Executive Director Statement – October 9, 2023 Duluth Entertainment Convention Center Response Dan Hartman – October 9, 2023 Hello. These last couple of weeks have been tough. I know this is a long post, but I feel like I need a comprehensive explanation of the larger story instead of responses to pieces of it. This is both background and our plan to remedy these challenges. First, even though we are in a tough spot right now, this is despite many successes. So far in 2023, our attendance totals are on track to end above both 2022 and 2019. We are putting on more entertainment and events than in recent years and producing an important economic ripple felt throughout the Duluth region. For example, our average 2023 entertainment (concerts) attendance per show is above the national average. In 2022 DECC entertainment attendance was up over 2019: 58,000 vs 67,000. The William A. Irvin and Haunted Ship had record-breaking years grossing $1 million in ticket sales in 2022. That was a first. Our convention business attendance is up as well, 31,000 in 2019 vs. 47,000 projected this year. The economic impact on the Children’s Mental Health conference was $4.3 million alone. It’s a big deal that convention attendance is projected to be up since meetings and conventions are our predominant revenue driver. At this point in the year, our attendance for all events is over 370,000. However, we have been battling systemic problems at the DECC, none of which occurred overnight: Unprecedented emergency repairs. The DECC’s 57-year-old facility has significant, deferred maintenance. Overall, there has been over $600,000 of unexpected, infrastructure-related expenses in 2023. For example, in May the DECC had to purchase and install a Harbor Side Convention Center air conditioning system. Previously, this space was cooled by the DECC Arena chiller, which was shut down this spring due to age-related safety concerns. And that’s just part of a long list of broken items, thankfully most are smaller in scale, but they have added up. Increased utilities. Everyone is paying more for utilities. As you would imagine, costs compound quickly in a place with nearly 1 million square feet. During COVID, local providers were gracious to suspend our utility payments, but now making up those delayed payments added to the financial hardship post-COVID. Wage increases. Like other organizations, we have struggled to fill positions. To recruit more staff, we significantly increased pay. Positions that paid below-average wages of $10 now earn $16 – $17 in the post-pandemic era. Even with that increase in pay, we struggle to find staff. As over 70% of our staff are part-time employees, this has dramatically increased the wage liability and creates huge financial swings. In addition, to retain talent, we have paid our full-time staff more. Wages are up across the board. For perspective, in one department we used 700 less hours of staff time compared to 2019, while spending $200,000 more on payroll. That’s just in the first seven months of the year. Wages are the biggest recurring cost driver of our problems. OUR PLAN Addressing the cash flow issue A place like the DECC experiences huge financial swings throughout the year that would be eased with an open line of credit. The swings come from the seasonality of conventions and events, and the consistent monthly payroll of nearly $500,000 and an electric bill of $100,000. While awaiting October’s traditionally strong income, the DECC’s cash reserve dipped below $900,000. To be safe and ensure we had enough cash on hand to meet the financial demands of the institution, we requested a line of credit from the city. Our intent is to not use this line of credit or use very little of it. Either way, the DECC will repay any funds temporarily pulled from this line of credit. This line of credit DOES NOT resolve the larger structural issue. We need to get past short-term fixes and get to the root of the problem. Addressing the long-term sustainability of the DECC – New Path Even with the temporary line of credit, a new plan is needed to fix the structural deficit driven by higher facility and payroll costs. We are in the process of creating a new way forward. This new operational model will have benefits, like being less costly and more responsive. But it also means some things have to change and that can be difficult. It requires patience, persistence, and along the way it will include some wins and some losses. We will have to do more with fewer employees. Therefore, layoffs needed to happen. I made the tough decision to not fill three positions that were recently vacated through natural attrition and eliminate four other full-time positions. This is out of about 40 full-time staff. These people were valuable staff. This difficult decision was made after careful consideration of where we are going and what would have the least impact on our guest and client experience. Financially, we didn’t have a choice. We needed to make payroll reductions and we need to move ahead with a new staffing model. This model includes changes that will not only be felt internally, but also by the public. For example, we are going cashless because it allows for more flexible labor in our concession stands, which results in savings on our payroll. We simply cannot afford the same model as in the past. In the end, a new model will mean that we can continue to drive strong economic impact on behalf of the region for years to come. This is the DECC’s purpose and has been since 1966. Many people and businesses rely on the DECC for their livelihood, either directly or indirectly. From our food vendors and the IT company that supports us, to the regional tourism industry that benefits from the guests who come to our events. To provide us with industry best practices and an outside perspective when creating this new model, we’ve hired a venue consultant. The consultant will review our operations and recommend where efficiencies may be gained and identify new revenue opportunities. I am happy to report, the consultant work will be starting soon. We will have our first meeting in the coming weeks. We also need to overhaul a legacy financial system that is cumbersome and not conducive to detailed analysis and reporting. In every conversation I’ve had with our board members and regional leaders, everyone is behind the DECC. Thank you. We have seen similar situations with other organizations locally, and today they are in a much better place because of that support. We are confident that the DECC will be too. This is a tough moment for all of us, but we will get through it, and I believe we will be in a much better position as a result.