Press Coverage of SMG and Aramark’s Management of Arenas, Stadium and Conference Centers

Introduction

In the last five years SMG’s and Aramark’s management of arenas around the country have prompted negative coverage in the press.  The unfavorable publicity has focused on six areas of mismanagement: underpayment of wages to workers, alcohol sales, accounting practices, facility deterioration, general poor performance, and conflicts of interest in contract awards.  Of the cases of mismanagement summarized below, at least one touches on each of these half-dozen issues. The first issue, cheating workers out of their full pay, figures in three and appears to be a pervasive problem at Aramark and SMG’s arena operations.  The first synopsis below, while not related to a problem at an arena, addresses a related, and very recent, controversy involving Aramark’s evasion of unemployment insurance taxes in Michigan.

Underpayment of Wages

Michigan

The Michigan Unemployment Insurance Agency recently settled with Aramark for $2.4 million in a dispute involving the company breaking the law to avoid paying unemployment insurance taxes. Aramark’s scheme consisted of consolidating eight businesses into a single company that would pay a lower unemployment insurance tax rate than the eight separate enterprises would have.  This constituted a clear case of tax evasion. The state determined that by 2007, Aramark’s illegal actions would have cost the state’s unemployment insurance system $5 million.

Source: PR Newswire, February 7, 2005.

Camden Yards

In Baltimore, 65-100 day laborers whom Aramark hired to clean Camden Yards, the stadium of the Baltimore Orioles baseball team, have publicly protested the company’s employment practices.  The workers complain that they are paid only minimum wage and that Aramark has withheld wages for hours actually worked. About 40% of the people employed to clean the stadium are homeless.  On the 2004 opening day of the baseball season, approximately three dozens workers marched to express their grievances with Aramark; the United Workers Association has attempted to organize the laborers. 

Source: Baltimore Sun, April 5, 2004; http://www.cmmonline.com/news.asp?mode=4&N_ID=48409

Baltimore Convention Center

In providing services to the Baltimore Convention Center, Aramark violated the city’s living wage ordinance.  Over approximately two years it underpaid at least 283 employees by at least $131,000.  The underpayment resulted from Aramark’s failure to pay overtime when a workday exceeded eight hours, as the city’s living wage ordinance required. HERE Local 7 brought the situation to the attention of the Baltimore Wage Commission.

Source: Baltimore Sun, May 20, 2003 and February 4, 2004

Massachusetts

In Massachusetts, Aramark and SMG have settled two cases in the last two years involving withholding tips from employees; one case was at the DCU Center in Worcester, the other was at the Southbridge Hotel and Conference Center in Boston.  In both instances, the companies were accused of levying an 18% gratuity on customers and then withholding the money from the servers for whom the money was intended. In the Worcester suit, SMG paid approximately $530,000 to make restitution to the workers and to comply with a civil penalty assessed by the state of Massachusetts.  Additionally, as a part of the settlement, SMG consented to a compliance plan intended to deter SMG from committing further violations.  In the Boston suit, the amount of money involved was much smaller at $29,000.  It did, however, come nine months after SMG had settled the earlier, nearly identical suit and ostensibly resolved what they described as a simple accounting issue.  In each of the two cases, the companies shortchanged more than 100 workers over a time span approaching two years. Attorney-General Tom Reilly initiated both suits. 

Source: Boston Globe, November 9, 2002 and January 28, 2004; Worcester Telegram & Gazette, December 19, 2002 and January 28, 2004

Alcohol Sales

New Jersey Meadowlands

A New Jersey jury recently ruled against Aramark and found that the company has to pay $105 million to a family injured when a drunk driver whom Aramark served alcohol to crashed into the family’s vehicle.  The accident crippled the 2 year-old child inside and severely injured the mother; the father, the other occupant of the vehicle, did not sustain serious injury. Aramark had served the driver, David Lanzaro, the equivalent of 16 12-ounce beers during an NFL football game at the New Jersey Meadowlands in 1999; his blood alcohol content level was .266, more than three times the state’s legal limit. The plaintiff’s attorney argued that Aramark was lax in enforcing alcohol policy, citing their record of disciplining just 10 workers in 15 years for violating corporate alcohol policy and their inability to produce alcohol policy-related documents during the trial.

Source: Philadelphia Inquirer, January 20, 2005

Accounting Practices

Elmira Downtown Arena

The finances of the city-owned, SMG-operated Elmira Downtown Arena in New York came under scrutiny because of two wildly divergent claims about the facility’s profitability.  The government entity that owns the facility asserts that it generates a $325,000 profit; the manager of the arena, SMG’s employer, has a very different estimate: a $1.3 million loss.  Differing accounting standards explain the discrepancy. The lower figure serves SMG’s interests because citizen support for the arena suffers when it appears to be a loss-generator for the city. Also, the first figure excludes the cost of excess management fees levied by SMG and thus understates the company’s contribution to the arena’s losses. 

Source: Elmira Star-Gazette, July 23, 2004

Gaylord Entertainment Center

SMG’s cleaning subcontractor at Gaylord Entertainment Center in Nashville, Pritchard Sports and Entertainment Group, defrauded the city, the party responsible for paying for cleaning services, of $27,000 by routinely overbilling for cleaning the arena after hockey games. Pritchard’s billing practice was to charge the company for 22 workers at 4.5 hours each for every post-game cleanup, regardless of how many laborers were actually there or how long they worked. An audit, prompted by charges of fraud by former employees of Pritchard, revealed that both the number of workers employed and the hours worked were significantly less.  Pritchard used temporary labor service companies to hire labor for the post-event cleanups; these firms, in turn, often hired homeless people for the work.  SMG was not directly implicated in the scheme.

Source: Nashville Tennessean, April 6, 2000, May 16, 2000, May 20, 2000, and July 22, 2000

Facility Deterioration

Nassau Coliseum

At issue at Nassau Coliseum on Long Island, New York is SMG’s failure to maintain the taxpayer-owned facility.  Its resulting deterioration has prompted public criticism and attracted press attention.  The evidence of disrepair includes cracked tiles, leaking doors, broken seats, leaks in the roof, uncovered electrical wires and an elevator that had been broken for nearly a year. Nassau County, the stadium owner, and SMG dispute who is responsible for the repairs. The contract stipulates that SMG will initiate repairs costing less than $1000 and may order any repair be done if Nassau County has not acted on a repair request within 30 days.  The records also indicate that either SMG or the county, or both, have grossly underspent on refurbishing the arena: the arena’s annual repair bill averaged $50,000 over an eight year span versus the $800,000-1,000,000 spent annually by nearby Continental Airlines Arena, also host to an NHL team. 

Source: Newsday, February 25, 2000

Gaylord Entertainment Center

At Nashville’s Gaylord Entertainment Center, host to the NHL’s Predators, fans and public officials have criticized the company for neglecting the facility’s maintenance and thus contributing to its premature deterioration.  Three years after its opening, the following items were in need of repair: cracked and discolored tiles, leaks in the roof, and broken seats; inadequate cleaning was also apparent in the sticky floors and noticeable amounts of trash on the floor.

Source: Nashville Tennessean, April 6, 2000, May 16, 2000, May 20, 2000, and July 22, 2000

General Poor Performance

Ontario Convention Center

The Ontario City Council has disapproved of how SMG has operated the Ontario Convention Center. The convention center has generated losses of at least $1.6 million each year since 1999 when SMG took over the contract. Council member Alan Wapner, a recipient of $7,400 in campaign contributions from the president of SMG in 2003, stated that “we all have expressed displeasure at various times with SMG’s operation of our Convention Center,” while also indicating that he thought SMG was improving.

Source: Inland Valley Daily Bulletin, November 12, 2004

Miami Arena

In Miami, officials from the Miami Sports and Exhibition Authority took over management of Miami Arena from SMG because the company had failed to attract popular performers but continued to charge the MSEA a high fee.  James Jenkins, head of MSEA, stated that, “It became apparent that SMG management lacked vision…. This style of management combined with their hefty fee does not fit with our plans.” 

Source: BusinessWire, March 1, 2002

Richmond Coliseum

In Richmond, Virginia, city officials have complained that under SMG’s management, bookings and income at the city-owned Coliseum declined even as SMG’s management fee increased or remained steady.  They questioned how SMG’s overall costs could remain the same when the amount of resources necessary to operate the arena dropped.  A $534,000, or 43%, jump in the arena’s operating losses in one year particularly alarmed the city; the deputy city manager sought to have SMG replaced as a result of the added losses.  Other instances of SMG’s incompetence also angered Richmond. For example, NCAA officials cancelled a postseason tournament basketball game at the Coliseum because the floor was too slick; a problem caused, the city contended, by SMG’s decision not to undertake the additional cost of removing hockey ice under the floor. The mistake brought the city and the arena considerable negative attention. 

Source: Richmond Times-Dispatch, December 8, 2001

Conflicts of Interest in Contract Awards

Minute Maid Park

There are conflict of interest allegations regarding how Aramark’s minority partner at Minute Maid Park in Houston secured its share of the concessions deal.  Martha Wong was a Houston City Council member when the Council required that the Astros give one-third of the concessions contract to minority-owned businesses. A company associated with Wong’s daughter-in-law, Texas Asian Sports Investment LP, received the contract.

Source: Houston Chronicle, October 18, 2002

Richmond Coliseum

In addition, SMG’s competitor for the Richmond contract, Global Spectrum Inc., charged that a conflict of interest existed in the contract award process because a board member of a city agency had joined SMG in its bid. The city panel that reviewed each company’s proposals had recommended Global receive the contract but city officials overruled them. 

Source: Richmond Times-Dispatch, December 8, 2001