VIRGINIA BEACH, Va. (WAVY) – After initially spending millions of dollars to construct a sports center at the Oceanfront, taxpayers are still funding its operation as an audit finds the facility has lost money in its first two years.

The 11-page report from the city auditor’s office finds that while the center is on track to host nearly 500,000 athletes and spectators by July, the sustainability of its financial operations “appears to be questionable.”

Missing financial statements, depleted reserve funds and an inaccurate way of measuring economic impact were all findings detailed in the audit that ultimately recommended the city place its operating partner on probation.

Yet, when it comes to the overall goal of the Virginia Beach Sports Center, City Auditor Lyndon Remias said it’s likely meeting its goal.

“Yes it’s been a rocky start financially,’ Remias said. “I think in regard to bringing the events, the teams, filling the hotels the restaurants. That side has been a plus.”

The $68 million sports center opened in October 2020 between 17th and 19th streets at the Oceanfront resort, next to the Virginia Beach Convention Center.

The 285,000 square-foot indoor facility is one of the largest of its type on the East Coast, with 12 basketball courts convertible to 24 volleyball courts and floor space that has flexible use for many other activities such as gymnastics, wrestling and floor hockey. There is also a 200-meter hydraulically-banked indoor track and enough seats for 7,000 spectators.

When the project was approved in 2018, the goal was to maximize tax revenue by getting into the growing sports tourism market. Tourism leaders say that brings families to the resort in what’s known as the “shoulder season.” In a beach town, that is essentially anytime before Memorial Day and after Labor Day.

Funded by the city’s Tourism Investment Fund (TIP), which is made up of lodging, meals and admissions taxes, it’s those exact funds the city believes will benefit the most. Multiple hotel owners have said the center has allowed rooms to be filled on traditionally slower weekends.

However Remias said right now it may be at the expense of Eastern Sports Management, the Fredericksburg based company that has a ten year agreement with the city to operate the sports center, for $30,000 a month plus incentive fees.

The audit found ESM lost $1.3 million and $1.4 million the last two years respectively. Remias said they also have depleted the $750,000 operating reserve account funded by the city, prompting them to borrow an additional $260,000 from the city, all chalked up to “unanticipated operational losses.”

Those include money lost due to event cancellations caused by COVID-19 restrictions, inflation, and difficulty securing qualified help with custodial services the audit stated.

ESM in their response to the audit said put some the onus on financial woes back on the city, saying that the sports marketing department within the Convention and Visitors Bureau controls the calender.

“The strategy of using aggressive pricing models to attract the greatest number of events has been a major contributing factor to the economic impact achieved,” John Wack, president of Eastern Sports Management, said. “The pricing strategy has in part led to a shortfall and operating expenses … the successful sales effort has consumed much of the event inventory making it difficult to run the in-house higher margin events planned originally.”

Remias said this appears to be one of the key issues.

“It’s become an arms race,” Remias said. “You must incentivize events to come to your sports center. But what is that balance.”