Audit Report on the Compliance of Toto’s South Shore Country Club,Ltd., With Its License Agreement and Its Payment of License Fees Due the City

EXECUTIVE SUMMARY

In 1972, the New York Yankees, Inc., and the City’s Department of Parks and Recreation (Parks) entered into a 30-year lease agreement for the rental and use of Yankee Stadium. In March 1973, New York Yankees, Inc., assigned its interest to the New York Yankees Partnership (Yankees). The lease agreement, which is monitored by Parks, expires on December 31, 2002, and includes two five-year renewal options. The lease allows the Yankees exclusive use of Yankee Stadium during the baseball season and permits the Yankees to sell tickets, provide food and souvenir concessions, provide parking for season ticket holders, and provide cable television broadcasts.

According to the agreement, the Yankees are required to pay the City the greater of either an annual minimum rent of $200,000 or a percentage of revenues from gross admission, concessions, wait service, pre-paid parking, and a portion of cable television receipts. The agreement allows the Yankees to deduct payments made to Major League Baseball and all sales taxes before calculating rent payments to the City. For the audit period, January 1, 1997, to December 31, 2000, the Yankees reported gross revenues totaling $416.7 million and paid the City $18.8 million.

The audit’s objectives were to determine whether the Yankees: accurately reported the gross receipts in accordance with the lease agreement; paid the appropriate fees due the City, and whether they paid these fees on time; maintained adequate internal controls over the recording and reporting of their gross receipts; and complied with certain other requirements of their agreement (i.e., maintained the required insurance, and reimbursed the City for its utility use).

The Yankees generally adhered to the provisions of their lease agreement with the City and had an adequate system of internal controls over their revenue collection and reporting functions. In addition, the Yankees satisfied the prior audit assessment of $189,879. For the audit period, January 1, 1997, to December 31, 2000, the Yankees reported gross revenues totaling $416.7 million and paid the City $18.8 million in rental fees. The Yankees, however, underreported their revenue by $1,394,110, and overstated the credits that they were entitled to take against revenue by $2,502,968. Consequently, the Yankees owe the City $367,321 in additional fees. Specifically, the Yankees: