When hundreds of youngsters and their families converged on ESL Sports Centre in Brighton this weekend for the popular Rochester Thanksgiving Classic youth hockey tournament, they found all the markings of a premier ice-skating facility: four sheets of pristine ice, training rooms and a full-service restaurant and bar at the ready.
What was not apparent is that the nonprofit organization that oversees the center is in such financial straits that auditors have "substantial doubt" about its future, and that efforts are afoot to rescue it from financial ruin.
"There is substantial doubt about the organization's ability to continue as a going concern," the auditing firm Hevron & Hevron wrote in its latest annual assessment of the nonprofit organization, Monroe County Sports Centre Corp. "The deficiency in net assets, operating losses, and covenant noncompliance could result in ... foreclosure on the property ... or termination of operations."
The audit covered the 2008 calendar year, but it marked the second consecutive year the organization received such a warning, known as a "going concern" notice. The organization anticipates receiving the same notice for the current year.
Jack Driscoll, a Republican county legislator and president of the nonprofit board, did not dispute the findings, but said the financial condition is improving and that the facility will survive.
"Given the numbers and the situation right at the moment, (the organization) is destined for bankruptcy," Driscoll said, "except that we have the business plan to resolve the financial problems and it's been successfully implemented and we're in the final stages of it now."
That plan, organization officials said, hinges on a verbal agreement from holders of the majority of the bonds used to finance the facility to continue to forgo payments from the organization while it seeks to restructure its debt, which last year topped $10.1 million.
In the red
Since opening in 1998, ESL Sports Centre has been regarded as one of the preeminent facilities of its kind in the northeast, and a substantial economic engine for the county. The center's official address is at 2700 Brighton-Henrietta Town Line Road, but it is tucked inside the campus of Monroe Community College.
Last year alone, the 170,000-square-foot complex hosted 87 events that drew nearly 33,000 players and spectators who pumped some $70 million into the local economy staying in hotels and eating in area restaurants, according to the center and VisitRochester.
The USA Paralympic Sled Hockey Team recently chose the center as its official training site for the 2010 Vancouver Olympics. The Rochester Americans have practiced there for years, as have more than a dozen other amateur and collegiate hockey organizations.
"Hockey in Rochester would not be the same without ESL," said Matthew Stathopoulos, 18, of Henrietta, who paid $7 for an hour of afternoon pick-up hockey last week.
But despite the facility's prominence, financial records show Monroe County Sports Centre Corp. has never turned a profit in its 11 years and defaulted several years ago on the bonds that financed the construction of the roughly $13 million complex.
The $765,563 deficit the organization ran last year was its best performance since 2000, when records show it was $753,000 in the red. In the ensuing years, the organization had annual shortfalls as high as $1.5 million.
Records show the organization has averaged yearly revenues of $2.1 million and deficits of $3.2 million over the last five years, although cash flow generated by the facility's day-to-day operations has been steadily improving.
The complex receives no taxpayer money.
"It's somewhat ironic because I think the facility is in better shape now that it was four or five years ago," said board member Michael Townsend, a prominent local lawyer who works closely with county government and incorporated Monroe County Sports Centre Corp. in 1998.
Fiscal chaos
Championed by former Monroe County Republican Party Chairman Stephen Minarik, a renowned hockey fanatic who was an early board member of Monroe County Sports Centre Corp., the complex has been dogged by complaints of fiscal mismanagement and undue political influence for years.
In 2001, MCC, which owns the land where the
facility sits, threatened to sue for overdue lease payments.
That same year, Democratic county lawmakers pushed unsuccessfully for more oversight of Monroe County
Sports Centre Corp., whose seven-member board comprises four appointees of the county executive, one from the majority and minority leaders in the County Legislature, and one from the
college.
While the organization is not funded by taxpayers, its makeup and dismal fiscal outlook have left it
open to criticism as a plaything for politicos with a penchant for hockey.
Last year, the Internal Revenue Service fined the organization $109,000 for failing to file annual tax returns on time, a penalty the organization is contesting.
But the primary source of the organization's ongoing financial troubles is its inability to pay its debt to bondholders.
"There was always a concern regarding the profitability of the center, which is different from its cash flow, and I think that is still a concern," said Hezekiah Simmons, a vice president at MCC and a member of the organization's board until recently.
The organization first defaulted on the bonds in 2003, forcing major institutional investors to unload their holdings at a loss, according to published reports at the time.
Rescuing the rink
The new buyers were local developer David Christa, whose construction firm built ESL Sports Centre, and Illinois businessman Leon Lekai. The men were principals in different companies that then managed separate functions of the facility. Over the next several years, Christa and Lekai, through a new company they called Empire Ice LLC, made tender offers to buy outstanding bonds at 40 percent of their value, according to a company news release issued last year.
Today, Empire Ice holds the majority of bonds and manages the facility for $200,000 a year plus 7.5 percent of revenues over $2.67 million, a threshold that has not been met.
Christa did not return a phone call seeking comment.
Lekai, in a telephone interview, said he and Christa were not setting a deadline for Monroe County Sports Centre Corp. to pay its debt on the bonds and have no plans to foreclose.
"As bondholders we understand all the options available to us, but we believe working in partnership with the board on a long-term solution is the best way to protect our investment," Lekai said. "We're seeing a board of directors trying to work with the bondholders and we're comfortable with the direction the building is going."
Outstanding interest on the bonds last year amounted to more than $841,000. Without the debt, the facility would have turned a profit, records show.
Revenues have been enhanced in part by a series of popular and profitable youth hockey tournaments organized by Illinois-based Advanced Arenas Inc., of which Lekai is the chairman.
"This place houses a lot of young talent that comes out of Rochester," said Taylor Weilert, 18, of Greece, after an afternoon skate last week.
Whether Empire Ice's dual role as majority stakeholder and facility manager could influence decisions on future management contracts is uncertain.
Lekai and organization officials cast the roles as unrelated, and officials credited Empire Ice with effectively saving the facility.
"What better way to protect a facility than by those whose money is at risk," Townsend said.
"These are the last people in the world (Christa and Lekai) who are going to want to shut the doors down."
Restructuring
ESL Sports Centre was financed with bonds issued by the County of Monroe Industrial Development Agency, or COMIDA, on behalf of Monroe County Sports Centre Corp.
The deal consisted of $1.25 million in taxable bonds that financed construction of the restaurant, pro shop and concession stands, and $11.4 million in tax-exempt bonds that paid for everything else.
Organization officials today lament the intricate arrangement because, they said, it allowed holders of the taxable bonds to establish their own businesses within the complex, thereby limiting a potential revenue stream to the organization.
"It was a fundamental business mistake on behalf of the team that put it together," Townsend said.
Driscoll, who was appointed to the board after the default, called the arrangement, "probably the most convoluted structure I have ever seen."
The organization is now seeking to restore that revenue stream by buying the taxable bonds, officials said. The revenues, they said, would be used to pay off the tax-exempt bonds.
Driscoll, who will leave the board when his term in the County Legislature ends Dec. 31, said the board has been negotiating with one bank to help finance the bond purchase. He declined to name the bank, but said he anticipated a deal within a year.
"This restructuring would stabilize the whole business," Driscoll said. "The facility is fantastic, the finances are a disaster."
DANDREAT@DemocratandChronicle.com
Background
Monroe County Sports Centre Corp. is a nonprofit organization founded in 1998 to operate the ESL Sports Centre. Six of its seven board seats are unpaid political appointees, but the organization does not receive taxpayer funds.
What's at stake
The future of the 170,000-square-foot ESL Sports Centre, which last year hosted 87 events that drew nearly 33,000 players and spectators. According to the center and VisitRochester, those visitors pumped some $70 million into the local economy.
