A Miami-Dade inspector general’s audit of the AmericanAirlines Arena operating agreement with the Miami Heat blasts the county for “poorly performing” administrative oversight and paying little attention to the Heat’s annual budget.
The pointed, 60-page document released Thursday faults Miami-Dade for having “little idea” about whether the team has met financial benchmarks that would trigger profit-sharing from the county-owned arena.
Though the Heat’s operating budget is consistently submitted late, it has never faced repercussions from the county. And the county apparently wasn’t aware the Heat was required to submit an annual budget for big-ticket capital expenditures, the audit states.
“The county’s hands-off approach to an operation that now generates more than $60 million a year is perplexing, especially an operation that has yet to produce sufficient profits to result in profit-sharing,” Inspector General Christopher Mazzella wrote.
Neither party criticized in the report acknowledged culpability. Mayor Carlos Gimenez’s office said the audit covers a timeframe that pre-dates his tenure, and he is working to fix any problems. Miami Heat representatives disagreed with the audit’s conclusions. Heat lawyer/lobbyist Jorge Luis Lopez said the inspector general “spent a significant amount of taxpayer money on what appears to be a witch hunt.”
A key provision in the 1997 accord between the county and Basketball Properties Ltd., the Heat’s operating arm, stipulates that Miami-Dade is to receive 40 cents of every dollar of profit after the team earns $14 million in profits. Yet, 15 years into the deal — even after a 2006 world championship and nearly two years with league Most Valuable Player LeBron James — the Heat maintains it has never come close to that magic number.
That’s because despite some profitable years, the contract allows the Heat to pay off all of its losses before declaring profitability. The team reported losses totaling $156.6 million through 2010.
Despite James’ presence, a $13 million windfall from increased ticket sales, a giant spike in food and drink concessions last year, and $72.2 million the county poured into operating the arena, the Heat remains well below the threshold of sharing profits with Miami-Dade.
“The county has little idea of the underlying conditions and financial issues that, to date, have resulted in the Arena’s failure to generate sufficient reportable net cash flow that would have allowed the county to share in the distribution of Arena excess cash flow,” the audit stated.
Later, it says, “It is inexplicable why the County allowed these conditions to develop.”
The county administration, in a statement Thursday afternoon, said it is improving managerial oversight of the arena agreement.
“This report covers a time period that predates my administration — from 2004 through 2010,” Mayor Gimenez said. “Since taking office last July, we have established new protocols to ensure that the lack of managerial oversight highlighted in the report is not repeated.”
Gimenez said his office is consulting with the county attorney and will issue a status report within 90 days as requested by the inspector general.
Mazzella said the county must familiarize itself with the Heat’s complex finances and review the team’s capital budgets, including how much the Heat spends on equipment leases such as those for LED screens and monitors. The county, as the owner of the arena, should also be notified of lawsuits filed against the Heat.
The inspector general suggested the county learn how the team makes money from lucrative concessions and “premium” ticket sales, including suites. Also, the county should know more about non-basketball events at the arena, since those revenues impact potential profits, he wrote.
Mazzella also criticized the Heat, questioning $3.3 million the team spent on capital improvements. He said that money should have gone toward negating losses instead.
And Mazzella questioned certain Heat expenditures, including $12,300 spent on political contributions and $614,000 on lobbyists. The Heat said $10,000 went to a National Conference of Mayors convention in Miami, presided over by former Miami Mayor Manny Diaz.
Lopez, the Heat’s lobbyist who earned a large chunk of the $614,000 in question, called all of the team’s expenses “legitimate” and said the Heat will work harder to get its budgets to the county on time.
Eric Woolworth, president of the Heat Group’s business operations, said in a statement that the audit failed to recognize the successes of the partnership between the Heat and the county — especially the revitalization of downtown Miami — and that it gave “short shrift on the risk” the company took in undertaking construction.
Woolworth also said Mazzella misinterpreted provisions of the agreement relating to capital expenditures and business expenses.
The Heat played its first game at the AAA in 2000, after a dozen years at the old Miami Arena in Overtown. Blessed with fan and corporate support, the team pined for the millions in new revenue anticipated from the sales of expensive suites, exclusive seats and high-end retail at the new arena.
Broward County offered a better financial deal for the team to play at the BankAtlantic Center, but Heat owner Micky Arison wanted his team to remain in Miami-Dade, where he has a home.
In the end, Arison put $210 million toward construction, with the county spending $37.6 million to purchase the 17 waterfront acres along Biscayne Boulevard from the city of Miami. The county also paid a $5 million subsidy before the arena opened and agreed to give the team $6.4 million a year for operations.