Government

Newly released minutes: Red flags were raised before $2.3 million 'newbo evolve' loss

Board chairman John Myers delivers remarks on the newbo evolve festival’s $2.3 million loss during a press conference at the GO Cedar Rapids office in Cedar Rapids on Tuesday, Aug. 21, 2018. Myers will step in as chief executive until an interim CEO can be found, replacing former CEO Aaron McCreight. (Liz Martin/The Gazette)
Board chairman John Myers delivers remarks on the newbo evolve festival’s $2.3 million loss during a press conference at the GO Cedar Rapids office in Cedar Rapids on Tuesday, Aug. 21, 2018. Myers will step in as chief executive until an interim CEO can be found, replacing former CEO Aaron McCreight. (Liz Martin/The Gazette)

CEDAR RAPIDS — Notes from meetings of the tourism board that oversaw the “newbo evolve” festival document misinformation that directors say contributed to a $2.3 million loss, but also reveal red flags repeatedly were raised during the run-up to the three-day music and culture event.

The board of GO Cedar Rapids released the meeting minutes publicly, though it said it was not required to, in what it said were its efforts to be transparent with the community in the wake of the staggering loss.

The Aug. 3-5 festival featured musical acts Kelly Clarkson and Maroon 5, celebrity speakers and other events.

Less than a month before the festival unfolded, minutes from a July 18 board meeting show directors were told that after months of flat sales, ticket sales to Maroon 5 had climbed to 9,000 and sales to Kelly Clarkson reached 6,000. Those numbers were more than double what was reported to the board in June, when the meeting notes reflect a total of 6,500 ticket has been sold.

“In the last week and a half, ticket sales have spiked,” the board was told in July, according to the minutes. “We need the board members to talk to people about how great this is for the community and ask people to buy tickets.”

This false information — in reality, 1,862 tickets were sold to Clarkson and 6,478 tickets to Maroon 5 — led the board to believe the event was in a much better financial position than it actually was. The positive report relieved pressure to take more drastic steps to minimize loss, some members said.

Former GO Cedar Rapids Chief Executive Officer Aaron McCreight presented the information documented in the minutes, according to the agency. McCreight was fired after festival.

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The nonprofit tourism organization released the heavily redacted minutes for board and executive committee meetings dating to July 2017 “voluntarily ... consistent with our desires to be transparent.” It said the redacted sections include other business unrelated to newbo evolve and discussions where nondisclosure, confidentiality and contractual obligations precluded release.

Besides ticket sales, sponsorships also were over reported, according to GO Cedar Rapids. The event was “nearing $300,000” in sponsorships on March 27. By June 20, it had received $260,000 in payments with another $166,000 in outstanding commitments, according to minutes.

“It seemed to me, my impression was things were well under control when we went over them at the meetings,” said Scott Overland, a Cedar Rapids City Council member who has served on the GO Cedar Rapids board since January. “The reports from Aaron seemed specific and definite.”

In reality, final sponsorship revenue totaled $260,000; the $166,000 was “never committed in writing and will not be coming,” according to an statement from GO Cedar Rapids.

“I think we would have made different decisions on many aspects had we known the truth,” said board member LaNisha Cassell, who also joined the GO Cedar Rapids board in January. “I think the board acted in an appropriate manner. Our job was to oversee and ask questions and make requests, and we did that.”

McCreight has not responded to requests for comment. In an interview after his termination last month, McCreight defended the financially risky festival and told The Gazette: “To the extent that someone might say I did something wrongful, I don’t feel that I did.”

According to interviews and the meeting notes, the concept was researched with insiders in the concert promotion industry and “the entire budget pencils.”

“Staff has extensively vetted the event as well as Brian (Scott, a former board member), Doug (Hargrave, a former board member), and John (Myers),” who currently is board chairman, according to meeting minutes from July 19, 2017. “The numbers presented is very conservative based on dollar mounts we know we will receive and a moderate attendance number.”

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Organizers recognized the $375 three-day, all-access pass price had created sticker shock locally, but the event was designed to be a regional and even national draw and external markets like Chicago, Madison, Wis., and Omaha would be more receptive.

Still, the board proceeded with open eyes, members said, and they had plenty of time to pivot and scale down the event if they saw a need.

Slow ticket sales in the spring prompted the board to urge budget cuts and to reconsider the ticket pricing strategy to allow people to buy passes to individual celebrity speakers, members said.

“In June, Aaron was further directed by the board to cut the budget to show only a net loss of $250,000 for evolve,” GO Cedar Rapids said in a statement. “He was unable to do so and presented the board with a budget with a loss of $644,000.”

Board members said McCreight didn’t follow their “good faith suggestions.”

GoCR minutes (Note: they are in reverse chronological order)

“Those directions, that guidance, was never executed by (McCreight),” said Seth Wear, the board treasurer.

While directors say they brought a skeptical eye to decisions and asked tough questions — although none are reflected in the meeting minutes — it also is clear the board approved some of the largest financial obligations and was notified of pitfalls.

During planning, McCreight had estimated a $4.4 million budget to produce newbo evolve, according to GO Cedar Rapids. Several board members in individual meetings rebuffed the budget, and they later settled on $3.88 million, according to interviews and information from GO Cedar Rapids. McCreight wound up cutting down to $3.8 million.

He also was open about his resistance to change the ticket sales strategy so as to not “devalue the three-day pass,” reiterated throughout that “cash flow” was a problem and warned the board in June the organization couldn’t make more cuts.

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“The budget is very tight and we have worked it out to cut as many expenses as we can,” he said, according to the June 20 minutes. “We still show that we will be short at the end, but there is nothing left to cut.”

The board signed off on a $1.5 million line of credit from Bankers Trust in December 2017 after GO Cedar Rapids exhausted a $500,000 advance from the city of Cedar Rapids. The city is withholding GO Cedar Rapids’ next two payments of hotel motel tax receipts to settle the debt.

The board allowed GO Cedar Rapids to negotiate for months with Maroon 5 to be the main act, according to the minutes.

“Main talent is interested and available but will not budge from the (redacted),” executive committee minutes from Sept. 17, 2017, state. “Need to increase the evolve budget by (redacted) to accommodate this group. This group is worth the expense and with increased ticket sales, which are achievable; we can more than cover the costs. Pending positive cash flow, motion to forward with offer to Maroon 5.”

The motion was made by former board member Hargrave, who left in December and in January began serving as a financial consultant for GO Cedar Rapids. It was seconded by board member Angie Charipar, who is assistant to the city manager, and all present voted in favor.

However, GO Cedar Rapids continued to negotiate with Maroon 5 for months before officially signing them on Jan. 17. GO Cedar Rapids has declined to say how much Maroon 5 was paid, citing contractual obligations. But Myers acknowledged they were paid more than they should have been.

After canceling a contract with an unidentified marketing firm that was “under performing” and “causing more problems than helping spread the word,” McCreight turned to a national firm.

At a March 14 meeting, executive committee members were told the organization was hiring Triple 7, a public relations firm with offices in Nashville, Tenn. New York and Los Angeles.

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“We have spent about $80,000 of our marketing budget and we have more to spend. A new firm will come in higher but it is worth it,” members were told, according to the minutes.

McCreight notified the board in January about challenges with Scott Tallman, the community events director for GO Cedar Rapids. Tallman, who also was fired after newbo evolve, was the creative force behind the festival and was responsible for negotiating many contracts, though McCreight signed them.

“Scott has a lot of great talents but he does not do great with contracts or paperwork,” McCreight said, according to the minutes. “We are finding ways to be of more assistance to him.”

Steps were being taken to respond to the market, but the appearance the tide was turning in a positive direction in the weeks before the festival — as evidenced by McCreight’s reports on ticket sale and sponsorship increases — matched what McCreight had been saying all along. He told directors that sales would pick up closer to the event — so when that started to happen, it prompted a sense of confidence, Wear said.

Plus, he said, the board had been told up to 40 percent of ticket sales for outdoor summer concerts happen the week leading up to the event.

“When we saw the July update, we felt comfortable this is starting to happen, and we can expect another big jump in the days before show,” Wear said.

Board members said they had no reason to doubt McCreight. Rather than question his facts, they focused on the solutions, members said. As it turned out, McCreight continued to spend.

“We have also learned this week of additional contractual obligations made the weeks leading up to the event that were not known or approved by the board,” Myers said in an email, adding the organization plans to share the results of an independent audit.

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Board members say they are taking responsibility, second guessing decisions and “Monday morning quarterbacking” what went wrong.

“We all are taking this very hard and very seriously,” said Denny Goettel, an executive committee member. “It was a great event. People who went had a great time. The core idea is great for the community. We knew a first time is difficult. We knew it would be a stretch to make it financially, but none of us thought we’d be in this predicament.”

l Comments: (319) 398-8310; brian.morelli@thegazette.com

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