NPRI's Transparency Project on the LVCVA: Apr. 20, 2009 update
LVCVA's financial float documented
- Monday, April 20, 2009
Millions of dollars in advance payments from the Las Vegas Convention and Visitors Authority to a company owned by R&R Partners CEO William Vassiliadis would not be allowed under state procurement regulations, a state purchasing official said Wednesday.
And, contrary to published statements by the LVCVA and Vassiliadis that more than $4 million in cash advances to Airwave Productions were immediately passed through to third-party vendors requiring upfront deposits for the costs related to advertising production, authority billing records reveal that the LVCVA has advanced far more money to Airwave than was needed to pay Airwave's subcontractors seeking deposits.
The LVCVA advances exceeded the upfront deposits required from Airwave's subcontractors by more than $300,000 on two occasions in 2007 and provided as much as 95 percent of the total cost of producing the advertisement. Furthermore, there is no indication from LVCVA records that the cash advances paid to Airwave that were then used to cover deposits sought by third-party vendors resulted in any savings for the authority.
LVCVA records also show that the authority frequently makes relatively small cash advances of less than $100,000 to Airwave, contrary to published statements by the LVCVA and Vassiliadis that the advances are required to pay Airwave's subcontractors that are seeking substantial deposits.
The LVCVA cash advances provide evidence that the authority has been providing money that was used to cover at least some, if not all, of Airwave's operating expenses. The state Constitution prohibits a public agency such as the LVCVA from providing gifts or loans to a private company.
Airwave is used by R&R Partners to manage radio and television advertising production. Airwave, however, is a separate corporate entity from R&R Productions and is 100 percent owned by Vassiliadis. Airwave was created in 1986.
The LVCVA has no contract with Airwave, although the authority does regularly make advance payments directly to the company.
The LVCVA on Tuesday awarded R&R Partners a three-year extension on its $90-million-a-year advertising contract. The LVCVA board voted unanimously to extend the contract rather than seek competitive bids. R&R Partners has held the LVCVA advertising contract since 1980.
In an interview Thursday, Vassiliadis said that the LVCVA advances were not being used to cover Airwave's operating expenses. "No, no, no, they are really not used for that," he said.
He also said that Airwave does not receive a financial advantage from the advances, such as earning interest on the money before it is used. "We don't operate with our client's (LVCVA) money," he said. "We don't put the money in short term money market accounts or purchase CDs. It just not the way we do business."
Vassiliadis said the advances are needed to cover upfront expenses that can run millions of dollars for major productions. He said his $1.5 million credit line is insufficient to cover the upfront expenses. "I don't have $1.5 million available just for the convention authority" account, he said.
Vassiliadis declined to answer questions concerning specific LVCVA advance payments to Airwave.
Vassiliadis is quoted in the April 13 edition of the Las Vegas Review-Journal saying the LVCVA advance payments to Airwave are immediately passed through to subcontractors requiring upfront payments and deposits for producing advertisements for the authority. "They (LVCVA) send us the check, we send the check to the companies," Vassiliadis told the Review-Journal.
The LVCVA also states that it provides the advance payments to allow Airwave to cover major, upfront costs. "Due to the substantial upfront production costs payable to third parties, Airwave Productions issues an advanced billing to cover these costs," the LVCVA said in a statement last December after the Nevada Policy Research Institute first revealed the advanced payments.
The LVCVA declined to respond to questions regarding its policy concerning advance payments to vendors and whether any other vendors receive similar advance payments from the $290 million agency.
The LVCVA advance payments to a private company would not be allowed under state procurement regulations, says Kimberly Tarter, deputy administrator of the Nevada Purchasing Division. The state, she says, "does not make advance payments" to vendors for goods and services.
"I know vendors sometimes ask to be paid in advance, but a payment in advance runs many risks," Tarter said Wednesday. "We are not willing to take that risk."
Tarter said the state procurement policy doesn't apply to political subdivisions such as the LVCVA, which falls under a different state statute for procurement. However, she said that it is good fiscal policy for any government agency to avoid making advance payments to vendors.
Making advance payments, she said, "could open up quite a Pandora's box if you really think about it." If the state, for some reason wanted to make an advance payment to a vendor, it would require "the Attorney General reviewing the contract," Tarter said.
In Clark County, the "general rule is that the receipt of goods or services must occur prior to payment," said county spokeswoman Jennifer Knight, in an e-mail. "This is part of county accounts payable procedures." However, she added, exceptions exist, such as for buses and fire trucks, where the county makes deposits and completes payment after delivery.
"These are infrequent and the payment terms and conditions are well defined in the contracts," said Knight.
Washoe County acting purchasing administrator Michael Sullens said that county, which includes Reno, does not have a "hard and fast policy" regarding advances to vendors. Sullens said the county will consider an advance to a vendor if it results in a substantial discount or savings to the county. "We typically would not extend a bunch of money," he said. "We want to limit our exposure."
NPRI obtained Airwave's billing records from the LVCVA under the Nevada Public Records Law as part of the Institute's transparency in government initiative. The records show the LVCVA advanced more than $4.1 million to Airwave between July 1, 2007 and Oct. 20, 2008.
LVCVA records show the authority advanced $1.717 million to Airwave on Feb. 12, 2007 for advance production costs for a new commercial for the "What Happens Here, Stays Here" campaign. Airwave received $1.4 million in invoices from three vendors seeking advance payments by Feb. 16, 2007. The largest vendor was Hungry Man Inc., a New York-based production company that submitted four separate invoices requesting $1.253 million in advance for "production services." Two other vendors requested upfront fees totaling $108,000.
Presuming Airwave immediately issued checks to the three vendors, Airwave retained $356,000 from the LVCVA advance payment. LVCVA records indicate that no other vendor asked for advance payments, and that fieldwork on the television advertisement did not begin for several more weeks.
Between Feb. 28 and March 7, 2007, filming for four television ads was done in Las Vegas, according to Airwave's billing records. In March, April and May, other subcontractors submitted invoices to Airwave, eventually bringing the total of the invoices over the balance remaining from the Feb. 12 advance payment.
On May 31, 2007, Airwave submitted a new invoice to the LVCVA for an additional $608,000 to cover expenses above the authority's $1.7 million advance payment. Included in the May invoice were $301,000 in commissions payable to Airwave. The LVCVA advance payment of $1.7 million covered 85 percent of the production's $2 million in expenses, not including the Airwave commission.
The LVCVA paid Airwave the $608,000 on July 30, 2007. It is unknown when Airwave paid its vendors.
In another example, LVCVA records show that the authority issued a "partial advance billing" of $1.5 million to Airwave on June 12, 2007 for a commercial for the "Your Vegas Is Showing" campaign. On that same date, Airwave received two invoices totaling $1.046 million from Smuggler, a New York production company. The Smuggler invoices stated they were for the "total production contract" for an advertisement called "Your Vegas is Showing."
Assuming Airwave immediately paid Smuggler the $1.04 million, Airwave continued to hold $453,967 from the LVCVA advance. On June 25, 2007 — 13 days after receiving the LVCVA advance payment — billing records state that Los Angeles-based Rock Paper Scissors submitted an advanced billing request for $92,379 for post-production work.
If Airwave immediately paid Rock Paper Scissors, Airwave still had $361,588 remaining from the LVCVA advance. Records indicate no other subcontractor sought an advance payment.
On Oct. 30, 2007 — more than four months after receiving the advance payment — Airwave submitted its final invoice to the LVCVA seeking an additional $317,010 to cover costs that exceeded the $1.5 million advance. The additional costs included $245,457 in commissions due to Airwave.
The LVCVA advance payment of $1.5 million covered all but $71,553 of the production expenses, or 95.5 percent of the productions costs, not including Airwave's commission.
The LVCVA paid Airwave on Dec. 14, 2007. Without Airwave's canceled checks, it's impossible to know when the company paid its subcontractors.
Billing records also show the authority advanced funds to Airwave for relatively small production expenses, months before the money was needed to pay outside producers.
The LVCVA advanced $57,000 to Airwave on June 21, 2007 and $41,500 on Sept. 24, 2007 for a total of $98,500 for an advertising campaign for Mesquite. Although Airwave received the first LVCVA advance in June 2007, the production was not filmed until October 2007.
Records show that primary subcontractor Cosmic Pictures Inc. submitted an invoice seeking $69,760 in advance pay on Oct. 4, 2007. The ad was filmed Oct. 8-11. Cosmic submitted a final bill on Dec. 6, 2007 for a balance owed of $23,253.
On Dec. 31, 2007, Airwave submitted a second invoice seeking an additional $32,738 above the initial LVCVA advance and in February 2008 sought additional fees bringing the grand total to $125,200 in expenses.
The LVCVA advance to Airwave covered 79 percent of the entire cost of the production. Airwave received an additional $17,800 commission.
The billing records indicate that the LVCVA regularly advances cash to Airwave with minimal information or documentation detailing the purpose of the upfront money. On Oct. 20, 2008, for example, the LVCVA forwarded $917,305 for a "partial advance billing" to Airwave with virtually no information. The one-page invoice submitted by Airwave requesting the advance stated: "backup to follow later."