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Thursday, September 10, 1998 Page:
Arena board’s choice for management company has a conflict of interest
When a feasibility study was conducted relative to the proposed Luzerne
County
Arena, the firm engaged was Arthur Andersen. Arthur Andersen simply
researched the information and interviewed the experts and responsible parties
involved in the business to put together a collection of facts to render an
opinion on the success/failure of the arenaIn the report, Arthur Andersen
identified the Montage amphitheater as the single largest competitor to the
arena’s success. They interviewed four local promoters as to how many shows
the arena could present and how the Montage amphitheater would affect the
arena’s success. Arthur Andersen’s conclusion was based solely on the comments
and interviews of the four local promoters.
The recent decision to drop SMG as the management company for the arena in
favor of Ogden is a terrible mistake. Arena board Chairman Kevin Blaum and his
board members kicked out SMG and picked Ogden. Ogden is a great management
company, but, in this situation the worst choice for the operation of the
arena, because it also has an interest in the Montage Amphitheatre.
That is a “conflict of interest” so severe that it will jeopardize the
future of the arena. Metropolitan Entertainment operates the Montage
amphitheater and has announced the planned construction of a more permanent
facility in this market with 5,000 seats under a roof and lawn seating. Almost
all the shows tour in the summer so if the arena must meet the projections set
forth by Arthur Andersen by way of the interviews with the four local
promoters, then the Montage amphitheater will certainly be competing for the
same shows as the arena. Here is the “conflict of interest”: Ogden owns 50
percent of Metropolitan Entertainment and therefore Ogden/Metropolitan will
control and own the competition, Montage amphitheater. How can we allow
Ogden/Metropolitan to manage our arena? That’s “sleeping with the enemy”.
The “conflict of interest” becomes more apparent when you consider the
following: Two parties are to bid on a contract, each bidder prepares the
highest and best possible bid to win the contract. Competition for this
contract is so fierce that each bidder forms a team to work the best possible
deal for rent, ticket price, concessions and money guaranteed. The one bidding
team will share no information and all the contents of that bid will be kept
confidential while the other bidding party will prepare their best possible
bid without confidentiality. The “conflict of interest” is apparent at this
time because part of the team putting together the bid on one side includes a
partner of the other, competing bidder. The Metropolitan/Ogden Montage
amphitheater will win every time because they will know all the contents of
the other bid as they have one of their partners as a plant to share the
information. One bidder will have the benefit of confidentiality while the
other will always be at the risk of “sleeping with the enemy”.
Metropolitan/Ogden Montage amphitheater will be the bidder with the
confidentiality while the competing arena will never win the contract (artist)
because part of the team includes the competition.
There is a “conflict of interest” because the arena must do concerts during
the summer months because that is the only time artists tour in this area. If
we lose one show to the Montage amphitheater, there is a “conflict of
interest”. How much clearer can it be? This “conflict of interest” must
immediately disqualify Ogden from managing the arena.
At the last Luzerne County Arena Board meeting it was disclosed for the
first time to the entire board that this relationship existed between Ogden
and Metropolitan. Mr. Blaum and Legg Mason, the board’s financial consultant,
did not disclose the relationship prior to the vote to select Ogden and even
after exposing the relationship Mr. Blaum and Legg Mason refused to accept
that there is a “conflict of interest”. Why not? How much clearer can it be?
In fact, Blaum told Thom Greco and me that “we don’t know the business”. Where
did he and Legg Mason learn the business? Arthur Andersen relied on our
comments and three out of the four local promoters they interviewed and based
their opinion on have come forward to say, “you are wrong, you did not
understand what we said or you are misrepr