CYCLONES PAY PAST DUE MONEY AFTER READING COMPTROLLER'S PRELIMINARY AUDIT

View Audit

The Brooklyn Baseball Company, L.L.C., (Cyclones) owed the City's Department of Parks and Recreation (Parks) nearly $87,500 - $50,000 in fees derived from retail rental space and $37,500 that the Cyclones did not deposit into a sinking fund, according to an audit released by New York City Comptroller William C. Thompson, Jr. Additionally, Thompson's audit found significant weaknesses in the Cyclones' internal controls that prevented his auditors from determining whether game attendance was accurately reported and whether it paid all fees due to the City.

Thompson notes that, after issuing a preliminary draft of the audit, the Cyclones remitted a check of $50,000 to cover the first two years of payments to the sinking fund, and a check of $67,283 for the Surf Avenue retail rent.

"I am pleased that the Cyclones have paid money owed to the City and encourage others who do business with the City to follow suit," Comptroller Thompson said. "However, there still is room for improvement. The Cyclones must fulfill its obligations under the lease agreement with the City and be more vigilant in reporting game attendance."

In June of 2001, the Cyclones entered into a 20-year lease agreement with Parks, which granted the Cyclones the exclusive rights to use KeySpan Park on Surf Avenue in Brooklyn. The lease requires that the Cyclones pay rent to the City based on "actual attendance," team store rent, special event net income, and advertising. The lease also requires that the Cyclones deposit $25,000 each year into a sinking fund which is used by Parks to carry out capital projects at the stadium. In addition, the lease requires that Parks pay the Cyclones a portion of the net parking lot income generated from the City lot adjacent to the stadium.

The Cyclones reported actual attendance for the 2001 and 2002 seasons of 195,488 and 163,017 respectively paying the City $1.13 million in base rent fees. Thompson's audit, however, reveals that the Cyclones' deficient internal controls hindered accurate attendance reporting. The Cyclones' lease requires that actual attendance of a lease year "be based upon the turnstile count of ticket-holders, from which shall be deducted the number of holders and Complimentary Tickets and holders of Recreation Area Tickets reflected in such count, for all Team Home Games."

The Cyclones did not use turnstile counts to record and report actual attendance. Instead, they counted ticket stubs at the end of each game, identifying the different ticket categories on their daily turnstile reports. This approach, however, may not ensure that all ticket stubs are included in the count. In 2002, for example, the reported turnstile count was 236,687 while the reported ticket stub count was 204,017 - a difference of 32,670. The Cyclones did not explain the difference.

By not maintaining accurate turnstile counts, the Comptroller's auditors could not determine whether the Cyclones paid the correct base rent fees to the City.

Additionally, the Cyclones owed the City $49,300 for income derived from the retail space along Surf Avenue. The Cyclone's lease requires that it pay 50 percent of the Retail Net Profit and submit quarterly Retail Statements that detail gross income, operating expenses, net profit and supporting calculations with the required payment. Cyclones records indicate that the Surf Avenue retail rent revenue for the two-year audit period was $98,600, of which the Cyclones owe the City 50 percent, or $49,300.

Finally, Thompson revealed that the Cyclones did not establish the required sinking fund account. Its lease requires that the Cyclones contribute $25,000 a year into the fund to pay for any capital work at the stadium. Through December 31, 2002, the Cyclones should have deposited $37,500 into the fund.

Thompson recommended that the Cyclones:

§ Base "actual attendance" on turnstile counts, as required by the lease: label and identify each turnstile, record the opening and closing count for each turnstile for each game, secure and monitor all turnstiles, and reconcile turnstile counts with the physical ticket counts.
§ Reconcile the Daily turnstile reports with the Season Summary and the Performance Sales report.
§ Remit all quarterly fees due from the Surf Avenue rental space with the required quarterly Statement of Retail Net Profit, in accordance with the lease agreement.
§ Ensure that income and expenses are appropriately reported on the Special Events statement submitted to Parks.

Thompson also recommends that Parks ensure that the Cyclones pay the City all fees due from the retail rent space, and make certain that the Cyclones implement the audit's recommendations for enhancing their internal controls and reporting procedures.

###