Fiscal Note

Agreement between the City of Seattle and The Westin Seattle

for the Management of Food and Beverage Services

at the Marion Oliver McCaw Hall and the Exhibition Hall

at the Seattle Center

Department: Seattle Center

Contact Person/Phone: Ned Dunn 4-7212 Kerry Smith 5-0358

DOF Analyst/Phone: Helen Welborn 3-7884 City Attorney/Phone: Kevin Raymond 3-2150

Legislation Title:

AN ORDINANCE relating to the Seattle Center, authorizing the Seattle Center Director to execute an Agreement for the Management of Food and Beverage Services at the Marion Oliver McCaw Hall and the Exhibition Hall at the Seattle Center Between the City of Seattle and The Westin Seattle.

Summary of the Legislation:

This legislation authorizes the Seattle Center Director to execute a six-year agreement for the management of food and beverage concession and catering services at the Marion Oliver McCaw Hall and food and beverage concessions services at the Exhibition Hall at the Seattle Center between the City of Seattle and The Westin Seattle.

• The agreement outlines the terms and conditions under which the Westin Seattle will provide exclusive food and beverage concession and catering services to McCaw Hall, exclusive food and beverage concession services to the Exhibition Hall, and be an approved caterer for other Seattle Center facilities.

• The agreement term is from execution to July 31, 2008, with a renewal option for five (5) additional years with the mutual agreement of the parties.

• The financial terms provide 7.5% of gross sales to Seattle Center for the first $1,000,000 in sales per year. The percentage paid to Seattle Center increases by 1% for each $500,000 gross sales increment above $1,000,000 to a maximum of 12.5% to the City. At the time of the City’s Request for Proposal (RFP) annual gross sales for McCaw Hall, the Exhibition Hall and grounds catering were estimated at approximately $1,780,000, with Seattle Center expected to receive about $144,000. Since that time the event projections have been modified slightly increasing the sales projection to approximately $1,890,000, with anticipated revenues of $155,000 to Seattle Center. Attached to the Fiscal Note is a spreadsheet showing sales and revenue projections through 2012.

• The Westin will make an up-front capital investment of approximately $235,000 to provide the computerized point-of sale system, smallwares (items like dishes, glassware, linens, tableware, serving dishes) and related equipment necessary to operate at McCaw Hall. The Westin is responsible for maintenance and replacement of these items.

• As provided in the RFP, the City will provide up to $750,000 at the outset of the agreement, included in the 2002 LTGO bonds, for the purchase of food and beverage service equipment, including items such as kitchen equipment, mobile carts, tables, and chairs. Depending upon timing constraints and what is the most cost effective for the City one or more of the following purchasing approaches will be pursued: (i) the Westin may purchase items and be reimbursed by Seattle Center; (ii) the Westin may receive a cash advance from Seattle Center to purchase items; and/or (iii) Seattle Center may purchase the items. Purchase of the equipment will begin in late 2002. If the Westin purchases the items they will use their procurement processes rather than the City’s purchasing procedures.

• Debt service for the $750,000 will be an operating expense for McCaw Hall. Annual debt service ranges from $91,538 to $94,725. The first debt service payment, due in July 2002, was paid with interest earnings from the $750,000.

• Annually, 1.5% of gross sales, estimated at $28,000 in 2004, will be dedicated to a capital equipment reserve fund to be controlled by Seattle Center and to be used to fund the repair, maintenance and replacement of the food and beverage service equipment purchased with City funds or to make related improvements.

Background (Include justification for the legislation and funding history, if applicable):

• Prior to the closure of the Opera House, food service was provided by Service America. The agreement with Service America provided them with exclusive concessions rights for all Seattle Center facilities except the KeyArena. Service America was also an authorized caterer for the grounds and catered events if requested by a Seattle Center client. Service America did not have exclusive catering rights in the Opera House. Service America owned the Opera House kitchen and food service equipment. The financial terms of the agreement included a $40,000 annual management fee paid by Seattle Center to Service America. Seattle Center then received the first $40,000 of net revenue (revenue less operating expenses) and any net revenue over $40,000 was shared equally by Seattle Center and Service America. In 1999 Seattle Center’s revenue share, including concessions and catering from all facilities, was $73,668 and in 2000 it was $82,684. There was no net revenue in 2001.

• In late 2000 Seattle Center issued an RFP for food and beverage concession and catering services for McCaw Hall and food and beverage concession services at the Exhibition Hall. That proposal asked the food service provider to provide all the food and beverage service equipment for McCaw Hall, to operate a canteen and a 250-seat café in McCaw Hall. That RFP had one non-responsive proposer.

• Subsequent discussions with various food service providers indicated that the original food service plan was not financially viable for potential service providers.

· The City decided to fund a $750,000 food service equipment budget through bond proceeds, with the revenue stream from concessions being used to pay the debt service on the bonds. The café concept was changed to a 160-seat limited menu café with some of the hot foods being prepared in the lower level kitchen, rather than in the café. The canteen was eliminated. These changes helped reduce the original food service equipment budget and made the proposal more attractive to potential providers.

• In the summer of 2001, a modified RFP was advertised and 4 proposers responded.

• In September 2001 the Westin Seattle was selected as the exclusive food and beverage concession and catering services provider for McCaw Hall and the exclusive food and beverage concession services provider to the Exhibition Hall and contract negotiations commenced. Negotiations have not been yet been completed, but the financial terms and all significant elements of the agreement have been resolved. The draft agreement attached to the legislation reflects those agreements to date.

Public Private Partnership Review Status: The legislation is not subject to P4 review.

Is the legislation subject to public hearing requirements? The legislation is not subject to pubic hearing requirements.

Fiscal Sustainability Issues (related to grant awards): Not applicable.

Estimated Expenditure Impacts:

FUND (List # and/or Account)	2002	2003	2004
Seattle Center Operating Fund, 11410	0	0	0
TOTAL	0	0	0

One-time $

0

On-going $

0

Note: While the legislation does not have expenditure impacts, the 2002 LTGO bonds of $750,000 (for food service equipment) anticipated the approval of a food service provider in McCaw Hall and revenues in McCaw Hall, of which this is one source, will be used to pay the debt service on those bonds in 2003 and 2004. Debt service in 2002 was $17,018.74 and was paid from interest proceeds from the bonds. Debt service in 2003 is $94,037.50 and in 2004, $92,237.50, and will be paid from Seattle Center’s annual revenue from the gross sales, described in the third bullet of the “Summary of the Legislation” section on page one of this document.

Estimated Revenue Impacts:

FUND (List # and/or Account)	2002	2003	2004
Seattle Center Operating Fund, 11410	0	$58,050	$154,630
Seattle Center Operating Fund, 11410, Capital Equipment Reserve Fund		$11,610	$28,363
TOTAL	0	$69,660	$182,993

One-time $

NA

On-going $

Approx. $140,000 - $185,000 per year through 2012

Note: McCaw Hall will be in operation for 5 months, starting in late July 2003. Revenues are used to offset the cost of operating McCaw Hall, including payment of debt service on the LTGO bonds that were sold for to fund the initial purchase of food service equipment.

Estimated FTE Impacts: Not applicable

FUND (List # and/or Account)	2002	2003	2004
NA
TOTAL

# Full Time

# Part Time

# TES

Do positions sunset in the future? Not Applicable

Other Issues (including long-term implications of the legislation):

While not a financial issue, Council staff has expressed interest in whether the Westin will hire previous Service America staff of the Opera House. Although the Opera House closed in 2001 and many of the Service America employees will likely have found alternative employment before the opening of McCaw Hall in 2003, the agreement includes a provision requiring the Westin, whenever possible, to hire its personnel from within the greater Seattle area and, for the opening of McCaw Hall, to give utmost consideration to hiring food service employees previously employed in the Opera House. Opera House employees were given the opportunity to apply for positions in the Mercer Arts Arena when the Westin agreed to provide the food and beverage concession and catering services in that venue. Both Service America and The Westin are union organizations.

The Westin has agreed to actively market and book the “front-of-house” spaces of McCaw Hall. As an additional incentive to bring new clients to the facility, the Westin will share equally with Seattle Center in any rental payments received from these clients, less Seattle Center’s cost of producing the event. Exhibit E shows those rental rates and will be used by Seattle Center and The Westin for booking events in McCaw Hall.