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

AUDIT REPORT IN BRIEF

In June 2001, Brooklyn Baseball Company, L.L.C. (doing business as the 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 the Cyclones the exclusive rights to use KeySpan Park on Surf Avenue in Brooklyn. The lease requires that the Cyclones pay rent to the City based on game attendance, team store rent, special event net income, advertising, etc. The lease also requires that the Cyclones deposit $25,000 each year into a sinking fund that permits Parks to perform capital work projects at the stadium. In addition, the lease requires that Parks pay the Cyclones a portion of the net parking lot income generated from the City lot adjacent to the stadium.

This audit determined whether the Cyclones complied with their lease agreement with the City; paid the appropriate fees due the City and whether they paid these fees on time; and maintained adequate internal controls over the recording and reporting of gross receipts and attendance.

For the audit period––June 15, 2001, through December 31, 2002––the Cyclones paid the City $1,131,196 in rental fees; for the same period, Parks paid the Cyclones $200,000 related to net parking lot income.

We found significant weaknesses in the Cyclones internal controls that prevented us from determining whether "actual attendance," "no-shows," and recreation area attendees were reported accurately, and whether all appropriate fees due the City were paid. Article 3, § 3.01(a)(ii), of the lease requires that the Cyclones calculate their base rent from turnstile counts. However, the Cyclones do not use turnstile counts to record and report attendance. Instead, the Cyclones count ticket stubs at the end of each game, identifying the different ticket categories (i.e., paid tickets, complimentary tickets, recreation area tickets) on the Daily Turnstile reports.

The Cyclones’ approach is not adequate to ensure that all ticket stubs are included in the count. A complete count can be assured only by using the lease-mandated turnstile counts along with the ticket stubs. Our attempt to use the turnstile counts to verify reported attendance was unsuccessful because the Cyclones used eight turnstiles interchangeably at the stadium entrances, but recorded the counts from only six turnstiles on the Daily Turnstile reports. Also, the closing turnstile entry totals from one game were not listed as the opening turnstile entry totals on the Daily Turnstile reports for the next game in 644 of 924 cases; and total turnstile counts did not match and could not be reconciled with the physical ticket stub count for the reported attendance on the Daily Turnstile reports.

In addition, the Cyclones: did not report $98,600 recorded on their books as rent revenue from the Surf Avenue retail space and therefore owe the City $49,300 in additional fees; and did not deposit $37,500 into a sinking fund, as required by the lease. Moreover, the Cyclones did not report Special Event income totaling $101,473. However, even if this amount had been reported, the Cyclones would not have reached the net income threshold at which additional Special Event fees become due.

It should be noted that subsequent to the issuance of the preliminary draft report, the Cyclones remitted a check of $50,000 to cover the first two years of payments to the sinking fund, and a check of $67,283 for the Surf Avenue retail rent.

We recommend that the Cyclones base "actual attendance" on their turnstile counts, as required by the lease. The Cyclones should: specifically label and identify each turnstile; record the closing and opening count for each turnstile for each game; ensure that each opening turnstile count matches the previous closing game count; secure and monitor all turnstiles to ensure that they are used only by game attendees and are not altered in any way to affect the recorded counts; and reconcile turnstile counts with the physical ticket counts.

In addition, the Cyclones should: reconcile the Daily Turnstile reports with the Season Summary and the Performance Sales reports; remit all quarterly fees due from the Surf Avenue rental space with the required quarterly Statement of Retail Net Profit, in accordance with the lease agreement; and ensure that all income and expenses are appropriately reported on the Special Event statements submitted to Parks.

We recommend that Parks ensure that the Cyclones pay the City all fees due from the retail rent space, in accordance with the lease, and implement the report’s recommendations for enhancing their internal controls and reporting procedures.