Bruce Murphy
Murphy’s Law

Summerfest Pays No Net Rent

Charges ethnic festivals more rent than it pays city, like “a greedy landlord,” alderman charges.

By - Nov 26th, 2019 11:32 am
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Don Smiley speaks to the media. Photo taken December 8th, 2016 by Michael Horne.

Don Smiley speaks to the media. Photo taken December 8th, 2016 by Michael Horne.

Summerfest’s deal for rent of city land is actually much better than has been previously reported, and much better than for any other tenant. 

That’s because Milwaukee World Festival (MWF) the parent company of Summerfest, collects rent from the various ethnic festivals and other groups or businesses who use the grounds, and typically earns more from the rent it charges than it pays to the city, as its annual federal tax forms show.   

Thus, in 2016 Summerfest paid rent of $1,439,500 and a fee for security provided by Milwaukee Police of $122,987, or a total of $1,562,487, while it earned $1,849,000 in rental income. That provided a surplus of $287,000 for Summerfest. 

In 2017 the combined rental and security fee Summerfest paid for the 75 acres of city-owned land it uses was $1,577,877, while it earned $1,904,000 in rental income, a surplus of $326,000. 

In 2018 the combined rental and security fee Summerfest paid was $1,593,677, while it earned $1,875,000 in rental income, a surplus of $281,000. Complete records for 2019 are not available. 

MWF’s Chief Administrative Officer & General Counsel Frank Nicotera said this comparison of rent paid and rental income is “incorrect” and “misleading” because it does not include other expenses for the group when it rents out the grounds, including the cost of water, electricity, plumbing, maintenance and janitorial and other expenses. With those expenses included there is no surplus for the festival, he said.

But to city officials, the fact that the rental payments received by the festival exceed those paid to the city raises questions about the fairness of the deal.

Milwaukee Alderman Mark Borkowski, a member of the Harbor Commission, which is Summerfest’s landlord, put it this way: “On one hand, I applaud Summerfest CEO Don Smiley for offsetting its rent by subletting the grounds to Milwaukee’s wonderful ethnic festivals,” he said. “But on the other hand, this paints the picture of a greedy landlord who doesn’t pay his bills and stiffs his vendors, all with the intent of lining his own silk pockets. In this case the vendor is city property taxpayers who are being stiffed to cover police costs so Smiley can enjoy his private club memberships and excessive pay package.” 

As Urban Milwaukee has previously reported, Smiley was awarded a $2.3 million pay package in 2017, which included about $971,000 in base salary and “deferred compensation” for his work that year, and an additional $1.37 million deferred from prior years. And Summerfest also paid $14,000 for membership to two private clubs for Smiley. Meanwhile city taxpayers have paid for millions in uncompensated police security costs for the festival in the last five years. 

“Under the current lease, MWF is authorized to sub-lease the grounds” to anyone it wants, said attorney Craig Mastantuono, a board member of the Milwaukee Harbor Commission. The commission, he says, is aware that Summerfest earns at least as much rental income as it pays the city. 

By contrast, as Urban Milwaukee has reported, other rental agreements for groups leasing city land charge more. The for-profit Harbor House restaurant pays a minimum of $200,000 and maximum of $400,000 per year (based on a percent of its gross sales) for its 1.66 acres of land. At that price Summerfest would be paying $9 million to $18 million per year for its 75 acres. The non-profit Discovery World paid a one-time lease fee of $390,000 and is charged an annual rent of 5 percent of all amounts in excess of $5 million in net income, a threshold of earnings it has never hit.

But even that isn’t as good a deal as what Summerfest gets, given that it can rent out the festival grounds to so many groups. The festival, however, has always been considered a special case: it was founded by the city and has received untold millions in city subsidies over the decades, because it has been viewed as a partnership with the city.  

But in August, when Mayor Tom Barrett asked Summerfest to consider reimbursing the city for the more than $678,000 in uncompensated security services it got from the Milwaukee Police Department for the 2019 festival, Summerfest’s leaders in essence told the city to drop dead.

Take the money out of the rent payment you get from the city, MWF officials told the city. And then they proceeded to blow off a scheduled meeting with their landlord, the Harbor Commission, where officials hoped to discuss the issue.

“It’s pretty clear they could pay for the police services if they chose to,” Alderman Michael Murphy tells Urban Milwaukee. “Apparently they choose not to.” 

That seemed to be confirmed when MWF board chairman Howard Sosoff told Urban Milwaukee the festival no longer considers itself a partner of the city. “Milwaukee World Festival, Inc., is not a public-private entity,” he said. “It is a private corporation.” 

City officials were stunned by this statement. Given that attitude, Mastantuono says, “I would question whether MWF’s unfettered ability to sub-lease the grounds is a wise arrangement in future lease discussions.” 

“I don’t think the city will be very favorably disposed toward Summerfest when the lease comes up for renewal,” Murphy says. But that isn’t until 2030, which could leave city taxpayers paying millions more for uncompensated police services to Summerfest.  

In the wake of Urban Milwaukee’s stories on Smiley’s pay package and the meeting he blew off, Summerfest officials have changed course and begun to meet with the police department to discuss the uncompensated security costs, as my colleague Jeramey Jannene first reported on November 15 

Yesterday, the Milwaukee Journal Sentinel did a story reporting that these discussions have commenced, without crediting the Urban Milwaukee story 10 days earlier. Smiley told the newspaper it “will require several meetings to try to understand what the outcome of this should be, but I can tell you that we take all of this very seriously.”

Smiley also said Summerfest spent “three-quarters of a million dollars” on “our own security force.” 

This is the first time Summerfest, which is secretive about its finances, offered a figure on its own security costs. News stories in the past have occasionally mentioned security guards working at the festival. 

The festival’s annual federal tax forms list no cost for security, but that may fall under an umbrella category of “other” expenses. Summerfest officials did not respond to Urban Milwaukee’s questions about this in time for publication.

Summerfest has also benefited from millions per year in charitable donations, getting nearly $48 million in gifts, grants and contributions from 2010 through 2018, as Urban Milwaukee has reported.

Referencing this and the rental income Summerfest collects, Murphy said “It would be very interesting to see where all the money is going if there was a true audit of Milwaukee World Festival.”

Borkowski offered his own back-of-the-envelope calculation of the festival’s spending to Urban Milwaukee: “It’s mind-blowing,” he said, “to think that more than $1 of every Summerfest ticket sold goes to cover Don Smiley’s compensation package.”

Smiley earned $971,000 in 2017, while attendance was 831,769, meaning $1.17 of every ticket went to pay his salary. 

Update 3:30 p.m. November 26: As noted above, MWF’s Chief Administrative Officer & General Counsel Frank Nicotera got back to Urban Milwaukee to say that a comparison of rent it pays to the city versus rent it charges the ethnic festivals and other renters is “incorrect, misleading and irresponsible. There are direct expenses that offset rental income, such as the cost of the electricity to power the site; the cost of water; bi-weekly plumbing flushing; the cost of payroll and payroll taxes for our operations and maintenance crew which cleans the grounds before, during and after each event; contracted janitorial expenses covering the cleaning of other non-public areas; maintenance supplies such paper goods and restroom supplies; cost of ambulance and first aid services, and the purchase price and maintenance cost of equipment provided free to the festivals, such as picnic tables, barricade, bleachers, and some seasonal tents.” He added that MWF’s rental income also includes the rental of equipment.

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One thought on “Murphy’s Law: Summerfest Pays No Net Rent”

  1. mkemxp says:

    Thanks to Urban Milwaukee for reporting and staying on top of this story.

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