The Deep Discount

June 26, 2012
by
4 mins read

The last time the city of Jacksonville advertised for a company to handle city sports and entertainment facilities, Kurt Cobain was still alive, “Miss Saigon” had opened on Broadway and Jacksonville was still a year away from securing an NFL team.

The facilities management company SMG (then Spectacor) won that contract in bid competition in 1992, and it held on to it for the next 20 years, through four contract extensions. During those 20 years, the city’s stable grew to seven venues, which includes the Jaguars’ EverBank Field, Veterans Memorial Arena, Prime Osborn Convention Center and Equestrian Center.

When city Inspector General Pam Markham recommended, after a 2010 audit of SMG, that the city put the contract out to bid, she said it was “because of the changing climate of the industry.” While that is certainly true, Markham was slapping a nice-sounding justification to rebid the contract after her audit laid out, in damning detail, multiple problems between city of Jacksonville and SMG, including overcharges by SMG and many questionable payments by the city.

In mid-June, the city made public two bids it received in response to the Request For Proposals (RFP) on a new five-year facilities management contract. In order to keep the business it’s counted on for the past 20 years, SMG is offering Jacksonville a deep-deep discount of more than $1 million. For years, the city paid SMG a base fee of $1.2 million to manage its sports complexes. Now that SMG must bid on the contract to operate those same seven city venues, it’s offering to drop its base fee to $150,000. SMG will not only drop its base price, it also guarantees payouts of $8.5 million to the city over the next five years and promises to drop the city subsidy to cover revenue shortfalls by more than $5 million.

The city extended SMG’s contract four times since 1992. But it ended the old arrangement and issued a Request For Proposals on March 16. One other company, Comcast’s Global Spectrum, entered a bid.

There are only three companies nationally that do this kind of big-venue management. One of those, AEG, didn’t submit a proposal because it didn’t meet the city’s minimum qualifications to have an NFL stadium in its portfolio. (The city of Oakland dropped the requirement for NFL experience from a similar RFP, so that all three companies could compete for the California job.)

The third major-venue manager, Global Spectrum, submitted a proposal that would charge the city a base fee of $300,000. That’s $900,000 a year less than Jacksonville has been paying SMG, but double what SMG now says it will charge. This is one of the many markets in which these companies have faced off.

SMG’s million-dollar price cut makes it seem the city was grossly over-charged all these years. The company doesn’t completely explain that difference in costs, but it does propose a lucrative revenue stream by keeping food and beverage concessions in-house through its company Savor. Indeed, SMG is so confident that profits from Savor will flow into the tills of SMG and the city that it promises to refund parts of its management or incentive payments if estimates are off.

Global’s bid doesn’t figure food and beverage as a revenue source, and Global’s Todd Glickman maintains the RFP didn’t ask for a bid on a food-and-beverage company. If one is issued, he says, Comcast’s Ovation Food Services will bid on the job. But he says the money Ovation earns wouldn’t be mixed with Global’s.

“We weren’t asked to bid on food-and-beverage concessions,” says Glickman, vice president of business development for Global Spectrum. “And SMG clearly included those revenues in their bid.”

SMG Marketing Executive Michael Munz of the Dalton Agency referred Folio Weekly to Section 4 of the RFP, which does plainly state the facilities manager should “operate and staff concessions.”

Munz added that SMG wouldn’t comment further, because the rules of the bid process prohibit discussing the bids with the media at this stage. The city of Jacksonville also declined to comment while bid review and ranking is underway.

That the two companies arrived at opposing interpretations of RFP requirements isn’t surprising in a bid that has been muddied with politicized interpretations of contract requirements and changes to RFP under the guise of clarification. Global has connections to the Mayor’s Office through Comcast’s biggest lobbyist. But RFP favors SMG, and Jacksonville’s get-it-done lobbyist Paul Harden represents both SMG and the Jags.

“The whole thing ought to be thrown out and re-looked at,” says City Council President Bill Bishop. “The process is tainted in a lot of different ways,” he adds.

Bishop says he wouldn’t expect two proposals to be identical. And RFPs ask companies to package a proposal.

“Logic would say both companies responded to criteria in the RFP and if somebody added something, great,” he says. “Of course, that assumes that it is a clear RFP and that you can track its requirements.”

There’s wicked irony in SMG’s proposal to manage the contract by including its company Savor as part of the package. The city finally took this contract out to bid after Inspector Markham’s jaw-dropping audit of the SMG and Savor books. Jacksonville Economic Development Commission (JEDC) oversight seems so lackadaisical that they didn’t notice that a scheduled payment to Savor for a cut of merchandising was off by a million dollars. The JEDC also reimbursed Savor more than $20,000 for corporate travel expenses — with no back-up receipts. The city even paid the salary of Savor’s finance manager, who worked 10 percent of the time outside the city at other SMG venues. Plus, the management contract between SMG and Savor was a sham. They were the same company. They shared staff and revenue. Markham described it as an “inherent conflict of interest.”

In its new bid, SMG presents Savor as part of its company and the in-house provider of food-and-beverage concessions. After looking over the bid, Bob Downey, former SMG Jacksonville general manager-turned-whistleblower, speculated SMG has a deal to add food-and-beverage concessions at EverBank Field to its holdings. The Jags pick their own concessionaires. It would violate the RFP to include revenues from the NFL.

Asked if SMG had a Jags concession deal, Munz responded by email:

“No.”

“Thank you!”

Susan Cooper E

sceastman@folioweekly.c

Folio is your guide to entertainment and culture around and near Jacksonville, Florida. We cover events, concerts, restaurants, theatre, sports, art, happenings, and all things about living and visiting Jax. Folio serves more than two million readers across Jacksonville and Northeast Florida, including St. Augustine, The Beaches, and Fernandina.

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