L.A. Race Running on Influence : Marathon: Political friendships have helped Burke turn fledgling venture into marketing success.
William A. Burke--businessman, entrepreneur, political insider--is the one person responsible for creating and organizing the Los Angeles Marathon. He has transformed the first modest race in 1986 into a multimillion-dollar marketing triumph.
However, this simple footrace is not all it seems.
An extensive review by The Times shows that the race’s business dealings with the city offer a lesson in the value of political friendships to a fledgling and risky venture.
Burke, 51, has been able to arrange his own terms since acquiring the right to organize the marathon from the L.A. City Council. The history of the contract between Burke and the city reveals that the marathon has continually gained financial concessions from the city.
Burke’s shrewd moves have enhanced his position as head of the marathon and his connections with the city’s bureaucracy are greater than most realize. For example:
--According to the city’s auditors, the marathon was uncooperative with their attempts to check the books as agreed upon in the city contract.
--According to the auditors, the marathon failed to heed the recommendations of city auditors for changes in bookkeeping procedures.
--The marathon’s books show that the race made a $142,000 payment in 1986 to a company that Burke owned.
--An official of The Athletics Congress lobbied on Burke’s behalf before the city council while the council was considering bids to organize the marathon. Burke’s proposed budget showed a $65,000 payment to TAC for a sanctioning fee. Other bidders were allotting about $4,500.
--The contract was changed, limiting the city’s ability to audit the marathon’s books.
--The marathon benefited from a 1989 contract change, curiously made retroactive, whereby the race didn’t have to pay anything to the city or supply any alternate services for 1988.
--Burke’s own attorney told a city attorney what marathon audit materials would be made available to the public.
--The marathon has been delinquent on fees owed the city.
“I pay my bills when I think they’re due,” Burke said to reporters when asked last month about the marathon’s delinquent fee payments.
Burke pays his bills when he wants to because the city has for six years allowed it to happen. Through the force of his personality and his friendships with elected officials, Burke has enjoyed amazing success in his dealings with the city.
His highly unusual city contract has--according to one city councilman--received special treatment within the city’s bureaucracy.
“City administrators have been totally lax in administering this contract,” Councilman Zev Yaroslavsky said. “Nobody was in charge. Bill Burke was in charge.”
(Yaroslavsky is a frequent political opponent of Mayor Tom Bradley.)
This 26.2-mile footrace is actually a political-financial entity with an agenda that often has little to do with the 20,000 runners who are expected to run in Sunday’s sixth-annual event. The real story of the race is favors, money and power.
Few play that game as well as Burke.
The L.A. Marathon has been called a marketing miracle by trade publications and other race promoters. It not only generates millions in income from sponsors and licensees but also covers many of the day-to-day expenses through trade-outs, arrangements in which sponsors provide free goods and services.
On the surface, it appears to be a gold mine.
However, Burke says the race has shown a loss in each of its five years and that he has never taken a salary as the president of the marathon, which he says is a full-time job. Burke owns 80% of LA Marathon, Inc. The rest of the company is owned by Marie Patrick, the marathon’s vice president.
But information obtained from city documents and from Burke’s own statements suggests that the race is well off.
Even figures from 1986 and 1987, when the race’s full marketing potential had not been realized, are impressive. The race’s major sponsors, which include Mercedes-Benz, AT&T; and John Hancock Financial Services, all have contracts that schedule increasing yearly payments. Most have been renegotiated upward, reflecting the race’s growth.
In announcing the John Hancock deal in 1988, Burke described it as, “probably the richest five-year contract in the history of marathoning.” But Burke will not reveal the terms of any sponsor contract.
According to contracts obtained from the city, AT&T; paid the race $150,000 in 1986, and Mercedes-Benz, which is now the main sponsor, paid $100,000 to sponsor the race in its first year. Based on industry trends, these numbers should have increased substantially.
Last month the marathon renegotiated its contract with KCOP-TV (Channel 13), which paid a $50,000 rights fee in 1987. According to a 1987 letter from KCOP Station Manager Rick Feldman to Burke, KCOP was to pay the marathon $125,000 in 1988 and increase to $180,000 to show the 1991 race.
Not only does the race generate a large income from sponsors, but Burke also keeps his operating overhead low by setting up trade-outs with suppliers. Thus, many of the day-to-day costs that the race might incur are paid for by suppliers--water for the runners, food at the finish line, medical crews, etc.
The Los Angeles Times is a major race sponsor. The marathon’s arrangement with The Times calls for the marathon to pay $50,000 to the Los Angeles Times Fund, which aids underprivileged children in Southern California. The race is the charity’s single largest contributor. In return, The Times provides free advertising on a space-available basis--a program the paper offers a number of contributors to the Times Fund. The marathon last year got an estimated $500,000 worth of advertising and has received about $250,000 in free advertising for this year’s race, according to Jeffrey Klein, assistant to the publisher.
The 1991 race has seven major sponsors and 15 licensees.
So why is it that Burke says the marathon’s financial value is “nothing” and that it loses money every year and is expected to continue to do so?
Unlike the New York or Boston marathons, which are operated by nonprofit organizations, the Los Angeles Marathon is a for-profit company. Burke will speak only in generalities about the finances of the marathon and will give no specifics. He declined a request by The Times to look at his current books.
“The company has shown a loss in the five years of its operation and each year I have made up the difference from my personal income,” Burke said. “All the bills were paid because I put money into the company to make sure of that. Whether people want to believe it or not, (the race is) my hobby.”
Burke also maintains that none of his other businesses benefit from the marathon. However, a city audit revealed a payment in 1986 of $142,260 from the marathon to Genesis International Trading Co., a company that Burke owns. The entry was made under the heading “commissions,” a section where consulting fees were entered into the marathon’s books.
Burke said his company was not paid as a consultant, but that the entry might have reflected a loan he made to the marathon. Asked why the $142,260 was listed as a commission if it represented a loan payment, Burke said there must have been an accounting error.
THE BIRTH OF A MARATHON
After serving as commissioner of tennis in the 1984 Olympic Games, Burke hit on the idea of putting on a marathon. At about the same time in 1985, an aide to councilman Howard Finn recommended that the city become involved with organizing an L.A. marathon. The result was the Finn-Bernson Motion, which called for a committee to study the idea.
No one in the city knew it then, but the entire concept of a city-sponsored race was unique. No other major marathon in the world operates with the official designation of the city. Instead, others just get parade permits and pay for city services.
Burke didn’t count on a bidding process, but he did count on help from friends. And he got it from friends such as David Cunningham, then a city councilman. In fact, Cunningham, who later argued vigorously before the council on behalf of Burke’s group, proved to be one of Burke’s most helpful friends.
Cunningham had a substantial financial interest in Bentley International Trading Corp., a Liberian mining concern in which Burke was also involved. In 1984, Cunningham lent $50,000 in his campaign funds to Bentley. Cunningham said he was “aware (Burke) had some interest in it” but was unsure of the specifics of Burke’s involvement in Bentley.
Burke, who once had a substantial financial stake in the company, said in a recent interview that he sold his stock in 1978 for $70,000, 20% of the company’s annual net profits and other considerations.
Cunningham said at the time that he had done nothing wrong and broke no laws, a point that Burke has since reiterated.
Cunningham, who is no longer on the council, has also worked as a paid city lobbyist for another of Burke’s companies, B&P; Group.
But in order to get the marathon contract, Burke still had to put his name in with others in an open bidding process, which attracted nine bidders.
Those were narrowed to three finalists. City analysts ranked the three groups and Burke’s finished third.
As it turned out, though, Burke’s group didn’t need to be ranked first to win. Burke called in a powerful ally, the national governing body for track and field.
Alvin Chriss, then special assistant to the executive director of The Athletics Congress, appeared before the L.A. City Council and spoke on Burke’s behalf, even though he admitted that he had never seen the other proposals.
Chriss came under fire from Yaroslavsky, who was troubled by TAC’s endorsement, which he believed to be improper. Yaroslavsky was curious about an item in Burke’s budget that called for TAC to be paid $65,000 in sanctioning fees for the 1986 race.
Yaroslavsky noted that the other proposed budgets had allotted no more than $4,500 for the sanctioning fee.
Yaroslavsky asked if this money was going into TAC’s pocket and Burke said no. Burke said that the money was to be paid to athletes’ agents and wasn’t sure how the line item got into the wrong category.
He said later that his accountant made a mistake and didn’t know where to record runner recruitment expenses.
Eventually, the council awarded the contract to Burke’s group by a 12-2 vote.
The losing bidders complained that Burke’s friendship with public officials had landed him the bid. In fact, Burke and his various companies have been generous donors to the city and state political campaigns.
For example, Burke’s company, LA Events, made a $20,000 donation to Bradley’s 1986 gubernatorial campaign. From 1986 through 1989 Burke made contributions to the city council campaigns of Richard Alatorre, Hal Bernson, Robert Farrell, John Ferraro, Art Flores and Joy Picus.
Soon after the first race, problems started to develop between Burke and the city. The marathon contract was set up so that the city would get either a mutually agreed-upon fee or a percentage of the gross revenue. It also gave the city a right to audit the marathon’s books.
Burke has bristled at these audits. When The Times sought the marathon’s sponsor contracts from the city, as part of the public record, some of the sponsors threatened to sue. So sensitive were the contracts that when Times reporters were in the office of Deputy City Attorney John Haggarty, in another room was Burke’s attorney who, according to Haggarty, was sifting through the documents and deciding what was to be released.
The city auditors noted in the marathon’s second audit that three of the four recommendations made in the first audit had not been complied with, even though they had been made more than a year earlier. One of the auditors’ concerns was that daily records of cash receipts were not kept, specifically the money taken from entry fees.
According to the marathon’s books, entry fees accounted for more than $250,000 in income.
“The accuracy of recorded transactions was therefore not readily determinable,” chief auditor Antonio De Guzman wrote of the 1987 race.
Burke acknowledged that the accounting for the first two years was sloppy, explaining it by saying his accountant was dying of cancer.
In 1987, the last time the city audited the books, gross revenues were $1.99 million. The city’s share was $79,892.
City auditors repeatedly criticized the marathon’s bookkeeping. They noted that the marathon has been chronically late in paying bills for city services.
In one instance, officials asked Mayor Bradley to intercede with Burke to get payment of $19,892 that was then 448 days overdue. Keith Comrie, the city’s chief administrative officer, asked Bradley for help.
His memo read in part: “Attached is memo to Mr. Bradley re: marathon situation. It recommends that the mayor suggest to Mr. Burke that he pay up per the contract.”
Burke says he never heard from the mayor about the bill, which was paid in October of 1988, nearly six weeks after the city requested payment. The payment was originally due in April of 1987, making Burke’s payment 18 months late.
The city contends that it is owed more than $26,000 for last year’s race, a bill Burke disputes.
Through the years, when Burke has sought to modify troublesome portions of his contract, he has had little trouble persuading the council to go along.
First, he suggested that five years be added to his original three-year contract, arguing that the change would make it easier for him to line up long-term sponsorship agreements.
The council unanimously endorsed the change.
The contract was amended again in August, 1989, eliminating a requirement that Burke pay the city a percentage of the marathon’s gross profits. Also eliminated was a requirement that the city audit his books each year. Although the city still has the right under certain conditions to audit the marathon’s books, it has not done so since 1987, the last year Burke paid a licensing fee.
In place of the licensing fee, the amendment included a novel option that allowed Burke to provide $300,000 in free outdoor advertising space to the city through one of the marathon’s sponsors.
The amendment is curious in that it was signed in 1989 but specified that the changes were effective for the 1988 race. In effect, the marathon’s obligations for 1988 fell through the cracks--Burke did not pay a licensing fee to the city nor did he provide advertising, since it would be impossible to do so for a year that had already passed.
In fact, the city has received nothing from the marathon since 1987 and will only this year see the first benefit of the advertising deal made two years ago.
As things turned out, there is little dispute that the advertising deal was a disaster for the city and the cash-starved Los Angeles Zoo, which the arrangement was supposed to help.
For reasons that remain unclear, neither the zoo nor any other city agency has made use of the free advertising.
John Duggan, of the city’s administrative office, said an advertising contract for the zoo has been under negotiation for some time, but acknowledged that the city lost the opportunity for at least $300,000 worth of advertising in 1990 alone.
The zoo finally has arranged for the advertising through Patrick Media Group, which provides advertising for the marathon. Billboards should begin appearing in May, Jerry Greenwalt, the zoo administrator said.
But it turns out that the “free” advertising comes at a price. The zoo had to agree to pay Patrick Media $300,000 to get an additional $300,000 worth free, according to Greenwalt.
Burke said that he is not to blame if the city failed to take him up on the advertising offer sooner. “I am telling you the city got an unbelievable deal,” Burke said.
With one move, the marathon got out from under the city audits, avoided paying any cash to the city, got a company it does business with to provide a service that the race was responsible for obtaining and arranged to give that firm $300,000 worth of new business.
Said one zoo official: “Burke came out smelling like a rose.”
Another source of friction for Burke was the marathon’s requirement to pay the full cost of city services provided during the race, such as extra police and sanitation workers. Each year the marathon has complained that the fees are too high. The fees have risen from $74,944 in 1986 to $176,747 for last year’s race.
By comparison, the New York Marathon pays about $17,000 a month, or more than $200,000 to the city of New York and receives fewer city services.
Burke has repeatedly asked the city to lower the costs or freeze them at a set rate. He also frequently says that costs have risen 400% in four years. In fact, the rise from 1986 to 1989 has been closer to 100%.
Burke repeated that 400% figure again recently to a city council committee, however, when asked about it later by a reporter he shrugged and said, “So I’m not good at math.”
Burke’s appearance before the budget and finance committee, which made the recommendation to the council to again extend the marathon’s contract, was not totally smooth. Yaroslavsky grew angry at both Burke, for interference in city business, and city administrators who he said were “asleep at the switch” on the entire marathon issue.
Yaroslavsky said in particular that he was “troubled” by the advertising mix-up. City officials appear to be aware of the problem with the advertising deal and have included a clause in the new contract that says if the advertising is not provided, Burke must pay a flat fee of $50,000 to $70,000 a year, about the same amount the marathon paid five years ago.
Most councilmen interviewed said they didn’t know of any trouble with the marathon and all praised Burke and his administration of the race.
But some in city hall are watching a bit more carefully now.
“The marathon has been able to play off the bureaucrats against the politicians,” Yaroslavsky said last month. “It’s an unusual situation because the marathon’s a very popular thing, the bureaucrats are afraid to be tough. That’s got to change. The message has got to be sent loud and clear that that’s got to change.”
Days after that statement, Yaroslavsky and the rest of the L.A. City Council voted to extend Burke’s contract through the year 2000 without competitive bidding. The race, they say, has been “an outstanding success.”
And, while city officials are rethinking some of the contract terms, they remain bullish about Burke--so much so that the new contract is valid only so long as Burke personally supervises each race for the next decade.
Times staff writer Jane Fritsch contributed to this story.