The management fee structure Alerus Center commissioners agreed to pay VenuWorks on Monday puts the company at much greater financial risk than ever before.
The old structure works this way. VenuWorks could get a maximum of 4 percent to 4.5 percent of gross revenues, not including the Alerus Center's three-quarter-cent sales tax. The company automatically gets three-quarters of the maximum. The remaining quarter would be based on the company fulfilling certain performance criteria unrelated to the gross revenue, such as attendance and impact on the local economy.
The effect: If the Alerus Center lost money -- that is, if net revenue is negative -- VenuWorks would still make money because gross revenues are always positive.
Under the new structure, VenuWorks would flat out earn 4 percent to 4.5 percent of gross revenues. But if expenses exceed revenue, then whatever financial loss the Alerus Center suffers would be subtracted from the management fee until there is no fee left.
The effect: VenuWorks would use its fee to guarantee the center not lose money.
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Let's say gross revenue was $3.65 million, as it was last year, and the company fulfilled 79 percent of the other performance criteria. Under the old fee structure, it earned $109,600 for the first three-quarters and $28,900 for the remaining one-quarter. The total: $138,500. The center earned money last year but even if didn't, it would still have gotten most of the money.
But, let's say gross revenue was the same but expenses were higher by $100,000. Under the new fee structure, VenuWorks would repay the Alerus Center $100,000 to break even and keep only $38,500.
- Tu-Uyen Tran
