Tuesday, October 2, 2012

Metro Board Report for September 2012

The September meeting of the Metro Board was almost entirely consumed with the ongoing debate as to who should sell advertising on Metro’s vehicles and inside its stations for the next five years.

And, with apologies to William Shakespeare for borrowing one of his most familiar titles, it was much ado about nothing, at least for the moment …

That Ad On The Side Of Your Bus Is Big Business:  Every five years, Metro goes out to bid on the contract to sell the advertising on its properties. That is how ads get on both the outside and inside of buses and light rail cars, and inside subway cars and stations. 2012 happens to be the last year of the current year’s contract, held by CBS Outdoor Group, and the awarding of the next contract is turning into a battle royale.

The matter of the contract award originally came before the Executive Management Committee back in July, which decided that additional detail was needed from staff before they could award the contract. Given that such a delay is usually routine, we opted not to report on it then; as it turns out, the additional details opened a can of worms, with the worms now mucking up the entire affair.

At issue is the competing bid by Titan Outdoor Group, which offered a revenue guarantee that is 6.5% higher than CBS’ but which was rejected by staff primarily due to their defaulting on 20 other transit agencies’ contracts (which Titan renegotiated for lower revenue levels) including a termination by the New York City MTA, ad rates as much as 40% higher than CBS (which proposed only a 5% increase) but projecting a much lower rate for advertising inside Union Station, and a high projected rate of unsold space overall.

Titan has challenged the prospective award, which has resulted in both sides engaging in name calling before the Board; at the September 27 meeting, each side was given up to 15 minutes to make their case (to both companies’ credit, neither used all of their allotted time).  To summarize their positions:

  • Titan accused Metro staff of failing to perform due diligence, claimed CBS had problems in the past with Metro over billboards on Metro property, offered a letter of credit to ensure the revenue (which sounded a lot like the letter of credit AnsaldoBreda offered three years ago when they defaulted on their 2004 contract for light rail vehicles), and claimed CBS was putting its outdoor division “up for sale” and had inserted into their contract bid the right to assign the contract to another party if that happened.
  • CBS claimed Titan had a history of defaulting on revenue guarantees (the aforementioned 20 renegotiated contracts), accused Titan’s lobbyists of muddying the issues, and failed to release audited financial statements as part of their bid. Answering Titan’s last claim, CBS offered to guarantee the contracted revenue in “the unlikely event of a sale” of its outdoor division.

And then there was the (notably brief) public comment.  The unions, with the apparent encouragement of CBS, sent one main spokesperson and representatives of their small business “enterprise” contractors to speak on their behalf and gadfly Malcolm Klugman wanted Metro to survey its passengers to see if they want the advertising at all (in complete ignorance of the fact that the $110 million in ad revenue goes directly to support transit operations).

Then the Board started debating, and started asking questions of Metro staff. Chairman Michael Antonovich asked a number of pointed questions about rail station advertising and adjustments in fleet size, but then made assumptions based on facts that he felt needed correction.  Mel Wilson (yes, he’s back, as clueless as ever) wanted to see the payment histories for both companies before voting. All of the questions – as usual – were already covered in the 19 page staff report. Does anyone besides me actually read these?

Don Knabe started to ask a question about the qualifications of both companies but was interrupted by a CBS representative committing the ultimate faux pas of addressing the Board without being recognized to speak.  Consequently, we never did find out what Knabe was really asking.

And after all that discussion, there was sufficient disagreement remaining to create a series of motions with differing proposed results.

First, John Fasana moved to overturn the staff recommendation and award the contract to Titan, contingent on their providing a letter of credit equal to one year’s guaranteed revenues. CBS’ lawyer then tried to have public comment reopened but was shot down by Antonovich, who said the Board “has carte blanche to make motions and amendments, and discuss them.”

Before that could be voted upon, though, Richard Katz put forward a substitute motion to extend the current contract with CBS for up to six months while entering into a sealed bid procurement. Michelle Lopes Caldwell, Metro’s chief administrative services officer, pointed out that CBS would have to agree to the extension, prompting Katz to add an amendment whereby if CBS refused to do so, the contract would be automatically awarded to Titan.

The Katz motion failed.  So did the Fasana motion, which prompted him to offer a motion where the staff recommendation would be accepted, with a provision covering the transfer of the contract if CBS Outdoor Group was sold. No one seconded that motion, prompting Antonovich to call for a vote on the staff recommendation as presented. That failed as well, meaning the entire matter will come back to the Board in October, at which point I expect to hear a lot of this all over again.

Now, my commentary on why I believe this will still be a stalemate next month, unless something radical changes. All you need to do is look at the votes:

1.     Ed Reyes (substituting for José Huizar), Pam O'Connor, Mark Ridley-Thomas, Gloria Molina, and Los Angeles Mayor Antonio Villaraigosa abstained on all three votes.
2.     Ara Najarian, Diane DuBois, and Knabe voted “yes” on both substitute motions but “no” on the main motion.
3.     Fasana voted “yes” to his motion and the main motion but “no” to Katz' motion.
4.     Katz voted “yes” to his motion and the main motion but was not in the room when Fasana's was voted on.
5.     Zev Yaroslavsky was conflicted on the Fasana motion and the main motion but voted “yes” to Katz' motion.
6.     Antonovich voted “no” on both substitutes and “yes” on the main.
7.     Wilson voted “yes” to Katz' motion but was not in the room for the other two votes.

So five directors abstained on the entire matter, and there is obvious divisiveness on the part of the remaining eight directors. It takes seven votes of the thirteen to make a decision, which isn’t going to happen if the same split – or a similar one – happens in October.

The fact that the meeting started 49 minutes late is almost inconsequential if decisions can’t be made once the Board is in session …

Yes, there were other matters this month, but none of them generated discussion worth reporting on (unless I was to report on more of Wilson’s brilliant comments and questions, and that gets tiresome after a while).

Quote Of The Month: Katz, during discussion of the advertising contract, reacting to CBS and Titan both attempting to make guarantee offers as part of their comments: “If we’re going to have a bidding war, let’s have it in public.”

Next Metro Board Committee Meetings: Wednesday and Thursday, October 17 and 18
Next Metro Board Meeting: Thursday, October 25

A note about identification of Directors in the report: Diane DuBois, John Fasana, Ara Najarian and Pam O’Connor are City Councilmembers from the cities of Lakewood, Duarte. Glendale and Santa Monica, respectively, and are elected to the Metro Board by the Los Angeles County City Selection Committee, per state law. Richard Katz and Mel Wilson are appointees of Los Angeles Mayor Antonio Villaraigosa, as is José Huizar (one of the Mayor's appointments must be a member of the Los Angeles City Council). Only the five County Supervisors – Michael Antonovich, Don Knabe, Gloris Molina, Mark Ridley-Thomas and Zev Yaroslavsky – and the Mayor of the City of Los Angeles hold ex officio positions on the Board.