Miss America Organization Contract. The CRDA did not monitor actual costs, contract deliverables, and economic impact when negotiating a second contract with the Miss America Organization.
Pageant Contract Expenditures
In May 2013, after a nine-year absence, the CRDA entered into a three-year contract with the Miss America Organization (MAO) to return the iconic pageant to Boardwalk Hall. This initial contract covered the 2014, 2015, and 2016 competitions. The CRDA agreed to pay 50 percent of the pageant’s production costs and 50 percent of the annual building operations costs associated with the pageant, up to a total maximum annual payment of $2,267,000. The MAO was responsible for the remaining 50 percent and any amount in excess of $4,534,000. The CRDA was also responsible for other costs such as meals and transportation for the contestants and chaperones, a welcoming ceremony, and security at Boardwalk Hall. At the conclusion of this contract, the CRDA had paid $6,801,000 (the maximum for all three years).
The CRDA was unable to provide documentation to support any efforts on their part to monitor the actual costs related to the Miss America Competition. In addition, under the 2013 contract terms, the MAO was to provide written reports every 90 days supporting the production costs incurred. The CRDA was unable to provide us any of these required cost reports. It was only able to provide us a copy of the 2015 year-end settlement statement; however, it provided no evidence that the expenses were verified for accuracy. This statement reflected a $61,650 credit balance which was never received by the authority.
In February 2016, the CRDA entered into a second contract with the MAO that guarantees payments of $12,536,000 over a three-year period representing an 80 percent increase from the prior contract cost. The CRDA agreed to pay $3,500,000, $3,750,000 and $4,000,000 for the 2017, 2018 and 2019 pageants, respectively. The second contract eliminated the requirement for the MAO to provide written reports supporting the production costs. Additionally, this contract provides annual payments of $325,000 to the MAO towards the cost of other competition expenses, such as contestant and chaperone meals, hotel related fees, transportation and security for the contestants, and a VIP after-party. By comparison, the CRDA paid a total of $176,000 over three years for similarly related costs under the prior contract. Furthermore, the authority agreed to pay $311,000 for prior year costs, but was unable to provide any documentation or rationale for these expenses.
The MAO had a partner relationship with an entertainment production company (company). The 2016 contract included a provision to help promote the City of Atlantic City through the company’s other productions. The company was required to air a live remote performance occurring in Atlantic City to be incorporated in the 2017, 2018, and 2019 New Year’s Eve telecasts. The CRDA was required to cover all costs related to the performance but did not sign a performer for the 2017 event and was unable to provide us documentation of a search effort. We requested any cost-benefit analysis prepared prior to adding this term to the contract and were provided none. In late 2017, the company severed its ties with the MAO, effectively removing this contract provision. We subsequently noted that the authority did not adjust its funding to the MAO as a result of this change.
The authority’s initial and second contract with the MAO included non-financial obligations by the MAO to promote Atlantic City. We requested documentation demonstrating that the CRDA verified compliance with these terms but were provided none.
After the initial contract was signed, an economic impact study was performed prior to the 2014 competition. The study estimated $60.4 million in economic benefits from the pageant to the Atlantic City area through a combination of local jobs created for the pageant, consumer spending, and state and local tax revenues. There was no estimate of the value of Atlantic City’s exposure on television.
No follow-up study was performed to measure if expected benefits were achieved. The only other economic impact study performed was after the 2017 competition, which was after the CRDA negotiated the second contract and significantly increased the payments to the MAO. The second economic impact study identified only $23.2 million in economic benefits to the Atlantic City area including the value of Atlantic City’s exposure on television and was significantly less than the benefit estimated in 2013.
Without documentation to support the actual competition related costs, assurance that all promotional deliverables were received, planning for and utilizing the New Year’s Eve broadcast and ultimately losing the provisions related to the entertainment production company, or using any measure of economic impact in contract negotiations and overall monitoring, it appears that the CRDA did not effectively manage these contracts nor have the ability to determine if the funds were spent in an efficient manner.
We recommend the authority develop and institute monitoring controls to determine if all parties perform in accordance with contract terms and deliverables. Performance should be measured, when applicable, and reviewed to determine whether funds were spent in an efficient and effective manner and used as a basis for future contracts.