CITY AUDITOR'S OFFICE Scottsdale Stadium Lease Agreements September 4, 2014 AUDIT REPORT NO. 1405 CITY COUNCIL Mayor W.J. “Jim” Lane Suzanne Klapp Virginia Korte Robert Littlefield Linda Milhaven Vice Mayor Guy Phillips Dennis Robbins TABLE OF CONTENTS EXECUTIVE SUMMARY ...................................................................................... 1 BACKGROUND ............................................................................................... 3 Figure 1. Scottsdale Stadium and Practice Fields ............................................................. 3 Figure 2. Indian School Park Minor League Complex .......................................................... 4 Figure 3. Maintenance Reimbursements, 5-year Trend¹ ..................................................... 5 Table 1. Key Contract Responsibilities .......................................................................... 5 Figure 4. Giants-Reported Spring Training Tickets Sold ...................................................... 6 Figure 5. Non-Spring Training Stadium Revenues .............................................................. 7 OBJECTIVES, SCOPE, AND METHODOLOGY .............................................................. 9 FINDINGS AND ANALYSIS .................................................................................. 11 1. Some maintenance and operation costs that appear to be the other parties’ responsibility are not being billed. ................................................................................. 11 Table 2. Stadium and Minor League Complex, CY 2013 Direct Operating Costs ....................... 11 Table 3. Maintenance and Operations Labor Hours, CY 2013 ............................................. 12 2. The Stadium Capital Improvement Fund should be more closely monitored. ............... 14 Table 4. Stadium Capital Improvement Fund ................................................................ 14 3. Certain aspects of contract administration can be improved. ................................ 15 MANAGEMENT ACTION PLAN ............................................................................. 19 EXECUTIVE SUMMARY This audit of Scottsdale Stadium Lease Agreements was included on the Council-approved FY 2014/15 Audit Plan. The audit’s objective was to review compliance with contractual requirements of the Scottsdale Stadium lease agreements. We identified and reviewed three major contracts for the use of Scottsdale Stadium. The most significant of these, with the San Francisco Giants and the Scottsdale Charros, gives the Giants exclusive use of the Stadium during January through April 15th and year-round use of the Indian School Park Minor League Complex. The Arizona Fall League agreement allows annual use of the Stadium during October and November, and a one-year contract with the Freedom League provided Stadium use during May through early September 2012. The Giants/Charros contract provides that the City will be reimbursed the lesser of $200,000 or 20% of actual costs for maintaining, operating, and repairing the Stadium and Minor League Complex for the Giants’ use under the agreement. Our audit found some significant costs are not being included in the City’s calculation of actual costs. Specifically, utilities, facility repair and maintenance work performed by City staff, and certain operating costs such as Stadium employee cell phones and fleet vehicles were not included. These types of directly related operating costs totaled about $570,000 in calendar year 2013. Additionally, some labor costs associated with maintaining the Stadium and Minor League Complex fields to professional baseball standards were not included. While nearly all labor costs during Spring Training were included, staff included only a small portion of labor during the remainder of the year. However, City staff maintains the fields to professional baseball standards year- round for the Giants’ use. Further, the City paid for scoreboard maintenance costs of almost $5,000 a year even though this is specifically the Giants’ responsibility under the contract terms. In 2013, City staff included this cost in the maintenance amount, so it was reimbursed at 20% rather than paid in full by the team. The Capital Improvement Fund established by the City, the Giants, and the Charros and held by the City should be more closely monitored. Documentation of approval by all three parties was not retained for an expenditure for Stadium seats. Additionally, the City Treasurer’s process for charging capital improvement project (CIP) overhead automatically added costs that equated to a 26% overhead rate. The current method of prorating CIP overhead to only the projects with an expense during the month does not tie these costs to actual project time and effort. Further, certain aspects of contract administration can be improved, including establishing a more efficient method of tracking Stadium costs for reimbursement, ensuring billings are accurate, obtaining additional detail from the Scottsdale Charros for the annual reporting, modifying billing or payment due dates to comply with contract deadlines, and requiring supporting documentation for ticket surcharges. Scottsdale Stadium Lease Agreements Page 1 Page 2 Audit Report No. 1405 BACKGROUND In March 2005, the City entered into a 20-year agreement with the San Francisco Giants and the Scottsdale Charros for the use of Scottsdale Stadium and the Indian School Park Minor League Complex. Scottsdale Stadium has been the Spring Training home for the San Since 1956, Scottsdale has Francisco Giants since 1982. The 2005 agreement required the hosted a Major League City to make significant renovations to the Stadium and Minor Baseball team for Spring League Complex, including a new team store, training and Training. The San Francisco treatment room, batting area, a full-sized and a half-sized Giants have used Scottsdale practice field, and expanded clubhouses and training facility. Stadium and the associated minor league complex since Located at the northeast corner of Drinkwater Boulevard and 1982. Osborn Road, as shown in Figure 1, Scottsdale Stadium includes a full- and a half-sized practice field. Covering 11 acres, Scottsdale Stadium seats 12,000 and its amenities include a press box, a team store, four concession stands, four novelty stands, and multiple ticket booths. Figure 1. Scottsdale Stadium and Practice Fields Stadium Practice fields SOURCE: Aerial provided by Scottsdale Stadium staff. Scottsdale Stadium Lease Agreements Page 3 Shown in Figure 2, the Indian School Park Minor League Complex consists of four practice fields, one half field, 10 bullpens, five outdoor hitting cages, three indoor hitting cages, and an 18,000 square foot clubhouse with a training and weight room. Figure 2. Indian School Park Minor League Complex SOURCE: Aerial provided by Scottsdale Stadium staff. The Giants have year-round exclusive use of fields 1 and 2 at the Minor League Complex and priority use of fields 3 and 4. Contract terms allow the City to schedule other uses on fields 3 and 4 after 4 pm on weekdays and during weekends, with prior approval from the Giants. Contract Terms The current Spring Training agreement took effect in 2005 when the City entered into a multi-party contract with the San Francisco Giants and the Scottsdale Charros.1 The contract gives the Giants exclusive use of Scottsdale Stadium during spring training and year-round use of the Minor League Complex. The City receives annually a base fee of $200,000 and a maintenance amount equivalent to 20% of the actual cost of maintaining, operating and repairing the baseball facilities for use under the agreement, but limited to $200,000. As shown in Figure 3, over the past 5 years, the maintenance reimbursement has ranged between approximately $118,000 and $193,000, with the highest amount in CY 2012. In this year, the Giants requested exclusive use of fields 3 and 4 at the Minor League Complex. 1 The Scottsdale Charros is a local non-profit group whose mission is to promote the City of Scottsdale and its community through sports and cultural activities. SOURCE: http://charros.com Page 4 Audit Report No. 1405 Figure 3. Maintenance Reimbursements, 5-year Trend¹ $250,000 $200,000 $150,000 $100,000 $50,000 $0 2009 2010 2011 2012 2013 ¹Chart shows maintenance reimbursement for the calendar year the costs were incurred. Payments are received the following May. SOURCE: Auditor analysis of Giants/Charros payments. Table 1 highlights some key responsibilities provided in the contract. The Giants and the Charros have a separate agreement, which the City is not party to, that more specifically reallocates their joint responsibilities and any additional obligations for producing and promoting the Giants’ Spring Training games. Table 1. Key Contract Responsibilities City Responsibilities Giants/Charros Responsibilities • Maintain playing fields to Major League • Provide all game day support staff (e.g. ticket Baseball standards sellers, ushers, clubhouse personnel, umpires, • Maintain cleanliness and good order, condition etc.) and repair of the facilities • Contract security personnel and emergency • Prepare field and stadium for games and medical services inside the Stadium during practices game days • Provide designated parking areas for game • Obtain telephone and communications days and practices services used by Giants/Charros • Provide traffic control during game days • Cleaning the team areas including the clubhouses, press box, administrative