Why Bike-Share Fans Should Be Concerned About a New Allegation in Minnesota
The troubled company that provides the equipment for bike-share systems in many cities in the United States, Canada, and beyond has a new problem this week: an unhappy customer in Minnesota. In a move first reported in the Montréal Gazette, Nice Ride Minnesota, which runs the bike-share system in Minneapolis–St. Paul, has filed a "notice of a material breach" of its contract with PBSC, the Montréal-based company that supplies hardware for the Nice Ride program.
It’s just the latest cloud in an already obscure financial picture for the Montréal-based PBSC (also known as Bixi), which supplies bikes and stations for similar programs in New York, Washington, D.C., Melbourne, Australia, London, and many other major cities. As we wrote earlier this month, PBSC has had a long history of money and management woes, and has required bailout loans from the city of Montréal, which created and operates the company. According to the most recent numbers, it is $42 million in debt, with a $6.5 million deficit and $5 million in outstanding payments.
It’s not easy to tell just what the current situation is with PBSC, however, as it has yet to release its 2012 financial statements as required. In September, Montréal’s auditor general expressed his concern that the company might not be able to continue operations.
At the time, PBSC sought to allay those concerns with a statement on its Facebook page: "As you may have learned from the media, [PBSC] is currently experiencing difficulties in liquidity," the statement says in French. "This is temporary. It is mainly due to the success we have had in our international sales." Its interim CEO, Michel Philibert, has said the company is restructuring.
The action by Nice Ride Minnesota appears to be the first public indication that Bixi’s troubles are having a ripple effect on its burgeoning global clientele. According to a statement published October 21 on its website, Nice Ride’s notice comes in the context of "recent news about PBSC’s financial challenges, disputes with its software subcontractor and plans to restructure."
The statement continues, "Nice Ride values its relationship with PBSC and is optimistic that PBSC will restructure successfully. Nice Ride is also taking steps to continue to provide great service and keep pace with software developments. For this reason, Nice Ride provided to PBSC a notice of material breach of the 2010 Bike System Purchase Agreement between Nice Ride and PBSC. Nice Ride is working with PBSC to assure that the concerns raised in this notice are addressed in the pending PBSC restructuring." A notice of material breach is filed when one party to a contract believes that the other is not fulfilling terms of the agreement and wishes to resolve the issue. It does not constitute a lawsuit.
Last year, according to its annual report [PDF], the Nice Ride system logged 274,533 rides, and is on track to hit more than 300,000 rentals this year. Nice Ride did not return a request for further comment.
Information about PBSC's restructuring and its timing is hard to come by. PBSC at first wouldn’t comment for this story, referring questions to the city of Montréal. A city spokesperson, who has failed to respond to queries dating back to early October about various financial and structural issues with the company, apparently forwarded the latest request for information back to PBSC’s Philibert, who replied with this email: "On your request, because it’s a business issue between with our client, PBSC has no intention to comment for the moment. Thank you and have a good day!"
Opacity surrounds PBSC's finances and its dealings with the contractors that manage its systems in various cities. Take the case of New York City, the largest bike-share system in North America with just under 6,000 bikes, where a little-known sponsorship deal was struck last year.
The Montréal Gazette's Andy Riga reported back in September on a draft copy of a contract he had obtained between PBSC contractor Alta Bike Share – which operates the systems in New York, Washington, Chicago, and several other cities (though not Nice Ride Minnesota, which operates separately as a nonprofit) – and a Montréal-based company called USA Bike Share Sponsorship. The agreement, which was not reported at the time in the New York press, gives USA Bike Share Sponsorship 10 percent of the New York system's sponsorship revenue, up to $5.4 million. So far, Citibank has kicked in $41 million and MasterCard $6.5 million, meaning USA Bike Share Sponsorship would be entitled to $4.75 million under the terms of the deal. The draft was dated May 2012, just days prior to the announcement of those major sponsorships, though it's unclear whether it was enacted before or after Citi Bike's corporate sponsors came on board.
François Seigneur, the president of USA Bike Share Sponsorship, is a Montréal businessman whose other ventures have handled sponsorships for the NHL's Canadiens hockey team and Montréal's bike-share system. When contacted earlier in October, Seigneur confirmed the content of the Gazette article, which said that his company is indeed managing sponsorships and getting paid. But Seigneur declined to answer any questions about the terms of the reported contract – including what his company is doing in return for that money or whether it was involved in landing the Citibank and MasterCard sponsorships.
"Yes, we’ve been involved with that project," Seigneur said in a phone interview. "But it's a private business matter, and I don't feel comfortable discussing that. I don't want to go into the details of our role."
When asked about the USA Bike Share Sponsorship deal, Alta referred questions to the New York City Department of Transportation, where a spokesperson did not return repeated requests for comment. NYC DOT also did not return a request for comment about the developments regarding Nice Ride Minnesota.
The question of sponsorship dollars is key in New York, where Mayor Michael Bloomberg promised from the beginning that the system — which eventually is supposed to have 10,000 bikes at 600 stations — would not require any public money to launch and maintain. The city is entitled to 50 percent of any profits from the system, although it is not liable for losses.
About 5,700 Citi Bikes hit the streets in late May of this year – two months after a scheduled March debut, which was pushed back because the bike storage location at the Brooklyn Navy Yard was flooded by Superstorm Sandy. That March date was in itself a pushback from a promised July 2012 launch, which was scratched when Alta couldn’t get the system software debugged in time.
While there has been grousing about placement of Citi Bike stations and errant riders, bike-share has proven to be an overwhelmingly popular addition to the city's transportation options. Some 80,000 people have signed up for annual memberships, taking 4.3 million trips in just five months. What New Yorkers want most from Citi Bike, according to an informal poll of 2,200 users taken by advocacy organization Transportation Alternatives, is more of it: 91 percent of respondents said they want to see the system expanded.
When they’ll get that is unclear.
Expansion was always in the original plans for Citi Bike. According to a press release from NYC DOT posted by Streetsblog back in December 2012, another phase of 1,500 bikes was supposed to be rolled out by the end of 2013 in Queens and Brooklyn. But despite persistent and hopeful rumors from neighborhoods that remain unserved by the system, there is no concrete indication of when or if that will happen. NYC DOT Commissioner Janette Sadik-Khan said in an interview in the spring that new sponsorships and Sandy recovery loans could perhaps be used "to make up for the bikes that were lost during Sandy." At a public panel in September, DOT officials said they were still expecting to add another phase of bikes by the end of the year, but NYC DOT has not returned requests for comment on the expansion timeline. Plans for getting to that oft-cited 10,000 number have never been clear.
Because of the wall of silence from PBSC, Alta, USA Bike Share Sponsorship, and NYC DOT, it’s impossible to say what’s next for Citi Bike. Mayor Bloomberg himself doesn’t seem entirely clear on the state of Citi Bike's finances. "I don’t think [it's making money] yet," he recently told the Daily News, "but they're not losing a lot."
The lack of transparency from all parties involved means that New Yorkers who are hoping to see bike-share become a solid and reliable component of the transportation system might just have to keep waiting.
For metro areas like Washington, D.C., Chicago, and Minneapolis-St. Paul, which rely either not at all or much less heavily on corporate sponsors to fund their bike-share systems, questions surrounding PBSC's continued financial viability remain. Nice Ride Minnesota's filing this week is unlikely to be the last we hear about problems that some of the world's largest bike-share systems are having with their main equipment supplier.