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Secret Maid of the Mist lease rent goes down, not up!

March 17, 2009

By Frank Parlato Jr.

The only question now, perhaps, is why?

The process that led to the secret 25-year renewal of James Glynn's Maid of the Mist lease with the Niagara Parks Commission (NPC) also led, amazingly, to a reduction in his rent.

The secret lease, renewed on April 18, 2008, dropped Glynn's lease payments from a flat 15 percent of sales to a "sliding scale" lease that reduces the percentage of rent as Glynn makes more money.

The more he makes, the more the rent goes down. It drops as low as 5.5 percent.

people packed like sardines on the maid of the mist boat tour

Packed like sardines on Glynn's 15-minute tour.

The Reporter broke many elements of this burgeoning scandal, and last week news of it ignited throughout Canada as the prestigious Globe and Mail -- after the Reporter's series -- began a series of their own, publishing four major stories.

The Hamilton Spectator, the Niagara Falls Review, Niagara This Week, the St. Catharines Standard and other Canadian publications also came out with stories.

The New York Times is expected to publish a story this week.

The "secret lease" scandal is taking a life of its own.

The Ontario Public Service Employees Union called upon the minister of tourism to dissolve the NPC. Union president Warren "Smokey" Thomas said the parks are "deteriorating while the commission makes irresponsible spending decisions," like its "decision to renew the lease of the Maid of the Mist without going to tender."

The powerful activist group Preserve Our Parks wrote to the premier, Integrity Commissioner and minister of tourism "demanding" the lease be sent back for competitive bidding.

Alcatraz Media spokesperson Bill Windsor filed suit with the Ontario Superior Court seeking to set aside Glynn's lease and let other companies, including his own, bid on it.

Kim Craitor, a liberal member of Parliament whose Niagara Falls riding takes in all NPC parklands, announced plans to reintroduce a bill requiring openness from provincial agencies. The secret no-bid lease renewal, Craitor said, "doesn't shine a positive light on the parks commission. (The Niagara parks are) the jewel of our community. These types of things start to tarnish that jewel."

NPC Commissioner Bob Gale, who owns a chain of gas stations in Ontario, was the whistle-blowing commissioner who went public, alleging that Chairman Jim Williams, Vice Chairman Archie Katzman and NPC General Manager John Kernahan worked furtively to ensure that world-famous Ripley Entertainment -- which expressed interest in bidding on the lease -- was excluded, while simultaneously neglecting to tell other commissioners about Ripley's interest.

"Williams, Katzman and some commissioners who look dirty will be exposed when I give evidence," said Gale, referring to Windsor's lawsuit.

Asked if he is concerned about Gale's allegations, Williams told the Globe and Mail, "Absolutely not." The majority of commissioners approved Glynn's lease and "these are very accomplished politicians and businessmen and lawyers who serve our board," he said. "So the fact that you've got one individual who runs a string of gas bars disagreeing with the majority of board members, I mean, is simply that."

Williams also wrote, in a letter to Premier of Ontario Dalton McGuinty, "The legal, financial and business scrutiny for the (Maid of the Mist) lease of these lands is second to none."

It had been assumed that, with this "business scrutiny," the NPC renewed Glynn's rent at his previous rate of 15 percent.

But according to minutes of the NPC board meeting, instead of charging Glynn a flat 15 percent, the rent starts at 17.5 percent, then goes down after sales reach a certain benchmark. Williams, Katzman and Kernahan chose a benchmark that, they may have argued, was a typical season. The year selected was 2003.

"This would establish a base threshold payment at about a 2003 level and gives incentive to the (Maid of the Mist) to perform at higher levels," Kernahan wrote in a report to commissioners.

What Kernahan apparently failed to disclose to the part-time commissioners was that 2003 was the year of the pandemic scare of SARS (Severe Acute Respiratory Syndrome). Niagara Falls tourism was off by 28 percent in 2003.

The lease was structured so Glynn would pay slightly more until he reaches the sales level of the SARS year, then it goes down to 12.5 percent, then 8.5 percent, then 6.25 percent, to 5.5 percent, according to how much money he makes.

While "negotiating" the lease, Kernahan reported to commissioners that "discussions (with Glynn) to date have been amicable and staff is confident that a new agreement will be achieved in short order."

Discussions should be amicable when the topic is lowering one's rent.

Perhaps, however, the amicable Kernahan forgot to mention to commissioners that the "incentive," or rather rent reduction, is based on Glynn's worst year. In 2003, Glynn grossed $11.5 million.

During 2000-02 and 2004-05 Glynn averaged around $16 million.

During 2006-08, he averaged $20 million.

In the early 2000s, Glynn charged $10 for adult tickets. He now charges $14.50.

But according to Kernahan's report, the lease fails to factor in inflation.

If true, then the figure of $11.5 million (from 2003) remains a constant benchmark for 25 years.

One source said the NPC added a provision to increase the percentage after five years, but that was not reflected in information presented to commissioners. Even if there is an adjustment, that number is less than what is expected during even modest inflationary periods.

Absurdly then, for the next 25 years Glynn -- winning through inflation -- pays lower rent once his sales reach the low SARS-year benchmark of $11.5 million, either in present dollars, or at best in insufficient increments meant to replicate 2003 dollars.

If the new SARS-year-based lease had been in place last year, Glynn would have paid an estimated $682,000 less in rent than the $3.2 million he reportedly paid.

Before the Reporter broke the story of the rent reduction, Williams told the Globe and Mail, "It's a significant lease in terms of the revenues it generates, and believe me, we're not unhappy with the terms that we're agreeing to."

When asked whether he could disclose the terms of the deal, he answered, "Nope."

Not unhappy? What would or what did make Williams happy?

Comparing the old lease to the new, if Glynn's number of boat rides sold (about 1.8 million) remains constant, the NPC will lose between $17 million (presuming zero inflation) to more than $200 million (assuming inflation continues at what it averaged in Canada during the last 25 years -- 3.7 percent per year).

It's hard to fathom why the NPC switched from a straight and sure percentage lease, or why they needed to reduce his rent -- as Kernahan wrote -- to give Glynn an incentive to make more money.

Making more is still more even at a flat rate of 15 percent.

Meanwhile, both Ripley Entertainment and Alcatraz Media said they would pay more and improve on Glynn's boat tours.

Glynn's tour is rather primitive, conducted in older steel boats without air conditioning or heat. Glynn provides only one tour -- a 15-minute, packed-like-sardines standing tour during limited daytime hours, which makes a brief run along the American Falls and slightly into the heavy mist of the Horseshoe Falls.

Because he is "grandfathered" in, Glynn does not have to meet newer Coast Guard standards as to seating capacity -- for there are no seats. Or handicapped access to bathrooms. In fact, he doesn't have bathrooms.

The company provides a flimsy, blue garbage bag for raincoats. In the height of summer, the mist can be refreshing, but in early and late season, tourists get drenched and cold.

Ripley and Alcatraz spoke of covered boats, downriver tours beyond the Rainbow Bridge, wedding and dinner cruises, night tours when the falls illumination can be seen, and a pre-boat wonderland experience.

Glynn takes no reservations. In the height of the season -- because Glynn has few boats -- tourists wait hours for the 15-minute ride.

It is believed that the competitive boat-tour industry -- which saw dozens of prominent companies bid for the Statue of Liberty and Alcatraz Island boat tours -- will prompt bidders to drive the rent up for the NPC, plus lessen waiting times and expand tours.

Tourism experts said competitive bidding may bring as much as $150 million more over the life of the lease.

Conservative businessman Gale estimated, "There's $100 million more, at least, on the table here that the taxpayers are going to have."

Trembling with debt, burdened with boondoggle projects like the $40 million Legends golf course and the $40 million Table Rock improvement, the NPC is floundering. The NPC pays more than $1 million in debt payments each year. Since 2004, when Williams took over as chairman, the NPC plunged from a $3.7 million profit to a $4.3 million loss last year.

The NPC has laid off a third of its workforce, devastating many local families.

The waters in the lower Niagara pool are deep and safe. New boats can be lowered by crane. Glynn does it; other major companies can do it. The lease itself grants the operator air-space rights to install 130-foot-tall cranes to lower boats. If another company wins the bid, Glynn may, in fact, choose to sell his boats rather than have them hoisted and trucked away. Sinking them out of spite is -- as the Coast Guard will confirm -- impermissible.

In the end, Glynn has provided the cheapest, least attractive, least creative experience.

His famous 15-minute attraction, as far as what he himself put into it -- as opposed to what the falls themselves already give us -- is insufficient.

One is reluctant to conclude it, but it seems this new lease was done deliberately to favor Glynn.

So why did Williams, Katzman and Kernahan reduce his rent?



  Copyright © 2008 Frank Parlato Jr.