By Joe Tash
In coming weeks, decisions at the state and local level will likely determine the fate of a proposal by the city of Del Mar to buy the state-owned Del Mar fairgrounds for $120 million.
One key aspect of any fairgrounds deal is money — how much cash is generated by the 400-acre coastal property each year by its various activities, including the San Diego County Fair, annual horse-racing meet, satellite wagering on horse-racing and some 300 additional events, such as the popular Scream Zone at Halloween, the Christmas Holiday of Lights and the Del Mar National Horse Show.
The title of the property is held by the 22nd District Agricultural Association, a nonprofit state entity run by a nine-member board of directors appointed by the governor.
According to a financial statement provided by district officials, in 2009, the fairgrounds’ operating revenue totaled $62.7 million and operating expenses were just under $54 million. After costs such as debt service and depreciation were figured in, the fairgrounds’ bottom line was a surplus of about $4 million, which was reinvested into the property for maintenance and improvements, said Tim Fennell, fairgrounds CEO and general manager.
The figures include two related entities — the Race Track Leasing Commission, which contracts for an operator of the annual race meet, and the Race Track Authority, which was created to issue bonds to finance a new grandstand and related buildings.
Fairgrounds revenue comes from food and beverage sales, concessions and carnivals, admissions, facility rentals, satellite wagering, parking, sponsorships and other sources, while expenses include payroll, entertainment, maintenance, administration, depreciation and marketing.
The district — through the Race Track Authority — still owes $36.5 million on bonds sold to pay for the new grandstands. Annual debt service on the bonds is $4.8 million, said Fennell.
In an interview, Fennell said the district provides “a good, safe, quality venue at a reasonable price. We balance our budgets, we’re self-funded, we’ve put $191 million (since 1991) into capital improvements at zero taxpayer expense. If you can find another facility like that throughout the United States, let me know.”
Del Mar officials, though, insist that if the city were to buy the facility and help run it through a newly created board of directors, operations could be made more efficient and a larger operating surplus could be generated.
“It’s a very underperforming asset for the state and it’s understandable why (Gov.) Schwarzenegger looked at it as such and offered it for sale,” said Del Mar Councilman Mark Filanc.
Del Mar Councilman Carl Hilliard said city officials and bond counsel hired by the city have looked at the fairgrounds’ financial statements “upside down and inside out,” and he has concluded, “I know we can do a much better job.”
But Fennell, who along with members of the fairgrounds’ board of directors adamantly opposes the proposed sale of the property to
Del Mar, said the district’s operations provide opportunities for the public and generate enormous economic benefits for the region without any state money.
A state study in 2002 concluded the fairgrounds provides the equivalent of 5,000 full-time jobs, and an economic impact of $425 million annually for San Diego County, Fennell said.
While the fairgrounds does not send any money to Sacramento, the state does receive $9 million to $11 million each year as a percentage of bets placed on horse races at the Del Mar track, along with employment, sales and other taxes, Fennell said.
Fennell noted that admission tickets to the fair cost $13, far less than tickets to such Southern California attractions as Disneyland.
“One of our goals is to keep costs for the public as low as possible and still maintain positive revenue and make capital improvements,” Fennell said. “Could we make more money? Possibly. But it would cost the public more (to attend events).”
“We have a business model that works,” Fennell said. “Maybe some other state agencies might learn from what we do here.”
Congcong Zheng, an assistant professor of management and entrepreneurship at the San Diego State University School of Business, however, questioned some of the district’s business practices after reviewing the agency’s annual statements for 2009 and 2008.
“I’m not sure they are running this as best as they can, as most efficiently as they can,” she said.
Zheng questioned the district’s payroll and benefits of $18.5 million in 2009. “That’s a huge amount of overhead,” she said.
She also questioned why “doubtful accounts” written off by the district nearly doubled from $143,024 in 2008 to $248,598 in 2009.
Fennell, though, said “we run lean and mean,” and the district’s expense ledger is in sound condition. The district has a permanent staff of 175, which swells by 1,800 temporary workers during the fair.
According to figures provided by the district, Fennell earns $138,012 annually, and the district’s chief operating officer and chief financial officer earn $145,104 and $103,488, plus retirement, medical and dental benefits.
Members of the board of directors receive no compensation or benefits.
Fair board directors do receive complimentary tickets to the fair and concerts. According to forms posted on the district website, board members Kelly Burt, Ann Davies, Ruben Barrales, Barry Nussbaum, Russ Penniman and Vivian Hardage received a total of 406 tickets for the 2009 fair, valued at $13 apiece, for the purpose of allowing them to perform their duties as district officials. Hilliard and Filanc, of the Del Mar council, received two tickets apiece.
Nussbaum and Penniman received four tickets apiece to a David Archuleta concert, valued at $35 apiece, while Nussbaum,
Penniman and Hardage received tickets valued at $38 apiece to a Kelly Clarkson concert.
Filanc and Hilliard received two tickets apiece to a 2009 Melissa Etheridge concert, valued at $45 apiece, according to the documents.
Disagreement also exists about the proposed sale price of $120 million, reached through negotiations between Del Mar and state officials.
Zheng said that, based on the district’s fund equity of $105 million in 2009, the price “is almost like a fire sale.”
“They don’t have the confidence in the future value of the Del Mar race track. It’s like they’re deducting the future earning potential of this race track,” she said.
Filanc said the $120 million offer is based on the property’s value as a fairgrounds and race venue, activities which must continue under the proposed legislation authorizing the sale and the preliminary agreement with the governor. “Based on that, we are paying an appropriate price.”
Fennell said the Orange County fairgrounds sold for $100 million, even though it is much smaller at 147 acres, has no race track, a smaller fair and less than half the annual revenue.
“Something’s not Kosher,” he said.