VIRGINIA BEACH — Facing millions of dollars in debt, including money owed to event promotors, the operator of the Virginia Beach Sports Center could soon get the boot.
The city is considering a proposal to buy out Eastern Sports Management’s contract at the end of the month. Under the terms of the agreement, Virginia Beach would pay $6.1 million to terminate the contract. That includes $4.6 million to cover balances owed on the facility’s furniture and fixtures and original start up costs, as well as $1.5 million for accounts payable, unpaid gate receipts, accrued management receipts and ESM advances. An additional $500,000 will be needed for working capital after the transition.
A public hearing on the buyout will be held Tuesday.
“It’s just been a disappointment,” Vice Mayor Rosemary Wilson said by phone Thursday. “We just need to do better for the public.”
The $68 million Virginia Beach Sports Center opened in 2020 to grow the city’s sports tourism industry. City leaders and resort area stakeholders agree it’s been a revenue generator for Oceanfront hotels, restaurants and other businesses. But a recent audit found it was losing money and raised questions about its financial stability.
Under the proposed buyout terms, the city would terminate the contract Nov. 30, temporarily take over operations and begin the process of contracting with a new operator. The total $6.6 million infusion by the city does not include costs to retain the services on an interim operator.
The buyout does include payments of $350,097 for accrued management fees; $274,000 for ESM’s advances and $881,998 for accounts payable and gate receipts, according to the city.
ESM had hoped to renegotiate its contract with the city this year, but City Council deferred a decision on the matter in August to discuss it further. A closed meeting on the contract was held last month.
An audit of the venue in February revealed the sports center was losing money. City Auditor Lyndon Remias had expressed concerns about the financial sustainability of its operations.
In August, ESM requested $1.16 million from the city to replenish reserve funds and to pay vendors.
ESM operates the center under a 10-year agreement with the city. Virginia Beach Convention & Visitors Bureau books the events and sets the pricing.
It’s one of the largest multipurpose indoor sports facilities on the East Coast and has hosted nearly half-million athletes and spectators. It hosts the NCAA Division I, II and III indoor track championships.
“It was a big investment,” said Wilson. “People enjoy it. We just need better management.”
The sports center is funded by tourism taxes collected through lodging, meals and admissions.
ESM receives a monthly management fee of $30,000 as well as a revenue-based monthly incentive for the operation and maintenance of the center.
In its first year of the operation, the operator lost $1.3 million and $1.4 million the following year, according to the audit. The company had depleted $750,000 in a reserve account to pay unanticipated operating costs.
ESM owner John Wack has said post-COVID staffing challenges posed operational problems and that the facility’s expenses were more than originally anticipated. He attributed that to the Convention & Visitor Bureau’s effort to offer competitive pricing on bookings, the number of large events and maintenance standards.
“The prices being charged tournament operators are not sufficient to cover operating costs,” Wack said in August.
Wack didn’t return a message left Thursday. He said in August his management company owed event promoters $259,000 and the company was requesting $1,164,299 to pay the promotors and replenish the reserve.
Wilson described the situation with the sports center operator owing money to event promotors as “disgraceful,” and said “everybody’s going to get paid.”
Stacy Parker, 757-222-5125, [email protected]