CITY OF LOS ANGELES I,"" ER-DEPARTMENTAL CORRESPONDE, 0:: Los Angeles Marathon - Assumption of Contract

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1 FORM GEN. 160 (Rev. 6-BO) CITY OF LOS ANGELES I,"" ER-DEPARTMENTAL CORRESPONDE, 0:: Septemher:l6, 2008 To: From: Subject: The Budget and Finance Committee Gerry F. Mille~ Chief Legislative Analyst Ray Ciranna f<_{jc-h;/1\ f-' City Administrative Officer Los Angeles Marathon - Assumption of Contract On September I 0, 2008, the Motion (Parks- Reyes) was introduced which instructed our offices to negotiate and report on such discussions with Going the Distance, LLC (Going the Distance), the proposed firm to assume the City's contract from Devine Racing Los Angeles, LLC (Devine) to produce the Los Angeles Marathon (Marathon). Going the Distance will assign at closing the contract between the City and Going the Distance to LA Marathon LLC, which is controlled by Frank McCourt. The Motion (Parks-Reyes) further specified that staff negotiate a condition that the Marathon would be held on a holiday Monday, such as President's Day, to allow persons of all faiths to observe their Sabbath. Since its inception, the Marathon has been held on a Sunday. Staff was instructed to report with the negotiated deal points to Budget and Finance Committee. Devine has been in negotiation to allow Going the Distance to assume City contract no. C to organize and manage the Marathon, and the exclusive right to use the trademark logo and name. Devine has stated that it has pursued this sale to Going the Distance as a way to infuse cash into other Devine holdings. The number of participants in the Marathon, as well as gross revenue have declined in recent years. Going the Distance brings a local owner to the Marathon, and a parent entity which has the desire and ability to infuse resources into this City event to develop the Marathon into one of the premiere marathons in the country and the world. Management of the Marathon will be by individuals with not only experience in managing and conducting world-class marathons, but also bring knowledge of the Los Angeles spmts and entertainment sector. Although the contract between the City and Devine does not require City approval for the sale between Devine and Going the Distance, Going the Distance has discussed a variety of contractual issues in the existing contract which are obstacles to assuming the contract from Devine, including: waiver of the City's right to go out to bid for the Marathon following the 2009 event, if it determines that any firm assuming the contract from Devine has not performed satisfactorily; uncapped percentage of payment to the City for intellectual property royalty at a rate of7.5 percent of adjusted gross revenue; and a closer on-going working relationship throughout the years between the contractor and city staff, through the requested establishment of SEP BUDGET & FINANCE

2 an Ad Hoc Committee. In addition, staff negotiated various issues which would be of benefit to the City including, but not limited to the following: Payment of outstanding amounts due from 2006, 2007 and 2008 Marathons, in the amount of$537,391.34, which have not been paid to the City by Devine; Full recovery for incremental City field personnel (staff and supervisory) costs on Marathon Day; Marathon Day will be held on a holiday Monday beginning in 2009, and will continue throughout the term of the agreement; Mechanism for the City to have greater input and knowledge of the management of the Marathon, including an opportunity for annual review; City's right to approve any future firm to which the contract is transferred or assumed; Contract cannot be pledged as an asset for the benefit of the contractor; and Going the Distance will conduct a 5K race to support the fundraising efforts of nonprofit organizations designated among the Marathon's Official Charities. Another issue which has since been resolved is the payment of amounts owed to William Burke and Marie Patrick, shareholders in Los Angeles Marathon, Inc. (LAMI), the original contractor with the City to organize and manage the Marathon. LAM! was selected through a competitive process in 1985, and was subsequently sold to Devine. Dr. Burke and Ms. Patrick continued to manage the Marathon on behalf of Devine. The City has received executed releases from Dr. Burke and Ms. Patrick which will allow Devine to complete the transfer of the contract no. C to Going the Distance. RECOMMENDATIONS That the Council: 1. Approve the following deal points to be included in an agreement with Going the Distance, LLC, or its assign, provided that such assign is LA Marathon LLC, an affiliate of the McCourt Company, Inc. successor contractor to Devine Racing Los Angeles, LLC, for the production of the Los Angeles Marathon, including exclusive use of the City's trademark name and logo, inasmuch as the City has received executed release agreements from William Burke and Marie Patrick, employees of Devine Racing LA, LLC: a. The City will waive the following provision contained in the current agreement (Contract No. C-93753, as amended) with Devine Racing Los Angeles, LLC: "Immediately following the first Marathon after the Transfer, and for 90 days thereafter, the City Council may, at its sole discretion, terminate this Agreement (City Contract No. C-93753) or give notice of intent to renegotiate the terms of this Agreement. If the City gives notice of intent to renegotiate and a new Agreement is not reached, the City Council may, at its sole discretion, terminate or maintain this Agreement." Furthermore, any future transfer, assignment, pledge or sale involving the city contract will require city approval. b. City will review the results of the 20 I 0 LA Marathon, as determined by an Ad -2-

3 Hoc Committee (described in recommendation No.3, below) taking into consideration the following Quality Control Goals and Guidelines, for consideration of an extension of the contract: Quality Control Goals and Guidelines Pre-race reporting, including detail on: athlete financial incentives (e.g. course record bonuses, cash prizes) promotions, and advertising plans, etc. Annual race statistics, including the number of registered participants and related detail; and Annual sponsorship statistics, including the names of sponsors and the length of commitment. c. Going the Distance shall reimburse the City for the City's permit fees and incremental staff costs above the average field and supervisory field deployment on LA Marathon Day, as compared to the average cost of field and supervisory field deployment for the same day of the week, for the three weeks immediately preceding the LA Marathon ("Marathon Model"). d. Going the Distance shall exclusively conduct the LA Marathon on a Monday holiday throughout the term of the agreement, beginning with the 2009 LA Marathon. e. Going the Distance shall pay the City 7.5 percent of the adjusted gross income, as provided in agreement no. C-93753, not to exceed $189,000 annually, to be adjusted annually by CPI-U. f. Devine will pay the city $537, for outstanding payments due from the LA Marathons, upon closing of the sale/assignment transaction with Going the Distance; further, if Devine does not pay the City upon closing, Going the Distance will withhold the amount due from its payment to Devine and will make the payment to the City. g. Going the Distance shall organize, manage and conduct a 5K (3.1 miles) run in conjunction with the LA Marathon, and allow non-profit organizations, through the existing Official Charities program, to continue to utilize this event to fundraise for charitable purposes. 2. Instruct the City Attorney to draft a contract amendment incorporating the above deal points for submission to the Council, or review any legal documents submitted by Going the Distance. 3. Establish an Ad Hoc Committee including representatives of the following departments/bureaus, to be jointly chaired by the CAO and CLA, with the Mayor as an ex officio member: Transportation, Street Services, Police, Fire, Convention Center, and all other departments, as needed. The purpose of this Committee is to meet, no less than -.)- '

4 every calendar quarter, with Going the Distance or successor entity to discuss issues and resolve potential problems concerning upcoming Marathon events. Further, the Committee shall submit a report to the Budget and Finance Committee ammally, within 60 days following Los Angeles Marathon Day, which provides an assessment of the success of the event and areas needing improvement and correctional plans, as necessary, utilizing the goals and guidelines delineated in recommendation I b, specified above, to develop the Los Angeles Marathon into a world-class event. FISCAL IMPACT STATEMENT Adoption of these recommendations will increase the General Fund by $537,391.34, the amount outstanding from the 2006, 2007 and 2008 Marathon payments. In addition, City permit and staff costs will be fully reimbursed, in accordance with the "Marathon Model," and annual intellectual property royalty payments will be paid in an amount up to $189,000 ammally (CPI-U adjusted) and deposited into the Intellectual Property Trust Fund. These recommendations are in compliance with the City's Financial Policies. GFM:RPC -4-

5 LA Marathon Assumption of ContraGt by Going the Distance Deal Points Current Contract Proposed Amenc.unent Costs are based on the Marathon Model, but discounted to reflect additional costs resulting Full Cost Recovery from route change to point to For City - Marathon point from circular, at the 1 Model City's request Full Cost Recovery For City - Marathon Model. City will be paid outstanding payments owed by Devine, Devine owes City upon closing of the assignment agreement between $537, Devine and Going the Distance. Contract 2 Termination June 30, 2015 June 30, 2015 City may issue a RFP within 90 days following first City shall waive 1 year termination clause; City shall have marathon following contract right to consent to future change in control, assignment assignment. and transfer, prior to such action. Does not specify day of the week on which event will be held. However, traditionally has been held on a Sunday in Will specify that the Marathon will be held on a holiday 3 Marathon Day March. Monday, such as President's Day. Intellectual Property 7.5% of adjusted gross, not to exceed $189,,000, annually 4 Royalty Payment 7.5% of adjusted gross adjusted by CPI-U Contractor will conduct a 5K run in conjunction with the Contractor may conduct a 5K Marathon, and allow non-profit organizations, through the in conjunction with the existing Official Charities program, to continue to utilize 5 5K Marathon this event to fund raise for charitable purposes. Payments Due the $537, has not been City for 2006,2007, paid to the City by Devine $537, will be paid to the City upon closing of the 6 and 2008 Marathons Racing LA sale/assignment from Devine to Going the Distance Establish an Ad Hoc Committee of pertinent City staff to meet regularly with Going the Distance to discuss issues and potential problems relative to upcoming Marathons. Council Review of Further, assess the performance the Marathon utilizing the 7 Annual Marathon None "Goals and Guidelines."

6 Outstanding Amounts Due from Devine Racing of Los Angeles Description Amount Due Partial Amount Interest through Amount Daily Payments Outstanding September 19, 2008* Outstanding Interest Including Interests through Police Services (runner escorts and course scouts) 29, , , , Reimbursible Costs 367, , , , , Reimbursible Costs 220, , , Royalty Payment (estimated)** 60, , , TOTAL 537, "'State Court interest rate of 1 0 percent ** 2008 Royalty Payment is estimated based on revenue information provided by Devine on 9/12/08