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Franchise auction results approved despite previous controversy

(Feb. 1, 2013) The Ocean City Council this week approved the December auction of beach equipment franchise rights, which saw an additional $1,200 of revenue for the city over the previous sale, despite previous controversy over the dominance of one vendor.

Ocean City has a revolving system by which it takes bids for the rights of private operators to rent umbrellas, chairs and other equipment on public beaches. The city’s coastline is divided into parcels, consisting of one block’s worth of beach in the mid and south areas and several blocks on the less busy north end.

Each zone is auctioned every third year, with contracts lasting for three years with the option to renew at a 10 percent increase. The December 2012 auction saw four of 18 north-end parcels renewed, and the other 14 auctioned.

The concession system has been highly rewarding for the city’s coffers over past decades, but bids for any given stretch of beach have declined since 2008, as the slow economy has reduced concessionaires’ profit margins. Subsequently, the city increased the maximum number of parcels one franchisee could hold at a given time

The previous cap had been 33 percent, to prevent a certain level of beach monopolization by one vendor. But that share was upped to 50 percent in order to encourage an economy of scale and keep the franchises attractive to larger investors. This has resulted in a slow recovery of bid revenues, with the 2012 income $1,200 higher in total than the year before.

However, several concessionaires had come before the City Council in November to complain that the person who has taken advantage of the cap increase – Patrick McLaughlin – was only able to do so through extra-legal means.

In October of this year, McLaughlin was sentenced to 10 months in prison for failing to file tax returns and employment tax withholdings. McLaughlin operates 85 N Sunny, the resort’s largest beach equipment rental, which had won rights to nearly 50 percent of the beach. In this last auction, he gained four additional parcels.

McLaughlin apparently dodged $20,000 in Social Security and Medicare withholding for 85 N Sunny. His total IRS tab for all of his businesses, though, was $296,701.46.

The city, however, has been accommodating, despite McLaughlin’s franchise competitors lobbying against him.

“All returns have been filed and all tax has been paid,” McLaughlin wrote in an email last month. “I am in current compliance with my federal and state tax obligations and I have worked and continue to work with qualified professionals to ensure that I remain in compliance going forward.”

“I have kept the city advised of my situation and I am very grateful that the city has supported my efforts to remain a viable and contributing member and employer of the Ocean City business community.”

City Clerk Kelly Allmond noted that beach franchisees and the Beach Mediation Board, which rules on any disputes regarding the concession system, had met with the Ocean City Beach Patrol prior to the auction.

OCBP Captain Butch Arbin had asked, Allmond said, that rules governing the hours when franchisees can bring trucks onto the beach for their rental wares be more closely observed.

“Bill [Bandorick, mediation board chairman] recommends that we put stricter or tougher wording in there about driving on the beach. We’ve had a little bit of a problem with that this past year,” Allmond said.

She also noted that some vendors have requested an extension of their hours to 6 p.m., although the OCBP goes off-duty at 5 p.m. Mayor Rick Meehan said he didn’t see any reason that vendors couldn’t stay open as long as they wish, as long as they’re still open for all the hours that the city requires.

“I think it just set the hours they’re supposed to operate; it doesn’t mean they can’t stay open long than that,” Meehan said. “A lot of people stay on the beach after five. It’s like a retail operation in a shopping center – there are hours you have to stay open per the lease, but you can open early or stay later if you want.”


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