How a Del Mar fairgrounds vendor landed a no-bid contract extension in exchange for a $2M loan

For more than two decades the Surfside Race Place at the Del Mar fairgrounds was a bustling venue for satellite betting, holding as many as 5,000 people wagering on races and other sporting events.

But in recent years, with the rise of online gaming and competition from tribal casinos, the venue’s allured faded. Attendance plunged to as little as a few hundred people per day.

So five years ago, the 22nd District Agricultural Association, which manages the fairgrounds, decided to convert the building from a gambling facility to a 1,900-capacity entertainment and event space.

How the district structured a portion of the $13 million cost for remodeling the building was unusual, records show.

The district accepted a $2 million no-interest loan — or “capital investment” as documents at the time described it — from its longtime food and beverage service contractor, to be put toward construction costs.

In exchange the district gave the company, then known as Premier/SMG, a no-bid extension of its contract for up to 10 years. The extension was made in the form of an amendment tacked on to an existing contract, which was not set to expire for three years.

Under the terms of the deal the company would get 30 percent of all food and beverage revenues at the new facility, or $100,000 per year, whichever was greater, until it reached $2 million. After that, the company would get 12.5 percent of revenue — the same as its contract for servicing other parts of the district.

The remodeled venue, now called The Center, has yet to open, and a spokeswoman for the district said there is no opening date. Meanwhile the terms of the new extension kicked in at the beginning of this year, so if Premier’s stipulated 30 percent share of the revenue is less than $100,000 the district will have to cut a check to the company for that amount.

The deal, which district records obtained under the Public Records Act show was first pitched by Premier in early 2018, took about eight months to negotiate. Contracting experts said it was an uncommon way to fund a project.

The district’s own former contracts manager wrote in a September 2018 email, “It would be difficult to call this a standard contract extension.”

At a time when some of the district’s contracting practices have come under attack in a lawsuit over the award of a contract to run the carnival midway at the annual county fair, the deal that helped get The Center built has received far less scrutiny.

State contracting regulations require amendments like the one the district made to the Premier contract to be competitively bid, unless the agency gets permission from the state Department of General Services (DGS) to award a contract as a non-competitive bid. The district says it got that permission in February 2019.

But DGS, after weeks of inquiry from The San Diego Union-Tribune, has been unable to produce a record showing approval to do a non-competitive bid. A database on the agency’s website that lists all noncompetitive contracts approved by the DGS each year has no listing for any contract from the 22nd DAA.

A spokeswoman said the agency is still “looking into it.”

One contract, several iterations

The deal with Premier was negotiated under the district’s former chief executive, Tim Fennell, and began with an April 2018 email from Shaun Beard, the senior vice president for Premier and its parent company, SAVOR. He pitched a $2 million contribution for remodeling the facility in exchange for a 10-year extension.

The proposal went through several iterations, records show. Premier first said repayment would be made in $400,000 annual payments for five years. Later it proposed a sliding-scale fee based on the amount of gross receipts from the new venue. Initially the company also said it wanted to manage the entertainment bookings at the new facility.

Even as some of the terms changed, one did not— the company always asked for a 10-year extension of its contract.

By September the deal points had been worked out by Fennell and the company representatives, records show. Around that time the district hired a consultant, San Francisco lawyer Joseph Barkett, for $15,000 to review the deal and usher it through the approval process by the state.

Barkett had negotiated a somewhat similar deal in Sacramento in 2014, with similar players. That deal involved the board that runs the Cal Expo fair grounds, which inked an agreement with its food and beverage service company to build a new soccer stadium on fair grounds land.

Barkett is related by marriage to Lisa Barkett, a member of the 22nd DAA board of directors who voted to approve the deal with Premier, and who was also looped in during the early stage on some aspects of the deal as it was being negotiated, email records show.

In a statement the district said the relationship between the Barketts did not have to be disclosed, because Lisa Barkett had no financial interest in the contract given to Joe Barkett. The statement said he was “a distant cousin related by marriage.”

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

He said Fennell wanted to make the deal because he saw the decline in interest in horse racing, and in satellite wagering, and a chance to create additional revenue for the district. The $13 million cost was to be financed with the money from Premier and a loan from a state infrastructure bank.

The district had approved the remodeling plan in 2017. Barkett said Fennell saw the no-bid contract extension as a good tradeoff to getting the money and the project underway.

“I think he thought if they could have done a better deal by waiting for the contract to run out he would have done it that way,” Barkett said. “Losing a couple of years I think was a real detriment to the (district) if they were to sit on that current use.”

Fennell wrote in a November 2018 letter to DGS requesting approval of the deal that Premier was “a critical piece of the team” needed for the project.

“It is in the best interests of the 22nd DAA to extend its very successful relationship with Premier/SMG and it is not in the best interests of the 22nd DAA to delay this important project or to attempt to achieve the same objective utilizing another possible contractor at some future time, ie, after December 21, 2021,” he wrote.

One contracting expert questioned that reasoning.

“When you do a no-bid exception you should prove why bidding is harmful and why you can’t bid,” said Sally Riley, the former senior field representative of CIFAC, a non-profit coalition of contractors and labor organizations that monitors state and local agencies compliance with public contracting laws. “Asking to waive bidding requirements — it’s a big deal.”

In an interview Fennell, who retired from the district in 2020, said the deal was approved by the Office of the Attorney General, which provides legal work for the district and the district Board of Directors. He said that, overall, it was good for the district.

“The funds were needed to complete the project, and the project is to the benefit of the people of San Diego,” he said. “It creates jobs and stimulates the economy.”

Questionable oversight

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

While records show the district asked for that approval a few days after the board approved the deal in November 2018, it is unclear if the state agency formally approved it.

The district insists it did. It points to a February 2019 letter from DGS officials approving the pledge of revenue to Premier by the district. The letter, however, cites a section of the Food and Agricultural Code, and not the Public Contracts Code that covers competitive bidding.

The district also supplied a three-entry email chain from March 2019, which contains a one sentence approval from a DGS official. Yet that email specifically refers to the finance letter and makes no mention of any contractual approval.

A spokeswoman for DGS also said that the letter “appears to be specific” to the Food and Agricultural Code section.

The inability of DGS to confirm approval of the deal echoes the findings of a 2017 report by State Auditor Elaine M. Howle which chastised the agency for inadequate oversight of the billions of dollars in noncompetitive contracts awarded each year by state agencies. The report also said the agency approved noncompetitive bids that lacked adequate justification.

Beard, the Premier official who negotiated the contract with Fennell, did not respond to multiple requests for comment about the contract. A Premier official in San Diego also did not respond to messages.

It is hard 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 was at full operations — Premier made $688,804 from the contract. If the full 10-year extension is completed, that would come to at least $6.8 million based on the 2019 figure.

That amount does not take into account the extra revenue from The Center, and it is unknown how much that would be.

As of now there is no opening date for The Center and no acts have been announced. In April the district approved a contract with the Belly Up nightclub to manage the bookings.

Initially Premier was supposed to get that business, too. But the company merged with another entertainment company after 2018 and because of conflicts with existing agreement in San Diego it was prohibited from being the booking manager for The Center, the district said in a statement.

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