CONCESSIONS MANAGEMENT

Supervision of Concessions Operations

Handbook
Chapter 3
Page 15

Procedures and Instructions

(4) Members of the immediate families of cooper-
ating officers will be accommodated on the
same basis as such cooperating officers.
Other members of their party will be charged
the usual authorized rates. (Extract from
FO-4-56, January 11, 1956)

Franchise Fees.

1. Policy Modified. The policy of the Department, approved October 13, 1950, with respect to franchise fees, has been modified to the extent that the "if earned" feature of the policy statement (Administrative Manual, Volume III, Part 2, Chapter 4) has been eliminated except in special cases. Franchise fees are payable on all gross receipts from the operation--none of the gross receipts may be excepted, unless by specific approval of the Director. The basis for the payment of franchise fees is a percentage of the gross receipts (see 2 below). Franchise fee payments shall not be based on a percentage or other division of the net profits from the operation.

2. Small Operations. As a general rule, when the gross receipts of a concessioner have averaged less than $100,000 annually over a three to five-year period, the percentage of gross fee as applied to such average annual gross receipts for the previous period should be reduced to a fixed amount. The fixed amount of the percentage fee arrived at in the manner set forth above should be added to whatever additional flat fee is to be charged for ground rent (see 4a below) and Governmentowned buildings (see 4b below) assigned to the concessioner or permittee. The combined amount should then be set forth in the contract or permit as the annual franchise fee to be paid by the concessioner or permittee. This same principle may be followed also where it is anticipated that a new concession or one which has been in operation for a shorter period than mentioned above will not have gross receipts in excess of $100,000 annually.

Release No. 1

October 1958

WHETHER FRANCHISE FEE CHARGED CONCESSIONAIRES SHOULD BE PROPORTIONATE FOR EACH TYPE OF BUSINESS, OR SHOULD BE BASED SOLELY ON THE CONCESSIONAIRE'S PRINCIPAL TYPE OF OPERATION Mr. BROOKS. There is another question, Mr. Secretary, that I know you are going to want to look over in your study of concessionaire problems. That is the one on concession contracts which provide for a flat franchise fee plus a percentage of the concessionaire's gross receipts. The percentage included in the contract is determined by whether the concessionaire's primary operation is for housing, which is three-quarters of 1-percent fee; store, transportation, guide, or other services which is 12 percent fee; or souvenir, curio, or photographic shop which is 3-percent fee. For example, in the 5-year period, 1956-60, Fred Harvey Co., at Grand Canyon National Park-which earned 82.1 percent rate of return on net worth-was charged a minimum three-quarters of 1-percent fee. In the year 1960 this concessionaire derived 19.2 percent of the gross receipts from stores and service-type operations and 28.3 percent from souvenir and curio shops, that is, 47.5 percent of its gross receipts were from operations other than those on which the fee is based. If the company had been. charged a proportionate fee on these gross receipts for each category of operation that it did enjoy, the franchise fee would have been $60,812 instead of $34,787. This is one of the continuing problems I am sure you are working with, but it could amount to several hundred thousands of dollars a year and I wonder if this is one of the problems that you are going to consider. If you include the five major concessionaires, we see that the fees the Government would have received from franchises would have been $262,993 rather than $149,578.

This is the problem concisely: The Government could have made another $113,000 if the Park Service charged them on the basis everybody agrees the contract is on, and made their business pay the franchise fee that affects that part of the business that was for stores or guides or curio shops.

For the record, let me insert this breakdown.

(The document, exhibit 5, follows:)

EXHIBIT 5-NATIONAL PARK SERVICE DATA FOR CALENDAR YEAR 1960 SHOWING THAT SUBSTANTIAL RECEIPTS ARE DERIVED FROM OPERATIONS OTHER THAN THOSE ON WHICH THE FRANCHISE FEE IS BASED

1 Financial information obtained from concessionaires' annual financial reports submitted to National Park Service.

There was no description given as to the type of subconcession operations; therefore, in computing the attributable fee, we used the minimum of 0.0075 to be conservative.

Subconcessionaires' gross receipts were derived from auto service stations and transportation and the fee computed at 0.0150.

4 Subconcessionaires' gross receipts were derived from the following sources:

• Subconcessionaires' gross receipts were derived from the following sources:

⚫ Hamilton Stores and the Yellowstone Park Co. have a joint venture for operation of auto service stations at Yellowstone National Park. Hamilton Stores' records commissions from the joint venture as those received from a subconcession operation; while Yellowstone Park Co. includes commissions as part of its regular operating accounts.

Mr. CARVER. Mr. Chairman, you have raised a valid point. The uniform franchise rate is, as you have stated, theoretically fixed at a rate for the primary service provided by the concessionaire as a matter of convenience. The percentage rates take into account the normal profit margins of incidental activities based on the experience of representative concessioners over a 5-year period.

But this is just a standard or a test as a guide.

Mr. BROOKS. As a minimum?

Mr. CARVER. Well, a rule of thumb is what it amounts to.

Mr. BROOKS. But it says minimum, doesn't it, in the guide? It says a minimum fee will be three-quarters of 1 percent?

Mr. CARVER. Yes. We can see there is merit in a fee schedule and this is a part of the operation that is already underway and which, as I heretofore have said we have undertaken at the request of the House Appropriations and Interior Subcommittee.

Mr. BROOKS. We would be interested in that.

ARE CONCESSIONAIRES' FRANCHISE FEES REASONABLE IN RELATION TO THEIR PROFITS?

Now, the next question I had you have partially covered, Mr. Secretary, whether the concession fees are reasonable in relation to the profits? I believe this is under study at your level. Your own people are making that study at your suggestion and request. Secretary UDALL. That is right.

Mr. BROOKS. We noted that for the 5-year period the Harvey Co. profits averaged 82.1 percent on their investment and they were only charged the minimum fee of three-quarters of 1 percent. We also noted that the percentage charged three other concessioners ran from 33 to 67 percent less than the minimum percentage fee set out in the Park Service guide for negotiating franchises. One other concessioner was also charged the minimum.

This is something we looked at before. I want to put in the record an exhibit showing the average rate of return of these five major concessioners.

(Exhibit 6 follows:)