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Wednesday, Mar 20 2013 10:26 PM

Council OKs contract with AEG to manage facilities

BY ANTONIE BOESSENKOOL Californian staff writer aboessenkool@bakersfield.com

Bakersfield City Council members on Wednesday approved a 10-year, multimillion-dollar contract for AEG Facilities to manage Bakersfield's Rabobank Arena, Theater & Convention Center complex, the San Joaquin Community Hospital Ice Center and Bright House Networks Amphitheatre. AEG, which manages the Staples Center in Los Angeles, will replace longtime facilities manager SMG with the new contract.

SMG has operated one or more of the facilities since 2000. SMG's contract is due to expire this June 30, which is why the city opened up bidding for a new contract.

Both SMG and AEG were vying for the business, but AEG's was the better proposal, City Manager Alan Tandy said. In particular, AEG proposed to cover the city's losses on the facilities above $415,718 a year, whereas losses in past years under SMG's management have been higher.

"So they are offering us a level of financial security we've never had," Tandy said. "In preparing (the city's) budget, having figures vary by up to $500,000 a year is disruptive. ... And having financial certainty that our losses will never exceed the $415,000 is a significant gain to us."

The proposed contract is for AEG to manage the facilities for 10 years, with an option to extend that another five years. It will get a management fee of $400,000 a year, plus incentive payments to keep down losses. SMG proposed an annual $210,000 management fee, plus incentive payments to keep losses low.

AEG's multiple components -- for example, it also promotes events through its AEG Live unit -- was the main reason AEG was the better choice, Tandy said.

"SMG does not have a promotion arm. AEG has the world's second-largest," he said. That will mean more, and bigger, events at Bakersfield facilities. AEG also committed to keeping the existing staff at the facilities, and AEG's home base of Los Angeles is closer to Bakersfield than SMG's Pennsylvania headquarters. Those were two other factors in the city staff's recommendation to go with AEG, Tandy said.

But representatives for SMG protested that recommendation. City Finance Director Nelson Smith presented a financial analysis that compared AEG's and SMG's proposals and what losses they would've resulted in in past years. AEG's proposal, with its guarantee to limit the city's losses, would've meant a smaller loss than SMG's proposal, except under an "optimistic" financial scenario, according to the analysis.

Stephen Tadlock, regional general manager for SMG and based in Fresno, said the analysis was only a "snapshot" of financial results from the facilities over the time SMG has managed them.

"The three (one-year) scenarios that they showed obviously strategically supported their position," Tadlock said during a break in the meeting. A view of the full 14 years SMG has managed the facilities would've shown "a different story," he said.

"During recessionary times, their proposal is more favorable. In more prosperous times, which we have had and I think everybody believes will occur again, our proposal is more favorable to the city," he said. "All we're asking for is more complete review and analysis."

But it appears that won't happen. After a presentation by Chris Wright, regional vice president for AEG Facilities, the council voted unanimously to hire AEG as the facilities' manager.

"Bakersfield fits perfectly into our West Coast routing system" for events and performances AEG books, Wright said. "That will increase the number of shows that you see here in the city."

"From a financial improvement standpoint, there are a lot of assets that we can bring to improve the bottom line," he said.

Tandy, several council members and Mayor Harvey Hall said SMG has served the city well.

"Our responsibility is to vote for who we think is going to be the best for our city," said Councilwoman Jacquie Sullivan.

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