Council
Meeting: May 14, 2002 Santa Monica, California
FROM: City Staff
SUBJECT: Recommendation to Authorize the City Manager to Terminate
Agreement 7484 (CCS) with Gateway Outdoor Advertising and to Negotiate and
Execute a Contract with Viacom Outdoor Group, Inc. for Transit Bus Advertising
Concession
This report requests that City Council authorize the
City Manager to terminate Contract #7484 (CCS) with Gateway Outdoor Advertising
and negotiate and execute a contract with Viacom Outdoor Group, Inc. for a
five-year advertising concession on Santa Monica’s Big Blue Buses.
On April 27, 1999, the City Council awarded a bid for
a five-year advertising concession, with three one-year renewal options, to
Gateway Outdoor Advertising. In early
2001, Gateway Outdoor Advertising failed to make payments on five outstanding
invoices. An amortization schedule was
developed to allow Gateway to repay this debt, plus late fees, while continuing
to make the guaranteed minimum monthly payments. Although Gateway initially made their payments, a late payment
problem again developed. In response to growing
arrearage in FY 02, the City executed the letter of credit provision of the
agreement and received $1.2 million. Gateway Outdoor Advertising has not made any payments
since January 2002. Staff will work
with the City Attorney's Office to recover the unpaid funds.
On
February 28, 2002, Santa Monica’s Big Blue Bus issued a Request for Proposals
for advertising concession. The
selected firm will sell, place, administer and manage commercial advertisements
on the interiors and exteriors of the Santa Monica Big Blue Bus vehicle
fleet.
The Big Blue Bus mailed the advertising concession
RFP to a total of 14 firms. Four firms
submitted proposals as follows for the five-year period:
|
Year
|
Direct
Media |
Viacom
Outdoor |
Minority
Business Enterprises, Inc. |
Gateway
Outdoor Advertising |
|
Year
1 |
$1,210,000 |
$1,100,000 |
$1,025,500 |
$1,000,000 |
|
Year
2 |
1,270,000 |
1,200,000 |
1,110,500 |
1,100,000 |
|
Year
3 |
1,320,000 |
1,300,000 |
1,195,500 |
1,200,000 |
|
Year
4 |
1,400,000 |
1,400,000 |
1,285,500 |
1,300,000 |
|
Year
5 |
1,480,000 |
1,500,000 |
1,385,500 |
1,400,000 |
|
Total
|
$6,680,000 |
$6,500,000 |
$6,002,500 |
$6,000,000 |
In addition to evaluating
the total revenue value of the responses, due diligence was conducted on the
top two firms: Direct Media and Viacom Outdoor. The results of these contacts indicated that each firm has
performed their work responsibly and professionally. Both were highly recommended by current and previous
clients. Both firms are also well
qualified financially, with Viacom Outdoor having an advantage since it is part
of a Fortune 100 company.
Big Blue Bus staff also interviewed the top two
proposers and found both qualified to perform the duties of the agreement. Both firms would position the Big Blue Bus
and our service area as a premium market for advertisers, which enhances the
possibility that the City will realize revenues over and above the minimum
annual guarantee. One of the advantages
of being treated as a premium market for advertisers is that the Big Blue Bus
in unlikely to be ignored in favor of larger clients, such as the Los Angeles
County Metropolitan Transportation Authority, or the Orange County
Transportation Authority. Both of these
agencies are Viacom Outdoor clients.
Viacom Outdoor also has a built in market of advertisers since all other
Viacom affiliates must use Viacom Outdoor for any "out of home"
advertising.
Although both firms are headquartered on the east
coast, Viacom Outdoor has an established Los Angeles office and 21 clients in
Southern California. Direct Media does
not have a local office or any local clients in this region. In addition, Direct Media is currently in
discussions with a firm to serve as the local representative and could not
reveal who the local contact would be at this time.
The Direct Media proposal guarantees a total of
$180,000 more over the five year term of the agreement than the Viacom Outdoor
proposal, however, Viacom Outdoor will pay the total annual minimum guarantee
in full at the beginning of each contract year rather than in monthly
installments. This would enable the City to invest these funds and generate up
to $180,000 in interest earnings over the term of the agreement.
For these reasons, staff recommends
that the contract be awarded to Viacom Outdoor Group, Inc.
Appropriate revenue amount
will be included in the FY 02/03 budget.
City
staff recommends that the City Council:
1)
Terminate the current
agreement 7484 (CCS) with Gateway Outdoor Advertising;
2)
Authorize the City
Manager to negotiate and execute a contract with Viacom Outdoor Group, Inc. for
the transit bus advertising concession.
Prepared by: Stephanie
Negriff, Interim Director of Transit Services