The Art of the Deal

By Frank Gruber

May 31, 2011 -- Santa Monica Mayor Richard Bloom and I have a wager about the Civic Auditorium.

If in ten years the Civic is hosting Bob Dylan for a concert for his 80th birthday, I’ll take Mayor Bloom to the concert. If in ten years the Civic is still running pet shows, Mayor Bloom will take me to one of them. In either case, afterwards the loser will take the winner across the street for dinner at El Texate.

I hope I lose the bet. Now that Mayor Bloom and three colleagues on the City Council have approved the deal for the City to spend $46.8 million to renovate the Civic and then contract with the Nederlander Organization to book shows there, a deal I have opposed, I hope it works out. ("City Council Approves $47 Million for Civic Auditorium Renovation," May, 27, 2011)

And it’s not only about not wasting the money. I like the people who are behind the deal. The three staff members who were most involved in the plan, Barbara Stinchfield and Jessica Cusick from the Community and Cultural Services Department and Andy Agle from Housing and Economic Development, are among the most capable and conscientious of the City’s administrators. They have been faithfully trying to carry out the will of the people and directions from City Council.

Not only that, but the project became a cause for the Santa Monica Conservancy, an organization for which I have the highest regard (not only that, but I’m a member).

And of course I’d like to see the Civic become the successful venue for concerts and theater and expositions that it was supposed to become when the City built it in the ’50s.

But I’m not persuaded, and I expect Mr. Bloom will be taking me to my first pet show ten years from now. In fact, from the first words of City Manager Gould’s introductory presentation of the issue to the council Thursday night, I became more convinced that making this deal is a mistake.

Mr. Gould said he had seven reasons to support the deal, but he lost me on the first one, which was that the City should spend $46.8 million on the Civic, and make the deal with the Nederlanders, because doing so would be “consistent with” years of “extensive community process.”

This is precisely the wrong attitude to have toward a decision-making process. No matter how long a process continues, no matter how many people are involved, no matter how good the cause, if the end result is a bad decision, then the ultimate decision-makers, the City Council in this case, should say no. The purpose of a long process is to come up with a good decision; it’s not the purpose of a decision to validate a process.

That this is a bad deal, and one that the council was being rushed into making by the spreading of irrational fears and artificial timetables, was made clear by the three council members who opposed it, Terry O’Day, Bobby Shriver, and Gleam Davis.

Of them, Mr. O’ Day spoke first. He pointed out that the issue Thursday night was not whether the Civic would live or die, but how to spend reduced redevelopment funds, and that the council had not had the opportunity to look at the broader question of the needs for the Civic Center area now that redevelopment funds were expected to be reduced. He made the reasonable suggestion that the $46.8 million be spent to build the new Parking Structure 6 downtown, which would free up a stream of parking revenues that could be used for a Civic remodel if that turned out to be the best use of the funds.

Then Mr. Shriver spoke. He focused on the deal with Nederlanders, which is risk-free from their standpoint. They’re not investing any capital, which he thought was unusual for a joint public-private venture.

Unusual is right. Think Staples Center and L.A. Live: sure the City of L.A. gave some subsidies; but the vast majority of capital for those projects came from private sources.

Mr. Shriver also questioned the requirement in the Nederlander deal that the City must provide 1,000 parking spaces on weekends, which is 300 more than the number of spaces in the Civic Center parking structure on Fourth Street, which means that building the park at Fourth and Pico may be postponed indefinitely, because money would have to be found to put the parking underground.

This made me think: with all this talk of public process, where were the soccer moms and dads? Ten years ago it was they who attended workshop after workshop on the Civic Center Specific Plan, and then persuaded the council to build a soccer field in the park that was planned to replace the Civic Auditorium’s parking lot. Did anyone tell them about the meeting Thursday night?

Council Member Gleam Davis then made the most convincing arguments against the deal. She had researched the public processes, primarily the City’s “Creative Capital” plan and the process that led to the 2005 version of the Civic Center Specific Plan, which staff was using to justify the deal, but she had found that in fact the proposal achieved only a selective few of the goals established during those processes.

She quoted a passage from Creative Capital that made the point that the number of seats in the Civic, 3,000, which will remain more or less the same with the remodel, was not a good number of seats in a theater because it was too small for commercial uses and too big and expensive for many performing arts uses. This is exactly the problem the Civic has had for 50 years, and the new plan perpetuates it.

Ms. Davis hit the nail smack on the head when she said that the City was making this deal with the Nederlanders in the hope of getting this “albatross” off its neck financially, but that they were not going to restore the Civic’s “glory” with the shows they promote. The Oscars aren’t coming back, she said. The City was betting $50 million that the Nederlanders could make it work, and attract the artists we want to play there, but there were no assurances this would happen.

I don’t doubt the intentions of anyone, least of all the Nederlanders, but the deal with them is not a good one for the City. By profession I’m an entertainment lawyer, and the deal reminds me of the deals film producers make with investors. Contrary to stereotype, the producers typically mean well, and they honestly believe in the potential of their films to make money, but ultimately they have no obligations to their investors -- the proverbial dentists in Orange County -- beyond an honest accounting of their losses.

City staff told the council and the public Thursday night that the deal with the Nederlanders is for ten years, but that’s a misreading of the deal, at least according to the term sheet staff distributed to the council when they presented the deal March 8. The deal is for five years, with an optional second five-year term, but it is the Nederlanders, not the City, who has the option.

All the City has is a commitment from the Nederlanders to try to make a go of this for five years, and even that five-year term is illusory, because the Nederlanders can walk away without penalty if the deal is not working for them.

Staff pointed out that the City can terminate the contract early if it doesn’t make enough money, but what good is that? The City will have spent $46.8 million and will have fired the only promoter that was even willing to try to make the venue work.

No wonder Ms. Davis is worried.

The plans to re-think the uses of the Civic did not start years ago for the purpose of saving a landmark, but because the City was losing millions operating the place. The City Council didn’t want to lay off the Civic’s staff, but it couldn’t see continuing to subsidize a facility that threw off few benefits for the city. (No, this is not the Pier or the Annenberg beach club.)

The deal’s boosters are waving around predictions about how much money the renovated facility will generate. They say it will add $18 million of economic activity to the city, and that after ten years the annual deficit will be down to zero.

These predictions mean nothing. They are made to please clients by consultants and promoters who have no skin in the game. There is no way that anyone can predict on any rational basis how much money the Civic will generate in 10 years.

These are the same kind of predictions that the then City Council and the then City Manager made in the ’50s when they and the business community sold the Civic to the city’s voters, who approved a bond issue to build it on predictions that the bond would be paid off from increased sales tax revenues.

The only number we know for sure is $46.8 million, and in fact that’s only an estimate of how much this quixotic boondoggle will cost.