A revised audit of the operator of Shoreline Amphitheatre has quadrupled the amount allegedly concealed by the company, and raised the city’s claim from $3 million to more than $15 million.
The operator, Bill Graham Presents, was owned by Clear Channel when most of the alleged chicanery took place. The dispute has led to a heated legal battle, and a public war of words, between city officials and company lawyers and executives.
A mandatory settlement conference on Wednesday, April 5 between the city and BGP could be the last chance for the two sides to settle their dispute before an April 10 trial date.
Last week, the city again infuriated BGP by releasing a new audit of the company’s operations at Shoreline, identifying more than $80 million in hidden revenues. That number is four times the amount previously alleged, and raises the city’s claimed damages to $15.6 million.
“It’s stealing, in my view,” said city attorney Michael Martello.
In a blistering staff report that accompanied the audit’s release, city finance director Bob Locke said the venue operator “went to incredible lengths to divert, mischaracterize and then conceal revenues.” He also accused the company of interfering with the city’s efforts to conduct audits.
Much like an earlier version released last August, the audit accuses BGP of using flawed accounting methods to cheat the city out of its fair share of revenues under the lease.
A spokesperson for Live Nation, a Clear Channel spin-off and BGP’s new parent company, fired back Tuesday, calling the city’s allegations “grossly deceptive” and “untrue.”
“The funds that the city government claims it is owed depend entirely on its lawyers’ selective interpretation of the lease agreement in a manner that is at odds with what the contract says and with how the parties have worked with one another for the past 20 years,” said John Vlautin, vice president of communications for Beverly Hills-based Live Nation.
The original audit by Alix Partners had outlined $3.6 million in back rent and damages. Managing director J. Duross O’Bryan said at the time that the audit was incomplete because the company was not providing all the documents the firm requested.
The auditors say they have now spent nearly $450,000 on an effort to untangle the amphitheater’s finances. To put together the update, they combed through SEC filings, concert industry data and 40 additional boxes of documents that the city obtained from the company through a judge’s orders.
The bulk of the increase comes from two sources that auditors had not been able to quantify previously: revenue from shows promoted by BGP at the HP Pavilion, and the 1998 sale of the amphitheater to SFX, Inc.
City council formally approved the audit Tuesday night, but few were willing to discuss it in light of the pending court battle.
“What’s troubling to me from the audit is how much more money is owed the taxpayers,” council member Mike Kasperzak said before the meeting. “It’s staggering.”
‘They’re completely out of control’
Two decades ago, promoter Bill Graham approached the city of Mountain View about building an outdoor concert venue on a former landfill site at the southern tip of San Francisco Bay. When an $8 million bank loan fell through, the city stepped in to rescue the project, entering into a partnership with Graham’s company.The agreement entitled the city to a percentage of “gross receipts” at the amphitheater, a similar share from any shows the company promoted at other venues within a 35-mile radius of Shoreline, and a cut of any profits from the sale of the amphitheater.
Officials say the problems began after SFX, Inc. bought BGP in 1998. Auditors would later turn up evidence they say indicates the parent company was helping cook the books at Shoreline, by using two sets of records, diverting sponsorship revenue to other venues, hiding barter agreements and more.
Things intensified after Clear Channel absorbed SFX two years later and filed suit in 2003 to keep city auditors away. The city countersued with allegations of racketeering and theft of public funds. The charges stuck, despite the company’s attempt to get them dismissed last fall, and the judge allowed the auditors back in.
While this was going on, Clear Channel was getting poor results from its concert business. In December, the Texas-based conglomerate spun off its outdoor entertainment division and created Live Nation. The city is already threatening the new parent company with eviction for ignoring the signage rules in the lease.
“What’s amazing to me is they keep violating the rules,” Martello said last week. “They’re completely out of control, and that hasn’t changed. Now it’s just a new company that’s out of control.”
A Clear Channel spokesperson told the Voice the case no longer had anything to do with the company, even though it was a Clear Channel subsidiary that filed the original lawsuit and Clear Channel that was at the helm during the bulk of the city’s allegations. Martello also dealt directly with Clear Channel’s assistant general counsel as late as February.
Company remains steadfast
When the city released the original audit, Clear Channel’s official response came from a corporate vice president who called it “misleading.” But the only detailed defense came from outside attorney Jim Wagstaffe.Even if the city’s audit were accurate, Wagstaffe told the Voice at a December court hearing, the company was acting within its rights by not paying percentage rent on the revenues in question because they didn’t fall under the category of “gross receipts.”
“That’s still our position,” Wagstaffe said Tuesday. “No question about that. We still continue to believe that.”
Wagstaffe also reiterated complaints that the city is trying to win the trial via the media, releasing reports to the local press and continually referring to the case as a battle with controversial media conglomerate Clear Channel rather than Graham legacy BGP. “The city wants to hire you as a public relations officer. They want you to write a story that inflames the jury,” Wagstaffe told the Voice. “Here’s the deal. We’re going to go and win this trial [and] it will all be moot.”
Auditor had side deal with company?
The city’s latest report also sheds light on how the BGP’s accounting methods managed to escape detection for so long. According to the report, the outside auditing firm the city had originally chosen to keep track of the amphitheater’s records — Daoro, Zydel & Holland — signed side deals with the company, effectively auditing its own books and later covering up concerns about the venue.“This is not an esoteric or theoretical violation of an auditor’s duty of independence; it is a foundational principle of the audit function,” wrote finance director Locke.
The San Francisco-based firm declined to comment on the accusation, which could lead to additional charges in the case.
Kasperzak said that the new allegations of misconduct don’t come as a surprise, regardless of how high the figures are.
“I don’t think it changes anything,” he said. “I think what it says is the city’s decision to pursue and respond to the litigation … is all the more justified.”
The new allegations raise the stakes of the trial further — the company could be liable for triple damages and attorney’s fees, not to mention the cost of the audit — but the real impact of the report ultimately depends on the jury’s verdict.
“I’ll look at the number once we actually get a check from somebody,” city manager Kevin Duggan said last week. “That’s when I’ll get excited.”
E-mail Jon Wiener at jwiener@mv-voice.com.
