Dear Arthur, Tipped Balls Hurt
By Al Gray
As University of Georgia grads know, an untimely tipped ball tantalizingly close to the goal line can kill championship dreams. The Atlanta Falcons have executed a well-orchestrated plan over the last two years to carefully plan and execute the win of a free $1.2 billion new stadium. Now the weakened opposition is down to an unlikely, untested, last line of defense called the Atlanta City Council. Its members were spectators suddenly called into a game with no advance preparation. Only a disaster can stop the Falcons now. Surely a bunch of city council members can’t muster anything heroic. Everything has been so perfectly played that half of the backfield has been cloaked with invisibility.
Political maneuvers bail out GWCCA, get Falcons to first and goal
Moments after the opening whistle in 2010, the Georgia World Congress Center contingent on the team realized that they had a huge problem. If they fully surrendered stadium operations to the Falcons, not only would GWCCA be giving up $20 million a year in hotel motel tax funding (Consultants’ numbers lead to totals of $1.2 billion over 35 years), it would be giving away $15 million a year in net income on a successful Georgia Dome operation. If someone only looked at the financials there could be trouble. A worse problem was the $2 million to $3 million in GWCCA overhead that the Georgia Dome has been absorbing for years. Then someone realized that money is fungible and that the Atlanta Convention and Visitors Bureau (ACV
partnership with GWCCA could be used as a conduit to shift costs equivalent to those then covered by dome operations. In 2011 the team got a new 1% hotel motel tax passed worth $6 million a year to expand the ACVB’s marketing of events in the World Congress Center and elsewhere. About $4 million of the new tax appears on the GWCCA’s 2012 FY financial statements. That might have tipped some people off, so GWCCA’s Frank Poe proclaimed, truthfully enough, that the new tax was not going toward stadium construction. The contract between ACVB and GWCCA was modified in 2011 uneventfully. The cost shift will be a handy tool.
The series of plays in the General Assembly enabling the Falcons takeover extended the hotel motel tax and, just last week, killed a conservative bill strengthening right to work laws that would threaten the “community investment” now needed to have any chance at victory in Council chambers.
Another saving grace in the potential damage to GWCCA’s finances is that Georgia governor Nathan Deal, who has had a major role in the stadium negotiations, and GWCCA’s Frank Poe, now 62, will probably be retired before the harm to GWCCA becomes known in 2018. $15 million Dome annual net income contributions might be too great a loss to overcome, necessitating a state bailout.
On first down -
Tipped Ball #1 – Public costs are not capped at the $200 million advertised according to City’s and GWCCA’s own documents that are posted online.
The Falcons negotiators, gold dome allies, and GWCCA facilitators have stayed remarkably on message that public funds are only $200 million, while the Falcons will be paying $800 million of construction costs. When the deal with Atlanta Mayor Kasim Reed was announced on Thursday, March 7, the press release said “The public contribution for stadium construction is capped at $200 million.” Maybe the Mayor thinks the council won’t mind that the legal summary says
“Budget/Contributions: Estimated $948 million, comprised of….. Public Contribution: $200 million net proceeds of the HMT Revenue Bonds”
The legalese says the $200 million is an estimate, not a cap and puts stadium borrowings on the same funding stream that a Citi consultant projected would produce bond proceeds of $360 million. Even more critical is that those funding assumptions are terribly conservative, given the extraordinarily lower interest rates are available to Atlanta than the 4.15% rates used and that Hotel-Motel tax revenues are currently up 7.49% over last year.
Second Down –
Tipped Ball #2 – No one is explaining a $612 million cash gap in Hotel Motel tax funds ($211 on a debt funding basis) over the “$200 million cap” and fully funded O-M accounts (which are being ignored as a public contribution)
A key Citi presentation of June 2011, secured by agraynation.com, was integral to the planning of the stadium agreement. This agreement used the 2.7% annual growth rate in H-M tax revenues and it showed the debt service required at then-existent rates for $360 million in debt. If the debt is reduced to $200 million, where debt is to be “capped,” it leaves $612 million in cash outlays unaccounted for, or $210 million in estimated bonding potential. These public funds are being pretended out of existence.
The legal summary contains this bombshell about the extra funds: “City would agree that all HMT revenues not required under the Funding Agreement to provide for the payment in full of the HMT Revenue Bonds (including appropriate reserves) shall be deposited with a separate GWCCA HMT Fund Custodian, where such funds shall be applied to pay for any costs relating to the construction and operation of the NSP, as provided in the HMT law.” In other words, excess funds can go into stadium construction that are over and above the $200 million cap.
Third Down –
Tipped Ball #3 – The $186 million that the Atlanta agreement puts into “other event staging” through FY 2051 is to make up for the much, much higher costs the Falcons plan on charging as stadium managers than GWCCA did, isn’t it?
This one might tip off the public and Atlanta City Council that “StadCo will be responsible for the cost (to be identified) of providing its staff and other support that historically has been provided by GWCCA” They might awaken to the fact that Falcons costs as stadium manager are required to be built into all GWCCA events, GWCCA legacy events and Atlanta hosted events – events that now account for nearly 60% of Dome attendance! There are indications that Dome legacy events might be “not on economic terms” after the Falcons take over. Having to allocate $186 million to “other event staging” to make the existing venues and events viable reveals a controversial truth about the contract – the GWCCA won’t be staffing the stadium and will have to pay the Falcon’s cost structure, which may be considerably higher. (GWCCA’s consultant having already predicted 20% (after tax) ticket price increases and 44% concession price increases) Having to inject $186 million to make your own events “economic” after the Falcons take over isn’t a surprise to Atlantans?
Fourth down, Arthur, but don’t sweat it -
Tipped Ball #4 – The Falcons only agree to pay that which the public contribution cannot be “maximized” to cover, not $700 or $800 million.
The Atlanta agreement says, “All NSP costs in excess of the Public Contribution to be paid by StadCo” (the Falcons). Worse it says this about handling of funds when the bonds are sold in August 2013: “Invest Atlanta shall issue the Hotel Motel Tax (“HMT”) Revenue Bonds and StadCo shall establish an account into which its contribution will be deposited. ” This doesn’t even set an amount or a requirement that any money be deposited by the Falcons, only that an account be established! Beyond this, crafty lawyers restricted Falcon responsibility to “NSP Costs” which are established by a maximum price. The trouble with this is that an increase in the “maximum price” (which can change throughout the project) is not necessarily a change order for which the Falcons are responsible.
******************
Expect the great Falcons special stadium team to pick up the tipped ball and run in for the score. The officials will push the ball carrier across the goal line. “Whatever it takes” is the Georgia and Atlanta politicians’ motto.
After the victory is scored, the Falcons can proceed into the construction phase of revenue enhancement, where the next $50 million to $100 million in public funds lay waiting.
Why not make the full agreement open for public scrutiny instead of just the legal summary? Why not make this process easier on all concerned and just ante up another $250 million that is perfectly justifiable under sound strategic planning and will make this project palatable to the public?
Another $250 million from the Falcons remains a bargain, Arthur.
Teeing Off for the Last Time
by Al Gray
A journey for this writer that began about a year ago concluded on Monday, February 11, 2013 with a presentation before the Finance Committee of the Augusta City Commission. Commissioners Wayne Guilfoyle and Bill Lockett had requested a final act of assistance with respect to the tumultuous Tee Center operating agreements in the form of an analysis of the proposed Tee Center plan and budget that had been submitted by Augusta Convention Center operator Augusta Convention Center Management LLC (ACCMLLC), a subsidiary of Augusta Riverfront LLC and a related entity to Morris Communications, publisher of the Augusta Chronicle.
The Chronicle local government writer who reported on the meeting made no mention of my report, which was very kindly received by all of the commissioners.
The analysis provided was compiled in a very rapid fashion, as is customary with Augusta events, but questioned about $323,000 of costs (the revised schedule accompanying this article is somewhat higher from factors mentioned in the discussion) within the budgeted loss of $804,000. The discussion, key issues, and related amounts are as follows:
The inclusion of $10,048 for vacation and holidays had been questioned because budgeting 2080 hours indicated that the costs were included elsewhere in salaries. This was not seriously contested and it was agreed that using the figures for imprecise budgeting would not be determinant of the actual costs paid.
Since access to the management company’s records was not afforded Augusta, one had to assume that nothing else was in the “Payroll tax” line item besides payroll taxes, hence $24,626 in unidentifiable costs were questioned. ACCMLLC responded that there were insurance costs and 401k costs in the figure. The response was unsurprising and those other costs are defensible.
Credit card fees at $3,702 were questioned, because catering that would have generated heavy credit card usage has been stripped from the final agreement, leaving only event organizers as the only likely payers. ACCMLLC contested that assumption, but not totally convincingly, in this observer’s estimation.
Various maintenance items were questioned at $7,800, because the facility would be under warranty for a year, but this analyst had missed the fact that ACCMLLC showed those expenses starting in later months of operation. ACCMLLC convincingly answered that question.
Property Insurance at $48,000 was listed, despite the fact that property insurance was specifically to be bought separately by Augusta, not by the manager. The response was that the description was incomplete, with other insurance being included.
Electrical power was budgeted at 10 to 11 cents per kilowatt hour, whereas Georgia Power has special rates of as little as 3.5 cents per kilowatt hour. The amount questioned of about $115,000 was the difference in the average industrial rate in Georgia of 5.5 cents and the 11 cents budgeted. The response was that after some 6 months or so of experience, rates would be negotiated with Georgia Power. This writer is of the opinion that this was a cost that the manager should have negotiated in advance.
ACCMLLC had provided no figures for the labor costs of Tee Center employees when they work for the Marriott Hotel or existing conference center project, for which Augusta bears no costs. 50% of designated management employees and 20% of other employees produced an estimated $113,760 in question. This issue was not specifically addressed in the meeting other than that the audit of actual costs would catch any credit or refunds due to Augusta. Discussion ensued that the city must show extreme diligence in administering the Convention Center contracts, because there are 4 entities with separate accounting and contract treatment, despite the “Augusta Convention Center” moniker being used to refer to the overall facility, even extending to the titles on the plan and budget.
A suggestion was made to have the Tee Center accountant transferred over to Augusta, but that recommendation was not met with any approval.
A commissioner asked what the recommendation would be for approving the budget. The response here was that a budget should not be the basis for rejecting the plan, that it was probably wise to provide a cushion because no one wants to revisit it later in the year, and that respect for property rights attendant with approving the operating contract meant that the plan should be approved.
So many assurances beyond those in the contracts are on video at this point that it will be hard for the parties on either side to renege without generating a firestorm.
Everyone involved is Tee-totally exhausted.
Your correspondent would like to thank the City of Augusta for this opportunity. Doing the Augusta Project for a year and 3 months including the Tee Center before adding the Falcons’ Stadium project last month, provided simply stunning chances to expand knowledge into new areas of expertise especially Convention Centers. The Augusta Project is over, all objectives were attained with stunning success, and now the next phase will begin.
Thriving on the unconventional for the last 30 years has
turned ‘boring’ accounting into a lot of fun.Now it will be fun to be able to market convention center expertise learned from the pros down on Reynolds Street.
To the citizens of Augusta, thank you for your kind
support. Together all can strive to fix Augusta, as best we can. If Augusta can be fixed - do not underestimate the strides that have been made - anything is possible.
-AG
Point Blank Video: The Art of a Finely Feathered Nest?
Today, in Point Blank, the topic for consideration is the haste with which the Georgia World Congress Center Authority and the City of Atlanta look to be pursuing a bad deal for the taxpayer.
Video: The Falcons Rookery Project
Falcon’s Rookery Project
by Al Gray
Over the last 2 years the Georgia World Congress Center Authority and the Atlanta Falcons Management have negotiated a Term Sheet for the construction and operations of a new stadium whereby the WWC relinquishes its 39.3% hotel motel tax funding stream, management of the stadium, and the Georgia Dome, which is to be demolished.
Agraynation.com saw this $1.2 billion transaction as an opportunity to kill 3 birds with one stone:
The first objective was Public Service for the City of Atlanta, who was handed this project after it grew too hot for the State Legislature to handle, in evaluating the Terms.
A second goal was demonstration of the Aurelius Principle employing a multidisciplinary approach which uses the other party to a transaction’s own documents to present a counterargument.
Evaluation of the Falcon’s Claim that the team was spending $700 million to the public’s $200 million.
This site compiled a restatement of the sources and uses of funds for the project after securing a key document that was missing from the GWCCA’s stadium development web page.
The Conclusion? The Falcons might spend nothing for the $1.2 billion stadium because the H/M tax stream, would exceed $1.2 billion over 35 years and could be borrowed against for as much as $650 million. (Key omission is out-year revenue stream, as alluded to by Atlanta Business Writer Maria Saporta and AJC columnist Tim Tucker.) Seats rights that GWCCA is giving up pitch in another $150 million to $200 million, and other revenues ceded by Atlanta and Georgia make up the rest.
Coming up –
In POINT BLANK, we take an irreverent look at the benefits to Falcon owner Arthur Blank’s net worth, followed by
A Well-Orchestrated Trick Play? – a look at how the GWCCA seems covered against an otherwise suicidal Term Sheet that they agreed to.
Legal Twigs in a Falcon Nest – a look at Term Sheet Trick Plays and ways to shift costs to the public
Finally – White Flag Negotiators Serve Whom?
Agraynation.com – A public service site brought to you by Cost Recovery Works.com, where the Aurelius Principle now serves clients, after 30 years in development and implementation at ever-higher levels of business and government.
Falcons’ Rookery Nearly Perfected?
Birds’ offense scores a $1.17 Billion Stadium for Free, GWCCA gets a Safety, Deal Hangs on a Thin Reed
By Al Gray
Dear Arthur Blank:
Contracts, commonly dismissed as mere tools, can become art forms. Under your Picasso-like direction, the Falcons’ negotiators of terms to build a new stadium with the Georgia World Congress Center (GWCCA) had delivered the workings of a masterpiece. The deal exhibited the key elements of the art form in carefully extracting more profits than the other parties would ever recognize without help. The agreement approached genius in getting the GWCCA to make it so lucrative. Now that plan has been punted over to Atlanta’s Mayor Kasim Reed by Georgia Governor Nathan Deal. Can you still pull this off? Absolutely!
The situation is perfect, too. The World Congress Center owns the existing Georgia Dome, where your Atlanta Falcons have contracted to play through 2017. With that lease expiring, the Congress Center and city are anxious about the future of their complex. Insuring that the Falcons stay downtown is of paramount importance to the politicians.
A key Citi presentation obtained by agraynation.com completes a trail of cost estimates and studies posted by GWCCA that show that the Falcons may have to pay $43 million or less for the $1.17 billion stadium.
Please forgive the brashness in barging into your team of artisans. This author was initially seeking to provide pro bono services to the Atlanta City Council and the State of Georgia, but multidisciplinary techniques grounded in documents can assess either side of a major transaction like this one. The evidence has been gathered and in this instance has shown how masterful the Falcons’ team has been in negotiations! Here is the scorecard on their effectiveness.
Hyperlinks appear in blue to the supporting documents.
|
Sources of Funds |
|
|
Description |
Amount |
|
Debt Funded by GWCCA Contribution of Hotel/Motel Tax & Seats Rights |
|
|
State/local Bond Proceeds from Hotel/Motel tax in Initial Years* |
$359,985,041.00 |
|
State/local Debt backed by GWCCA Seats Rights Contribution, primarily Private Seat Licenses. |
$150,000,000.00 |
|
State/local Funding from Leveraging Excess Hotel/Motel tax into Subordinated Debt (If not used for financing, as much as a nominal estimated $246 million is designated by the Term Sheet for stadium maintenance and future improvements) |
$178,271,016.90 |
|
Total GWCCA Contribution |
$688,256,057.90 |
|
|
|
|
State and City Funds |
|
|
$30,000,000.00 |
|
|
Land** |
$24,500,000.00 |
|
$53,000,000.00 |
|
|
Total State of Georgia and City of Atlanta Contributions |
$107,500,000.00 |
|
|
|
|
Enterprise Debt/Equity supported by Revenues Ceded by GWCCA |
|
|
New Debt backed by Stadium Naming Rights surrendered by GWCCA to Falcons, over the first 20 years reduced to present value |
$73,324,149.00 |
|
New Equity backed by Food and Beverage Rights donated by GWCCA to Falcons, over the first 20 years reduced to present value |
$55,579,705.00 |
|
Total Funds from GWCCA Contract Rights Ceded to Falcons |
$128,903,854.00 |
|
Public-sourced Funds Total |
$924,659,911.90 |
|
|
|
|
NFL G-4 Funds Program |
|
|
$100,000,000.00 |
|
|
$50,000,000.00 |
|
|
$50,000,000.00 |
|
|
Total Funds from NFL G-4 Program |
$200,000,000.00 |
|
|
|
|
Funds to be provided by Falcons out of current finances and operations |
|
|
Falcon’s Funding to meet Estimated Project and Financial Costs |
$43,017,265.10 |
|
Total Funds from Existing Falcons’ Operations |
$43,017,265.10 |
|
Private-sourced Funds Total |
$243,017,265.10 |
|
|
|
|
Total Sources of Funds |
$1,167,677,177.00 |
|
Uses of Funds |
|
|
Description |
Amount |
|
$1,032,000,000.00 |
|
|
$60,000,000.00 |
|
|
$53,000,000.00 |
|
|
Debt Service Retirement Account, Cost of Issuance, Underwriters' Fees* |
$22,677,177.00 |
|
|
|
|
Total Uses of Funds |
$1,167,677,177.00 |
*The total funds shown on the Citi presentation, $359,985,041.00, less Dome debt retirement of $60,000,000.00 and Debt costs of $22,677,177.00 ties to the $277,307,864.00 shown on the BSG Sept. 2012 report (cites the Citi report) containing the $1,032,000,000.00 total funding and cost figure.
** Land is not shown as a Use of Funds item, as it is included in the $1,032,000,000 project cost total.
Of course this is just one opinion, although one has to believe the negotiating team will find the documents most familiar. It can be imagined here that they would find some holes to shoot in this analysis, but there are more supporting arguments for it than can be recited here. It would be a boat-load of fun to participate in a city council meeting for a debate over the basic concepts.
On Wednesday February 20, the Falcons and GWCCA artisans of this transaction were heard before the Atlanta City Council saying that the football club was funding “$500 million to $700 million” of the new stadium project and that the public would be pitching in $200 million. That PR seemed to be working pretty well for enough of the Council to be willing to pass the new arrangements, whatever those may be. The Council seemed resigned that this is a “done deal.” Atlanta should get a better deal – to the tune of $250 to $400 million - but will it?
From this vantage point in the pine woods of east central Georgia, it looks like the Falcons are well on their way to getting $1.12 billion from the public and the NFL. All that is left is for your football club to come up with the other $43 million. Thanks to the lawyers and certain “options” in the Term Sheet, last minute funding “waterfall” diversions, and looseness of the scope between what the Falcons are providing and the public is furnishing, massaging at least another $43 million should be a cakewalk. Getting a $1.17 billion stadium for free should top anyone’s business career!
Getting this agreement, or a similar one, signed, sealed and delivered is job one. Once that is done, the Falcons Special Teams in Program Management can take to the field and shift another $100 million or more in costs over to Atlanta. Hire a savvy program director who knows how to play this game with the same gutsy aplomb which the Term Sheet negotiators used playing theirs. Winning coaches have winning strategies from start to finish. Winning projects do much the same.
After the stadium is built, more $hundreds of millions can flow from operations and costs shifts. Those opportunities are another article for another day.
Vigilance builds victory. The Falcons have been vigilant. Any owner would be proud.
-AG
The author is President of Cost Recovery Works, Inc. a firm focused on delivering superior returns for clients undertaking major projects including local governments searching for cost recovery in large construction, maintenance, entertainment venue, and other large contracted efforts. Clients and employers have included 9 Fortune 500 Companies, with 5 more served under subcontracts. Mr. Gray has been working on a pro bono basis for the Augusta, Georgia Commission since January 2012 in a comeback effort from early retirement, finding that stresses on local governments foster growing prospects for multidisciplinary cost recovery approaches. A foray into public policy is an opportunity to further multiple objectives, including public service.
Welcome
I never thought that having a name like Al Gray would be fortuitous, but then I never thought the entire USA would get caught in a matrix of events that put us all in a gray nation.
Agraynation.com fits this site on a number of levels. Always a fan of double entendre, A Gray finds himself in a nation in a world of trouble because the absolutes of black and white have been blended to relativism. We are in a gray nation of 70 million aging boomers, whose retirement was always going to have a tremendous impact on matters of the economy, politics, religion, and society. The world is in a gray state of unsound electronic money that seems to dissipate like fog. Our institutions have lost their way in a haze because they have lost sight of the very principles upon which they are based.
Life is a journey. Now we are in suspense in a nation that is suddenly unfamiliar, yet we are on the cusp of reinventing it and ourselves while reigniting the greatness that America has always maintained.
The voyage will be conducted in a craft made of forgotten planks called mathematics, evidence, rule of law and the Constitution. The sail will be humor poked at how absurdly we have gotten off course - you get to be the judge of how much is hot air. 40 years of 'unconventional' experience makes for a lot of that.
Join the agraynation to begin taking a multifaceted look at places, people and events. Explore realms uncharted or forgotten. Hope that we all can safely navigate to the other side. Chances are better in unity, purpose, and with clearer knowledge of the threats as well as the promise that lies ahead.
Thank you for coming aboard. Now let’s get moving. The future won’t wait.
A.G.
