Shoreline's operator may owe city millions Shoreline's operator may owe city millions (September 02, 2005)

Clear Channel hid $20 million in profits, according to audit

By Jon Wiener

City council members reacted quietly this week to an explosive audit report charging that Texas media giant Clear Channel and subsidiary companies have hidden more than $20 million in revenue from Shoreline Amphitheatre over the course of the last six years.

A summer-long investigation by an outside firm hired by the city determined that the company has cheated its landlords at City Hall out of at least $3.6 million since 1999, or nearly two-thirds of what the company has paid over that same time period. Under terms of its 30-year lease at Shoreline, Clear Channel agrees to pay the city 6.75 percent of all revenues.

From discrepancies in receipts at ticket windows and concession stands to money secretly withheld for a charity, the audit -- part of an ongoing legal battle between the company and the city -- turned up apparent accounting abuses in nearly every aspect of the amphitheater's finances.

"Frankly, it's worse than we thought," said city attorney Michael Martello.

Los Angeles-based Alix Partners, an international accounting firm, conducted the audit at a cost of $181,000 to the city. Auditors said the lease provides for Clear Channel to reimburse the city for that amount.

The results of the audit are incomplete, because the company refused to provide many of the documents requested or answer any questions, according to the firm's managing director J. Duross O'Bryan. But while the numbers may yet go up, they are already enough to confirm the suspicions of Mountain View officials who have accused the company of stealing public funds.

But with the prospect of being deposed by Clear Channel's lawyers hanging over their heads, council members passed up the opportunity to make any strong statements Tuesday night when the auditors presented their findings to the public.

After the meeting, council members met with outside attorneys in closed session for 30 minutes to discuss future strategies, including ways to complete the audit and collect the unpaid monies. The city has had no contact with Clear Channel since releasing the audit on Monday, and the company was rumored to be surprised that the city chose to make the results public.

Aaron Siuda, a spokesperson for Clear Channel-owned Bill Graham Presents, said he would not comment until company executives had more time to review the findings. But at least one Clear Channel executive, vice president of government relations Andy Levin, denied its accuracy.

"We believe the audit is misleading," Levin wrote in an e-mail to the Voice. "The issues are much more complicated than some would suggest. Shoreline has a valuable history and relationship with Mountain View, and we will continue to work toward a resolution that is in the best interests of the community."

The city demanded the audit in mid-April in apparent frustration over its inability to complete smaller "procedures reports" dating as far back as 2001. Clear Channel responded a month later with a series of public records requests, including one that demanded any supporting information for comments city council members made to the press regarding the case. 'A rather disturbing report'

What passed for the strongest words Tuesday night came at the beginning of the discussion, when city finance director Bob Locke introduced the auditors.

"Yesterday," said Locke, "the city released a rather disturbing report."

Comments from city council members were more subdued. Mayor Matt Neely, who had been deposed by the company's lawyers for two-and-a-half hours Tuesday and had yet to finish testifying, told the Voice on Wednesday, "It's a shocking number." Laura Macias called the findings "pretty serious." Matt Pear said, "It's of significant magnitude." Many council members did not comment at all.

Instead, the point of the hearing seemed to be to let the report speak for itself.

In several instances, auditors discovered that Shoreline's internal records listed far higher revenue figures than those the company reported to the city. At one apparent charity event in 2001, according to the audit, the amphitheater made a profit of $213,000 from an appearance by the Dalai Lama, and then did not report the income to the city.

In the five years that Clear Channel has been running the amphitheater, the city has taken in nearly a million dollars in rent each year. The amphitheater's finances over that time period show that the company should have been paying an additional 25 percent each year, according to the audit. How they did it

The company also holds several unapproved "four-wall" events every year, where it rents the amphitheater out to other entities, often Clear Channel-owned radio stations, such as KMEL, KUFX or KYLD. Auditors said the tactic allows the company to shift revenues from the amphitheater to the radio station in order to avoid detection.

Under terms of the lease, the city is supposed to approve each such show, with the exception of the annual Bridge School Benefit.

The audit found that Shoreline had not reported millions of dollars in revenue from barter agreements in which it paid business partners with free advertising or tickets, despite counting the revenue for purposes of its own internal reporting. One internal e-mail message described an account the amphitheater's operators have had with a San Francisco-based barter clearinghouse "since the late eighties." By exchanging unsold concert tickets for "goods and services we actually planned to pay cash for, our bottom line has been way ahead," the e-mail read.

Another major chunk of unreported revenue described by the audit is in the form of the parking fee assessed to each ticket. When Clear Channel bought out SFX, Inc., which had purchased Bill Graham Presents just a few years earlier, it quickly stopped charging for parking and instead charged all concertgoers a set amount, now up to $4.00, regardless of whether they drove to the concert. The lease agreement with the city allows the operator to keep all the money for parking, but the city contended that this maneuver was simply a tactic to raise ticket prices without having to share the proceeds.

So-called "parking on the ticket" is a central issue in the city's legal battle with the company. Clear Channel sued in 2003 to stop the city from completing the smaller audits for earlier seasons, as provided for in the lease. Mountain View filed a countersuit, alleging theft of public funds, racketeering and other corporate crimes.

The findings of the audit could make it difficult for Clear Channel to continue to cast the suit as coming from a cash-strapped city trying to squeeze money from a law-abiding tenant.

At stake in the suit is the 30-year lease between the city and Shoreline Amphitheater Partners, or SAP. When a lender backed out on the plan to build a concert venue on the site of a former landfill, the city chipped in $8 million, signing the lease with SAP the afternoon of the opening show in 1986.

If the city were able to prove the racketeering claims, the company could face triple penalties and lose its lease. The city would then have to find another promoter to operate the amphitheater.

Both sides have accused the other of breach of contract. Whoever prevails could also force the opponent to pay attorney's fees. Mountain View officials won't say how much the city has spent on the suit, but one Florida county says fighting the company has already cost it more than $500,000.

"A lot of times a public agency doesn't have a choice," said Martello. "This case has been and always will be about the same thing. And that's public accountability."

The trial is scheduled for Feb. 6. Finances not the only conflict

The uncovering of financial irregularities is only the latest deterioration in the relationship between the city and its lessee. As the lawsuit moves forward, issues of safety and cooperation continue to be paramount.

Rising costs and declining attendance at the annual Fourth of July concert and fireworks show had city council members questioning the city's sponsorship of the event. Residents have complained that the show has turned into one long commercial for Disney, the corporate sponsor. In 2004, amphitheater workers handed out buttons advertising a Hillary Duff movie instead of the traditional mini-American flags.

And the yearly KMEL Summer Jam continues to tax the city police force more than any other event. Last Sunday, despite 65 police officers assigned to work at and around the amphitheater at a cost of $73,000 to the promoter, the hip-hop concert once again turned violent, this time ending in tragedy. Afterwards, several concertgoers were at the scene of a fatal shooting on Middlefield Road, and police are trying to determine how the murder was related to the concert.

"It is not good for the city," said Special Operations Officer Keith Plamondon. "I could honestly do without it."
E-mail Jon Wiener at jwiener@mv-voice.com
How the lease works

Shoreline Amphitheater Partners (SAP), a subsidiary of Clear Channel Entertainment, has a 30-year ground lease at the city-owned venue. In exchange, the company pays the city 6.75 percent of all revenues. SAP sublets the amphitheater to promoter Bill Graham Presents, another Clear Channel-owned company. The city taxes any "net available cash" -- revenue above a guaranteed minimum of $560,000 a year -- at a rate of 20 percent.
What Clear Channel owes

Back rent from 6.75 percent of unreported revenues - $1.3 million Penalties for unpaid rent - $1.3 million Payment of 20 percent of unreported "net available cash" - $762,000 Cost of the audit - $181,000

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