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City Council Report

 

City Council Meeting: March 8, 2011

Agenda Item: 8-A

 

To:               Mayor and City Council

From:           Barbara Stinchfield, Director, Community and Cultural Services

Subject:        Business Terms and Authorizations related to a Public/Private Partnership with the Nederlander Organization for the Use and Programming of the Santa Monica Civic Auditorium

 

 

Recommended Action

Staff recommends that the City Council:

1.     approve the negotiated business terms for the use and programming of the Civic Auditorium by the Nederlander Organization; and

2.     authorize the City Manager to negotiate a presenting agreement with the Nederlander Organization.

 

Executive Summary

Both the Civic Center Specific Plan (CCSP) and the City’s cultural plan, Creative Capital, place a high priority on renovation and upgrades to the landmark Santa Monica Civic Auditorium to allow for a desired future program that provides high quality, community-responsive cultural events.  In exploring ways to reposition the Civic Auditorium as a vital cultural hub within the Civic Center area, the City issued a Request for Qualifications (RFQ) for potential partners.  Based on its response to this RFQ, on September 22, 2009, the Nederlander Organization (Nederlander) was approved by the City Council and the City Manager was authorized to negotiate business terms based on specified Council-approved parameters.  After extensive analysis of models and options as well as the proposal presented by the Nederlander, the attached term sheet (Attachment A) was negotiated.  This staff report requests approval of the business terms in the proposed term sheet and authorization for the City Manager to finalize a presenting agreement with the Nederlander based on these terms.  The financial impacts of the proposed actions are analyzed as a part of this report.

 

 

 

Background

The Current Model

Today the Civic Auditorium (Civic) functions as a 3,000 seat, full service rental facility which features a range of events from consumer shows, concerts and community events, to filming and award shows, with the majority of the use coming from consumer shows.  In FY 2009-10, the Civic Auditorium hosted 91 events for a total of 272 use days including days required for set-up and tear down.  Of the 91 events, 50 were contracted events and 41 were City events.  The Civic Auditorium is staffed with a full management team, permanent event staff, and a number of as-needed staff for specific events.  This  level of staffing is needed due to the predominance of consumer and trade shows that take a great deal of staff time for set up and tear down and require both general and specialized trade skills to achieve the high level of customer service for which the Civic is known.  The Civic Auditorium was established as a City enterprise fund and historically has operated without a General Fund subsidy.  However, per the Five Year Forecast, the Civic Auditorium is projected to require a General Fund subsidy of approximately $2M in FY 2011-12 and FY 2012-13.

 

Community Context

The Civic Auditorium was designated a City Landmark by the Landmarks Commission on November 12, 2001.  That decision was upheld by the City Council at its April 9, 2002 meeting.  In June 2005, the City adopted an update to the 1993 Civic Center Specific Plan (CCSP) setting forth planning policies and land use and development regulations for the 67-acre area bounded by Pico Boulevard on the south, Fourth Street on the east, Ocean Avenue on the west and Colorado Avenue on the north.  The southwestern corner of the Civic Center is defined as the “Civic Auditorium District” with the Civic Auditorium as its cornerstone, to be bordered by open space as well as an early childhood education center and additional cultural facilities.  The CCSP identifies the need to make improvements to the Civic Auditorium as a venue for large musical and cultural performances as well as exhibitions and community gatherings.  Further, it calls for the surface parking to be consolidated into above and below ground parking thus freeing up the land for park purposes.

 

Creative Capital, approved by City Council on February, 27, 2007 committed the City to a cultural use of the Civic Auditorium in line with the community’s vision for the facility.  Creative Capital suggests that the recommendations regarding the Civic Auditorium in the CCSP be refined to clearly reflect specific cultural uses envisioned by the community.  That vision includes the need for significant upgrades to the building and its technical equipment in order to support its repurposing from primarily an exhibition hall to primarily a cultural venue or performing arts center, highlighting concerts, theatrical shows and other special events.

 

Partnership Opportunities -- Selection of the Nederlander Organization

In March 2009, City Council authorized the issuance of an RFQ to solicit qualifications from non-profit and/or for-profit entities interested in participating in a public/private partnership for the cultural use and programming of the Civic Auditorium.  In response to the RFQ, Nederlander provided the City with a responsive submittal.   On September 22, 2009, the City Council authorized the City Manager to negotiate with Nederlander based on the extent to which the submittal met the qualifications stated in the RFQ.  Nederlander was selected based on its years of experience, financial capacity, and expertise in working with historic facilities and the public sector as well as its national reputation for the quality and breadth of its offerings product, from Broadway productions to concerts.  The Council also gave direction to staff regarding specific parameters to use as the basis for negotiating a potential agreement with Nederlander.

 

Nederlander, established almost 100 years ago, is one of America’s premier entertainment companies with the ability to secure top headline entertainment based on long-term industry relationships.  Nederlander is one of the primary theatrical producers and theater operators on Broadway, whose production list includes shows such as Lion King, Wicked, Rent, Avenue Q, Stomp, Riverdance, Evita and Chicago, among many others.  Nederlander also has a major concert programming division that works with a broad array of talent across all musical genres, including such superstars as Sting, Bruce Springsteen, and Bob Dylan, as well as Erykah Badhu and Kristin Chenoweth.  Further they have extensive experience working with municipalities and other government entities as well as with landmark facilities.  In California, they have agreements to operate or program the Greek Theater in Los Angeles, the Santa Barbara Bowl, the Grove in Anaheim, the San Diego Civic Theater, and the Civic Auditorium and Center for the Performing Arts in San Jose.  Nederlander’s standing in the industry and status as an international promoter are critical to repositioning the Santa Monica Civic Auditorium as a destination venue for music and theatrical productions; it is likely not likely  the City can achieve this on its own.

 

Discussion

Analysis of Venue Management Models

In March 2010, the City received a detailed proposal from Nederlander to partner with the City to achieve the desired repurposing of the Civic Auditorium.  The City retained the services of the Strategic Advisory Group (SAG), a national consulting firm with extensive expertise in convention and performing arts centers, to assist in the analysis of the proposal, development and review of the related financial models, and in benchmarking the proposal in relation to agreements in place at facilities around the state and country.  SAG’s analysis confirmed the benefits and desirability of the proposed partnership. The consultants prepared a comparative analysis of the proposed model with the most common operating models for these types of venues.   As part of this analysis, they also looked at associated staffing levels, levels of risk, and economic benefit. The analysis is summarized in the following two charts.  The blue section in each focuses on the proposed model for the Civic Auditorium.

 


 

TYPICAL VENUE MANAGEMENT MODELS

Structure

Operator

Booking Agent

Calendar Control

Compensation

Risk on Venue Operations

Comment

Open Venue

City

Open Booking

City

Presenter Takes Risk on Events and Pays Facility Rent to City.

City

Current Model

Exclusive Presenter

City

Exclusive with one Presenting Organization

City or Presenting Organization

Presenter Takes Risk on Events and Pays Facility Rent to City.

City

Current Model with Exclusive

Exclusive Presenter/Joint Venture

City

Exclusive with one Presenting Organization

Presenting Organization

Joint Venture Based on Split of All Net Event Revenue (Shared Event Risk)

City

 

Model Proposed

Management Agreement

3rd Party Operator

Open or Exclusive

3rd Party Operator

Operator is Paid Base Fee.

Presenting Agreement is a Separate Financial Arrangement

 City

 

For example Nederlander, SMG, Global Spectrum

Privatization

3rd Party Operator

Open or Exclusive

3rd Party Operator

 

Fixed Lease Payment

Lessee

Long-term Lease with 3rd Party at Risk

 

 

The main advantages and disadvantages of these typical models in relation to the City of Santa Monica and the Civic Auditorium are summarized in the next chart.

 

MODEL

ADVANTAGES

DISADVANTAGES

Open Venue

·        City controls both the calendar and use for City and community events

·        Keeps some or all Civic Auditorium staff in current positions

·        Very difficult to attract concerts and theatrical performances without concert and theatrical  connections and a more open calendar; may require additional staff with more concert and theatrical expertise

·        Does not achieve programming priorities

·        Expensive alternative in terms of City subsidy due to greatly reduced event revenues because venue only gets rent and does not participate in larger net revenues


 

Exclusive Presenter

·        Top notch promoter/presenter helps to achieve programming goals

·        City participates in calendar decisions

·        Civic serves as catalyst for increased economic activity in hospitality sector due to increased event activity/attendance

·        Keeps some or all Civic Auditorium staff in current positions

 

·        Current Civic Auditorium staffing level may be downsized; Presenter may require that number of community and City events be limited

·        Since the Presenter is merely renting the facility for events, it may not be “fully invested” in the success of the venue

·        Expensive alternative in terms of City subsidy due to greatly reduced event revenues because the City only gets rent and does not participate in larger net revenues

 

Exclusive Presenter/Joint Venture

·        Top notch promoter/presenter is invested in achieving programming goals

·        City participates in calendar decisions

·        Joint venture benefits from strong concessions and other revenue opportunities

·        Civic serves as catalyst for increased economic activity in hospitality sector due to increased event activity/attendance

·        Keeps some Civic Auditorium staff in current positions,

·        City can be partially reimbursed for use of additional City staff for specific events

·        Reduced City subsidy over other models above because City is participating as the promoter, assuming more risk on shows but also garnering more rewards

·        Current Civic Auditorium staffing level will be downsized; Presenter may require that the number of community/City events be limited

·        As venue operator City will be at risk for 100% of its overhead and, depending on the terms of the agreement ,any loss in the event of negative net event revenue fluctuations

·        Any downside risk born by JV partner would typically be accompanied by additional base compensation

 

Management Agreement

·        Operations would be handled by an experienced third party

·        Civic serves as catalyst for increased economic activity in hospitality sector due to increased event activity/attendance

 

·        A top notch promoter/presenter still needed to achieve programming goals

·        Civic Auditorium staff would need to be relocated or laid-off

·        Operator might lose sight of City programming goals

·        City generally loses control over many decisions such as programming, operational policies, staffing

·        Two fees are being paid by the City - one for management of the facility and a second for the show promoter or presenter

·        City would still be fully at risk for all operational costs (venue manager presents City with annual operating budget)

 

Privatization

·        Top notch promoter/presenter achieves programming goals

·        Civic serves as catalyst for increased economic activity in hospitality sector due to increased event activity/attendance

·        City would have certainty regarding its financial obligation/benefit

·        Financial terms would be less favorable to the City  in the early years when risk is highest and more favorable once the venue has completed repositioning

·        City would need to identify a top notch promoter interested in leasing, repositioning the Civic, and bearing all risk

·        Civic Auditorium staff would need to be relocated or laid-off

·        Lessee has full control and all risks and might lose sight of City programming goals

·        City would relinquish control over the facility

·        In exchange for financial certainty, City would generally not benefit from any positive or increased revenue opportunities

 

The Model Proposed by Nederlander

Nederlander proposed the Exclusive Presenter/Joint Venture model, as highlighted above.  The model was developed taking into consideration the negotiating parameters previously approved by the City Council and Nederlander’s desire to meet both its goals and those of the City.  The structure invests Nederlander, a top industry promoter, in the success of the venue and ensures that the City shares in that success.  The City would enter into a joint venture for a term of 10 years (an initial five years, with a five year renewal).  The City would grant exclusive presenting rights to Nederlander, with the City and Nederlander sharing the net event-related revenue from this joint venture.  The City and Nederlander would work in tandem and combine all of the event-related revenues and expenses to calculate the net event-related revenue, or Contribution Margin as it is referred to in the term sheet.  The net event-related revenue would then be split between the City and Nederlander based on specified percentages, with the City retaining the major share.  From its share of the net revenue, each entity would then cover its own overhead costs.  Nederlander would pay for the costs of acquiring the talent for concerts and theatrical shows and the City would pay the costs of venue operations.  Generally, the goal of this net revenue sharing arrangement is to provide Nederlander with a reasonable base fee consistent with the services being provided, plus an incentive fee if it can make the venue perform at high levels.  Since Nederlander would be responsible for booking the venue and would get compensated based on the venue’s success, Nederlander would be a highly invested partner with the City and, specifically, in the Civic Auditorium’s event-related financial success.

 

Proposed Terms

An interdepartmental staff team from the Departments of Community and Cultural Services, Finance, Housing and Economic Development, Human Resources and the City Attorney’s Office, with the assistance of SAG, negotiated the proposed term sheet (Attachment A). The terms reflect specific changes from Nederlander’s original proposal in that it provides additional incentives for Nederlander to increase revenues through strong performance and includes specified City event staff in the event-related costs shared by both parties.  The changes also provide for the City to retain 100 percent of specified event-related revenues such as event parking and a theater preservation fee. The proposed terms will allow the City to achieve both substantial public benefit and realize a large number of the initial parameters that Council approved when authorizing negotiations.  The degree to which the proposed model addresses the major Council-approved negotiating parameters is discussed below.

 

1.       Ensure that the programming and operation of the Civic Auditorium are financially sustainable over time

 

Financial projections were developed to analyze the proposed model, determining the net event-related revenues under various scenarios, the Nederlander and City share of those revenues and the impact on each partner’s bottom line.  A summary of these projections are included as Attachment B.

 

Nederlander Share:  Under the proposed agreement, annually Nederlander would receive 40% of the first $500,000 in net event-related revenue (or Contribution Margin), 15% of the next $1M, 30% of the next $750,000 and 40% thereafter (anything over $2.25M).  Nederlander would need to create at least $500,000 annually in net event-related revenue in order to earn what is essentially a base management fee of $200,000.  Bearing in mind that Nederlander would incur a variety of significant expenses in order to deliver the services, much of the initial base fee will be used to pay these corporate overhead expenses, including for such services as strategic positioning, calendar management, buying talent, advertising management, Ticketmaster coordination and event day participation.  Per SAG’s analysis, this projected $200,000 is considered a reasonable base fee for this venue given the level of programming and coordination involved.  After the first three year period, Nederlander could be terminated if it failed to achieve a net gain for any two consecutive year period.

 

Reduced City Subsidy:  The City would receive the remainder of the net event related revenue, equating to 60% of the first $500,000 in net event related revenue, 85% of the next $1M, 70% of the next $750,000 and 60% of anything over $2.25M.  The various financial models developed to analyze this business model included the baseline scenario developed by Nederlander, a pessimistic scenario (10% and 20% less net event-related revenue) and optimistic scenarios of 10% and 20% more. In all cases, the City’s overhead (of which 2/3 are staffing costs) are such that the venue would still require an annual subsidy ranging from $0.6M to $1.7M.  The cumulative subsidy range over the ten year term would be between $8.7M to $14.7M versus a projected cumulative subsidy of over $32.9M over the same time frame under a “status quo” scenario.  This is a significant reduction of $18M to $24M over the ten year term.  The need for a continued subsidy is partially due to the negotiating parameter to retain as many existing City staff as possible – resulting in salary rates and benefit levels significantly higher than private sector industry standards – as well as the establishment of a new annual capital outlay contribution of $500,000 that will ensure that funds are available to properly maintain the facility over the long term.

 

 

It is important to note that a majority of municipally-owned performing arts facilities operate with a subsidy in order to support the desired community programming and events.  According to a survey by the International Association of Venue Managers, the average annual operating loss of the 25± theaters with over 2,500 seats (average was 2,800 seats) that responded to the survey was about $900,000.  While some theaters actually turn a profit (24% responding to the survey reported earning a profit), in SAG’s experience these would not generally be public facilities but rather would be private venues that 1) are in a market position to host a strong event mix focused on profitable events (versus any community uses) and 2) operate with very lean staffing and operating policies.

 

In addition to reviewing the above study, SAG identified comparable municipal facilities that are similar in size to the Civic, finding that the vast majority do require a subsidy, particularly if they are associated with community uses and cultural programming.  Some venues require heavy subsidies.  Examples of facilities with annual operating subsidies include:

 

City-wide Economic Impact.  The City can anticipate a substantial increase in economic activity, primarily in the hospitality sector, as a result of repurposing the Civic Auditorium due to spending by an increased number of attendees at an expanded range of Civic Auditorium events.  SAG did a general analysis of the projected economic impact of a repurposed Civic Auditorium which shows an anticipated increase of approximately 95,000 attendees in year seven of this proposed agreement over last year’s attendance numbers (FY 2009-10), with an estimated increase of almost $18M in combined direct spending and indirect spending.  Direct spending includes actual spending by event attendees and sponsors on such items as hotels, food and retail purchases, and indirect spending  represents the multiplier effect of a dollar spent in the economy (Attachment C).  Furthermore, the renovated Civic should be a strong anchor supporting the planned development in the area by providing confidence in its long-term vitality and sustainability and by attracting tens of thousands of visitors, many of whom will stay overnight. A

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2.  Maximize the number and diversity of high quality cultural/entertainment options available at the Civic Auditorium

 

Under the proposed model, Nederlander would be subject to termination unless it delivers a minimum of 200 events/performances in the first 39 months of operation, with no less than 40 concerts, 40 legitimate theater performances and 40 special events -- versus the current operating model which in 2009 had 25 consumer shows and 4 trade shows, fewer than five concerts and no legitimate theater.  The numbers of proposed events/performances would ramp up over the term of the agreement.  Nederlander would use its influence as one of the leading promoters in the industry worldwide to bring top name entertainers along with touring Broadway shows and other theatrical productions as well as a range of select special events to the venue, building upon their success up and down the West Coast, including in cities such as Anaheim, San Diego and San Jose.  This range of programming simply cannot be achieved by City staff alone without an experienced and connected presenting partner.

 

3.  Ensure that the Civic Auditorium will remain available for community use.

 

Under the proposed term sheet, the City reserves the right to use the Civic Auditorium at City expense contingent upon calendar availability.  This would allow the City to retain existing important community uses such as Stairway of the Stars and the Santa Monica Symphony with no additional impact than these events currently have in terms of the bottom line.  The financial models developed assume that the Civic would continue to be available for a limited number of City supported community events each year.  Reasonable limitations and guidelines would need to be developed to ensure that the calendar has the available dates to book the revenue generating programming.  In addition, Nederlander is committed to working with community organizations to develop innovative programming partnerships to expand the cost effective community use of the Civic.  For example, Nederlander has suggested developing a ‘Pops’ concert series with the Santa Monica Symphony or a musical theater instruction program for young people in conjunction with local schools.

 

4.  Ensure that any advertising or sponsorship arrangements are compatible with City precedent and policies

 

The financial models assume revenue from standard and non-intrusive types of sponsorship agreements such as the pouring rights for concessions, and promotions with local businesses.  However, it specifically excludes possible revenue from various opportunities related to title sponsor naming rights which, though potentially lucrative, were deemed to be incompatible with past City precedents.  However, the various forms of naming rights and signage related to event sponsorships could be considered in the future if the City Council chose to pursue it in order to increase the net event related revenue and thus reduce the City’s operating subsidy.  It is estimated that $100,000 to $200,000 in additional revenue could be realized annually from more aggressive naming rights and sponsorship sales, and potentially more.  Given leeway, Nederlander is skilled at developing innovative sponsorship initiatives and has the industry contacts to capitalize on them.  Specific direction from the City Council related to the City’s limitations/parameters in this area would assist in finalizing the Nederlander agreement so that the sales team will have clear ground rules.

It should also be noted that the City has approached the Civic’s renovation and ongoing operations as solely a City function and has not included a philanthropic approach to fundraising.  Many cities create structures that rely on such philanthropic support, such as foundations or non-profit boards, but these structures are typically associated with the support of specific performing arts such as ballet, opera, or symphony.  While the Civic currently and is planned to host a few symphony events, future event programming is envisioned to be geared primarily to mainstream concerts, Broadway-style theatrical shows and other special events, such as awards shows, consumer/trade shows, and corporate events.

 

5.     Ensure that, as a result of this agreement, existing staff at the Civic Auditorium maintain employment comparable to their current employment status

 

In order to yield the strongest financial position for both the City and Nederlander while still providing the full range of events desired by the public, the proposed model calls for “lean City staffing,” i.e., keeping a core group of approximately 10 to 12 current Civic staff positions to perform management and event-related functions, with Nederlander overseeing sales, box office, and some production staff and bringing in additional event-related staff as needed depending on the nature of the event.  Nederlander would bring in prior Civic event staff for specific events as appropriate. This staffing model is recommended as it provides the appropriate staffing level for the type of programming mix envisioned at the renovated venue.  This would reduce the number of City employees working at the Civic from the current level of 27 permanent and 14 as-needed staff to 10 to 12 permanent employees.  In FY 2009/10, the as-needed staff hours ranged from a low of 315 hours for an Event Operations Attendant to a high of 1551 hours for an as-needed Event Attendant I.  It is anticipated that this transition would happen over time prior to the closure of the Civic in 2012.  The annual staff cost differential between the proposed “lean staffing” model and the current level of staffing is approximately $1.3M in 2010 dollars.  The impact of this cost differential in terms of City cost savings will increase over time due to increased fringe benefit factors.

 

If the City Council were to pursue the lean staffing model, the City’s Human Resources Department proposes to implement the following measures in order to address the staffing parameter set by the City Council in its earlier discussions.  Strategies take into consideration the building’s closure for renovation projected to begin in fall or winter of 2012 as well as the longer-term staffing needs once the renovated Civic reopens in 2014.

 

Strategies include:

1.     Reduction in staff by attrition over the next 18 months prior to closure of the Civic for renovation.  As current staff members retire or leave, eliminate the positions and utilize temporary staffing by event.

 

2.     Actively recruit and prepare Civic staff for other vacancies within the City as they occur.  Also fill in behind those who transition to other positions with temporary staff at the Civic Auditorium prior to its closure.

 

3.     Work with Nederlander to include former Civic employees in their service rosters if feasible.

 

4.     Bring in an outplacement service to assist impacted employees with preparing for outside employment.

 

5.     Consider appropriate severance packages for long term employees who volunteer to leave early.

 

As noted above, if a model is adopted that does not include such staff reductions; the City subsidy will be substantially higher than projected under the proposed model.

 

6.  Ensure that sufficient capital investment will be made to the facility to support its proposed use and ensure that adequate reserves are projected to maintain the facility over time

 

The financial models developed for anticipated future operations include a ticket surcharge, which is a typical fee charged at the point of sale and is considered an event-related revenue item to be shared by both parties, Nederlander and the City.  If the City Council decides to so, a facility preservation fee may be imposed over and above the ticket surcharge that would go solely to the City to support maintenance and repairs and capital improvements over time.  The financial models assumed an annual capital outlay by the City of $500,000 (inflated) for this purpose.

 

In addition to ongoing capital outlay needs, the fifty year old Civic Auditorium is in need of major renovation including substantial earthquake retrofit and ADA accessibility improvements.  In order to function effectively as a destination venue for high-quality theatrical and musical performances, everything from the sound system to the lighting booth, the seats to the dressing rooms, the bathrooms to the lobby also need major improvements.  The proposed 10 year agreement with Nederlander is predicated on the City making the requisite capital investment to upgrade the facility. Nederlander has substantial experience in the renovation of historic venues including the Greek and the Pantages and has offered the City its assistance in this capacity at no cost to the City if this agreement moves forward.

 

Last year, in prioritizing the use of Redevelopment Agency (RDA) funds, the City Council earmarked $25M to partially fund the venue’s seismic and ADA renovation.  It is anticipated that substantial additional funding will be required to bring the Civic Auditorium up to present-day standards.  Approval of a final agreement with Nederlander as well as the award of a design/build contract pursuant to the recommended Request for Bid (RFB) process would both be contingent upon the identification and allocation by City Council of sufficient additional Redevelopment Agency funding.

 

Staff is currently refining early cost estimates for the required renovation so the Auditorium’s funding needs can be considered by the Council when it reviews RDA priorities this spring.  In the meantime, in order to keep the timeline intact, staff is planning to issue a design/build RFB.  Staff would return to Council later in the spring with a recommendation regarding award of contract and approval of initial preconstruction services, and would later return for approval of subsequent actions necessary to effectuate the design build process.  The current schedule anticipates that the renovation of the building would begin in the fall or winter of 2012 and last 18 to 24 months.

 

Alternatives

The City Council could choose to reject the business terms negotiated with Nederlander and could instead pursue one of several options.

1.     The City Council could choose to continue to operate the Civic Auditorium as is, presenting primarily consumer shows. However the projected deficit would continue to mount and the facility would still require major infrastructure improvements to address ADA accessibility and retrofits for earthquake safety.

 

2.     The City Council could opt to continue with the required renovation of the Civic Auditorium, enter into a presenting agreement as is currently contemplated, but continue to operate the Civic at current staffing levels to address the staffing parameter set forth earlier by Council.  This approach would achieve the desired programming goals, but the additional staff costs would increase by approximately $1.3M in 2010 dollars and the staffing levels and mix would be inconsistent with the job functions needed.

 

3.     The City Council could opt to continue with the required renovation and issue a new Request for Proposals for programming in time for the reopening in 2014.  With a renovated facility and perhaps an improved economy, Nederlander and other entities might be interested in proposing management options. However, it should be noted that, in SAG’s opinion, there are only a few firms that can fulfill this presenter role.  Furthermore, the proposed operating structure and fee arrangement are reasonable.

 

4.     The City Council could consider entering into a long-term privatization agreement with Nederlander or another presenting organization to control all aspects of the Civic Auditorium’s operations.  This model would involve a payment by the City of both a management fee and a substantial ‘risk bonus’ which would gradually decrease over the ten year term as the Civic became an established destination venue.  Entering into a privatization agreement with a third party would allow the City to know exactly what its financial commitments to the facility would be over the term of the agreement.  However, the City would need to compensate the private partner for the perceived high risk it would be assuming of an unknown product in the marketplace, particularly in the early years.  The City would also relinquish control of the facility and would need to lay-off or transition virtually all Civic staff to other positions within the City.  The City might be better positioned to pursue such a privatization option at some point in the future once the Civic has been successfully repositioned as an important destination venue for music and the performing arts and much of the risk of that transition has passed.

 

Financial Impacts & Budget Actions

The five year forecast for the Civic Auditorium Fund underscores the need for a new approach to the use and programming of the Civic Auditorium.  It is projected that the proposed operating model would reduce the operating subsidy required of the General Fund from the “status quo” range of $32.9M over the 10 year term to a range of $8.7M to $14.7M.

 

In addition to the $25M earmarked through the Redevelopment Agency, additional capital funds will need to be identified in order to fully renovate the facility.

 

 

Prepared by: Jessica Cusick, Cultural Affairs Manager

 

 

Approved:

 

Forwarded to Council:

 

 

 

 

 

 

Barbara Stinchfield

Director, Community & Cultural Services

 

Rod Gould

City Manager

 

 

Attachments:

A. Term Sheet

B. Business Model Summary

C. Economic Impact Analysis