STAFF REPORT

Planning and Development Committee, June 19, 2008

Extension of Koka Booth Amphitheatre Management Contract (PR08-33)

Consideration of two-year extension of SMG’s management contract for the Koka Booth Amphitheatre

Speaker:  Mr. Lyman Collins

From:  Mary G. Henderson, Director, PRCR

Prepared by:  Lyman Collins, Cultural Arts Manager

Approved by:  William B. Coleman, Jr., Town Manager

Approved by:  Benjamin T. Shivar, Assistant Town Manager

Background

In 2000, as construction of the new Amphitheatre was nearing completion, the Town reviewed various management options for the facility and elected to prepare an RFP to solicit private management companies to operate it. In 2001 the Town contracted with SMG to carry out the day-to-day management of what became the Koka Booth Amphitheatre. The initial contract was for three years with the option for a two-year extension, which has been exercised in 2004 and 2006. In 2004, as part of the agreement for an extension, the contract was amended to provide greater inducement for SMG to meet the annual approved budget. This amendment called for a reduction in the management fee if the approved budget was not met. Since the 2005 season, when the contract amendment came into force, the Amphitheatre has performed better than the approved budget.

Because the summer performance season falls on either side of the Town’s regular fiscal year, the Amphitheatre operates on a separate November 1 to October 31 fiscal year. Each year in October, SMG presents an annual Budget and Management Plan for council’s consideration and approval. This plan outlines proposals for the facility to meet the goals established by council. Current progress on those goals are outlined in SMG’s Management Report which is the company’s assessment of its performance in achieving these goals and includes its request to extend the management contract for an additional two years as provided for in the amended contract. Under this proposed extension the penalty amendment would remain in force.

This table illustrates the approved budget subsidy for the Amphitheatre compared to actual results for the last four years for which we have final numbers:

2004 represented a fiscal low point for the facility. That was a particularly trying summer with significant rain (which affected attendance and caused the cancellation of two shows) and, as reported by SMG, a downturn in the touring market (resulting in the promoter being unable to deliver five of the projected concerts). However, if the two cancelled shows had been factored in and the five additional concerts had been presented, the deficit would have been reduced by approximately $133,000. SMG recognized that it needed to develop contingencies to prevent promoters from failing to deliver shows, so SMG staff proposed including penalties if the preferred promoter did not deliver the number of shows agreed upon. It was against this backdrop that staff negotiated the amendment to provide greater incentive for SMG to meet its approved budget.

It appears that the amendment had its desired result. In the 2008 council-approved management plan SMG is projecting an operating deficit of $198,830. Given the trend of the last two years, there is reason to be optimistic that the deficit will be significantly lower than is budgeted. It must be noted, however, that a number of factors beyond the direct control of Amphitheatre staff play into higher than budgeted income: weather, availability of touring acts appropriate for the venue and the general economy. So it is appropriate that the Amphitheatre take a conservative approach to its budget projects.

Since 2003 all maintenance for the facility has been conducted by the Town Public Works staff. In addition, there have been capital outlays each year. Those costs for the past four years are outlined below:

For 2008, Public Works is budgeted at $221,862, and $55,900 is budgeted for capital equipment outlays. In addition, there is a capital improvement project to upgrade the Crescent kitchen and service area. That project is currently budgeted at $400,000.

Current Status

Below is staff’s assessment of SMG’s progress on the facility goals:

1.  Provide performances by nationally acclaimed artists.
Clearly SMG has produced significant results in this area. By partnering with promoter House of Blues (HOB), each year there has been an array of touring artists. In addition, SMG has included in its contract with HOB incentives to encourage the promoter to bring such acts to the Amphitheatre. Since HOB has been acquired by Live Nation (which also books and manages Raleigh’s Time Warner Cable Pavilion) the promotion scene has become more uncertain. But as mentioned in SMG's report, staff is studying that development and planning contingencies as necessary.

2.  Continue to offer, develop and expand opportunities with the North Carolina Symphony.
As the Town’s long-time partner in the Summerfest Series, the Symphony relationship is a cornerstone of programming at the Booth Amphitheatre. SMG has continued to recognize the importance of this partnership and has developed positive working relationships. The Amphitheatre currently provides artist fee support to at least two concerts each season which allows for higher profile concerts. In addition, the Symphony has expanded its presence by adding the popular Labor Day Pops in the Park program. This current season has brought even greater collaboration as the Amphitheatre and the Symphony have produced joint marketing materials designed to boost general awareness of Summerfest.

3.  Develop a Summer Theatre program specifically designed for the Amphitheatre.
Although various theatrical experiences have been presented at the Amphitheatre, progress on this goal has not been as comprehensive as others, and success has been limited. Last season and again this season, specialty touring performances with a theatrical nature have been included in the Amphitheatre season, but a specific summer theatre program has not been developed. But Amphitheatre staff is working with Cultural Arts Division staff to hire a consultant to study the viability of a true summer theatre program. In addition, Cultural Arts Division staff have begun meeting with the North Carolina Theatre on summer theatre possibilities. There is interest on both sides of creating some kind of program that might operate under some of the guidelines we have developed with the Symphony.

4.  Develop partnerships for performances with quality local, regional and statewide performing arts organizations.
This area continues to grow for the Amphitheatre. In addition to the three-year partnership with the Carolina Arts Festival, other groups ranging from the Raleigh Boy Choir to the Concert Singers of Cary have presented concerts at the Amphitheatre. This continues to be an area of new opportunities for the facility. Recent other groups to have performed there include the Triangle Philharmonic, the Triangle Wind Ensemble and the Triangle Jazz Society. There continue to be additional opportunities in this area for organizations such as the American Dance Festival and the Carolina Ballet.

5.  Develop festivals that provide community participation and help establish a community identity.
SMG has both built on established events such as the July 4 celebration and Diwali and established a wide array of new festivals such as the Great Grapes Wine Festival and Triangle Uncorked. A Halloween Celtic Festival also has been at the Amphitheatre for the past three years. In addition, the off-season Tinsel Town event has the potential to extend the use of the facility beyond the traditional summer months.

6.  Develop a rental program for the use of the Amphitheatre that does not compete with performance times.
This goal is also one in which SMG has made significant progress. Because of the nature of touring performances, it can be difficult to balance rentals with public events. Yet SMG has worked to make the facility available to both non-profit fund-raisers as well as corporate events. The number of rentals has increased each year and revenue from rentals has gone from $2,024 in 2002 to $45,489 in 2007, while not conflicting with public programs.

7.  Provide cooperative opportunities with the Amphitheatre neighbors.
Neighborhood relations have continued to evolve and SMG has worked to improve these relationships. Through the Amphitheatre Advisory Committee, SMG established a communication network to provide information to both business and residential neighbors. Noise levels remain the most obvious area of neighbor concern, but the sound monitoring system has provided an important tool to ensure compliance with approved sound levels. SMG has included financial penalties in its contracts with promoters as part of its efforts to ensure compliance. Ensuring compliance with noise level restrictions remains an area that staff continues to emphasize while recognizing that this is an area in which it is impossible to please everyone. Neighbor Day and the Neighbor Card have also been positive programs.

8.  Provide revenue that more than offsets the operating costs.
SMG has developed a variety of new revenue streams and have increased others. New programs include a lawn chair rental program, preferred parking and a VIP Club. Significant increases have been achieved in the areas of season ticket revenue (from $6,000 to $64,000 projected for 2008), sponsorships (from $71,000 to $141,500 projected for 2008) and concessions dollars per capita (from $2.47 to $8 projected for 2008). These revenue increases helped make 2007 the best budget year to date, with the facility improving upon its projected loss by over $22,000. 2008 is poised to be a good year also. The first two concerts—Duran, Duran and Ben Folds—far exceeded their projected income. To provide additional revenue options, in 2006 SMG’s Management Report provided options for additional revenue growth: charging for general admission parking, relaxed signage restrictions and higher allowable noise levels. At that time, council supported staff’s recommendation not to pursue those options. Those options are again presented in this year’s attached report and again staff does not recommend pursuing those options.

Staff is bringing this contract extension to council now because the Town is required to give SMG 100 days notice if it is our intent not to renew. If council elected not to renew the contract extension, SMG staff would operate the facility through the current season which ends on October 31, after which time the management of the facility would come directly under Town management. Staff would need this time to begin the process of directly hiring staff and putting into place new program plans for the facility’s 2009 season.

Fiscal Impact: The management fee was initially established at $50,000. The table below illustrates the management fee through the current season. The contract calls for the management fee to be adjusted annually based on the percentage change in the Consumer Price Index. Staff anticipates modest increases will continue through the two-year extension.

If Council approves this extension, SMG will present its 2009 Management Plan in October.  This Management Plan will include next season’s budget which will be presented to council for action at that time.

Staff Recommendation: Staff recommends that the Town exercise the extension provision in the amended SMG contract to extend SMG’s management of the Koka Booth Amphitheatre for two more years, through the 2010 season.