For more than two decades, the Surfside Race Place at the Del Mar Fairgrounds has been a bustling satellite betting venue, accommodating up to 5,000 people for races and other sporting events.
But in recent years, with the rise of online gaming and competition from tribal casinos, the venue’s appeal has waned. Attendance plummeted to just a few hundred a day.
So five years ago, the District 22 Agricultural Association, which manages the fairgrounds, decided to transform the building from a gaming facility into a 1,900-seat entertainment and events space.
It’s unusual for the district to arrange a portion of the building’s $13 million renovation cost, records show.
The district took a $2 million interest-free loan — or what the document described at the time as a “capital investment” — from its longtime foodservice contractor to cover construction costs.
In exchange, the district gave the company (then known as Premier/SMG) a no-bid extension of up to 10 years on its contract. The extension comes in the form of an amendment to the existing contract, which does not expire in three years.
Under the terms of the deal, the company will receive 30 percent of all food and beverage revenue at the new facility, or $100,000 per year, whichever is higher, until it reaches $2 million. After that, the company will receive 12.5% of revenue — the same as its contract to serve the rest of the region.
The revamped venue, now called the center, has yet to open, and a spokeswoman for the district said there was no opening date. Meanwhile, new deferral terms went into effect earlier this year, so if Premier mandates a 30% revenue share below $100,000, the district will have to write a check to the company for that amount.
The deal was first proposed by the governor in early 2018, and negotiations took about eight months, according to district records obtained under the Public Records Act. Contracting experts say it’s an uncommon way of funding projects.
“It’s hard to call this a standard contract extension,” the district’s own former contract manager wrote in a September 2018 email.
The deal to help build the center has come under much less scrutiny at a time when some of the area’s contracting practices have come under fire during a contract to host Mardi Gras midway through the annual county fair.
State contracting regulations require a competitive bid, like the school district’s modifications to the premier’s contract, unless the agency has permission from the state Department of General Services (DGS) to award the contract as a non-competitive bid. The district said it received the permit in February 2019.
But DGS has been unable to provide records showing approval for a non-competitive bid after weeks of investigation by the San Diego Union-Tribune. A database on the agency’s website lists all noncompetitive contracts approved by the DGS each year, but does not list any contracts from the 22nd DAA.
A spokeswoman said the agency was still “investigating this matter.”
One contract, many iterations
The deal with Premier, under the leadership of the region’s former CEO Tim Fennell, began with an April 2018 email from Shaun Beard, senior vice president of Premier and its parent company SAVOR. He offered a $2 million donation to transform the facility in exchange for a 10-year extension.
The proposal went through several iterations, records show. The prime minister first said it would be repaid in the form of $400,000 a year over five years. Later, it proposed variable charges based on the gross revenue amount of the new venue. Initially, the company also said it wanted to manage entertainment bookings for the new facility.
Even if some of the terms have changed, none — the company has always asked for a 10-year extension of its contract.
By September, Fennell and company representatives had worked out the deal points, records show. Around that time, the district hired a consultant, San Francisco attorney Joseph Barkett, to review the deal and guide it through the state’s approval process for $15,000.
In 2014, Baquet negotiated a similar deal with similar players in Sacramento. The deal involves the board that operates the California Expo’s exhibit grounds, which signed an agreement with its food and beverage services company to build a new soccer field on the exhibit grounds.
Barkett is married to Lisa Barkett, the 22nd DAA board member, who voted to approve the deal with Premier, and she was also involved in some aspects of the deal in the early stages of the negotiations, e.g. The mail log is displayed.
In a statement, the district said it did not have to disclose the relationship between the Barketts because Lisa Barkett had no financial interest in the contract with Joe Barkett. He was a “distant cousin by in-laws,” the statement said.
Joseph Buckett said in an interview that Lisa Buckett’s husband, William Buckett, was his second cousin. He also said he never discussed any aspect of the prime minister’s agreement with her.
He said Fennell wanted the deal because he saw declining interest in horse racing and satellite betting, as well as an opportunity to generate additional revenue for the region. The $13 million cost will be funded by funding from Premier and a loan from a state infrastructure bank.
The district approved a renovation plan in 2017. Fennell sees the extension of the no-bid contract as a good trade-off between securing funding and ongoing projects, Backert said.
“I think he thinks if they can do a better deal by waiting for the contract to run out, he’ll do it,” Backert said. “If they’re sitting on their current use, I think losing a few years is a real disservice to (the region).”
Fennell wrote in a November 2018 letter to DGS asking for approval of the deal that Premier is a “key part of the team” needed for the project.
“It is in the best interests of the 22nd DAA to extend the successful relationship with Premier/SMG, and it is not in the best interests of the 22nd DAA to delay this important project or attempt to use another possible contractor to achieve the same goals. time, after December 21, 2021,” he wrote.
A contracting expert questions this reasoning.
“When you make a no-bid exception, you should justify why bidding is harmful and why you can’t bid,” said Sally Riley, a former senior field representative for CIFAC, a nonprofit coalition of contractors and labor groups, Responsible for overseeing compliance by state and local agencies with public contract laws. “Ask to drop the bid requirement – that’s a big deal.”
Fennell, who retired from the district in 2020, said in an interview that the deal was approved by the attorney general’s office, which provides legal work for the district and district boards. Overall, it’s good for the region, he said.
“Funding is needed to complete this project, and this project is for the benefit of the people of San Diego,” he said. “It creates jobs and stimulates the economy.”
State law generally requires competitive bidding for construction projects and services, but allows for exceptions. In this case, Deputy Attorney General Josh Kaplan concluded in a February 2019 letter to Fennell that the no-bid exception is legal — but the district would first need to apply to the state for an exemption from bidding Require.
While records show the district requested approval days after the board approved the deal in November 2018, it is unclear whether the state agency officially approved the deal.
The school district insists it did. It pointed to a February 2019 letter from DGS officials approving the region’s revenue commitment to the Prime Minister. However, the letter cites a section of the Food and Agriculture Act, not a section of the Public Contracts Act that deals with bidding.
The district also provided three email chains from March 2019 with one-sentence approval from DGS officials. However, the email specifically referred to the financial letter and did not mention any contractual approvals.
A DGS spokeswoman also said the letter “appears to be specific to the Food and Agriculture Code section”.
DGS’ inability to confirm the deal’s approval echoes findings in a 2017 report by state auditor Elaine M. Howle, which condemned the agency’s poor oversight of billions of dollars in noncompetitive contracts awarded annually by state agencies. The report also said the agency approved non-competitive bids without good reason.
Beard, the premier’s official who negotiated the contract with Fennell, did not respond to repeated requests for comment on the contract. A prime minister official in Santiago also did not respond to a message.
It’s hard to gauge the value of an extension that goes into effect this year. In 2019, the last year before the COVID-19 pandemic, when the show floor was fully operational, Premier earned $688,804 from the contract. If the full 10-year extension is completed, that would be at least $6.8 million based on 2019 figures.
This amount does not take into account additional income for the center, and it is not known how much it will be.
As of now, the center has no opening date and no action has been announced. In April, the district approved a contract with Belly Up nightclub to manage bookings.
Initially, Premier should also get the business. But the company, which merged with another entertainment company after 2018, was barred from serving as the center’s reservations manager because of a conflict with an existing agreement in San Diego, the district said in a statement.