Audit Report on the Compliance of Sterling Mets, L.P (New York Mets) with Their Lease
AUDIT REPORT IN BRIEF
This audit determined whether Sterling Mets, L.P. (doing business as the New York Mets) complied with their lease agreement with the City; accurately reported all gross receipts in accordance with the lease, and calculated and paid the appropriate fees due the City on time; deducted only allowable and documented credits; and complied with certain non-revenue-related requirements of their lease (i.e., maintained required insurance and reimbursed the City for utility use).
In 1985, Doubleday Sports, Inc., and City Department of Parks and Recreation (Parks) entered into a 20-year lease for the exclusive use of Shea Stadium. The lease is monitored by Parks and was due to expire on December 31, 2004, when a 2001 amendment extended the lease to December 31, 2005, and provided for five one-year renewal options that can be exercised at the discretion of the Mets. In August 2002, Sterling Doubleday Enterprises, L.P. amended its partnership certificate to effect a name change to Sterling Mets, L.P. (doing business as the New York Mets).
The lease requires that the Mets pay the City the greater of either an annual minimum rent of $300,000 or a percentage of revenues from gross admissions, concessions, wait service, parking, stadium advertising (less $8,000 for scoreboard maintenance), and a portion of cable television receipts. In calculating the amount due the City, the Mets are permitted to deduct: a portion (related to tickets sales and local cable revenues) of the amount they pay to Major League Baseball; a $5 million maximum annual credit for expenses incurred related to the planning of a new stadium; 25 percent of the premium payments related to property insurance; 50 percent of Watchmen charges incurred; and all sales taxes included in the amounts collected.
In addition to extending the lease, the first lease amendment allowed the Mets to exclude revenues received from certain cable television broadcasts and advertising revenues from which fees are due. A second amendment allowed the Mets to deduct new stadium planning costs equal to, or less than, $5 million each year on their rent statements for calendar years 2001 through 2005. Third and fourth amendments extended the new stadium planning cost credit period for 2003 to February 16, 2004, and allowed the Mets to include new scoreboard costs as part of the 2003 new stadium planning costs credit. A fifth amendment extended the 2003 new stadium planning cost credit period to March 1, 2004. In September 2004, a sixth amendment to the lease allowed the Mets to continue calculating allowable deductions and credits against all rent payable under the lease in accordance with the methodology used in submitting previous annual rent statements to the City. The amendment also stated that the City could not contest the methodology used to determine the deductions taken from rent due calendar years 2002 through 2005 provided the Mets remit $400,000 to the City each year, and it required that the Mets pay the City 10 percent of the gross revenues received from the New Trivision Boards.
Audit Findings and Conclusions
The Mets generally adhered to the provisions of their lease with the City. In addition, the Mets reimbursed Parks for electricity and water and sewer use; had the required property and liability insurance that named the city as an additional insured party and deducted the appropriate amount as a credit; and accurately calculated sales tax deducted from reported revenue. However, our review of the Mets books and records for the 2002 baseball season disclosed certain minor errors related to cable television, concessions, advertising, and Skyboxes revenues on their rent report to Parks totaling $97,685, which resulted in additional fees of $11,873 due the City.
Moreover, none of the six amendments to the lease, executed between December 28, 2001, and September 1, 2004, that granted the Mets additional privileges were ever submitted by Parks to the Comptroller’s Office for registration. The submission of the amendments for registration provides for an independent assessment of the implementation of the amendments, thereby also providing accountability for the City’s receipt of a fair share of rent for its leased properties. This should have been done by Parks at the time when each amendment was established to maintain transparency in the financial interactions between Parks and the Mets since each of these amendments deals with the amount of revenue the City is to receive.
Audit Recommendations
The audit recommends that the Mets: pay the City $11,873 in additional fees due, and ensure that revenue from all cable television, concessions, advertising, and Skyboxes is accurately reported to the City, paying all appropriate fees. The audit also recommends that Parks ensure that the Mets pay the additional fees recommended in this report, comply with the audit’s recommendations, and submit all amendments to the lease to the Comptroller’s Office for registration.
Mets Response
Mets officials responded that they will process the payment of $11,873 to satisfy the amounts due.
Parks Response
Parks officials responded that Parks has issued a Notice to Cure to the Mets requiring that the Mets pay $11,873 in additional fees, and disagreed that Parks is required to register the lease amendments, stating that leases may be amended based on business terms when working out disputes with tenants, without the need to go through registration as it applies to Chapter 13 procurements, and through a cross-reference to Chapter 14 agreements under the City Charter. Parks officials also responded that they take exception to the report’s characterization that the sixth amendment was not in the best interest of the City, and that they believe all of the lease’s amendments should be seen as in the City’s best interest.
The specific issues raised by Parks and our rebuttals are included within the respective sections of this report. The full texts of the Mets and Parks comments are included as addenda to this report.