Report 2016-106 Summary - November 2016

Los Angeles County: Weak Oversight of Its Lease With the Los Angeles County Fair Association Has Likely Cost Millions of Dollars in Revenue

Results in Brief

In 1988 Los Angeles County (county) entered into a Ground Lease and Operating Agreement (lease) with the Los Angeles County Fair Association (association) that allows the association to operate the Los Angeles County Fair (LA County Fair) and conduct other activities on land the county largely owns, commonly known as the Fairplex. The terms of the lease state that the association will pay the county rent based on the amount of revenue the association receives from its activities at the Fairplex. Since entering into the lease, the association—a private nonprofit mutual-benefit corporation—has developed the Fairplex by constructing a hotel and conference center. In addition, the association has established a number of other for-profit subsidiaries and nonprofit organizations that operate at the Fairplex. In this audit, we reviewed the county's oversight of the lease and the steps it has taken to ensure the association's compliance with the lease's terms. Based on our audit findings, we conclude the following:

We have recommended that the county take the actions available to it to correct the problems we identified in this audit.

Summary of Recommendations

As soon as possible, the county should collect from the association all amounts presently owed under the lease as a result of the revenue generated by the conference center.

To protect its interests and maximize its future revenue, the county should strongly consider ensuring that any potential amendment to the lease includes a revised rent calculation formula that factors in revenue from all of the association's activities, including revenue from its hotel.

Agency Comments

The county generally agreed with our recommendations, although it indicated its ability to implement them may be dependent on cooperation from the association. Although we did not direct recommendations to the association, it submitted a written response asserting that our report is generally inaccurate and incomplete. However, the information the association provided did not change any factual statements in the report or any of our conclusions and recommendations.