Wednesday, May 29, 2013

Kevin Kane’s Conflicts

Some realistic thoughts on conflicts of interest at the CVB.

Posted By on Wed, May 29, 2013 at 7:59 AM

Some people think Kevin Kane has a conflict of interest because he is head of the Memphis Convention and Visitors Bureau and one of the owners of Club 152 and Blues City Café on Beale Street.

More accurately, he has a convergence of interest. The distinction is important and says a lot about cronyism in the nonprofit world and how business gets done in Memphis, whether you're talking about Beale Street, sports and entertainment, hospitals, or the airport.

The "news" that Kane is a part-owner of the clubs is no surprise. Kane has made no secret of it for years, and it has been the subject of several media reports.

"With the approval of the Executive Committee of the CVB's Board of Directors, I became a minority investor" in 1996, Kane said in a letter to his board last week, adding that he was "shocked" to hear Club 152 had been closed as a public nuisance. Less shocking, it reopened a week later in time for the biggest Beale Street weekend of the year.

The businesses, he said, were "underperforming assets" and he is a "passive investor." Club 152 grosses somewhere between $5 million and $10 million a year, according to a trade publication Kane referred me to. If you can invest worry-free in a $10-million-a-year business fueled by alcohol and after-hours parties, then you make good money in your day job, which Kane does. He earned $341,000, according to the CVB's most recent tax form, with a steady revenue stream of hotel industry taxes.

"I have worked hard and successfully to keep my job-related responsibilities and decisions separated from my personal investment decisions to preclude conflicts," he wrote. "Our internal systems validate our performance."

One of those internal systems, board chairman Harold Graeter told The Commercial Appeal he saw no cause for concern. As well he might. Graeter works for the Liberty Bowl Festival Association, which, like the CVB, is a nonprofit organization. Kane was listed as chairman of the board on the most recent tax form. The AutoZone Liberty Bowl doesn't disclose its salaries, but other bowl games pay their top guys $341,000 or more.

All that Kane seems to be saying is that he doesn't deprive the CVB of his full-time services. He has a convergence of interests, not a conflict. What's good for the convention and tourism business is good for Beale Street and vice versa, and the same goes for the AutoZone Liberty Bowl, the Orpheum, the Riverfront Development Corporation, the Memphis Area Chamber of Commerce, and the Memphis and Shelby County Airport Authority.

All of those are nonprofits, too. Their boards and executive ranks are dotted with familiar names of former public officials, consultants, and staffers at other nonprofits. Their top executives, like Kane, earn way more than the city mayor's $171,000. But not nearly as much as the top people at some local nonprofit hospitals, colleges, or private schools. I used to think disclosure would keep nonprofit salaries in check, but the opposite is true. Pay is measured against one's peer group. Sky's the limit.

Is Kane screwing other establishments on Beale Street and other parts of Memphis by channeling business to his joints? That's a tricky one. The CVB's direct bookings amount to a few thousand dollars worth of business, but Kane's oft-made claim that Beale Street is Tennessee's top tourist attraction could be seen as a soft sell. If he were showing favoritism, you would expect an outcry from other restaurants and club owners. Kane has been on the job for 20 years, long enough to remember that if Beale Street was ever an "underperforming asset" hard up for investors, that was long before FedExForum, the Westin, the Grizzlies, and ESPN cameras.

Kane also has a convergence of interest with the local media. He is a super salesman and quote machine who is usually easy to reach. He's photogenic. He's on the ball and in the know. He's helpful. He has been on the cover of Memphis Parent and Memphis magazine, both owned by the parent company of this newspaper.

So are we conflicted? I guess so, but the same could be said of media relationships with many newsmakers and advertisers. How would Kane divest himself of his Beale Street investments if he decided to do so? Certainly he would want his original stake back plus appreciation. I don't see that happening. Like the closing of Club 152, this too shall pass, soon.

Wednesday, May 22, 2013

"Upscale Freakism"

Beale Street's Club 152 draws the late-night crowd and a drug bust.

Posted By on Wed, May 22, 2013 at 12:15 PM

Say this for Shelby County district attorney Amy Weirich: She doesn't pull her punches. Or telegraph them.

After a seven-month investigation and a quick heads-up to the news media, the DA and Tennessee drug agents hit Beale Street where and when it hurts last week. They closed the highest-grossing club with the highest-profile owner in the middle of the Memphis In May barbecue contest and a week before the Grizzlies play San Antonio in the NBA Playoffs next door at FedExForum.

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"It was like closing Macy's two weeks before Christmas," said attorney Ted Hansom, who represents Club 152 owners Charlie Ryan, Bud Chittom, and Kevin Kane, the head of the Memphis Convention and Visitors Bureau.

Club 152 is near the western gateway to the Beale Street Entertainment District, but unlike most properties it is not owned by the city. It doesn't show up on the Shelby County Assessor's website. Kane, who coaches one of Weirich's children in youth sports, said he and his partners bought the club and the real estate in 2009 "as a pure real estate play" because it is next door to Blues City Cafe, which they also own. They bought it with Rusty Hyneman, but bought him out after a year.

"I'm one of the owners, but I don't run the place," Kane said. "We didn't know drug sales were going on for six months. We fire people every week, trying to get rid of bad employees. I'm outraged. I want Beale Street to be a positive, safe environment for everyone."

According to Nightclub & Bar magazine, Club 152 grosses $5 million to $10 million a year, which makes it one of the trade journal's "Top 100" for the last three years running. No other club in Memphis, and only two in the whole Southeastern United States, has made the list, which is dominated by clubs in Las Vegas, Los Angeles, and New York. Club 152 touts "three floors of fun" serving up food, drinks, and deejays. A fourth floor is the stuff of urban legend but not on the website. It describes the after-midnight weekend offerings on the upper floors as "upscale freakism" but adds coyly, "You will have to be the judge of that."

Actually, Environmental Court judge Larry Potter will be the judge of that. A hearing was scheduled for Tuesday afternoon in his court to decide if and when the club will reopen. The investigation by undercover agents documented the sale and use of marijuana, cocaine, Xanax, and Percocet at the club and a year-long history of more than 130 police calls, including more than 20 fights and 37 arrests.

Weirich may have been holding back some information for Tuesday's court hearing. If not, given Beale Street's history, it is tempting to say, "Is that all you got in seven months?" Back in 1917, W.C. Handy wrote these lines in the "Beale Street Blues."

"If Beale Street could talk, if Beale Street could talk, married men would have to take their beds and walk.

"You'll meet honest men and pickpockets skilled. You'll find that business never ceases 'til somebody gets killed."

Kane said he visits Club 152 about five times a year but not much after midnight. He predicted the club would open within a week.

"It draws a diverse crowd," he said. "It is not some rogue, dark, seedy, terrible environment. We'll deal with it."

On Monday, he wrote a letter to his board members saying his role in the club has been overstated in the media but giving no details of his financial stake.

Hansom questioned the timing of the bust and the magnitude of the problem, if it was allowed to go on for seven months.

"The club has been under investigation since last November," he said. "What occurred in the last two weeks that didn't occur two months ago, or what was happening that they couldn't have waited until June 1st?"

The bust comes as the city is looking for new management for the Beale Street Historic District, and the Grizzlies' new ownership is closely following what's happening in their neighborhood. Beale Street has defied the best efforts of accountants and attorneys to document its financial history ever since former Mayor Willie Herenton commissioned an audit 20 years ago that netted little, other than a $600,000 legal bill.

It's Beale Street — unique, rowdy, and inscrutable, where opportunity knocks and the players know nothing and know everything at the same time.

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Tuesday, May 14, 2013

Grizzlies Eye Beale Street

This is a match of neighbors that the city should make happen.

Posted By on Tue, May 14, 2013 at 2:46 PM

Memphis stars of the NBA Playoffs so far: Marc Gasol, Mike Conley, Tony Allen, and Beale Street.

The neon lights of B.B. King's Blues Club and other clubs and restaurants — and by extension downtown Memphis — are getting an advertising bonanza from ESPN and TNT thanks to the Grizzlies' run into the second round and, so far, five home games at FedExForum.

An alley is all that separates FedExForum from Beale Street. And there is an opportunity to connect these two large dots.

The Grizzlies have controlled events in FedExForum since day one. They have new majority owner Robert Pera (and a local minority ownership group), a long-term lease on the arena, a season that lasts from October to June, and a desire to broaden the fan base regionally. The city of Memphis owns most of the properties in the Beale Street Historic District and has been looking for a new manager to replace John Elkington and Performa Entertainment Real Estate.

The obvious question: Should the Grizzlies take over Beale Street?

"In our discussions with the city and the mayor, we expressed our interest in participating in the continued growth of Beale Street and downtown Memphis," said John Pugliese, vice president of marketing communications and broadcast for the Grizzlies. "We understand how important Beale Street is, and, as a key stakeholder, we want to be part of the process."

One of the organization's new hires, Jason Wexler, brings a background in development with the Henry Turley Company in Memphis. And ex-ballplayers Penny Hardaway and Elliot Perry are other team members with Memphis roots and upside on the business and entertainment front.

I know our history. Sometimes the "obvious" answer is the wrong answer. In 1989, sports and entertainment entrepreneur Sidney Shlenker, after making his mark in Houston and Denver, came to Memphis as Man of the Hour to develop the Pyramid and Mud Island River Park. "Shlenkered" became a verb for suckered.

And consolidations have not gone well in Memphis in recent years. But this is one consolidation that ought to happen sooner rather than later. Beale Street needs fresh horses. B.B. King, Jerry Lee Lewis, and Silky Sullivan and the Hard Rock Café are not getting any younger.

Memphians may shun Beale Street as dangerous or a tourist trap, but ESPN and TNT love those nighttime shots of the neon signs and the Elvis statue. Beale Street was rocking Saturday night, hours after the Grizzlies game was over, with live music on the sidewalk, Handy Park, and clubs from B. B. King's to the New Daisy Theater. At midnight, there were hundreds of people in line at the security checkpoints waiting to join the party.

Which, of course, is both a problem and an opportunity. You don't get carded and frisked on Bourbon Street, in Times Square, or on Lower Broadway in Nashville. Managing Beale Street or any place where alcohol is served in super-sized cups on the sidewalk is as hard as guarding Kevin Durant. The businesses that are there have long-term leases and owners who are used to doing things a certain way. Could some cash-and-carry transactions go unreported to the agencies that are supposed to collect taxes or a share of profits? Stranger things have happened. The Beale Street Merchants Association, you may remember, was once led by Rickey Peete.

Besides, what do the guys from California who run the Grizzlies know about managing an entertainment district, much less one freighted with so much Memphis history? They have their hands full with hoops and less than a season worth of experience at that. One thing at a time?

No. It is time to multitask and go for the big one on the court and on the street.

If not the Grizzlies, then who? Former Center City Commission president Jeff Sanford and a 31-member committee named by Mayor A C Wharton spent several months working on a report about the future of Beale Street. It was finally turned over in March. The generic recommendation was for either a business-improvement district, much like the current Downtown Memphis Commission with a city-appointed board, or a for-profit developer and management company funded by rental revenues.

"No small challenge," the report says of balancing Beale Street's history and its future as an entertainment center.

As Sanford told me this week, "Logic would suggest that the Grizzlies would have a strong interest in Beale Street, for better or worse, because they are part of it."

Tuesday, May 7, 2013

Grit ’n’ Grind

Toney Armstrong defends budget; Judge Mathis in Memphis.

Posted By on Tue, May 7, 2013 at 2:52 PM

Memphis police director Toney Armstrong won Round One in budget negotiations with the city council, where he found support for a 4.6 percent raise for employees.

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Armstrong was the main event in a morning of budget hearings Tuesday. A majority of budget committee members voted in favor of his proposed budget, which includes the pay increase for 2,348 police department employees. Mayor A C Wharton has proposed a 2.3 percent increase. The final budget decisions are still a few weeks away, but the committee's budget cutters — Jim Strickland, Shea Flinn, and Harold Collins — were outvoted roughly two to one.

Chief administrative officer George Little shook his head after the vote was tallied.

"It doesn't add up," he said. "We either have to raise taxes or go back to employees and cut raises."

He called Wharton's proposed 2.3 percent raise "affordable."

Armstrong said the budget he presented "didn't have any fluff," and 87 percent of it "is for personnel and keeping boots on the ground."

Sixty cents of every dollar the city administration spends is for public safety, and three out of every four general fund employees work in police or fire divisions. The proposed fiscal year 2014 budget is $622.5 million.

Strickland and Flinn said a 4.6 percent raise (restoring a cut made in 2012) would increase the property tax rate from $3.39 to $3.51.

"We are about to tax our city out of existence," Flinn said.

Strickland questioned whether police officers have to take a "full service" approach and respond to every car wreck, house alarm, or barking-dog complaint. But Councilman Joe Brown countered that "we never know what is on the other end" of such calls, and "process servers or rent-a-cops can't handle it."

Other council members suggested chipping away at details of the police budget such as lawsuits, helicopters, and guns and ammo, but Armstrong gave up no ground. The lawsuits, he said, stem mainly from traffic accidents, and the department has to maintain the four aging choppers it has because a new one would cost about $3 million. The cost of weapons and ammo has been driven up by war, he said.

The director, 46 years old and a 24-year veteran, also threw retirement decisions into the mix. Officers with similar experience, he suggested, might decide to stay or go based on the 4.6 percent pay increase, and that would have a trickle-down effect on staffing and experience throughout the force. Several times he used the phrase "need to be proactive" to parry suggested cutbacks.

Bottom line: Round One to Armstrong.

Earlier in the committee meeting, Linn Sitler of the Film and Television Commission broke a little minor news. A BET production crew has been filming episodes of the reality television program Judge Mathis in Memphis for several months. Greg Mathis is a retired judge from Detroit whose courtroom program has run for 14 years.

"They didn't even want a kickoff," Sitler said of the low-key project.

The new episodes apparently will depart from that formula by having homicide detectives investigate cold cases and work the streets instead of featuring Mathis dispatching cases in a courtroom. Mathis will seek help from the Memphis community to, in Armstrong's words, "bring closure to the families."

Armstrong, himself a former star of another reality cops program, The First 48, in his pre-director days, said producers contacted him and Mayor Wharton last year.

"They reached out to us and asked for a meeting," he said, adding, "I won't be featured." Instead, the stars will be "seasoned veterans" from the homicide division who "know their way around an investigation and a camera."

Sitler, who sailed through her hearing unscathed in a couple of minutes, said the success of the television series Nashville might loosen the purse strings in state government for doling out incentives for film and television projects in other parts of the state.

With bigger fish to fry, Little seemed less exuberant and said he had only attended one meeting about Judge Mathis.

"We're open to it," he said. "It's better than Memphis being filmed in Georgia," an apparent reference to TNT's since-canceled Memphis Beat, which was filmed in New Orleans.

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