Audit Report on the Compliance of Brooklyn Baseball Company, L.L.C., (Brooklyn Cyclones) With Their Lease Agreement

AUDIT REPORT IN BRIEF

The audit determined whether Brooklyn Baseball Company, L.L.C. (BBC) paid the City the rent due in accordance with the lease agreement provisions, submitted the reports required under the lease agreement, maintained the required insurance, reimbursed the City for electricity use, paid the City for water and sewer use, made the required capital sinking fund contributions, and implemented the recommendations made in our prior audit, Audit Report on the Compliance of Brooklyn Baseball Company, L.L.C., (the Cyclones) with Their Lease Agreement, FN03-111A, issued June 27, 2003.

On June 1, 2001, BBC, owner of the Brooklyn Cyclones, and the New York City Department of Parks and Recreation (Parks) entered into a 20-year lease agreement commencing on June 15, 2001. The lease, which is monitored by Parks, grants BBC the exclusive right to use KeySpan Park on Surf Avenue in Brooklyn . The lease requires that BBC pay rent to the City based on game attendance, team store rent, special event net income, advertising, Surf Avenue retail area. The lease also requires that BBC deposit $25,000 each year into a sinking fund that permits Parks to perform capital work projects at the stadium.

Audit Findings and Conclusions

For the audit period, January 1, 2003, through October 31, 2004, BBC maintained the required property and liability insurance that named the City as additional insured parties, and it contributed the required $50,000 into a sinking fund. In addition, BBC paid the amount required for water and sewer charges, and reimbursed the City for electricity use.

However, BBC continues to violate its lease agreement by reporting attendance based on ticket counts rather than turnstile counts, a finding of the 2003 audit. For the 2003 and 2004 baseball seasons, BBC reported actual attendance of 140,717 and 143,472 respectively, instead of 144,214 and 144,622. It should be noted, however, that even if these amounts had been reported, BBC would not have reached the attendance threshold of 145,001 attendees at which additional base rent becomes due.

In addition, BBC did not report $55,339 of special event net income to Parks, as required by Article 4, §4.05, of the lease agreement. For 2003 and 2004, BBC reported special event net incomes of $159,138 and $245,269, respectively. However, BBC’s books and records indicated that actual special event net income totaled $212,934 for 2003 and $246,812 for 2004. For 2003, the differences were attributable to BBC’s not reporting a net profit of $23,796 from baseball camp revenue and a $30,000 fee from a Bjork concert. Similarly, in 2004, BBC underreported net profit from its baseball camp by $1,543. As a result, BBC owes the City $16,602-$16,139 for 2003 and $463 for 2004.

We were able to confirm that only two of the prior report’s four recommendations were implemented. As previously stated, BBC continues to violate its lease agreement by reporting attendance based on ticket stub counts rather than turnstile counts, and it did not ensure that all special event income was reported and fees from special event income were paid.

Audit Recommendations

To address these issues, we recommend that BBC:

• Base actual attendance on turnstile counts, as required by the lease agreement, and maintain accurate and complete documentation that would support the attendance reported to Parks.

• Pay the City $16,602 in additional fees for special events.

• Ensure that income and expenses are appropriately reported on the Statement of Special Event Net Income submitted to Parks.

We recommend that Parks:

Ensure that BBC pays the City all rent due and ensure that BBC addresses the report’s findings and implements the report’s recommendations.

According to §4.05 of the lease agreement, once the annual $143,000 special event net income threshold has been reached, BBC is required to pay Parks 30 percent of all shared special event net income.