Following multiple stories from Riptide about the Miami
Heat refusing to share profits from the American Airlines Arena with
county taxpayers who subsidize the place, Miami-Dade Inspector General
Christopher Mazzella has apparently decided that someone should try to verify how much the
team is actually making. We've now confirmed that the county's top watchdog is auditing
the Heat to determine if the arena's revenues, expenses, and profits
are accurately reported to the county.
Judging by public documents obtained by Riptide, Heat owner Micky Arison is doing everything he can to stonewall the IG from obtaining
information beyond basic annual budgets and annual financial statements.
Since the Heat's controversial deal was signed in 1997, the county has never shared the wealth as owner Arison had promised. In order to keep the team in Miami, then-county Mayor Alex Penelas agreed to give away $38 million worth of prime waterfront public land to build the arena. The team paid $240 million for the construction, but the Heat got an annual $6.4 million subsidy to operate the arena for the next 30 years -- that's $192 million in taxpayer funds for the life of the deal. In return, a Heat subsidiary -- Basketball Properties Ltd. -- agreed to share 40 percent of all its profits over $14 million.
The arena has never hit that magic number, not even during last season's NBA Finals run as prized free agents LeBron James and Chris Bosh helped the Heat bank $60 million in record-breaking revenue. New Times wasn't the only media outlet to note the NBA franchise's consistent inability to break the $14 million mark. Last May 5, CBS4 investigative reporter and former New Times columnist Jim DeFede did a news segment on the arena's finances.
A little more than a month later, the inspector general's office began its inquiry, according to a June 22 email from chief legal advisor Patra Liu to the Miami-Dade Internal Services Department, which administers the arena contract, requesting copies of the 1997 agreement, annual financial reports, and any other documents submitted by Basketball Properties to the county. Liu followed up with a request for more documents from Basketball Properties on July 26.
That prompted a meeting on August 31 with Liu, Mazzella, the subsidiary's Chief Financial Officer Sam Schulman, two other arena executives, and Heat lawyers Jorge Luis Lopez and Pablo Acosta to address the team's concerns that the information being requested by the inspector general were "trade secrets." As part of the inquiry, investigators requested samples of vendors lists and payments, balance ledgers, and payroll information.
Despite the objections from the arena representatives, Mazzella stood firm that the team had to turn over the records. On October 4, he officially notified Basketball Properties that his office was conducting an audit to "include examining management agreement computations, cost allocations, including personnel and benefits costs; vendor contracts and payments to BPL's trial balances."
Two days later, Schulman sent a letter to internal services director Wendi Norris asserting that the Heat does not have a sweetheart deal with the county. Schulman complained that the county's $6.4 million subsidy is "insufficient to fund all of our basic operating and maintenance costs." The Heat has spent in "excess of $27 million since we opened on Dec. 31, 1999, on capital improvements to keep the arena state-of-the-art and up-to-date," the CFO wrote.
In addition, arena expenses ballooned 57 percent between 2002 and this year "due in large measure to an increasing event load and significant increases we have been faced with our insurance, labor and utilities, as well as the effects of wear and tear from the approximately 1.5 million visitors we get per year," Schulman wrote.
He argued the county should be proud of the Heat's contribution to remaking downtown Miami. "When we commenced construction of the arena in 1997, downtown Miami was a veritable wasteland," Schulman wrote. "We are very proud of the leadership role we have played in being the catalyst for the unprecedented growth of the downtown urban core."
The CFO and other arena officials did not respond to requests from Riptide for comment. However, a highly placed source says the team has allowed agents to sift through the requested records at the arena but has taken steps to protect its trade secrets by redacting or summarizing certain information, such as names of employees and percentages paid to concert promoters. The source insists the inspector general's audit will not turn up any malfeasance, misappropriation of funds, or hiring of "ghost employees" by the team.
"The whole profit-sharing issue is a red herring," the source says. "Because of the whole Lebron James and Chris Bosh dynamic, we are getting closer to sharing the profits. But there is no 'Gotcha!' here."