Salt Lake City Golf Fund Analysis and Recommendations. Presentation to the Salt Lake City Council

Transcription

1 Salt Lake City Golf Fund Analysis and Recommendations Presentation to the Salt Lake City Council January

2 Project Scope of Work Evaluate current and historic financial performance of the Golf Fund. Assess the competitive market for golf services in the Salt Lake City region. Assess trends in City residents desires for recreational services. Determine the initiatives already taken by the Golf Fund to address declining participation. Develop alternatives for improving the financial performance of the Golf Fund.

3 Methodology Interviewed City Stakeholders. City Council members Council staff Mayor Chief of Staff Public Services personnel Toured all courses. Collected, read and analyzed data and previous reports. Performed financial analysis and projections. Conducted case studies of other cities golf services.

4 Background (1) The numbers of rounds played at SLC courses have declined significantly in recent years. Down 18.4% since 2001 Down 5.8% since 2005 Down 6.7% since 2010 Individual course play has decreased at even more rapid rates than the averages shown above. Wingpointe down almost 30% since 2001 Rose Park and Forest Dale down over 24% since 2001 Even Mtn. Dell, a profitable course, down almost 26% since 2001

5 Background (2) Although some courses (notably Mtn. Dell and Bonneville) are returning relatively large net profits on an operating basis, the Golf Fund has sustained losses of $1.8M since Rose Park and Wingpointe account for over 84% of the losses over this time period. From 1990 to 2005, the region saw a 95% increase in the number of holes available to golfers. Recent local survey indicates low, and declining, interest in golf relative to other recreational activities.

6 Background (3) There are significant capital expenditures necessary at all courses. Some of these are necessary simply to stay competitive with other local courses. The conversion to secondary water sources at courses is a necessary, yet costly, expense with a long-term ROI.

7 Financial Analysis Course expenditures have been volatile over the past four years. However, assuming: These would increase by the regional CPI of 1.96% over the next four years, and Course revenues would increase (or decrease) at the average rates they have displayed over the past four years The Golf Fund would lose $3.0 M over the next five years if all courses remained open.

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9 Impact of Course Closures Currently Glendale, Rose Park, and Wingpointe are operating at a deficit. Several different course closure scenarios were analyzed: Closure of individual courses Closure of multiple courses Impacts assume the elimination of all course expenditures and revenue.

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11 Break-Even Revenue Assumptions For each course closure scenario presented, a breakeven analysis was conducted. Breakeven revenue represents the revenue needed to bring the Golf fund to net zero. Round Breakeven revenue represents the total round revenue needed to breakeven. This was calculated using the average proportion of rounds revenue (green fees) to course rounds played (64%).

12 Break Even Rounds Assumptions To project the number of rounds needed to achieve breakeven revenue, the average fee per round was applied: Average Revenue / Round: $10.82 (based on revenue collected) Average Fee Standard: $23.21 (based on standard course fees) Average Fee All: $18.26 (based on all course fees) The number of rounds needed is expressed as a percentage of total projected rounds. Total projected rounds factor in an annual decrease of 1% per year. FY 14/15 rounds are projected to be 415,000 FY 19/20 rounds are projected to be 390,000

13 Breakeven Analysis: Closure of Glendale FY 15/16 FY 16/17 FY 17/18 FY 18/19 FY 19/20 Breakeven Revenue $350,885 $465,523 $575,479 $680,761 $781,358 Round Breakeven Revenue $223,235 $296,168 $366,122 $433,103 $497,104 Percentage of Overall Projected Rounds Avg. Revenue 7.97% 9.98% 11.94% 13.87% 15.75% Avg. Standard 3.72% 4.65% 5.57% 6.47% 7.34% Avg. All 4.73% 5.91% 7.08% 8.22% 9.34%

14 Breakeven Analysis: Closure of Rose Park FY 15/16 FY 16/17 FY 17/18 FY 18/19 FY 19/20 Breakeven Revenue $116,693 $210,058 $300,418 $387,657 $471,645 Round Breakeven Revenue $74,240 $133,640 $191,127 $246,629 $300,063 Percentage of Overall Projected Rounds Avg. Revenue 1.90% 3.45% 4.99% 6.49% 7.97% Avg. Standard 0.89% 1.61% 2.32% 3.03% 3.72% Avg. All 1.13% 2.05% 2.95% 3.85% 4.72%

15 Breakeven Analysis: Closure of Wingpointe FY 15/16 FY 16/17 FY 17/18 FY 18/19 FY 19/20 Breakeven Revenue $290,504 $385,699 $476,976 $564,289 $647,574 Round Breakeven Revenue $184,820 $245,383 $303,454 $359,003 $411,989 Percentage of Overall Projected Rounds Avg. Revenue 4.77% 6.40% 7.98% 9.53% 11.03% Avg. Standard 2.23% 2.98% 3.72% 4.44% 5.14% Avg. All 2.83% 3.79% 4.73% 5.65% 6.54%

16 Breakeven Analysis: Closure of Wingpointe & Rose Park FY 15/16* FY 16/17* FY 17/18 FY 18/19 FY 19/20 Breakeven Revenue N / A N / A $14,457 $44,587 $72,149 Round Breakeven Revenue N / A N / A $9,198 $28,367 $45,901 Percentage of Overall Projected Rounds Avg. Revenue N / A N / A 0.28% 0.86% 1.40% Avg. Standard N / A N / A 0.13% 0.40% 0.65% *No Breakeven Revenue as elimination of course expenditures results in net profit for the Golf Fund Avg. All N / A N / A 0.16% 0.51% 0.83%

17 Breakeven Analysis: Closure of Wingpointe & Glendale FY 15/16 FY 16/17 FY 17/18 FY 18/19 FY 19/20 Breakeven Revenue $296,029 $347,359 $394,800 $438,289 $477,742 Round Breakeven Revenue $188,335 $220,991 $251,173 $278,841 $303,942 Percentage of Overall Rounds Avg. Revenue 5.98% 7.07% 8.10% 9.06% 9.95% Avg. Standard 2.79% 3.30% 3.78% 4.22% 4.64% Avg. All 3.54% 4.19% 4.80% 5.37% 5.90%

18 Course Closure Analysis Closure of individual courses: Wingpointe requires an average of 8% of increase of City course rounds for the golf fund to break even Glendale requires an average of 16% increase of City course rounds in order for the golf fund to break even Closure of multiple courses: Closures of Glendale, Rose Park, and Wingpointe would project an immediate and sustained revenue surplus to the Golf Fund Closures of Rose Park and Wingpointe projects an immediate surplus to the Golf fund in years 1 and 2, but would require an increase in overall golf rounds (1.4%) to maintain a net zero impact

19 Case Studies (1) We surveyed eight cities nationally to gain insights into their experiences with the provision of municipal golf. These included: Albuquerque, NM Boise, ID Denver, CO Lincoln, NE Portland, OR Sacramento, CA St. Paul, MN Wichita, KS

20 Case Studies (2) We found five different operating models in these cities: City operation (Albuquerque, Boise, Denver, Lincoln, Portland, St. Paul, Wichita) Concessionaire model (Sacramento, Portland) Management agreement model (Portland, St. Paul) Operating lease model (Portland) Hybrid lease model (Denver, Portland, Sacramento, Wichita)

21 Case Studies (3) Seven of eight cities claim to be currently profitable and selfsustaining, with no general fund (GF) subsidy. Albuquerque has been self-sustaining other than this year, during which the GF subsidized some capital improvements related to irrigation. All expressed the strong opinion that the conditions of their courses was the single greatest element of success. All also expressed the need to have flexibility to manage their courses as a business.

22 Case Studies (4) In Portland, the City has always maintained the courses, but has always outsourced the operation of its seven courses. Sacramento was losing money on courses, and wanted to outsource their course management. Outsourced all maintenance and operations at its seven courses to one concessionaire (1991) The City was unprofitable prior to concessionaire, and is now profitable

23 Alternatives (1) Close Wingpointe. Stop losses of almost $300,000 over last five years FAA requirement for Golf Fund to lease land at over $500,000 by 2017 makes this course unlikely to return to profitability Other courses would require only an increase of 8% overall in order to make the Fund profitable Close Wingpointe and Rose Park. Closing both courses would result in a surplus in the Golf Fund over years 1 and 2 Would require an increase in rounds played to be profitable beyond year 2

24 Alternatives (2) Close Wingpointe and investigate the feasibility of either a management agreement or concession model to operate the remaining courses. Many ways to structure these agreements. City may contractually receive fixed or variable fees from the private operator. City may structure different agreements at different courses. City may retain responsibility for capital improvements (Portland) or not (Sacramento).