How a Del Mar Fairgrounds seller got a no-bid contract extension in exchange for a $2 million loan

For more than two decades, Surfside Race Place in Del Mar fairgrounds has been a buzzing venue for satellite betting, with up to 5,000 people betting on races and other sporting events.

But in recent years, with the rise of online gaming and competition from tribal casinos, the attraction of the place has faded. Attendance dropped to at least a few hundred people per day.

So, five years ago, the 22nd District Agricultural Association, which operates the fairgrounds, decided to convert the building from a gambling facility into an entertainment and event space with a capacity of 1,900 people.

Records show that how the area structured part of the $13 million cost to redesign the building was unusual.

The district accepted a $2 million interest-free loan — or “capital investment” as the documents called it at the time — from a longtime food and beverage service contractor, to be subtracted into construction costs.

In return, the region gave the company, then known as Premier/SMG, a no-tender extension to its contract of up to 10 years. The extension took place in the form of a modification made to an existing contract, which was not due to expire for 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 annually, whichever is greater, until it reaches $2 million. After that, the company will receive 12.5 percent of the revenue – the same contract it has to serve other parts of the region.

The remodeled venue, now called the Centre, has not yet opened, and a spokeswoman for the district said there was no opening date. Meanwhile, the terms of the new extension kicked in at the beginning of this year, so if Premier states a 30 percent revenue share is less than $100,000, the district will have to cut a company check for that amount.

The deal, for which district records obtained under the Public Records Act were first shown by the prime minister in early 2018, took about eight months to negotiate. Contracting experts said it was an unusual way to finance a project.

“It would be difficult to name this standard contract extension,” the former district contracts manager wrote in an email in September 2018.

While some of the area’s contracting practices have come under attack in a lawsuit filed over the award of a contract to run the carnival halfway through the annual county fair, the deal that helped build the center received far less scrutiny.

Government contracting regulations require modifications such as those made by the district to a prime minister’s contract for competitive bidding, unless the agency obtains permission from the state’s Department of Public Services (DGS) to award a contract as non-competitive bidding. The district says it obtained this permission in February 2019.

But the DGS, after weeks of inquiry from The San Diego Union-Tribune, was unable to produce a record showing approval of a non-competitive bid. The database on the agency’s website that lists all non-competitive contracts approved by the DGF each year does not contain a list of any of the 22 and DAA contracts.

A spokeswoman said the agency was still “looking into the matter”.

One decade, many iterations

The deal with Premier was negotiated under the supervision of former District CEO, Tim Fennell, and began with an April 2018 email from Sean Bird, Senior Vice President of Premier and its parent company SAVOR. Make a $2 million contribution to redesign the facility in exchange for a 10-year extension.

Records show that the proposal went through many iterations. The prime minister said first that the payment would be made in annual payments of $400,000 for five years. Later, he suggested drawing a graduated scale based on the amount of total receipts from the new place. Initially the company also said it wanted to manage entertainment reservations at the new facility.

Even with a change of some conditions, no one has changed – the company has always asked for a 10-year contract extension.

Records show that by September, Vinil and company representatives had worked out the bargain points. At about that time, the district hired an advisor, San Francisco attorney Joseph Barkett, for $15,000 to review the deal and launch it through the state approval process.

Barkett had negotiated a somewhat similar deal in Sacramento in 2014, with similar players. That deal involved the board of directors managing the Cal Expo grounds, which signed an agreement with the food and beverage service company to build a new football stadium on the fairgrounds.

Barkett is linked by marriage to Lisa Barkett, the board member of 22 and the DAA who voted to approve the deal with the Premier, and who was also linked during the early stage to some aspects of the deal while it was negotiated, via email records show.

The county said in a statement that the relationship between the Barketts family did not have to be disclosed, as Lisa Barkett had no financial interest in the contract awarded to Joe Barkett. The statement said he is “a distant cousin related to marriage.”

Joseph Barkett said in an interview that Lisa Barkett’s husband, William Barkett, is his second cousin. He also said that he had never discussed any aspect of the PM’s deal with her.

He said Fennell wanted to close the deal because he saw a decline in interest in horse racing and satellite betting and an opportunity to generate additional revenue for the area. The $13 million cost was to be financed with money from the prime minister and a loan from the state’s Infrastructure Bank.

The district approved the remodeling plan in 2017. Barkett said Fennell saw the no-bid extension of the contract as a good trade-off for the money and the project in progress.

“I think he would have thought that if they could do a better deal by waiting for the contract to expire, he would have done it that way,” Barkett said. “I think losing two years would have been real damage to (the area) if they were to sit on that current use.”

Fennell wrote in a November 2018 letter to DGS asking for the deal to be approved that the Premier was an “important part of the team” needed for the project.

“It is in the best interests of 22 and DAA to extend their very successful relationship with Premier/SMG and it is not in the interest of 22 and DAA to delay this important project or attempt to achieve the same goal with another potential contractor sometime in the future, i.e. after December 21, 2021,”

One contracting expert questioned this reasoning.

said Sally Riley, former chief field representative for CIFAC, a nonprofit coalition of contractors and labor organizations that monitors and local agencies compliance with general contracting laws. “Ask to waive bid requirements – it’s a big deal.”

In an interview, Fennell, who retired from the district in 2020, said the deal was approved by the attorney general’s office, which provides legal work for the district and the district’s board of directors. He said that, overall, it was good for the area.

“The money was required to complete the project, and the project is for the benefit of San Diego residents,” he said. “It creates jobs and stimulates the economy.”

questionable supervision

State laws generally require competitive bidding for construction projects and services, and exceptions are allowed. In this case, Deputy Attorney General Josh Kaplan, in a February 2019 letter to Fennell, concluded that the no-bid exception would be lawful—but the district would first need to request an exemption from the state’s competitive bidding requirements.

While records show that the district requested this approval a few days after the board of directors approved the deal in November 2018, it is unclear whether the state agency formally approved it.

The region insists it did. Refers to a February 2019 letter from DGS officials approving the revenue pledge to the Prime Minister by the district. However, the letter refers to a section of food and agricultural law, not general contract law that covers competitive bidding.

The county has also submitted a three-entry email chain as of March 2019, which contains a one sentence approval from a DGS official. However, this email refers specifically to the financing letter and does not mention any contractual approval.

A DGS spokeswoman also said the letter “appears to be specific” to the Department of Food and Agriculture Law.

The inability of the General Directorate of Securities to confirm approval of the transaction reflects the findings of the 2017 report prepared by the state auditor, Elaine M. Howell who criticized the agency for inadequate oversight of the billions of dollars in non-competitive contracts awarded by state agencies each year. The report also stated that the agency approved non-competitive bids that lacked sufficient justification.

Baird, the first official who negotiated the contract with Fennell, did not respond to multiple requests for comment on the contract. A key San Diego official also did not respond to messages.

It is difficult to gauge the value of the contract extension, which went into effect this year. In 2019 — the last year before the COVID-19 pandemic, when the fairgrounds were operating at full capacity — the Premier earned $688,804 off the contract. If the full 10-year extension were completed, that would amount to at least $6.8 million based on the 2019 figure.

This amount does not take into account the additional revenue from the center, and it is not known how much it will be.

So far, there is no opening date for the center and no business has been announced. In April, the district agreed to a contract with Belly Up nightclub to manage reservations.

Initially the prime minister was supposed to get this job as well. But the company merged with another entertainment company after 2018 and due to conflict with the existing agreement in San Diego, it was barred from being the center’s reservation manager, the district said in a statement.

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