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 Bob Weeks InquiryThe Thunder – SMG LeaseMay, 2009Issue # 1: Since SMG has committed to a contract/lease agreement with the Thunder inwhich there is a major revenue stream for the facility and with terms greater than oneyear, does the County have to approve the Thunder contract/lease agreement?Response: No, the County does not have to approve the Thunder contract/leaseagreement because it is in the sole discretion of the Contract Administrator whether ornot to approve the agreement, and even then such approval cannot be unreasonablywithheld.It is important to understand that there are two types of contracts covered by section 2.3(c) of the agreement—contracts that involve paying money out (Section 2.3 (c) i), andcontracts involving a revenue stream for SMG (Section 2.3 (c) ii). Contracts that involvepaying money out, such as a contract to provide security for the facility, must beapproved in writing by the County if it involves a term beyond the management term of SMG. As will be discussed later, this approval can be a simple letter from the ContractAdministrator and such approval cannot be unreasonably withheld. The Thunderagreement involves a revenue stream and Section 2.3 (c) ii provides that “SMG and theCounty will have joint approval rights (which approval right shall be at each party’s solediscretion, not to be unreasonably withheld) for all major revenue streams that can impactthe profitability of any Facility …with terms of greater than one year.”Section 2.1 (d) provides that “to the extent that the approval of the County is requiredunder the terms of this Agreement, the written approval of the Contract Administratorshall constitute the approval of the County,”Under the definitions in Section 1, the “Contract Administrator” is defined as – the senioradministrative official of the County as from time to time appointed by the CountyManager, or such individual person as may from time to time be authorized in writing bysuch administrative official to act fro him/her with respect to any or all matters pertainingto this Agreement.So to address the first issue, it is in the discretion of the Contract Administrator whetheror not to approve the agreement with the Thunder. This approval could take many formsand could be established by policies within the County Manager’s Office. While theinitial review of the Thunder contract/lease agreement was limited to a discussionbetween the Contract Administrator and the SMG’s General Manager, subsequently amore thorough review by the Contract Administrator and an Assistant County Counselorwith the SMG General Manager revealed the following notable provisions of theagreement:1.)
 
The term of the agreement is for 10 ½ years with provisions to terminate in theevent of default by either party.
 
 2.)
 
There is a provision for a base rental that we agree is standard in the market withaccelerators for future years based upon established indicators.3.)
 
There are other provisions in the agreement for revenue to be derived by SMG tocover staffing costs and other maintenance considerations.4.)
 
There is appropriate insurance coverage to protect the operator of the facility.After such subsequent review it is our opinion that the agreement provides adequateprotection for the County for the entire term of the agreement and there is no reasonablebasis for exercising our discretion to disapprove the agreement.For future contracts/lease agreements that fall under the conditions of the SMGAgreement as identified above, the Contract Administrator will meet with the SMGGeneral Manager of the INTRUST Bank Arena and review any agreement in order tounderstand the terms and conditions of the agreement and how this might affect theCounty’s interest.Issue # 2: How can Sedgwick County give its approval to a contract/lease agreement thatSMG will not let the county see (wouldn’t approval in a meaningful way mean that thecommissioners and the public can read the contract/lease agreement)?Response: Obviously the County can’t give meaningful approval to a contract that wecan’t see, but our agreement with SMG specifically allows us to review any agreement inorder to understand the terms and conditions of the agreement and how this might affectthe County’s interest. See Section 2.6 (a) (i) which provides:.(i)
 
To the extent that SMG has any confidential or proprietary informationthat it reasonably believes is a privileged trade secret and/or should notbe disclosed to a third party to protect the privileged, confidential and/orproprietary nature of such information, and upon the approval of theContract Administrator, which shall not be unreasonably withheld,SMG shall not be required hereunder to deliver such information to theCounty, but instead, will afford the County an opportunity to reviewsuch information at the Facility during reasonable business hours andupon reasonable advance notice, or on terms mutually agreed upon bythe parties in order to protect the privileged, confidential and/orproprietary nature of such information.As mentioned above, we have had the opportunity to review this agreement with SMG ina meeting with the General Manager of the Intrust Bank Arena.In our negotiations with SMG, we intended to give SMG significant authority to run thebusiness of the new arena as they deem necessary as a means for them to sign off on anagreement that puts the risk of losses solely on them. The only reason we wanted theauthority to review/approve long term agreements was for the purpose of making surethat SMG wasn’t putting the County in a bad financial position for years that they mightnot be operating the arena. While initially this is a five year agreement, we have
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