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HomeMy WebLinkAbout2000-12-18 City Council (23)TO: FROM: City of Palo Alto City Manager’s Report, HONORABLE CITY COUNCIL CITY MANAGER DEPARTMENT:ADMINISTRATIVE SERVICES DATE:DECEMBER 18, 2000 CMR: 451:00 SUBJECT:APPROVAL OF AMENDMENT NO.3 TO THE MANAGEMENT AGREEMENT WITH BRAD LOZARES FOR GOLF PROFESSIONAL SERVICES AT 1875 EMBARCADERO ROAD TO EXTEND THE TERM OF THE AGREEMENT AND TO INCREASE THE MANAGEMENT FEE RECOMMENDATION Staff recommends that Council approve and authorize the Mayor to execute the attached Amendment Number 3 to the Management Agreement with Brad Lozares for golf course professional services at the Palo Alto Municipal Golf Course (Golf Course). BACKGROUND On March 16, 1998, the City issued tax-exempt bonds to finance golf course improvements. At that time, Council approved a 20-month Management Agreement with Golf Professional Brad Lozares (Agreement) for golf course professional services and a 15-year facility lease to operate a golf retail establishment. (CMR:140:98). These agreements were structured in accordance with IRS regulations in order to base the Golf Professional’s compensation on services rendered rather than direct profit from the publicly financed golf course improvements. On November 23, 1998, Council approved Amendment No. 1, which modified the method of recording and accounting for cash receipts. On January 18, 2000, Council approved Amendment No. 2 to the Agreement, which extended the contract for an additional eight months, removed the cap on the percentage fee, and increased the fixed fee. DISCUSSION Staff proposes to further amend the agreement to extend the term for an additional eight months; increase the fixed fee compensation; reimburse the Golf Professional for credit card usage charges associated with rounds of golf; and waive the fee payable to the City for golf cart rentals when the golf carts are rented from a third party for tournament play. CMR:451:00 Page 1 of 3 Term I-ff-Tffnuary 2000, the original twenty-month agreement was extended for an additional eight-month period. This provided for the collection of a full year of data after the renovation of the golf course. This data, which included driving range, golf cart and club usage and rounds of g01f played, allowed staff to more accurately establish compensation for the Golf Professional. Additional analysis is required to determine if further refinement of the compensation arrangement is required.Consequently, staff is proposing another eight-month extension to the agreement. Compensation lhe (~olt Prot(ssional’s current compensation is comprised of a combination of a fixed fee and a percentage of gross revenue from the driving range, golf club and golf rentals. The Golf Professional does not receive revenue from the rounds of golf played. Staff proposes that the $22,360 per month fixed fee paid by the City to the Golf Professional be increased by $2,500 per month. This increase is necessary to allow the Golf Professional to adequately compensate key personnel, hire additional staff and cover the costs related to revenue collection and required record keeping. Moreover, this increase in compensation will reflect the fact that the number of rounds played per year is now approximately the same as the number played prior to the golf course renovation. Staff proposes this fixed fee increase, instead of the increase in the percentage fee requested by the Golf Professional. The Golf Professional now receives 40 percent of the gross revenues from the driving range, golf club and golf cart rentals. During the eight-month extension of the Agreement, staff will undertake a survey of other courses to determine whether changes to the percentage fee are appropriate. Any recommended changes will be presented to Council for approval when the next agreement is adopted. In the meantime, the proposed increase in the fixed fee will provide a predictable source of revenue to enable the Golf Professional to cover expenses during the winter and spring months, when fewer rounds of golf are traditionally played. This approach will also provide predictability in the City’s budgeting process as alternate compensation arrangements are considered. Golf Cart Fees Occasionally, tournament play requires the rental of additional golf carts from a third party. Under the terms of the current agreement, the golf professional is required to pay the City a percentage of the revenue received on each cart used in the tournament causing the Golf Professional to lose money on carts that are rented from the third party. Staff proposes that the fee payable to the City on carts that are rented from a third party for tournament play be waived. Waiver of this fee represents a loss in revenue to the City of approximately $165 per month. Credit Card Usage Charges ’l’he Management Agreement requires the Golf Professional to pay for all merchant charges associated with credit card usage, including the charge collected by the credit card companies when credit cards are used to pay for rounds of golf. Merchant charges CMR:451:00 Page 2 of 3 amount to about $2,000 per month. Since the Golf Professional does not share in the revenue collected for rounds of golf played, staff recommends an amendment to the Agreement that would require the City to pay for the merchant charges associated with credit card payments for rounds of golf. RESOURCE IMPACT Staff estimates that the adjustments to the Agreement would reduce City revenue from the golf course by approximately $4,665 per month, for an annualized reduction in revenue of $55,980. Despite this reduction in revenue, the City will be able to make payment on its bonded indebtedness and transfer $203,000 to the General Fund. Staff believes that additional revenues will be generated due to the continued annual increase in the overall number of rounds played. POLICY IMPLICATIONS This report is consistent with current City policies. ENVIRONMENTAL ASSESSMENT The amendment to the Management Agreement is not a project under the California Environmental Quality Act and requires no environmental review. ATTACHMENTS Attachment A: Amendment No. 3 to the Management Agreement PREPARED BY: William W. Fellman, Manager, Real Property DEPARTMENT HEAD APPROVAL: CITY MANAGER APPROVAL: g r2o s Assistant to the City Manager cc: Brad Lozares CMR:451:00 Page 3 of 3 ATTACHMENT A AMENDMENT NO. 3 TO MANAGEMENT AGREEMENT BETWEEN THE CITY OF PALO ALTO AND BRAND LOZARES FOR PROFESSIONAL SERVICES AT THE PALO ALTO MUNICIPAL GOLF COURSE THIS AMENDMENT NO. 2 to the Management Agreement between the City of Palo Alto and Brad L6zares for Professional Services at the Palo Alto Municipal Golf course, dated March 16, 1998, hereinafter referred to as "Agreement," is made and entered into this day of December, 2000, by and between the City of Palo Alto, a municipal corporation ("CITY") and Brad Lozares ("GOLF PROFESSIONAL"). RECITALS Amendment No. 1 to the Agreement, which was entered into by the parties on November 23, 1998, amended portions of Section V of the Agreement relating to the manner of recording and accounting for cash receipts. go Amendment No. 2 to the Agreement amended Section III extending the term an additional eight months to August 31, 2000. Co Amendment No. 2 also amended Section IV, paragraph A to increase the fixed fee to $22,360 and Section IV, paragraph B to remove the restriction that the cumulative percentage fees may not exceed the amount of the fixed fee payments in a single calendar year. D°The Management Agreement (Section IV, paragraph A ) provides the GOLF PROFESSIONAL with 40% of the gross revenues from the golf cart rental. Occasionally, GOLF PROFESSIONAL rents golf carts from a third party supplier to meet the demands for tournament play. Under the terms of the current agreement, the GOLF PROFESSIONAL loses revenue on third party golf cart rentals. E°The GOLF PROFESSIONAL is responsible under the terms and conditions of the management agreement for all credit and debit card service charges including those charged to play a round of golf. Fo CITY and GOLF PROFESSIONAL desire to amend the Agreement to remove credit and debit card service charges for rounds of golf, provide GOLF PROFESSIONAL with 100% of the gross revenue paid to the City for golf carts that are rented from a third party to meet tournament play demands and to further amend the Agreement to extend the term and increase the fixed fee. G.NOW THEREFORE, in consideration of their mutual covenants and agreements, the parties hereto agree as follows: SECTION 1. Section III (TERM) is amended to read as follows: "The term of this Agreement shall be thirty-six (36) months commencing on May 1, 1998 and ending on April 30, 2001." SECTION 2. Section IV (COMPENSATION), Subparagraph A (Fixed Fee), shall be amended to read as follows: "Fixed Fee The GOLF PROFESSIONAL shall receive a fixed fee during the term of this Agreement for GOLF PROFESSIONAL’S Golf Course and dr.iving range management, Golf Course marshaling and starting and cart rental services. The fixed fee for the full calendar year of 1998 would be $250,000. Because this Agreement takes effect May 1, however, the fixed fee shall be prorated to One Hundred Seventy five Thousand dollars(S175,000) for the eight month period May 1-December 31,1998. The initial annual fixed fee amount of $250,000 will be adjusted to be effective January 1, 1999 and January 1, 2000, respectively, based on the annual percentage increase in the Consumer Price Index (CPI), All Urban consumers (base year 1982-1984=100), for San Francisco-Oakland-San Jose CSMA published by the United States Department of Labor, Bureau of Labor Statistics (BLS), or any replacement index published by the BLS. The adjustment shall be made based on the most recent twelve month CPifigure available from the BLS as of December 10, 1998 and December 10, 1999, respectively. In no event shall the fixed fee for the calendar year 1999 be less that $250,000. In no event shall the fixed fee for the eight-month extent be less than $22,360 per month. For the second eight month extension (September 1, 2000-April 30, 2001) the monthly fixed fee will be $24,860." SECTION 3. Section IV (COMPENSATION), subparagraph B (Percentage Fees), shall be amended to read as follows: "Percentage Fees In addition to the fixed fee, GOLF PROFESSIONAL shall receive 40% percent of the gross revenues of the driving range and of the gross revenues of the golf cart and golf club rentals, except that GOLF PROFESSIONAL shall receive 100% percent of gross revenues of golf carts rented from a third party to meet the demands of tournament play. Percentage fees for each month will be calculated and paid no later than the 10th day of the following month." SECTION 4. Section V (RECORDS AND ACCOUNTS), paragraph A (Bank Deposits), subparagraph 3, subset a, shall be amended to read as follows: "a) GOLF PROFESSIONAL will pay for all banking fees, including all monthly service charges and armored courier pickup services. GOLF PROFESSIONAL shall pay all service charges for the use of credit cards and debit cards, except for service charges used to pay for rounds of golf, the costs of which shall be reimbursed to GOLF PROFESSIONAL by City SECTION 5. Section V (RECORDS AND ACCOUNTS), paragraph A (Bank Deposits), subparagraph 4, subset (a) shall be amended to read as follows: "(a)make ready CITY revenues for a daily pickup by the CITY or by the CITY’s armored courier service. In this case, the GOLF PROFESSIONAL shall segregate money collected for the CITY from any other revenue GOLF PROFESSIONAL collects for his own business and from his personal funds. In this case, the CITY will pay for the cost of all banking fees related to the CITY’s revenues, including monthly service fees, armored courier service and banking fees, and credit and debit card charges. The CITY will not, in such event, pay for banking service fees for any revenues collected by GOLF PROFESSIONAL; provided, however, City shiall reimburse GOLF PROFESSIONAL for the costs of service charges for the use of credit cards and debit cards used to pay for rounds of golf." SECTION 6. Section V (RECORDS AND ACCOUNTS), paragraph B, unnumbered paragraph 9, shall be amended to read as follows: "GOLF PROFESSIONAL further agrees to cooperate with City in using City approved credit card and/or debit card acceptance. GOLF PROFESSIONAL shall pay all service charges for the use of credit cards and debit cards, except for service charges used to pay for rounds of golf, the costs of which shall be reimbursed to GOLF PROFESSIONAL by City." SECTION 7. Except as herein modified, all other provisions of and exhibits to the Management Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment the day and year first above written. CITY OF PALO ALTO BRAD LOZARES Mayor Golf Professional ATTEST: City Clerk APPROVED AS TO FORM: Senior Assistant City Attorney APPROVED: Assistant City Manager Director of Administrative Services, Director of Community Services.