|TO: ||Finance and Economic Resiliency Committee Members|
|FROM:||Raul J. Aguila, Interim City Manager|
|DATE: ||December 18, 2020|
|SUBJECT:||DISCUSS A PROPOSED AMENDMENT TO THE CITY’S EXISTING MANAGEMENT AGREEMENT WITH LIVE NATION WORLDWIDE, INC., THE CITY’S OPERATOR OF THE FILLMORE MIAMI BEACH AT THE JACKIE GLEASON THEATER, TO ACCOUNT FOR THE SIGNIFICANT ADVERSE OPERATIONAL IMPACTS ASSOCIATED WITH THE CLOSURE OF THE FACILITY SINCE MARCH, 2020 DUE TO THE COVID-19 PANDEMIC; WITH SAID AMENDMENT POTENTIALLY INCLUDING: (1) THE SUSPENSION OF LIVE NATION’S PAYMENT OBLIGATIONS UNTIL 90 DAYS AFTER THE FACILITY IS PERMITTED TO HOST EVENTS AT FULL CAPACITY; (2) A CREDIT FOR AMOUNTS PRE-PAID BY LIVE NATION FOR THE 2019-20 FISCAL YEAR; AND (3) AN EXTENSION OF THE TERM FOR THE CURRENT RENEWAL TERM OF THE AGREEMENT, WITH THE EXTENSION TO CORRESPOND WITH THE PERIOD OF FORCE MAJEURE ASSOCIATED WITH THE COVID-19 PANDEMIC; AND (4) THE TERMS RELATING TO THE COMPLETION OF REQUIRED ESCALATOR REPAIRS AT THE FACILITY, IN THE AMOUNT OF APPROXIMATELY $162,219.46|
On June 22, 2007, the City entered into an management agreement (the “Agreement”) with Live Nation Worldwide, Inc. (“Live Nation”) to manage the Jackie Gleason Theater of the Performing Arts, now named and known as the Fillmore Miami Beach at the Jackie Gleason Theater (the “Fillmore” or “Venue”). The Agreement provides for an initial term of ten (10) years, commencing on June 22, 2007, and ending on August 31, 2017. The Agreement also provides for two 5-year renewal options: the initial 5-year renewal option is at the discretion of Live Nation (“First Renewal Term”); the second 5-year renewal option may be exercised upon mutual agreement of the parties (“Second Renewal Term”). In November 2016, pursuant to Section 3.2 (i) of the Agreement, Live Nation exercised the First Renewal Term, commencing on September 1, 2017 and expiring on August 31, 2022.
On December 9, 2009, the Mayor and City Commission adopted Resolution No. 2009-27278, approving Amendment No. 1 to the Agreement, which permitted Live Nation to extend hours of operation and offer liquor sales at the Venue for a trial period, subject to conditions.
On April 13, 2011, the Mayor and City Commission adopted Resolution No. 2011-27640, approving Amendment No. 2 to the Agreement, which incorporated the extended hours of operation and liquor stores for the duration of the Agreement.
Subsequently, on April 13, 2016, the Mayor and City Commission adopted Resolution No. 2016-29368, approving Amendment No. 3 to the Agreement, which established the terms on which the City may remove the “Rehearsal Hall” from the Management Agreement, should the City continue to pursue development of the Miami Beach Convention Center Hotel Project. Amendment No. 3 also established financial and operational adjustments related to Live Nation’s operation of the Venue, including establishing the Required City Distribution to be paid by Live Nation, as follows: for the first fiscal year of the First Renewal Term, the Required City Distribution amount shall be the greater of (a) $1,222,512.00 or (b) $1,000,000 increased by the percentage increase for the established CPI. Beginning in January 1, 2019, and on each January thereafter during the First Renewal Term, the Required City Distribution is due from Live Nation, which Required City Distribution shall be increased by a fixed amount equal to two percent (2%) of the amount in effect for the preceding fiscal year.
In January 2020, in accordance with the Agreement, Live Nation paid the Required City Distribution of $1,106,901. Shortly thereafter, in March 2020, the COVID-19 pandemic forced Live Nation to close the doors of the Fillmore. Since its closure, Live Nation has not been able to operate the Facility as contemplated in the Agreement, and has lost 5/6 of the benefit of its $1.1 million up front payment to the City for 2020, which it had pre-paid to the City shortly before the pandemic. Additionally, Live Nation is carrying maintenance costs of approximately $1,989,971 (Exhibit A attached hereto) for the Venue, which are fixed costs that cannot be adjusted, even though the entire Venue has been, and remains, closed.
The closure of the Fillmore due to the COVID-19 pandemic has adversely impacted Live Nation, not only locally with respect to its inability to operate the Fillmore, but nationally, as live entertainment and event production businesses are among the hardest hit by the pandemic. Unlike many retail, restaurant, and other establishments, which have been permitted to reopen under Miami-Dade County’s New Normal Guidelines, live entertainment venues hosting large gatherings have not had the ability to adjust, due to the risk such events pose of transmission.
The next Required City Distribution payment to the City is due on January 1, 2021. Currently, the Required City Distribution revenue payment is budgeted at $596,000 for fiscal year 2020-2021, as the Administration previously anticipated the possibility that the Required City Distribution may need to be adjusted due to COVID-19, and had updated its budget assumptions accordingly.
In addition, on July 29, 2020, the Mayor and City Commission adopted Resolution No. 2020-31332, approving COVID-19 rent relief to the commercial tenants/operators of city-owned property and approved the waiver of rents and fees due to the City for the period of April 2020 through September 2020, in the total amount of $3,400,000.
In consideration of the foregoing, Live Nation is proposing an amendment to the Agreement to account for the significant operational impacts caused by the pandemic. The terms of the negotiation proposed by Live Nation are summarized below:
- Suspension of the annual payment obligations to the City (namely, the January 2021 Required City Distribution) and contractual time periods until resumption of “full operations.”
- “Full operations” defined as 90 days after the facility may be used at full capacity during contractual operating hours. Full operations will begin 90 days after all legal occupancy/ capacity restrictions have been lifted, considering Live Nation will need lead time to book events.
- Once full operations are restored, Live Nation’s payment obligations would resume. However, Live Nation would receive a credit equal to $900,000, representing the portion of the January, 2020 Required City Distribution applicable to the period the Venue remain closed in 2020, and this credit would be applied against any monies that would be owed under the Agreement.
- To the extent the Fillmore remains closed in 2021, or unable to book events at full occupancy, Live Nation would receive an additional credit of $100,000 for each month that the facility is unable to resume full operations, recognizing that during such period, Live Nation must continue to cover the Venue’s substantial carrying and maintenance costs.
- Current term and deadline to exercise the Second Renewal Term extended for a period equal to the period that would be covered by the above credits.
It is important to note that the Required City Distribution payments collected in January 2020 are reflected as revenue actuals for FY 2019-2020. Any credits, if approved, would have to be accounted for in the FY 2021-2022 budget.
If the City Commission supports providing Live Nation with a credit to account for the Venue’s closure, the Administration has discussed various options to mitigate the budget impact to the City, including repayment of the credit over a period of time, such as during the Second Renewal Term. However, Live Nation has expressed concern about its ability to make a repayment commitment at this time considering the uncertainty and inability to predict market conditions in the live entertainment industry due to the pandemic, and has requested the proposed terms as set forth above. To this end, it should be noted that the exercise of the Second Renewal Term is ultimately subject to mutual agreement, and the City will have the opportunity to continue its discussions as to the Required City Distribution at a later date, once the parties have greater clarity on market conditions.
In addition to the above terms, the Administration recommends incorporating terms into the proposed amendment related to the completion of required escalator repairs at the venue, in the amount of approximately $162,219.46. This amount for the escalator repair has already been budgeted in the FY 2020-2021 budget.
The Administration is seeking direction from the Committee on Live Nation’s proposed terms.
Exhibit A: Operational Impact to date
FMB 2020 Annual Plan
FMB 2019 Annual Plan
|Is this a "Residents Right to Know" item, pursuant to City Code Section 2-14?|| ||Does this item utilize G.O. Bond Funds?|
|No|| ||No|| |