Sedgwick County keeps lease agreement secret

A few months ago in March, SMG, the company that is managing the Intrust Bank Arena (formerly known as the downtown Wichita arena) signed a lease with the Wichita Thunder Hockey team.

Details of that lease weren’t made available to the public. Not to Sedgwick County Commissioners, either. So the public and even elected government officials don’t know anything about this contract, except for its term of five years.

This strikes me as bad government. The county has a deal with SMG that gives the management company broad latitude in operating the arena, including some profit-and-loss responsibility.

The arena, however, is still taxpayer-owned property. Furthermore, reading the management contract between SMG and Sedgwick County, I can see several ways in which SMG can wrangle free of its obligations. Believe me, the taxpayer is still on the hook.

So I believe we need to know the details of this lease made to the arena’s signature tenant. I made my case, based on my reading of the contract, in my post Wichita downtown arena contract seems to require Sedgwick County approval.

An inquiry sent to Assistant Sedgwick County Manager Ron Holt, the county’s point man for the arena, produced a response (see below) that indicates that the county has no intention of disclosing the terms of this lease agreement. Citizens must simply trust the county.

Part of the problem is that the arena has a competitor in the private sector, the newly-opened Hartman Arena. SMG is justifiably concerned about its contracts with tenants, which it considers proprietary information.

That’s fair enough — if SMG was a private company. But it’s one-half of a public-private partnership. It gets to use an asset valued at roughly $200 million, provided at no charge by the taxpayers of Sedgwick County, to see if it can earn a profit for itself. Our stake in this means we should get a look. The fact that SMG and the county will not disclose means that citizens will always wonder about the details of the deal.

This is especially true when government competes with private industry. Holt is already on record as being opposed to the privately-held Hartman Arena, remarking “overall, it would not be in the best interest of the community.”

Without disclosure, there will always be questions. It would be in the best public relations interest of SMG to agree for public disclosure of the terms of the Wichita Thunder lease.

Thunder – SMG Lease Inquiry

Bob Weeks Inquiry The Thunder – SMG Lease May, 2009 Issue # 1: Since SMG has committed to a contract/lease agreement with the Thunder in which there is a major revenue stream for the facility and with terms greater than one year, does the County have to approve the Thunder contract/lease agreement? Response: No, the County does not have to approve the Thunder contract/lease agreement because it is in the sole discretion of the Contract Administrator whether or not to approve the agreement, and even then such approval cannot be unreasonably withheld. It is important to understand that there are two types of contracts covered by section 2.3 (c) of the agreement—contracts that involve paying money out (Section 2.3 (c) i), and contracts involving a revenue stream for SMG (Section 2.3 (c) ii). Contracts that involve paying money out, such as a contract to provide security for the facility, must be approved in writing by the County if it involves a term beyond the management term of SMG. As will be discussed later, this approval can be a simple letter from the Contract Administrator and such approval cannot be unreasonably withheld. The Thunder agreement involves a revenue stream and Section 2.3 (c) ii provides that “SMG and the County will have joint approval rights (which approval right shall be at each party’s sole discretion, not to be unreasonably withheld) for all major revenue streams that can impact the profitability of any Facility …with terms of greater than one year.” Section 2.1 (d) provides that “to the extent that the approval of the County is required under the terms of this Agreement, the written approval of the Contract Administrator shall constitute the approval of the County,” Under the definitions in Section 1, the “Contract Administrator” is defined as – the senior administrative official of the County as from time to time appointed by the County Manager, or such individual person as may from time to time be authorized in writing by such administrative official to act fro him/her with respect to any or all matters pertaining to this Agreement. So to address the first issue, it is in the discretion of the Contract Administrator whether or not to approve the agreement with the Thunder. This approval could take many forms and could be established by policies within the County Manager’s Office. While the initial review of the Thunder contract/lease agreement was limited to a discussion between the Contract Administrator and the SMG’s General Manager, subsequently a more thorough review by the Contract Administrator and an Assistant County Counselor with the SMG General Manager revealed the following notable provisions of the agreement: 1.) The term of the agreement is for 10 ½ years with provisions to terminate in the event of default by either party. 2.) There is a provision for a base rental that we agree is standard in the market with accelerators for future years based upon established indicators. 3.) There are other provisions in the agreement for revenue to be derived by SMG to cover staffing costs and other maintenance considerations. 4.) There is appropriate insurance coverage to protect the operator of the facility. After such subsequent review it is our opinion that the agreement provides adequate protection for the County for the entire term of the agreement and there is no reasonable basis for exercising our discretion to disapprove the agreement. For future contracts/lease agreements that fall under the conditions of the SMG Agreement as identified above, the Contract Administrator will meet with the SMG General Manager of the INTRUST Bank Arena and review any agreement in order to understand the terms and conditions of the agreement and how this might affect the County’s interest. Issue # 2: How can Sedgwick County give its approval to a contract/lease agreement that SMG will not let the county see (wouldn’t approval in a meaningful way mean that the commissioners and the public can read the contract/lease agreement)? Response: Obviously the County can’t give meaningful approval to a contract that we can’t see, but our agreement with SMG specifically allows us to review any agreement in order to understand the terms and conditions of the agreement and how this might affect the County’s interest. See Section 2.6 (a) (i) which provides:. (i) To the extent that SMG has any confidential or proprietary information that it reasonably believes is a privileged trade secret and/or should not be disclosed to a third party to protect the privileged, confidential and/or proprietary nature of such information, and upon the approval of the Contract Administrator, which shall not be unreasonably withheld, SMG shall not be required hereunder to deliver such information to the County, but instead, will afford the County an opportunity to review such information at the Facility during reasonable business hours and upon reasonable advance notice, or on terms mutually agreed upon by the parties in order to protect the privileged, confidential and/or proprietary nature of such information. As mentioned above, we have had the opportunity to review this agreement with SMG in a meeting with the General Manager of the Intrust Bank Arena. In our negotiations with SMG, we intended to give SMG significant authority to run the business of the new arena as they deem necessary as a means for them to sign off on an agreement that puts the risk of losses solely on them. The only reason we wanted the authority to review/approve long term agreements was for the purpose of making sure that SMG wasn’t putting the County in a bad financial position for years that they might not be operating the arena. While initially this is a five year agreement, we have provisions in the agreement that will automatically extend the agreement for an additional five years if they meet certain performance criteria. In other words, there is no reason at this point in our business dealings to think that SMG is operating in anything but the best interest of SMG and the County and such there would be little reason to formally approve the Thunder agreement – let alone have a reasonable basis to withhold approval. With Hartman Arena and Sprint Center (non SMG operated facilities) as competitors in this market, it is of high importance to SMG of keeping their proprietary information from being disclosed publicly. In addition, the County’s financial interest is protected with a provision in the agreement requiring SMG to maintain a system of bookkeeping adequate for its operations and for the use of our auditors. SMG is furthermore required to give the County’s authorized representative access to such books and records. The County has the right at any time, and from time to time, to audit and/or cause nationally recognized independent auditors to audit all the books of SMG relating to the operating revenues and operating expenses of the arena.

4 thoughts on “Sedgwick County keeps lease agreement secret”

  1. Bob :Thanks for printing this contract and staying atop of this subject. If you were only a “printed daily” your paper would make a great official county paper.

  2. I hope everyone that voted yes to this soon to be dust collector gets what they wanted. The title of it alone shows you who is really in control . B-A-N-K-sters.

  3. This is the first I have read of yours… my thoughts and input are that of outrage. It seems as though our entire country is turning into a secret society of those that know and the rest of us… but it seems that the ones that SHOULD know are just too ignorant of their responsibilities to manage funds which are NOT theirs to manage – rather these are funds derived from those of us who actually earned them, and provided a fair portion (don’t get me started on if tax rates are fair) to those in government and our elected officials to use on our behalf.

    Ignorance is bliss… right? I guess its like a romance novel – not that I’ve ever read one – one gets caught up in the affairs and heat of the story or the project – ignoring reality and the screaming kids (tax payers) until the end of the story and its all done… now you have to deal with reality again… and those screaming tax payers that were saying “I told you so” all along…

    Ignorance is still no excuse for mismanagement. You know, there is insurance for committee and trustee members of various boards to cover mistakes made by those on these boards – why not go after the insurance carriers now because they insured a group of people that made terrible decisions? Seems everyone else is sue-happy… why not focus the suits on opening up records – demonstrating and documenting ethical violations and misappropriations of monies, material and property owned BY THE PEOPLE who seem to never have any clue what is going on – but not for lack of wanting to know – rather because those that do know will not let us know.

    Government… and to think I wanted to be “involved” in local government too… these people are getting used and they don’t even know it. Worst of all – their ignorance is costing US money.

    My theory: build it and they will come – SUCKS… I say encourage development, vote if needed for funding – but run an honest campaign and disclose ALL costs – like the huge waste that is now the KS Coliseum or all the excess infrastructure costs they are having to upgrade now – and spend public monies only with open records and with full disclosure after strong PUBLIC debate over each contract and where each penny should go.

    Lord help us… look – I’m not the most religious person – but even I am looking to a higher power now because I can’t find anyone in our government with the balls to just do what’s right – every time! They act like “gods” dictating to us how we should live, what we need to spend or save, what we can wear and what will be built or not built with our own money – but they have seemingly have no responsibility or – far less – any penalties for doing what they know is wrong…

    Your post is just a simple example of a local issue – but its a national issue. Politicians have no responsibilities in actually managing their departments anymore. They hire and develop job descriptions to run each respective department – managers, staff, etc… department heads have long contracts which the politicians agree to… which then if we have any conflict with that employee of the public for not disclosing or doing something unethical – even the rare honest managers elected to oversee OUR funds are blocked… threatened with lawsuits for violating employee contract terms and such…

    Can we not just pass a law that allows full oversight of public funds by our elected officials? It’s not a hard thing to word – can be very simple and not bloated.

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