Money Losing MHES Asking Council For Millions

One year ago I wrote an article called Medicine Hat Exhibition and Stampede $22.3 Million Funding Request. 

October 3 2023 The Medicine Hat Exhibition and Stampede (MHES) was at City Council requesting $22.3 million  from the City of Medicine Hat. ($14.8 million grants plus a $7.5 million interest free loan).  They had a glossy 4 page handout and a bunch of pretty pictures but were very short on financial information. When asked what kind of payback term they were looking for, the response was (jokingly), ...the lease is for 50 years…

Nov 6 2023 A Briefing Note came to Council recommending that no action be taken until the following financial information was provided.

It is recommended through the Administrative Committee that City Council direct Administration to take no action on this request until the following has been received from MHES:

• 5 years income and expense projections for the MHES operations and events including proposed new/expanded facilities.

• Business plan outlining operations of MHES proposed facilities including:

o Current utilization rates of MHES facilities and event attendance

o Projected utilization rates of MHES facilities including proposed new/expanded facilities

o A description of how the new/expanded facilities will promote Medicine Hat as a hub in the agribusiness corridor

• Analysis on scaling of existing facilities to accommodate desired target events
• 10-year capital expenditure plans for all MHES facilities identifying any backlog of required maintenance
• Detailed repayment plan for the requested $7.5M interest-free loan

Council agree with administration and told the MHES to come back when they could bring the receipts.

One Year Later

Nov 4 2024 The request is back, once again short on financial details and asking for even more money. 

2023 Grant $14.9 million
2023 Interest Free Loan $7.4 million

2024 Grant $15.6 million
2024 Interest Free Loan $7.8 million

The City may have received the information requested a year ago but it is certainly not in the Agenda Packet. Instead we get a list of financial ratios, some of which are very concerning. The request starts on pg 214 of the Agenda Packet.

• Operating Expense Ratio (2023): 100.8%

The Operating Expense Ratio compares the Operating Expense to the Net Revenue. The lower the percentage, the more profitable the company is. This ratio should be less than 100%, preferably between 60 and 80%. A ratio above 100% means the company is losing money.

• Operating Margin (2023): -0.8%
  
  Again, a negative number means it is not profitable, they are losing money, despite reports that 2023 was a record breaking year for the annual Stampede. 

When the MHES Board was asked Oct 3 2023 how much fundraising they had done in the last 2 years, no numbers were given. No revenue forecasts. no proposed repayment schedule, nothing. At 45:15 of the Oct 3 2023 City Council Meeting Mr Edwards said “…we’ve tried, we’ve had our 50/50 draws, silent auctions...”

The disturbing numbers in the Nov 4 Agenda packet are very concerning. Pg 221 says

There is a solid financial base on which to build.

• Operating margin is of concern and must be addressed when moving forward from an investment perspective.

Findings - Loan Payment (Building Plan #1) (pg 229)

• Loan Amount: $7,787,200
• 2023 Revenue:$3.87 million

• Required Revenue Increase (Rent & Liquor): $615,000

• Main Cash Outflows:
  – Insurance costs
  – Wage costs
  – Mortgage Payment

Using the numbers provided, that means they will have to increase their revenues by nearly 16%. Given that we were told they had failed in their fundraising efforts, that hardly seems likely.

Doing the Math

The MHES pays $1 / yr to lease the land. The City is losing out on a fair market value of over $500,000/yr.

The Nov 6 2023 The Briefing Note on pg 298 of the Agenda Packet says that the City would lose $1.2 million annually on the investment income on the total amount. To replace that money with tax revenue would mean a tax increase of 1.5%.

The City will also incur interest costs on the loan - $460k in Year One, a total $5.87 million over 25 years (at 6%)

Possible Annual cost to the City and Ratepayers

$500,000 lost lease revenue
$1,200,000 lost investment revenue
$460,000 interest costs at 6%
$2,160,000 Total cost to the City and Ratepayers per year