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Published September 26 2012

Scheels Arena nonprofit says mystery donor's big gift will solve debt issue

FARGO – A mystery benefactor is willing to give big money to keep Scheels Arena afloat, the foundation that runs the arena said Wednesday.

To make that deal happen, the benefactor wants the foundation to have the option to buy the facility back from its current owner, the Fargo Park District.

Metro Sports Foundation, which operates the arena, said an ownership change is unlikely to actually happen because it would expose the foundation to hundreds of thousands of dollars in property taxes it thus far has avoided.

Bruce Furness, the foundation’s treasurer, said the pending donation and the buyback option are the last major pieces of the puzzle in a debt restructuring deal aimed at putting the financially floundering arena in a position to turn a profit.

The foundation still owes about $23 million in debt on the $25 million facility, which opened in 2008. To date, it has struggled to generate enough revenue to pay down that debt while meeting operating expenses.

Furness told the Fargo Park District’s facility committee that the benefactor is prepared to make “a major gift” to reduce that debt to a manageable level.

Furness would not name the benefactor or say how much the donation would be. But to make a meaningful dent in the foundation’s debt, it would likely have to be several million dollars.

In its most recent publicly available tax forms, the foundation reported about $1.3 million in annual interest payments and about $3.7 million in total expenses.

The facility takes in just $1.7 million in operating revenue each year, though grants, gifts and other one-time infusions of money have kept big losses off the balance sheet, according to tax records.

Furness said the donation would cement a debt restructuring deal that’s been in the works for more than a year. The foundation’s creditors include a consortium of more than a dozen banks and private financiers.

“The banks have agreed to their terms. The independent investors have agreed to their terms,” he said.

Furness and other Metro Sports officials have declined to discuss the specifics of the refinancing plan.

The land for the facility was originally donated to the foundation by developer Ace Brandt, who is also the owner of the building’s main tenant, the Fargo Force junior hockey team. Brandt also donated $3 million to the project.

The foundation in turn gave the land and arena to the Park District to shield it from property taxes – a move designed to help the foundation make ends meet.

The Park District leases it back to Metro Sports, a private nonprofit, for $100 a year but otherwise has no financial stake in the arena or the foundation’s debts.

The proposed deal would give the foundation the option to buy it back for a nominal sum.

It would also give the foundation the right to match any offer should a third party try to buy the building, though it’s unlikely the Park District – which doesn’t believe it has the right to sell the arena without approval from the foundation’s creditors – would entertain such an offer.

“I don’t want to sell a building we didn’t pay for,” said Ron Sorvaag, a park board member.

The original language set the terms of the buyback option at fair-market value.

James Waddoups, an attorney for Metro Sports, said that didn’t make sense because the Park District would turn a profit from an arena it never paid for, while the foundation would end up paying for it twice.

“Somebody said, ‘Hey wait a minute, we’ve already sort of paid for this property,’ ” Waddoups said.

Furness said the buyback proposal comes at the benefactor’s request. He said the foundation has no intent of actually taking ownership of the facility because it would lose the property tax benefits conferred by the park district.

“I don’t think we would ever exercise that option,” he said, but “the benefactor felt that it was an important part for him.”

Jim Larson, finance director for the Park District, said selling the arena to the foundation would have no financial impact on the district.

The facility committee passed the buyback proposal on to the full park board with no recommendation. The board will vote on it in two weeks.

In related business, the committee recommended the appointment of Erv Inniger, the former North Dakota State University men’s basketball coach, as the Park District’s representative on the Metro Sports Foundation board.

Inniger has been an at-large board member for the foundation for the past year. He is also a board member for Choice Financial, which is among the group of banks that has a stake in the arena.

The park board committee voiced some concern over those ties, but said it wouldn’t be a problem as long as the relationship was disclosed.

As part of its restructuring deal, Metro Sports is overhauling its board of directors.

The previous setup included 15 representatives for a wide range of public entities and area interests.

The new board will include just five members, representing the Park District, Fargo Public Schools, the Fargo Youth Hockey Association, Sanford Health and Brandt Holdings, a company owned by Ace Brandt.

Readers can reach Forum reporter Marino Eccher at (701) 241-5502