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How a Del Mar fairgrounds vendor landed a no-bid contract extension in exchange for a $2M loan 

 May 3, 2022

For more than two decades, the Surfside Race Place at Del Mar Showrooms has been a vibrant satellite betting venue, hosting up to 5,000 people betting on races and other sporting events.

But in recent years, with the rise of online gambling and competition from tribal casinos, the charming space has faded. Attendance dropped to just a few hundred people a day.

So, five years ago, the Agricultural Association of the 22nd District, which manages the exhibition spaces, decided to turn the building from a gaming facility into an entertainment and event space with a capacity of 1,900 people.

The way the area handled part of the $ 13 million cost of remodeling the building was unusual, records show.

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The district received a $ 2 million interest-free loan – or “capital investment” as the documents then described it – from the long-term food and beverage service provider to cover construction costs.

In return the district gave the company, then known as Premier / SMG, an extension of its contract without an offer for up to 10 years. The extension was in the form of an amendment to an existing contract, which had not expired for three years.

Under the terms of the deal, the company would receive 30 percent of all food and beverage revenue at the new facility, or $ 100,000 a year, whichever was greater, up to $ 2 million. After that, the company would receive 12.5 percent of the revenue – the same as its contract to serve other parts of the area.

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The renovated space, now called The Center, has not yet opened and a local representative said there is no start date. Meanwhile, the terms of the new expansion began earlier this year, so if the 30 per cent share of Premier’s revenue is less than $ 100,000, the district will have to cut a check to the company for that amount.

The deal, which the district records obtained under the Public Records Act was first presented by the Premier in early 2018, took about eight months to negotiate. Contract experts said it was an unusual way of financing a project.

The former area contract manager wrote in an email in September 2018, “It would be difficult to call it a formal contract extension.”

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At the time that some contracting practices of the region have been attacked in a lawsuit filed for a carnival contract in the middle of the county’s annual report, the deal that helped build The Center has received far less scrutiny.

State contract regulations require modifications such as the one made by the district in the Premier contract to be submitted competitively, unless the is authorized by the State Department of General Services (DGS) to award a contract as a non-competitive tender. The district says it received this permit in February 2019.

However, DGS, after weeks of research by The San Diego Union-Tribune, was unable to provide a file showing approval for a non-competitive bid. A database on the agency’s website listing all non-competitive contracts approved by the DGS each year has no contract entries for the 22nd DAA.

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A spokeswoman said the agency was still “investigating”.

One contract, many repetitions

The deal with Premier was negotiated under former district CEO Tim Fennell, and began with an email in April 2018 from Shaun Beard, senior vice president of Premier and its parent company, SAVOR. He contributed $ 2 million to remodel the facility in exchange for a 10-year extension.

The sentence went through many repetitions, the records show. The Premier initially said the repayment would be made in annual payments of $ 400,000 over five years. He later proposed a sliding fee based on the amount of gross revenue from the new site. Initially, the company also said it wanted to handle entertainment bookings at the new facility.

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Although some of the terms changed, some did not — the company has always called for a 10-year extension of its contract.

By September, the deal points had been worked out by Fennell and company representatives, records show. At the time, the district hired a consultant, San Francisco attorney Joseph Barquett, for $ 15,000 to review the agreement and launch it in the state approval process.

Barkett had negotiated a somewhat similar deal in Sacramento in 2014, with similar players. The deal involved the board of directors of the Cal Expo fairgrounds, which signed an agreement with the food and beverage service company to build a new football stadium on the fairgrounds.

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Barkett is married to Lisa Barkett, a member of the 22nd DAA board who voted in favor of the deal with Premier, and who was also initially informed about certain aspects of the deal as it was being negotiated, the files show.

The district said in a statement that the relationship between the Barketts should not be revealed because Lisa Barkett had no financial interest in the contract given to Joe Barkett. The statement said he was “a distant cousin related to marriage”.

In an interview, Joseph Barkett said that Lisa Barkett’s husband, William Barkett, is his second cousin. He also said he never discussed any aspect of the Premier deal with her.

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He said Fennell wanted to make the deal because he saw a decline in interest in horse racing and satellite betting, as well as the opportunity to generate additional revenue for the area. The $ 13 million cost was to be financed with Premier money and a loan from a state-owned infrastructure bank.

The district had approved the remodeling plan in 2017. Barkett said Fennel saw the extension of the contract without an offer as a good compromise to get the money and get the project started.

“I think he thought that if they could have made a better deal waiting for the contract to end, he would have done so,” Barkett said. “Losing a few years I think was a real loss for (the region) if it were to sit in this current fiscal year.”

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Fennell wrote in a November 2018 letter to DGS requesting approval of the deal that Premier was “a critical part of the team” needed for the project.

“It is in the interest of the 22nd DAA to extend its very successful relationship with Premier / SMG and it is not in the interest of the 22nd DAA to delay this important project or try to achieve the same goal by using another potential contractor at some point. in the future, that is, after December 21, 2021 “, he wrote.

A contract expert disputed this reasoning.

“When you make a non-bidding exception, you have to prove why bidding is harmful and why you can not bid,” said Sally Riley, a former senior spokeswoman for CIFAC, a nonprofit coalition of contractors and labor organizations that monitors the state. and local agencies comply with public procurement laws. “Asking to waive the bidding requirements is a big deal.”

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In an interview, Fenel, who retired from the district in 2020, said the agreement was approved by the Attorney General’s Office, which provides legal work for the district and the district council. He said that, overall, it was good for the area.

“The funds were needed to complete the project and the project is for the benefit of the people of San Diego,” he said. “It creates jobs and stimulates the economy.”

Challenged supervision

State laws generally require competitive bids for construction projects and services, exceptions are allowed. In this case, Deputy Attorney General Josh Caplan concluded, in a February 2019 letter to Fennell, that the exemption from non-supply would be legal – but that the district should first request an exemption from competitive bidding requirements by the State.

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While records show that the district requested this approval a few days after the board approved the deal in November 2018, it is unclear whether the government agency formally approved it.

The district insists it did. He points out a letter from February 2019 from DGS executives approving the Premier’s revenue commitment. The letter, however, mentions a section of the Food and Agriculture Code and not the Public Procurement Code covering the competitive bidding.

The district has also provided a three-entry e-mail chain since March 2019, which contains the approval of a proposal by a DGS employee. However, this email refers specifically to the funding letter and makes no reference to any contractual approval.

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A DGS spokeswoman also said the letter “appears to be specific” to the Food and Agriculture Code section.

DGS’s inability to confirm approval of the agreement echoes the findings of a 2017 report by state auditor Elaine M. Howle, who criticized the agency for failing to oversee the billions of dollars in non-competitive contracts awarded each year by government agencies. The report also stated that the agency approved non-competitive bids which did not have sufficient justification.

Beard, the Premier League official who negotiated the contract with Fennell, did not respond to multiple requests for comment on the contract. A San Diego Premier League official also did not respond to messages.

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It is difficult to measure the value of the contract extension, which came into force this year. In 2019 – the last year before the COVID-19 pandemic, when the showroom was fully operational – Premier won $ 688,804 from the contract. If the full 10-year expansion is completed, it will amount to at least $ 6.8 million based on the 2019 figure.

This amount does not take into account the additional revenue from The Center and it is unknown how much that would be.

There is currently no start date for The Center and no operations have been announced. In April the region approved a contract with Belly Up nightclub for booking management.

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Initially, the Premier League had to acquire this business as well. However, the company merged with another entertainment company after 2018 and due to conflicts with the existing agreement in San Diego, it was banned from being the booking manager for The Center, the district said in a statement.

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How a Del Mar fairgrounds vendor landed a no-bid contract extension in exchange for a $2M loan Source link How a Del Mar fairgrounds vendor landed a no-bid contract extension in exchange for a $2M loan

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