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Big debt, big questions

DPAC: A timeline

On a recent afternoon, New York City entertainment executives, Swedish developers and local politicians descended on South Mangum Street to watch a construction crew install the final beam on the $46 million Durham Performing Arts Center.

Before the ceremonial “topping out” of the city-owned theater, crowds strolled down a gravel path, past the exposed concrete of the Blue Cross Blue Shield Atrium, and onto an unfinished stage. From the rare vantage point of a young Simba or the Wicked Witch of the West, business bigwigs gazed out over concrete terracing that will eventually hold 2,800 seats. After applauding the project’s timetableDPAC is scheduled to host its opening night one year from nowthey were asked, repeatedly, whether they might like to place their company’s name on Durham’s most ambitious public arts undertaking.

“We still have the naming rights available if anyone wants to step up to the plate,” City Manager Patrick Baker told the well-dressed crowd of roughly 150.

Securing naming rights, worth millions of dollars, is one of many hurdles DPAC faces. The theater’s financial goals and ticket prices are stratosphericbeyond what some observers say is feasible. And if the New England-based production company over DPAC chooses not to renew its agreement, the city could lose millions of dollars in taxpayer money.

Meanwhile, there are concerns about how DPAC will share the spotlight with the Carolina Theatre, an established venue less than a mile away, and the Progress Energy Center for the Performing Arts in Raleigh. Not only could DPAC siphon away talent, but also dilute the limited fan baseand dollarsfor performances.

That talent, however, will likely exclude any grassroots arts organizations. Exorbitant rental rates essentially exclude fledgling nonprofits from staging shows at DPAC. Even the theater’s original artistic cornerstone, Duke University’s American Dance Festival, has yet to commit to any performances theredespite being the project’s original impetus.

It seems the only people excited about DPAC are those with a vested interest in its success: the Swedish developer Skanska USA Building; Professional Facilities Management of Providence, R.I., which, with Nederlander Producing Company of America, based in New York City, will book the theater; Duke University, which contributed $5.5 million to the project; and city leaders, who, frankly, are too far in to back out now.

Here is the biggest question facing the city and PFM/Nederlander: Will DPAC sell 200,000 seatsroughly the population of Durhamin its first year? The answer will determine DPAC’s fate.

Of the theater’s 2,800 seats, PFM/Nederlander have budgeted filling 60 percent of the houseevery performance nightwhile charging an average of $55 for concerts and $60 for Broadway shows.

Filling these seats is essential not only for the production companies, but more so for the city. According to city documents, Durham borrowed $33 million in the form of certificates of participation, privately invested bonds that don’t require voter approval. To pay back that amount, plus interest, the city must ante up $2.5 million annually for the next 28 yearsa total of nearly $70 million. (For a financial breakdown, see “Big debt, big questions.”)

PFM/Nederlander apparently struck a better deal. It successfully reduced its operating agreement with the city from 10 years to five years. Although PFM/Nederlander will have until just 2013 to turn a profit, after that, the companies aren’t obligated to continue operating the theater. The onus will be on the city.

Jack Meyer, vice president of programming for Nederlander, said PFM and Nederlander have always renewed their initial operating agreements, and insisted the companies are “in for the long run.”

“I’d say [a five-year operating agreement] is certainly the least amount that one would want, particularly given the fact that with Broadway shows, you’re looking at a time horizon of two to three years, so it does take a while to bear fruit,” said Tom Gabbard, president of the Blumenthal Center, which has a 99-year operating agreement with the city of Charlotte.

Durham officials dismissed concern about the length of the DPAC agreement.

“That’s a bridge I’d rather have to cross when we get to it,” Mayor Bill Bell said. “It’s not suddenly that we’re going to find ourselves in a position where we go five years of the contract and suddenly we don’t want to go anymore. You’re going to get those kinds of warnings early on, so you can start making preparations.”

The five-year agreement puts Durham on track to complete less than one-fourth of the city’s 28-year financial commitment to Skanska. The Swedish contractor won a no-bid “construction manager at risk” contractwhich sets a “guaranteed maximum price,” including overagesto build DPAC.

A recent News & Observer article cited by Baker at the topping-off ceremony applauded DPAC for being “ahead of schedule” and “under budget.” However, since its original conception, the project’s principal cost has soared by nearly 50 percent, coinciding in part with Skanska’s contract.

Durham’s former general services director Mark Greenspan lobbied vigorously to award Skanska the project: Minutes from a June 2005 city council meeting read, “Mr. Greenspan explained the benefits of CMAR and how he personally feels that the new Construction Manager at Risk will be the best way for the City.” Four months after Skanska won the contract in November 2006, Greenspan left the city to work for the company.

City Councilman Thomas Stith protested the appearance of misconduct following Greenspan’s departure. He suggested the city implement a “cooling off” period for former city employees, similar to state and federal lobbying guidelines, which the Durham City Council rejected in April.

“When you had someone who was a high-level city employee in negotiations with contractors to change the whole arrangement of our contractual process, and then within a few months of that approval, he goes to work for one of the major contractors, I thought that clearly was an appearance of conflict of interest,” he said recently.

Stith, the only councilmember who did not attend the topping-off ceremony, said he feels Greenspan’s employment has tainted the project.

“It could be a very good thing for the city, but it certainly has the cloud of potential conflict over it based on the way things were handled,” he said.

Greenspan refused to comment.

Meanwhile, Bell said he’s going on the word of Greenspan and Skanska.

“Until somebody proves something different, we have to go on their word. Skanska’s a big enough company that I’m sure they don’t want to risk their reputation by doing something that is contrary to city practice,” Bell said.

This financial conundrum explains the city’s hard sell on the naming rights. At the Oct. 30 ceremony, City Manager Baker introduced Sports & Properties CEO Hill Carrow, whom the city commissioned two years ago to sell the building’s naming rights.

“Open up your checkbooks and help me welcome Mr. Hill Carrow,” Baker said.

After ensuring the audience that a naming-rights deal would “more than double your return,” Carrow said that there existed “no better corporate sponsorship on the planet.”

“If you want to sign a check on your way out, [we’ll] be more than happy to assist you with that,” he added.

Despite the sales pitch, the stage and theaterand the building itselfremain sponsorless. Capitol Broadcasting Company purchased the plaza’s naming rights for 20 years and Blue Cross Blue Shield bought the atrium for a decade, but DPAC is still under budget by at least $400,000 per year. Durham has committed to covering half of this shortfall by paying up to $200,000 annually for two years, drawing funds from facility fees and, if needed, the Downtown Fund, made up of property tax revenue the city uses to subsidize downtown revitalization, according to city documents. Assistant City Manager Alan DeLisle confirmed that if no more naming rights deals are secured, the city would owe roughly $160,000 a year.

Nederlander’s Jack Meyer was tepid about Carrow’s speech.

“I think part of it was tongue-in-cheek, but part of it reflects the need to close a major naming-rights sponsorwhich I understand they’re close to doing,” he said.

Carrow, meanwhile said his company is still “out prospecting” for sponsors.

“Name any company in the area,” he said of potential buyers.

Besides a lack of interest from potential buyers, there has also been a dearth of citizens interested in serving on DPAC’s oversight committee, the city’s watchdog on the project. A public records request by the Independent revealed that, a month after extending the deadline, the city still had received only three applications for the five-member committee. (More recently, DeLisle said he believes the city now has six applications.)

Bell downplayed concern over the number of applicants.

“We have a sufficient pool, and we have good people to choose from to serve on that committee,” he said, adding that he knew of one person who told him “they were very interested in serving, but they were out of town, or out of the country.”

Committee members include: Alice Sharpe, operations manager for Alliance Architecture and former Durham downtown economic development director; Joshua Parker, a 24-year-old developer at Niemann Capital and a N.C. Central University graduate; and Greenfire Development Corporate Communications Manager Anna Branly.

Branly the only applicant to return calls from the Independent, said that a low number of applications meant things “are going well.” Greenfire has invested heavily downtown, including the recent purchase of the former SouthBank building.

“It’s only when things are not going smoothly that you get [interest] usually,” said Branly, who listed her cultural affinities and her company’s interests in “taking a look at what’s going on there and having an impact on what we’re doing in the city center” as a reason for applying.

This interest in downtown appears to have spurred Branly’s hope that the Independent refrained from writing anything “controversial” about the project.

“I know you guys like to be controversial, but it’s going to be good for downtown,” she said.

DPAC’s impact on other local and area theaters may not prompt such a positive spin.

Prices at the city-owned, 1,000-seat Carolina Theatre will be cheaper, although it will compete with DPAC for acts. Connie Campanaro, president and CEO of Carolina Theatre said she “wouldn’t try” to sell $55 concert tickets.

“Perhaps I haven’t found the person to drop 60 bucks,” she said. “When it was a fundraiser to sit front and center to see [comedian] Steven Wright and go to a reception, it was $90, and we did very well. But just to see him? No.”

Campanaro is banking on several factors for DPAC and Carolina Theatre to succeed while competing: larger audiences, a growing pool of artists and continued corporate support, which she said are all “ifs.”

“The trickiest part is if the number of artistsI’m not talking Broadway, but concerts, comedians and family showsthat could sell a couple thousand [tickets] and are willing to come to a tertiary market. If that roster of artists will keep up, then we won’t be dueling it out over product, in terms of everybody fighting over the same little scrap of entertainment,” she said.

According to an e-mail obtained by the Independent, that dueling has already begun. Art Fegan, a Nashville, Tenn.-based agent who represents the Golden Dragon Chinese Acrobats, booked a show for March 2009 at DPAC. His act performed at Carolina Theatre as recently as 2004. When Campanaro found out, she called Fegan and persuaded him to cancel the performance.

“The idea was to add new entertainment, not move it 0.9 miles away,” she explained.

Fegan said he simply forgot his last Durham show had been so recent, and plans to inform PFM/Nederlander that the Carolina Theatre still has first dibs in 2009.

“That’s the moral dilemma: do you take the relationship or do you take the money?” he said. “You’ve got to go with the relationship and forgo the money, even though it’s tempting.”

Campanaro said an oversight committee, which she insists “should have been in place before the programming started,” could have prevented the Golden Dragon bungle, but Fegan said agents rarely contact committees about booking decisions. Neither Charlotte nor Raleigh have oversight committees for their performing arts centers; Raleigh owns and operates the Progress Energy Center for the Performing Arts, while the Blumenthal Performing Arts Center, which operates five theaters owned by Charlotte and Mecklenburg County, has six government-appointed seats on its board of directors.

Fegan said the mutual success of Carolina Theatre and DPAC comes down to a dialogue between the theaters’ talent buyers.

“I guess it would be like NASCAR teams with multiple drivers with single ownership. You’re out to win, but you don’t wreck the other guy,” he said.

Except in this case, one car is nearly three times bigger than the other. The disparity in size makes sense with Broadway shows, which Carolina Theatre does not book. The situation gets trickier with the mid-level acts, Fegan said.

“When you’re dealing with Phantom of the Opera or The Producers, on that level, it’s not a conflict with the Carolina Theatre. But if you have an artistPatty Griffin, for examplewho would probably do 1,500 seats, Carolina has 1,000 seats and the big theater has 2,800. With those pop acts, there’s going to be that middle ground,” he said.

Campanaro said occupying that regionlargely composed of pop musicians and comedianshas enabled Carolina Theatre to thrive.

“The first show I ever booked was Boney James. Is that artistically relevant? No, but it makes money. Having Boney James and John Legend and the Chinese Acrobats and Paula Poundstone and Margaret Cho and Jonny Langthat’s how we’re able to support more artistically relevant offerings,” she said. “Sure, we do a lot of other things, but we have to be able to do [those].”

Gabbard, president of Charlotte’s Blumenthal Center, said DPAC will target a similar commercial niche.

“With 2,800 seats, they’re obviously going to have to be careful about the kinds of artistic stuff that comes through there and could lose them a lot of money, and they are going to skew towards the commercial things,” Gabbard said. “Likely, there are going to be people who don’t like that, who want it to be more of an art house. But when you have that many seats, it will naturally skew towards more commercial product, and [PDF/Nederlander] know how to do that.”

Aaron Greenwald, director of Duke Performances, said filling even 60 percent of the seats will be “challenging.”

“[Durham] is a place where there’s a lot going on,” he said, adding that he rarely fills Page Auditorium, a 1,200-seat venue on Duke’s campus for which he charges substantially less: typically an average of $20 to $30, with $5 student tickets. He described 2,800 seats as “massive.”

“It’s the size of Beacon Theater or Carnegie Hall, but that’s in New York City. When you try to equate those venues outside New York City, it’s really hard, and then in marketplaces with as much going on as there is going on hereit’s really difficult to find other places where that model is operational,” he said.

Pressed for examples of similarly sized theaters that Nederlander runs successfully, Meyer cited Pantages Theater, a 2,700-seat venue in Los Angeles.

Greenwald said the list of musicians who could charge $55 and fill 2,800 seatsand would be willing to play a venue smaller than an arena in North Carolina”starts and ends with Bjork.”

“Maybe it’s Bright Eyes, or Joanna Newsome. I don’t quite know who’s in that range. Fifty-five dollars seems like more the price you’d pay to see Barry Manilow,” he said.

Manilow makes his next stop in North Carolina at the RBC Center in Raleigha 19,447-seat venue.

Greenwald, whose university-funded Duke Performances series recently included an 18-performance tribute to the life and work of experimental jazz pianist Thelonious Monk, said he can name “on one hand” the recent Broadway shows he found worthwhile.

“It’s a business in which you have to purchase a lotthe availability of product is based on the quantity you’re able to purchase. The seller who’s operating the theater is operating a lot of theaters, and is able to buy a bunch of product. So you’re buying bulk,” he said. “It’s not about the art. You might end up getting the art, but it’s not about the art.”

Nor is DPAC about local artists. DPAC will make it difficult, if not impossible, for homegrown performers to use the venue for less commercial ventures. Though initial plans included a small, black-box theater, which both Charlotte and Raleigh employ in their performance arts centers, developers have since scrapped the idea.

As with the Progress Energy Center, PFM/Nederlander will charge non-profit performance companies $1 per seat to rent the DPAC. Unlike the Progress Energy Center, PFM/Nederlander will charge those companies $1 for every seat in the house, regardless of production size or turnout.

While Raleigh non-profit companies such as Burning Coal Theatre can book the Kennedy Theater, a 170-seat space, at $170 per night (or, if 90 people show up, $90), plus minimum hourly wages for support staff, non-profit companies in Durham must pay $2,800 per night at DPAC. That doesn’t include flat-fee rates of $750 for a “box office set up charge,” $850 for ushers, $400 for custodians, $150 per spotlight, $400 for a technical director, or $500 to turn on the sound systema total of $5,850 a night.

Yet, Nederlander said DPAC will impact Durham artists on a broader level.

“We like to look at it as the rising tide raises all the boats: the more activity downtown, the more everyone will benefit from it,” Meyer said.

“I’m not sure what the rising tide is composed of,” said Ed Hunt, managing director of the non-profit Manbites Dog Theater, which receives between $12,000-13,000 annually from Durham, via the Durham Arts Council. (By comparison, Burning Coal now receives $60,000 a year from Raleigh.) “Is the rising tide larger buildings in downtown Durham? Is the rising tide restaurants and stuff around the venue? Great. I don’t see that benefiting local artists. Is the $44 million going to be shared with other artists in the community? I don’t see that.”

Scott Lindroth, vice provost of the arts at Duke, which has invested $5.5 million in DPAC, partly to advocate for a theater that would benefit ADF, which the university hosts, said the new theater’s effect on smaller venues and artists “remains to be seen.”

“I think it will exert some pressure, and everyone will have to sharpen their missions in terms of defining who their audience is, and how they can best reach that audience,” he said.

He added that DPAC’s ticket prices will be a “big” issue “in terms of how broad the appeal will be,” but PFM/Nederlander’s ability to attract large-scale Broadway shows might make it “a price worth paying.”

Indeed, Nederlander, a juggernaut in the Broadway business, wields enormous purchasing power. The company owns 27 theaters worldwide, and not only produces but also owns and invests in shows that have exclusive runs in those theaters.

“There is no [Broadway] company bigger than Nederlander,” Campanaro said. “The Walt Disney of the field is going to be representing the Durham theater, so it’s a pretty big deal.”

However, less than 30 miles away, Raleigh’s Progress Energy Center hosts a Pixar to DPAC’s Disney: the 27-year-old Broadway Series South. In addition to popular truck shows like Cats and Rent, the series hosts The Wedding Singer and Mamma Mia! this seasontwo shows PFM/Nederlander plan to present at DPAC in 2008-09.

Jim Lavery, general manager at the Progress Energy Center, said he has already been denied purchase of two shows in which Nederlander has a stake: Legally Blonde and Wicked.

“Would you blame them?” he said. “You’d play it in your theater because you keep all the money.”

Lavery predicted DPAC will experience a “honeymoon” period allowing the theater to draw the target Broadway customer, which he said national trends identify as “a woman 45 plus, with a higher education and household making over 75 grand.”

He also predicted that DPAC will market heavily in Raleigh, noting that ticket sales from last year’s Broadway Series South run of The Lion King revealed a mere 2 percent of its customers were from Durham.

PFM/Nederlander, which will share 40 percent of the profits with Durham (not including money they earn from purchasing their own shows), said they intend on being “competitive” with Raleigh.

“I think eventually, after a few years, we’ll find a balance with the two [Raleigh and Durham] markets, but we’ll definitely be competitive,” Meyer said.

Meanwhile, PFM/Nederlander has begun booking shows as Skanska continues building the theater and the city continues to search for a sponsor to pay for naming rights.

“The worst thing that could happen for all of us would be that it’s unsuccessful, that it would be this albatross,” Greenwald said. “But the time to be circumspect is over.”