A Financial  Boon or Ruin?

A Financial Boon or Ruin?

ASU study puts new light on WestWorld

By Wayne Schutsky

The city’s equestrian and entertainment venue WestWorld has long been the subject of criticism by Scottsdale’s fiscal hawks because it has struggled to turn a profit in its 30-plus-year history.

But a new economic impact study by the Seidman Institute at Arizona State University’s W.P. Carey School of Business suggests WestWorld is a financial boon for the city despite its revenue history.

The study found WestWorld’s year-round operation from August 2018 through July resulted in $111.7 million total gross domestic product by state, which represents the value of all goods and services produced in Scottsdale because of WestWorld.

Total GDP by state “is synonymous with value added,” the study notes. “It is also defined as the sum of employee compensation…proprietor income, property income, and indirect business taxes.”

The study found WestWorld operations resulted in 1,884 direct and indirect jobs in Scottsdale during the study period. It also attracted 916,694 visitors—86.2% of whom came from outside of the city.

WestWorld’s operations resulted in $68.6 million in wages to employees in Scottsdale directly or indirectly and $3.9 million in local sales and bed tax and shared state revenues.

Researchers only looked at the impact of visitors from outside of Scottsdale to WestWorld’s events, says Dr. Anthony Evans, a senior research fellow at the Seidman Institute who authored the report.

“We’re not looking at dollars that are already present here within the city of Scottsdale. We’re looking at the influx of new dollars into the city,” Evans says.

The reasoning behind that methodology is, in the absence of WestWorld’s events, Scottsdale residents’ dollars would likely be spent in the city.

Evans said Westworld’s GDP number indicates it is a significant driver for Scottsdale’s tourism industry.

“It’s very, very important. It brings in around a $111 or $112 million GDP contribution each year, and I think that’s an impressive number,” Evans says.

Evans says WestWorld’s impact compares favorably to something like the Super Bowl, which has a much higher GDP but does not have a year in and year out impact on a specific community.

Evans, who also studied the Super Bowl’s economic impact on Arizona, says it had a GDP north of $700 million.

“But that’s a one-off event (and) WestWorld is bringing in $111 million or $112 million each year,” Evans says.

Horses, cars still biggest draws

Evans says all individuals contacted by his team were asked a number of questions like where they lived, the size of their party and how much they were spending daily. In all, they collected 2,823 usable responses.

For the study, students working with Evans visited 12 events at WestWorld over the course of the year, including five equestrian events and seven nonequestrian events.

The ASU report also sourced data for Barrett-Jackson and the Arabian Horse Show sourced from third-party studies commissioned earlier by those events.

Carter Unger, with National Western Capital Corporation, says the report shows that Westworld has diversified beyond its core equestrian and auto tenants.

National Western Capital Corporation, or NWCC, has a contract with the city to run WestWorld’s food and alcohol licensing as well as marketing.

The contract dates back to 2013, though NWCC has had an agreement with the city since 2002 to provide food and drink services at Monterra, a special events venue within WestWorld.

In addition to horse and car events, WestWorld hosts events like pay-per-view boxing, a taco festival, a variety of youth sports tournaments, two Maricopa County Home Shows and several family-oriented events.

WestWorld has also brought in diverse equestrian events like The International Gay Rodeo and the Arizona Black Rodeo.

“What I think this report really shows is that (the city’s investment in WestWorld) pays off and that we are able to now attract large, impactful events year-round,” Unger says.

The ASU study found WestWorld’s signature events, Barrett-Jackson and the Arabian Horse Show, still have the largest impact on Scottsdale’s bottom line, bringing in $2.3 million of the $3.9 million in direct tax benefits collected by the city.

The other events, including equestrian and nonequestrian events, accounted for $1.2 million.

WestWorld’s operations ($100,000) and state shared revenue ($300,000) accounted for the rest of the direct fiscal impact.

NWCC, the city’s contractor, commissioned the ASU study, but Evans says that had no effect on his findings, stating that ASU does not engage in advocacy and all work is driven by data.

“I think our results speak for themselves on the clients that hire us to do that type of work,” Evans says.

The Seidman Institute has conducted research for many public and private organizations throughout Arizona, including the Arizona Department of Health Services, Banner Health and Phoenix Sky Harbor International Airport.

The institute was recently hired to conduct a study on the impact of Scottsdale Stadium improvements by the city of Scottsdale.

Critics have questioned value

The new ASU report challenges the narrative that WestWorld is a financial drain on Scottsdale.

The venue has never turned a profit for the city and came to the foremost recently following an audit of the city’s marketing and concessions contract with NWCC in January 2018.

That audit included a report from the city treasurer showing WestWorld had expenses of $7.5 million versus income of $4.7 million in 2016-2017—a $2.8 million deficit.

That deficit ballooned to $6.6 million when accounting for debt service related to land purchases and the construction of the Tony Nelssen Equestrian Center in 2012.

The treasurer’s report showed WestWorld’s revenues only exceeded its expenses once between 2012 and 2016 when it was $442,317 in the black in 2014. However, debt service that year knocked the venue into the red to the tune of $3.1 million.

The city has floated the idea of getting out of the contract with NWCC in the past.

A city staff report that included data from a study by Crossroads Consulting included a recommendation to issue a new RFP for marketing, food and beverage at WestWorld “at the next available opportunity” to increase revenue streams.

The city manager’s office did not respond to a request for comment.

The 2018 audit found that NWCC was growing revenues at the venue year over year, but that growth was not enough to reach targets set in the city contract.

Councilwoman Kathy Littlefield says she supports WestWorld but has been critical of the way the venue has been run.

However, she says she is encouraged by changes made recently to the contract to “bring it into a more business-like marketing relationship with the vendor.”

“I think that was very good, and I think that is going to help WestWorld in the future, too,” Littlefield says.

The city council approved a change recommended by staff following the Crossroads study, to allow the city manager to approve event agreements at WestWorld with terms of five years or less.

Unger says this has helped NWCC increase bookings by streamlining the process to sign up tenants, including large exhibitors like the Maricopa Home and Garden Show that book three years in advance.

“It took many more months of time,” Unger says. “This allows us to book events more than a year out, which is huge. Large events plan two, three years ahead of a time.”

NWCC has grown revenues from $3.6 million to $4.2 million from 2015 to 2017, but still fell short of targets set in the contract by between $400,000 and $1.3 million every year.

The audit also found other deficiencies with the contractor, including a lack of consistency in billing for food and beverage services that may have cost the city money and that information presented to council on financial performance was not always accurate.

The audit also found that the city’s contract administrator may have received an improper discount from the vendor. The City Manager has since referred that issue to the city’s Human Resources Department at the auditor’s recommendation.

A review of the audit in 2019 found the vendor and contract administrator had implemented five of the auditor’s recommendations and partially implemented another. Five additional recommendations were still in the process of being implemented.

The city manager’s office did not respond to a request for comment on the audit and the follow through on its recommendations.

Turning a profit

Over the past two decades, various Scottsdale councilmembers and city staff have shared differing views on whether the venue itself should operate at a profit.

Some have argued the venue should not have to turn a profit because it provides ancillary benefits to the community similar to a park.

Councilwoman Suzanne Klapp says she would like to see WestWorld make strides toward breaking even, but recognized many city services operate at a loss.

“Most city services and facilities do not operate at a profit. If profit motive were the city’s overriding objective, then we would only be involved in the enterprises that pay for themselves,” Klapp says.

“We do not expect libraries, public safety, senior centers, recreation services, arts facilities, etc. to pay for themselves. All the city’s services contribute to our quality of life and enhance the Scottsdale experience.”

Others throughout the years, though, have advocated for transitioning WestWorld to an enterprise model, where it is funded through its own revenues rather than through the general fund.

But Klapp and Councilmembers Guy Phillips and Kathy Littlefield say WestWorld’s benefits extend beyond the venue’s direct revenues.

“Although I am happy with ASU’s study, we need to remember the priceless cost of events happening in Scottsdale that fill our coffers and pay our taxes,” Phillips says.

“It’s not just the event. It’s the entire experience of over a million people each year that go to Scottsdale and have made it a world-renowned tourist destination.”

Littlefield shared similar sentiments, saying the value of the space also includes bringing people to Scottsdale who may not otherwise visit the city.

“People come here. They rent rooms in our hotels. They eat at our restaurants. They spend money in our stores,” Littlefield says.

Evans, the ASU researcher, agreed.

“The revenue is only a small part of the picture, isn’t it?” Evans says. “As a result of WestWorld you’ve got people going to stay in local hotels and other forms of accommodation. People are spending their money in the shops in Scottsdale. People are going to bars and restaurants in Scottsdale.”

An example of the stark difference between direct revenues and overall financial impact can be seen through the Barrett-Jackson car auction.

According to a city invoice, Barrett-Jackson paid $694,003 directly to the city of Scottsdale and WestWorld to host the event in 2018.

That is less than half of the $1,640,400 direct tax haul the city took in as a result of the auction in 2016, which does not include indirect fiscal benefits, according to Barrett-Jackson’s economic impact study.

Unger, with NWCC, also pointed at that it is not unusual for municipally owned venues like WestWorld to operate at a deficit.

Other Valley venues similar

Budget documents show other Valley cities own similar venues that are in the red when looking solely at operating expenses and revenue.

According to city of Mesa budget documents, the Mesa Arts Center had revenues of $5.8 million versus expenses of $12.1 million in the 2017-2018 fiscal year.

The Phoenix Convention Center had $67.1 million in actual operating expenditures versus $22.7 million in actual revenue in 2017-18, according to state financial forms filled out by the city of Phoenix.

Just as direct operating revenues do not tell the full story of WestWorld’s profitability, the venue’s operating expenses do not include all of the costs associated with the venue.

For instance, the city spends thousands of dollars a year promoting signature events throughout Scottsdale, including many that take place at WestWorld.

The city has spent over $500,000 in bed tax funds since 1990 on this advertising and promotion for events like Barrett-Jackson and the Arabian Horse Show.

There is also the cost to upkeep and improve the facility, such as the construction of the $52-million Tony Nelssen Equestrian Center in 2012.

The city is still paying off the construction of the indoor, air-conditioned event space, which further eats into WestWorld’s short-term profitability.

That’s not a concern for everyone, though.

“With the high initial cost of the WestWorld Main Hall, I didn’t expect we would pay it off and realize a profit in three years,” Phillips says.

Klapp says she believes the investment in infrastructure “is paying a good overall return on investment on a yearly basis. We should and will continue to find events that will move the city closer to breakeven on our operating budget.”

Unger, who manages sales and marketing for WestWorld, echoed those sentiments.

“It’s allowed the amount of special events we had to grow, and it’s allowed us to attract more and bring in more, especially in those hot seasons where you need the air conditioning,” Unger says. ν