Consideration - City of Concord, California

4.a
AGENDA ITEM NO.___
REPORT TO MAYOR AND COUNCIL
TO THE HONORABLE MAYOR AND COUNCIL:
DATE: December 10, 2013
SUBJECT:
CONSIDERATION OF MANAGEMENT AGREEMENT BETWEEN THE CITY OF
CONCORD AND LIVE NATION FOR OPERATION OF THE CONCORD
PAVILION
Report in Brief
The City’s current agreement with Live Nation for operating the Pavilion expires on
December 31, 2013. Council directed staff to explore the possibility of additional operators who may
have the interest and potential to operate the Pavilion with an emphasis to reactivate and reinvigorate the
facility, while minimizing the City’s financial risk. Consequently three potential operators, including
Live Nation, were contacted; two submitted written proposals. Of the two proposals, Live Nation’s was
the most robust in terms of its commitments for number and diversity of shows as well as financial
protection for the City. Consequently, staff is recommending that the City Council approve the Concord
Pavilion Management Agreement with Live Nation Worldwide, Inc. (a Delaware corporation) for a term
of ten (10) years, with an option of a five (5) year extension, to lease, operate, maintain, promote and
manage the Concord Pavilion facilities.
Background
The Concord Pavilion is a City-owned public assembly and entertainment facility that opened in 1975 as an
8,500 seat amphitheater that presented a variety of cultural arts events, community programs and the Concord
Jazz Festival. The Pavilion was constructed by the City after Hofmann Construction Company granted
approximately one hundred eighty-three (183) acres of unimproved land to the City in 1973. The grant
restricted the use of the property, in perpetuity, for park and recreational purposes (including construction of a
performing arts center).
In 1996 the Pavilion was reopened following a major refurbishment and renovation with a total seating range
up to 12,500. From its opening in 1975 until February 29, 2000, the City entered into several agreements with
a number of promoters, including Nederlander and Bill Graham Presents. In September 1999, in response to a
trend of declining income generated by the Pavilion, the City engaged an independent consulting firm,
KPMG, to conduct an operational study of the Pavilion. The KPMG study was completed in early 2000 and
concluded that a ground lease/management agreement with Bill Graham Presents (BGP), or a promoter with
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CONSIDERATION OF MANAGEMENT AGREEMENT BETWEEN THE CITY OF
CONCORD AND LIVE NATION FOR OPERATION OF THE CONCORD PAVILION
December 10, 2013
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similar capabilities, would result in a more positive financial viable option for the City. In response to the
study’s conclusions, the City negotiated a ground lease/management agreement with BGP that significantly
protected the City from the financial volatility associated with the live entertainment industry and provided a
potential upside through shared revenue between the City and BGP. The agreement between the City and
BGP was approved by the City Council on February 29, 2000 in which BGP would lease, manage and operate
the facility. This agreement was amended and/or extended five times since 2000 (including the current
agreement that expires December 31, 2013). The prior amendments modified a variety of contractual
provisions and commitments over time and acknowledged successor corporations to BGP. The current
successor corporation is Live Nation. The most recent management agreement (Concord Pavilion
Management Agreement), dated March 31, 2011, superseded the prior management agreement, and provided
for the lease, management, operation and maintenance of the City-owned public assembly and entertainment
facility currently referred to as the Sleep Train Pavilion at Concord. The term of the March 31, 2011 Concord
Pavilion Management Agreement was subsequently extended by mutual agreement with Live Nation
Worldwide, Inc. (Live Nation) and the City through December 31, 2013.
For a number of years, the City Council has been unsatisfied with the management of the Pavilion, but was
constrained in addressing its concerns by the existence of the agreement with Live Nation; consequently, as
the existing contract was coming to the end of its term, the City took on the challenge of identifying other
companies might be interested in operating/leasing the Pavilion.
In February 2013 the City entered into a professional services agreement with Strategic Advisory Group
(SAG) in which SAG Principal Jerry McClendon was hired to assist in contract negotiations for a new ground
lease for operation and management of the Pavilion, including identifying firms that were qualified and
interested in this role. Three firms expressed interest (Live Nation, Nederlander, and SMG), and all three were
invited to submit an Operational Plan for the Pavilion, including pro forma budgets. Two of the three firms
responded with a written proposal to the City’s request: Live Nation and Nederlander.
After a thorough analysis of the two proposals received, staff met with the City Council in closed session on
September 10, 2013, to discuss the respective proposals and to seek direction. Based on the comparison of the
two proposals, the City Manager recommended initiating direct negotiations with Live Nation. Council
concurred with the City Manager’s recommendation. Staff proceeded with negotiations and sought further
direction from the Council in closed session on November 5, 2013, focusing on the financial components and
commitments comprising Live Nation’s proposal.
Discussion
During the City’s negotiations with Live Nation, its leadership has demonstrated a renewed commitment to
the Pavilion facility and the City of Concord; consequently, Live Nation has agreed to a contract that includes
a significant upfront financial investment in the facility and to a number of provisions that enable the City to
meet the Council’s three key goals for the Pavilion:
•
Reactivation/Revitalization of the Venue: Increase the number and diversity of
commercial and community entertainment and offerings; restore a sense of civic pride and
partnership.
CONSIDERATION OF MANAGEMENT AGREEMENT BETWEEN THE CITY OF
CONCORD AND LIVE NATION FOR OPERATION OF THE CONCORD PAVILION
December 10, 2013
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•
Financial Stability: Obtain revenue from the facility that will cover debt costs; minimize
financial risk to the City.
•
Improve Structural Integrity and Quality of Maintenance of the Concord Pavilion
Facility: In order to remain a competitive venue in the Bay Area market, the facility needs
capital investment and must be well maintained over time.
As demonstrated in the discussion below, each of Council’s three goals will be addressed by the new contract.
Financial Terms:
The financial terms comprising the new management agreement/ground lease meet the Council’s stated
goal above and is an improvement over the City’s current agreement with Live Nation. The current
contract incorporates a guaranteed annual fee to the City of $500,000 and a $3 per sold ticket surcharge.
Based on the most recent trends, the $3 surcharge produced approximately $300,000 in annual revenue
to the City from an estimated 100,000 tickets sold on a fiscal year basis. However, it should be noted
that the ticket surcharge revenue fluctuates based on the number of tickets sold, so the amount actually
received by the City has varied from year to year.
The new contract guarantees an annual fee to the City of $800,000 per year in years 1-10, and $900,000
per year in years 11-15, if the contract term is extended after year 10.
The new contract also provides a bonus payment to the City (based on annual ticket sales), as follows:
• $3.00 per each ticket sold over 100,000 (Years 1-5)
• $4.00 per each ticket sold over 100,000 (Years 6-10)
• $5.00 per each ticket sold over 100,000 (years 11-15 if extension granted)
Other than unspecified amounts for routine maintenance, the current contract did not require any capital
investment in the Pavilion by the operator. The new contract requires Live Nation to provide an upfront
capital investment in the facility of $3.7 million dollars, which must be expended by December 31,
2016. Additionally, Live Nation must allocate $100,000 a year (with an annual 2% inflator) through the
duration of the Management Agreement for repairs and maintenance; spread over the term, this totals a
commitment of approximately $1.1 million over ten years and approximately $1.7 million over fifteen
years (if the contract is extended), towards maintenance. The new agreement also requires that the City
commit an equivalent annual amount to fund necessary facility repairs and maintenance.
Community Participation:
In response to the City Council’s stated desires, Live Nation has committed to increasing community
participation. The following provisions are incorporated into the Agreement:
•
Complimentary Ticket Program: Provide and distribute 2,000 free tickets each calendar year:
1,000 to City residents and 1,000 to school age children that attend school in Concord and
their family members.
CONSIDERATION OF MANAGEMENT AGREEMENT BETWEEN THE CITY OF
CONCORD AND LIVE NATION FOR OPERATION OF THE CONCORD PAVILION
December 10, 2013
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•
Resident Ticket Pre-Sales: 300 tickets per concert will be made available to residents prior
to availability to the general public with no service charge –100 in the Lower Pavilion, 100 in
the Upper Pavilion, and 100 in the Lawn Area.
•
Establish an educational outreach program: Live Nation will work with the City during the
first full year of the agreement term (calendar year 2014) to develop and implement an
educational outreach program to introduce school age children to the performing arts. This
program will continue throughout the term of the contract. Live Nation shall utilize its
relationship with the Bill Graham Foundation to seek funding for the Educational Outreach
Program.
•
Establish an Advisory Committee: Live Nation will partner with the City and create the
Pavilion Arts and Entertainment Advisory Committee. Membership of the Committee will
include the Pavilion Manager (a Live Nation staff person), City staff, and business and
community members.
Minimum Number of Performances:
To address Council concerns about the declining number of concerts at the Pavilion during the term of
the previous Management Agreement, Live Nation is required to provide a minimum of 75 concerts
during both the first five-year term and the second five-year term of the new Agreement, with each
concert having a minimum number of 3,000 attendees. If the Agreement is extended for an additional
five year period, Live Nation is required to schedule an additional 75 concerts, meeting the same
attendance levels. A failure by Live Nation to meet this benchmark in any five-year term will result in a
penalty of $40,000 for each missed concert, and a revocation of Live Nation’s option (discussed below),
to unilaterally extend the Agreement at the expiration of the first 10 year period.
Term Extension:
Live Nation desires a unilateral five-year term extension after the initial ten (10) year term (which ends
December 31, 2023). Staff is comfortable with allowing Live Nation the ability to unilaterally extend the
term of the contract 5-years only if this provision is contingent upon Live Nation achieving all of the
performance measures listed below, which are built into the Agreement:
•
Providing a baseline minimum number of concerts and attendees per concert in each five
year term of the agreement (discussed above);
•
Investing $3.7 million in capital improvements at the facility and expending that investment
fully in a timely manner on a list of projects agreed to between City and Live Nation staff;
•
Making all payments to the City in a timely manner (July 1 and December 31 annually);
•
Participating in the required number of meetings of the Pavilion Arts and Entertainment
Advisory Committee;
•
Meeting all maintenance requirements and financial disclosure requirements described in the
Agreement.
CONSIDERATION OF MANAGEMENT AGREEMENT BETWEEN THE CITY OF
CONCORD AND LIVE NATION FOR OPERATION OF THE CONCORD PAVILION
December 10, 2013
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Proper Maintenance of the Facility over Time:
The Agreement also specifies requirements that Live Nation must meet in providing maintenance on the
premises, parking lot, and surrounding outside areas. These areas are to be free of unsanitary conditions
and free of conditions posing a fire hazard or a threat to health or safety. The quality of maintenance
must comport with standards equal to or exceeding those in use by high quality amphitheaters in the
State of California.
Towards this end, the Agreement requires that Live Nation allocate $100,000 a year (with a 2% annual
inflator) each year of the contract for repairs and maintenance. Spread over the term, this totals
approximately $1.1 million over ten years and $1.7 million over fifteen years, depending on the length
of the term. To the extent that the full $100,000 (plus the inflationary “add-on”) is not expended by Live
Nation in a given year, Live Nation will be required to add that amount to its required maintenance
expenditures in a subsequent year. At the end of the term, if Live Nation has not spent the required $1.1
million over ten years or $1.7 million over fifteen years, as applicable, for Pavilion repairs and
maintenance, it must remit any unspent portion to the City. The contract also requires that the City
allocate $100,000 a year (with a 2% annual inflator) for necessary maintenance and repairs for the
Pavilion facilities.
The agreement also includes a provision that if the aggregate cost of any necessary capital expenditures
exceeds $200,000 (plus the inflationary add-on) in any fiscal year, then, the City shall advise Live
Nation whether the City will perform the excess work. If the City elects not to perform the excess
capital expenditure work and the absence of the additional capital expenditure(s) would have a material
adverse effect on Live Nation’s use and operation of the Pavilion, then Live Nation shall have the right
to terminate the Agreement.
The Agreement provides that the City and Live Nation will work collaboratively to prioritize and
oversee expenditures of Live Nation’s $3.7 million upfront capital investment and annual maintenance
expenditure. The first task is to establish a list of prioritized projects to be accomplished with the $3.7
million upfront investment. It is Live Nation’s responsibility to oversee the projects (subject to City
input), following all applicable federal, state, and local regulations, including prevailing wage and public
bidding requirements. Together, Live Nation and the City will decide the order and timing of the
projects and monitor progress.
Financial Reporting and Disclosures:
Live Nation shall maintain financial accounting books, ledgers, journals, accounts and records in the normal
course of business operations for the Pavilion. The records are considered as proprietary and confidential;
however they shall be available for the City’s inspection. Live Nation has also committed to provide the City
with audited ticket sales information from Ticketmaster for each concert as soon as this information is
available. The ticketing reports will provide the City with data on the number of all paid, dropped, and gross
tickets for each concert event. The City may disclose such ticketing information to third parties, including,
Pollstar. Since this operating agreement provides the City with a guaranteed annual payment from Live
Nation, rather than the City sharing in the risk of the net operating income and losses, it is not necessary for
the City to require audited profit and loss statements. However, the value of accessing the financial
CONSIDERATION OF MANAGEMENT AGREEMENT BETWEEN THE CITY OF
CONCORD AND LIVE NATION FOR OPERATION OF THE CONCORD PAVILION
December 10, 2013
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accounting and ticketing records will benefit the City in monitoring programmatic and revenue trends at the
Pavilion; consequently, staff retains the right to review Live Nation’s financial records for the Pavilion’s
operations.
Naming the Concord Pavilion:
The Agreement states that the Pavilion will be re-named from the Sleep Train Pavilion at Concord to the
“Concord Pavilion.” At some point in the future, Live Nation can propose a “named in title” sponsor to
the City Council, similar to the current name. For the present, rebranding the facility would be more
successful by identifying the facility as the “Concord Pavilion”. If Live Nation proposes a name in title
sponsor in the future, the Council retains full discretion on whether to approve a name change. If naming
rights are approved and an agreement is reached, the City would share in the revenue generated.
Fiscal Impact
The new Management Agreement is the functional and legal equivalent of a ground lease, setting forth
the terms and conditions under which a third party, Live Nation, will have the right to operate a City
owned facility (the Pavilion) on a largely exclusive basis for a lengthy term at predetermined annual
minimum guarantee fee payments payable to the City. Consistent with this agreement, Live Nation will
be responsible for paying any possessory interest taxes.
The new financial terms meet the Council’s financial stability goal noted above, and are a significant
improvement over the City’s existing contract with Live Nation. The current contract incorporates a
guaranteed annual fee to the City of $500,000 and a $3 per sold ticket surcharge; whereas the new
contract guarantees an annual fee to the City of $800,000 per year in years 1-10, and $900,000 per year,
in years 11-15, if the contract term is extended. The new contract also provides a bonus payment to the
City, based on annual ticket sales.
Other than unspecified amounts for routine maintenance, the current contract did not require any capital
investment in the Pavilion by the operator. By contrast, the new contract requires Live Nation to
provide an upfront capital investment in the facility of $3.7 million dollars. In addition, recognizing the
importance of maintaining the facility and protecting the City’s investment, the agreement requires an
on-going commitment from both the City and Live Nation to allocate $100,000 a year each (with an
annual 2% inflator) through the duration of the contract for repairs and maintenance; spread over the
agreement term, this totals a commitment of approximately $1.1 million over ten years and
approximately $1.7 million over fifteen years, as applicable, from Live Nation and the same amount
committed by the City towards maintenance.
Pavilion Debt:
As noted previously, the financial terms in the new Management/Lease Agreement will result in
minimizing the City’s financial risk and will provide a stable revenue stream from the Operator to cover
the City’s debt costs associated with the Pavilion. The Pavilion has two types of debt attached to
it, outside debt and internal debt. Below is a summary of each.
CONSIDERATION OF MANAGEMENT AGREEMENT BETWEEN THE CITY OF
CONCORD AND LIVE NATION FOR OPERATION OF THE CONCORD PAVILION
December 10, 2013
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•
Outside Debt: The total principal and interest outstanding as of June 30, 2013 on the outside
debt (the Concord Pavilion Lease Revenue Bonds) was $3,778,608. These bonds are scheduled
to be fully paid off on August 1, 2020. The debt payments (principal and interest) were designed
as declining annual payments that range at $700,832 in fiscal year 2012-13 to $281,124 in fiscal
year 2020-21, the final year in which the outside debt will be paid off.
It should be noted that the original amount of this outside debt was $18.7 million, however, a significant
portion was converted to internal debt using other City funds (as noted below).
•
Internal Debt: On September 21, 2009, the City Council, to further mitigate the financial risk to the
City’s General Fund, authorized internal loans to purchase a portion of the outside debt from the
bondholder. The primary benefit of this conversion from external debt to internal debt was a lowering
of the interest rate (from 8.24% the City is paying on the outside debt to the rate the City earns by
investing idle funds in the State’s local agency investment fund (LAIF), estimated at 0.25-3.0%) and a
reduction in debt costs over the life of the debt (estimated at more than $1 million in savings).
As of June 30, 2013, the total internal debt outstanding is $8,000,000. Per the Council’s authorization on
September 21, 2009, the General Fund has been paying interest on the internal debt to the Sewer and
Low/Mod Housing Fund (the source of the internal loan) since the start of the loan. In this fiscal year (201314), interest payments to both funds are estimated to be $59,000 in total. Council’s authorization also
provided direction on the repayment schedule for the internal debt; structured repayment of the principal
internal loan balances must start no later than FY 2014-15. The 10-Year Plan for the Pavilion Fund currently
schedules principal repayment to begin in FY 2014-15 with full payoff of the internal loans scheduled for FY
2039-40.
Taken as a whole, the new contract protects the City’s General Fund from the liabilities of the debt
associated with the Pavilion and insures the facilities’ long term maintenance.
Public Contact
The City Council Agenda was posted. A copy of this report has been forwarded to Live Nation and Sleep
Train Mattress Centers. Additionally, staff is in the process of scheduling a meeting between Live Nation
staff and surrounding community members. Staff will report out the results of this community meeting at the
Council meeting.
CONSIDERATION OF MANAGEMENT AGREEMENT BETWEEN THE CITY OF
CONCORD AND LIVE NATION FOR OPERATION OF THE CONCORD PAVILION
December 10, 2013
Page 8
Recommendation for Action
Staff is recommending that the City Council approve the Concord Pavilion Management Agreement
with Live Nation Worldwide, Inc. (a Delaware corporation) for a term of ten (10) years, with an option
of a five (5) year extension, to lease, operate, maintain, promote and manage the Concord Pavilion
facilities.
Valerie J. Barone
City Manager
[email protected]
Prepared by:
Scott P. Johnson
Assistant City Manager
[email protected]
Reviewed by: Mark S. Coon
City Attorney
[email protected]
Attachment No. 1: Management Agreement with Live Nation Worldwide, Inc.