National Park Service officials reached a temporary, one-year agreement with Xanterra Parks & Resorts that will keep concessions on the South Rim of Grand Canyon National Park operating without interruption, though prospects for a long-range contract were still up in the air.
Under the agreement announced Friday evening, Xanterra will continue to operate the South Rim's lodges and restaurants, as well as Phantom Ranch on the floor of the canyon and other concession businesses, beyond December 31 when their current contract expires. In accouncing the accord, though, Xanterra officials indicated that they hoped the Park Service would soften the terms they were seeking for a 15-year contract to run most of the concessions on the South Rim.
“It is our hope that this temporary contract will allow the National Park Service time to go back to the drawing board and develop a more palatable concessions RFP (request for proposals), because despite the fact that the contract generates more than $1 billion in revenue over the contract term, the past RFPs have failed to allow the concessioner to generate a profit after paying fees to the National Park Service and funding capital expenditures in the park facilities," said Andrew N. Todd, Xanterra's president and CEO.
Park Service officials have maintained that the terms they drew up for a new contract for South Rim operations that included the El Tover Hotel and Bright Angel Lodge, Maswick Lodge, and other lodgings and restaurants would be profitable, and were prepared to argue that point in court this past Tuesday. But that hearing, over Xanterra's request that the Park Service be blocked from shuttering most of the South Rim's concessions on December 31, was postponed while the parties continued negotiations toward the temporary agreement.
That year-long pact is expected to generate approximately $66 million in gross revenues for Xanterra, the Park Service said in a release announcing the deal. Additionally, prior to the award of the temporary contract, the Park Service will pay Xanterra nearly $100 million towards the buy-down of the concessionaire's investment in facilities at Grand Canyon.
The cease-fire between the two, while ensuring South Rim concessions will continue without interruption in the near-term, sheds little light on whether Xanterra and the Park Service will come to terms on the 15-year-contract that so far has eluded them. Park Service officials are hoping that the nearly $100 million buy-down in Xanterra's nearly $200 million in investments in South Rim facilities over the decades will make that long-term pact more affordable to other concessionaires. If the agency had not done so, any company bidding for the long-term contract would have had to pay Xanterra that money if it had received the contract.
While the Park Service in its release Friday said three companies had bid for the temporary contract, it did not identify the other two.
The 15-year contract, said to be worth more than $1 billion in revenues over its life, has so far failed to gain any bids. Initially the Park Service had set the franchise fee the successful bidder would pay at 14 percent per year on revenues. Failing to attract any bids, the Park Service then lowered that fee to 10 percent for the first five years of the agreement, and then bump it to 12.5 percent for the remaining 10 years, but that still failed to attract any bidders.
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Comments
Given the lack of any bidders for the long-term contract, this is the most logical decision for a short-term solution.
JThomas, a question, I am not sure what the buy down problem is. Did the concessionaire actually construct some facilities or did they perform maintenance functions on structures that in a normal landlord relationship the owner is responsible for?. In Yosemite, if I understand it correctly, there was a property interest, in that the old Yosemite Park and Curry Company actually constructed the Lodge, Store, etc. It seems strange that the contract allowed this without some means to finance it all along.
rmackie, that would be puzzling but I believe Xanterra via Fred Harvey Company actually built most if not all the historic buildings in the Park. Mary Jane Elizabeth Colter is greatly revered by nearly everyone for her integrating landscape into her architecture. Certainly more than anything built since the 1930's. One of her creations built by Hopis, the Desertview Watchtower, was actually purchased by NPS in the recent actions ($3 Mill). There may be some confusion as to maintenance and actual equity figures. Always been a bit of a conflict of cultures but what Mary Colter accomplished under Fred Harvey Co. employe could be one of the best working relationships between NPS & a private concessioner.
Thanks trailadvocate, that makes sense. That was the situation in Yosemite when the contract was transfered from MCA to Delaware North (via the old Yosemite Park and Curry Company). Yes, I can see those wonderful old buildings being quite valuable.
trailadvocate is correct about Xanterra's acquiring whatever financial interest the Fred Harvey Company had in facilities at Grand Canyon.
Fred Harvey facilities which pre-date the NPS presence at Grand Canyon include the El Tovar hotel, which opened in 1905. Grand Canyon National Monument was proclaimed Jan. 11, 1908, and the park was established in 1919.
Is it true that any operator that steps up and pays the rest of the LSI will have no ownership and no right to its own LSI when they lose the franchise?
No, they'll be entitled to their own LSI. But the NPS is trying to write the contracts now to avoid staggering accumulations of LSI.
Kurt, all, another question, I believe in Yosemite, they bought the building's from MCA, THE NPS owns the buildings now, is that correct, Should the Grand Canyon do the same, that seems to be the best way to handle it. The contract then would have to include some of cost associated with these buildings, many of them historic.
Their own LSI based on their incremental investment or an LSI that includes both what they originally paid and any additions? I interpreted Trailadvocates earlier comments to suggest that there would be no recapture of the LSI paid up front.
Not sure I follow you, EC.
Let's take the current example. Xanterra built up $198 million in LSI. The park split the South Rim concessions in two, with the lesser of the two assigned $41 million in LSI owed to Xanterra. DNC won that contract, and had to pay Xanterra that $41 million. DNC comes into the contract (on Jan 1, I believe), with no LSI attached to these facilities.
If they accumulated LSI over the length of the agreement, and then lost the renewal, whoever won it would owe DNC that LSI total.
That help?
So if DNC loses the next round, they will get nothing for the $41 million they paid?
Do they have some kind of depreciation built in the LSI or do the amount accumulate forever?
NPS zeroed out Xanterra's possessory interest/lsi (200k worth) in Zion by suspending the franchise fee for several months in late 2006/early 2007.
NPS also is depreciating Xanterra's existing $21M LSI(2.5% per year) in Yellowstone under the contract that went into effect late last year. Xanterra also took the straightline depreciation, in exchange for a lower franchise fee, for the LSI that will accumulate with the capital improvements that are required per that contract.
This draft Leasehold Surrender Interest Guide might answer some of the questions about carryover LSI and how depreciation affects the value of LSI.
http://www.nps.gov/commercialservices/docs/Draft%20LSI%20Guide%20v.%2020...
Sara, in looking at the LSI web-site, I am still puzzled how the Grand Canyon slipped into this arrangement, ie the t huge LSI the concesionarie has purchased, built into. I think in Yosemite, they bought out the LSI, I know its complicated, how the contracts are written, etc., but it is my understanding this problem has been building for a long time. Is that correct?
Thanks Sara, while not absolutely clear the doc says that LSI is carriedover on a new contract with an existing vendor and seems to imply it can be "acquired" by a new vendor. So again, the issue would appear to be that the LSI was set too high or the NPS let it get too high.
ec, maybe you can clear it up for me. When there is a value determined and agreed upon with clear evidence of the marketplace how does one merely lower the figure to accomodate one of the parties, Obama's pen?
Trail - I don't know the process, probably the courts. You can "determine" a value all you want but if someone isn't willing to pay, your determination is wrong.
Sara, could you join in and explain the difference between an actual debt and market value as it applies to LSI. Someone has to pay and surrender interest to NPS for the privelidge of operating, right? Transparency, is a wonderful thing I've heard and actually believe:).