Newly released documents show auditors repeatedly warned City of Bloomington leaders that their contract with the U.S. Cellular Coliseum’s managers was riddled with ambiguity and needed to be reworked. Several of the issues that were flagged are now part of the criminal case against those same arena managers.
The documents, obtained last week by GLT, suggest city officials relied too heavily on informal verbal agreements, allowing arena managers to veer away from the requirements of their signed management contract. The documents also show arena managers took actions not expressly allowed by that management contract, such as unauthorized capital purchases and other “extraordinary expenses.”
The documents shed new light on the 111 criminal counts facing five former arena managers. Prosecutors have alleged a multiyear scheme to skim off hundreds of thousands of dollars in concession fees that should have been paid to the city. Attorneys for the lead defendant, John Butler, say authorities are attempting to “criminalize a civil contractual dispute by prosecuting” him.
For at least six straight years (2008-2013), the auditors told city leaders they should re-evaluate their contract with Central Illinois Arena Management (CIAM), Butler’s company that ran the arena for its first decade. The auditors wrote that its “ambiguous language” may be “subject to loose interpretation.”
They were referring to how CIAM and the city should split commissions and money from food and beverage sales, among other issues. The management agreement, for example, called for the city to receive 15 percent of food and beverage suite sales in the arena’s suites, but even more money (32 percent) from food and beverage sales in other seating areas.
“It is difficult to determine which locations are applicable to the appropriate percentage for food and beverage sales and whether the original intent of the parties … is being maintained,” the auditors, Sikich, wrote in 2010.
CIAM’s response? They’d struck a verbal agreement with city leaders back on 2007 defining which was which, though it was never documented.
That muddiness may become important to the criminal case. The charges facing Butler allege “improperly discounted concession items” that cost the city money, including the use of a still-unexplained “Kelly Discount” for concessions.
McLean County First Assistant State's Attorney Adam Ghrist declined comment Friday. Prosecutors generally do not comment on pending cases, aside from their own court filings.
All five defendants have pleaded not guilty.
It’s unclear why the city was unable to re-evaluate the management agreement to remove the ambiguous language. The city has largely declined comment on arena issues since the criminal case was filed.
In April 2014, then-Aldermen Kevin Lower and Judy Stearns wanted the city to renegotiate its contract with CIAM, using as leverage its desire to change from a professional to a junior hockey team as an anchor tenant. City administration responded by saying a council work session would be held to discuss contract issues; Stearns said that follow-up session never took place.
“It seems like there’s just an awful lot of holes that have (been) allowed to exist for years,” Lower said in 2014. “The people need to know what we’re doing, and we need to know what we’re owed, and I don’t think we’ve defined that.”
OBTAINING THE DOCUMENTS
The documents obtained by GLT are called management letter memoranda, produced during the annual audit of the arena. GLT originally sought the documents from the city in October through a Freedom of Information Act request, after the criminal charges were filed. After an extended back-and-forth and an appeal to the Illinois attorney general’s office, the documents were released to GLT last week.
The documents are an annual look at the internal controls and weaknesses inside the arena. In each case, the auditors recommend ways to address the issue, such as better record-keeping, segregation of duties to protect against theft, and other changes.
Repeatedly, the documents show CIAM and city leaders had struck verbal agreements—not part of the management agreement—to run the arena.
For example, the management agreement required CIAM to get prior city approval for any “extraordinary operating expenses.” In 2011, the auditors found that the arena incurred an “extraordinary” expense (specifically legal fees) without prior approval.
“According to Coliseum management, the approval was a verbal agreement (with the City of Bloomington) that has been ongoing since 2008,” the auditors wrote. “We recommend getting written approval for these expenses in future years.”
This is notable because two of the theft charges against Butler relate to “extraordinary” legal fees. He’s accused of stealing $140,098 from the city by disguising legal fees as “extraordinary expenses”—apparently the same issue the auditors warned about six years before Butler was indicted.
"The people need to know what we're doing, and we need to know what we're owed, and I don't think we've defined that."
Another verbal agreement was reached in 2007, when CIAM and the city agreed that 50 cents of every ticket sold would be given to the city to help with expenses of the adjacent parking deck. The management agreement does not include that, the auditors noted.
“The practice being utilized is based on verbal agreements between the former City Manager and CIAM,” the auditors wrote in 2010. “As a result the ability to determine adherence to the agreement is difficult to achieve.”
That former city manager was Tom Hamilton, who was running the city when the Coliseum first opened and CIAM was hired to run it. He has not responded to interview requests from GLT. Hamilton was interviewed by Illinois State Police during their 16-month investigation that led to the indictments in September 2017.
Hamilton retired in 2009. His successor, David Hales, has also since left the city.
The city has declined to respond to detailed questions about the arena’s operations ever since the charges were filed.
“The possibility of fraud and collusion can never be eliminated entirely from any organization or business, but the City has taken affirmative steps to mitigate the reoccurrence of similar allegations and will continue to do so,” the city said in a statement. “The City’s primary focus is to ensure any potential unlawful acts, including theft from the taxpayers, are uncovered and prosecuted. The integrity of the criminal proceedings dictates certain protocols be followed and, as the City and its taxpayers are the alleged victims in this case, the City therefore cannot comment on the situation any further at this time."
Butler’s attorneys have moved to dismiss the case, calling it a contract dispute, not a criminal matter. Butler has also sued the city, claiming he’s owed $67,175 in unpaid commissions related to sponsorships and suite sales. That suit is pending.
Butler attorney Steve Beckett declined to comment on the audit documents, citing the pending criminal case.
“The contentions raised in the defense motion to dismiss relate that this is a case where, after the fact, CIAM's principal officers are accused of wrongdoing over contractual issues related to the operational issues (including cash flow) and the timing of payments to CIAM,” Beckett said. “These allegations are brought forward years after the underlying events, and occur in the face of a history of annual audits and regular meetings with city officials during the term of the contract.”
Butler is due back in court for a hearing April 3.
Management Audit Letters by Ryan Denham on Scribd
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