preserve what has been a major economic development force for Cuyahoga County. Additionally, the lease would be extended through 2034, which secures the Cavs in Cleveland long-term.

“The team would be operating in the same building for 40 years while avoiding the cost of building a new arena, which would mean a cost of $700 million or more,” he says.

Paying for it

The total cost of the renovations is $140 million, $70 million of which is being funded privately by the Cavaliers organization and the other half is to be funded by the public sector through pre-existing, self-generating funds and destination facility sources.

“By the terms of the agreement there has to be dedicated sources for whatever funds that would be utilized, sources that are directly generated by The Q or directly impacted by The Q,” Komoroski says. “In other words, if the arena didn’t exist, the revenue wouldn’t exist here or would have a lesser impact because The Q didn’t exist.”

For example, he says one proposed source of funding is half of the 8 percent tax on all tickets sold at The Q. Others include the amount generated above the existing level of the 1.25 percent County sales tax proceeds on all taxable purchases at The Q, a portion of the County bed tax (which is paid for primarily by visitors from outside Cuyahoga County), and a residual amount from the Hilton hotel project that the County had in reserve that would be utilized.

But before the Transformation can begin, there’s a public approval process. Cleveland City Council and the County will meet this month, and if the legislation passes in each of those bodies, it will go through city planning and review.

“We anticipate we’ll break ground this year and finish the project within two years,” he says, adding that the arena will operate while going through renovations.

Return on investment

“This has been a very important project for the NBA,” Komoroski says. “Knowing how important The Q is to Cleveland, they’ve committed to bringing an All-Star Week to The Q following the completion of the renovations, which would have an estimated economic impact of more than $100 million and provide another image-boosting opportunity for Cleveland.

The arena’s improvements will also help Cleveland’s community marketers compete to host major national and international events and first-run concerts.

“It’s not about today. It’s about the next 20 years,” he says. “Cavs games are broadcast in 215 countries in 47 languages — The Finals alone were watched by 1 billion people worldwide. That attention helps change perception and is a huge part of shaping the dialogue about Cleveland on a national and international basis, not to mention the parade with 1.3 million people, and the RNC being the second-largest media event in the world. There are tangibles and intangibles, and sometimes the latter gets overlooked.”

To see what the proposed Transformation looks like, and to get the facts about the process, visit www.theqtransformation.com.