While Coney Island’s veteran Mom & Pops hammer out a deal for one last summer on the Boardwalk, French food and facilities giant Sodexo has a sweet 10-year sublease with Luna Park operator Central Amusement International. A copy of the confidential sublease agreement between Sodexo and CAI was obtained through a Freedom of Information Act request to the NYCEDC.
Sodexo’s contract with CAI is dated April 26, 2010 and says it had to be approved by the NYCEDC since the sublease is subordinate to the underlying lease between the City and the amusement operator. Here are some of the terms of Sodexo’s sublease:
–Last season, Sodexo paid Luna Park operator CAI a “flat rental fee” of $75,000 to operate food kiosks in the park. Sodexo keeps all cash receipts and pays all operating expenses. What was the City’s cut? According to the Economic Development Corporation’s (NYCEDC) lease with CAI, the City receives 15% of the fixed rent paid by any subtenant. If you do the math, 15% of $75,000 is a paltry $11,250. By comparison, last year the City received 100 per cent of the rent paid by the Boardwalk businesses, which was $100,000 each for Paul’s Daughter, Ruby’s and the other food concessions.
–Sodexo’s initial investment of $1.432 million is considered a “Reimbursable Initial Capital Investment” for the purchase of four kiosks, a concession trailer, beer and liquor license, and equipment necessary for remodeling and operating the restaurant under construction at Surf Avenue and 10th St. The Reimbursable Capital Investment will be owned and depreciated by the amusement operator.
-In 2011, Sodexo will pay CAI a flat rental fee of $225,000, which means the City’s 15% cut will be $33,750. Pocket change! Beginning in 2012, Sodexo will pay a fee based on the prior year’s net sales. For example, if the prior year net sales are $2.7 million, then Sodexo would pay a flat rental fee of $432,000, or 16% of the net sales.
–CAI gets to decide whether Sodexo will have the option of operating “Branded Concepts” in the park. According to the contract, the term refers to “food and beverage systems operated by Sodexo through national and regional third party license agreements or franchise agreements or through Sodexo’s own in-house trademarked brands.” As ATZ reported in January, Sodexo is known for its cafeterias and individually branded restaurants, but nationally branded subtenants are also brought in under franchising or licensing agreements for the appearance of variety. Branded Concepts frequently mentioned in Sodexo’s ads are Starbucks, Pizza Hut, Sub Connections and Panera Bread.
—Luna Park cannot require Sodexo to use products from “non-Sodexo approved vendors” and suppliers. As we reported previously, Sodexo has a completely centralized purchasing system, which requires clients to choose from a list of “Right Products.” Another term used internally by Sodexo is “Compliant.” Vendors who offer rebates are “compliant” while those that do not are “locked out,” according to investigative reporter Lucy Komisar in “Cafeteria Kickbacks: How food-service providers like Sodexo bilk millions from taxpayers and customers.” Last July, then-Attorney General Cuomo issued a press release announcing “a $20 million settlement with food services provider Sodexo for overcharging 21 New York school districts as well as the SUNY system.”
–Sodexo is an independent contractor and has its own employees. The lease contains more than a dozen clauses to insure compliance with non discrimination and affirmative action policies as well as City programs such as Minority and Women Business Owned Enterprises. According to NPR, Sodexo executives say they are trying to create a more diverse workplace after settling an $80 million class action discrimination lawsuit brought by African-American employees in 2006.
–After 3 years, either party is free to terminate the lease. If the agreement is terminated by Sodexo for convenience or by CAI for cause, at the end of the third year CAI would have to reimburse the remaining unamortized value of the Reimbursable Initial Capital Investment ($1.432 million) over a three year period, payable on a monthly basis, with interest accruing at the prime rate in the Wall Street Journal plus 2%.
CAI’s Luna Park and soon-to-open Scream Zone are on City-owned land in Coney Island purchased from Thor Equities for $95 million and leased to the amusement operator for ten years. As the Sodexo sublease makes clear, CAI has a pretty sweet deal too. Their base rent is $100,000 annually plus a small percentage of the gross receipts. For example, ten percent of gross receipts over $7 million.
However, Central Amusements is also investing nearly $30 million in building and operating the park. According to CAI’s contract with the City, Luna Park also received a subsidy of $5.7 million from the City for “among other things, facilitating the purchase of certain equipment necessary for the Tenant to operate the Premises as a first class amusement park.”
Sodexo, which is the 21st largest corporation in the world, has a market value of 7.7 billion euros ($10.59 billion). The French food and facilities management giant has been CAI’s partner for “On Site Service Solutions” since Luna Park opened last May, though the partnership was not announced by the City or CAI. Sodexo’s presence was known only within Coney Island until ATZ first reported the news in November after the Boardwalk businesses received eviction notices on November 1st, the day after the 2010 season ended.
Related posts on ATZ…
March 31, 2013: Surf’s Up for CAI Foods in Coney Island, Sodexo Is Out
October 20, 2011: Reversal of Fortune on the Coney Island Boardwalk
January 20, 2011: Sodexo Investing $2.4M in Zamperla’s Coney Island
January 13, 2011: Paul’s Daughter Dishes on the Boardwalk Brawl