Agenda Report PARK, RECREATION & OPEN SPACE COMMISSION ARTS, RECREATION & COMMUNITY SERVICES DEPARTMENT
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1 Agenda Item No. 4b DATE: FEBRUARY 8, 2010 Agenda Report TO: FROM: PARK, RECREATION & OPEN SPACE COMMISSION ARTS, RECREATION & COMMUNITY SERVICES DEPARTMENT SUBJECT: BOUNDARY OAK GOLF COURSE STATUS REPORT & SIX MONTHS OPERATING BUDGET RESULTS STATEMENT OF ISSUE: The Boundary Oak Golf Course (BOGC) is owned by the City and is operated and maintained by CourseCo, Inc. The Arts, Recreation and Community Services Department (ARCS) is responsible for oversight of the management contract for golf and food and beverage operations and maintenance and the related operating budgets and enterprise funds. This report gives an update on BOGC operations and operating budget results for the six-month period July 2009 through December RECOMMENDED ACTION: Receive this status report and review with staff. DISCUSSION: Background The Boundary Oak Golf Course (BOGC) is a 160-acre, 18-hole championship golf course (in excess of 7,000 yards from the championship tees), which opened in Initially designed by Robert Muir Graves, the course features picturesque holes bounded by lakes, trees, and sand bunkers. The BOGC facility houses a 30,000 square foot, two-story clubhouse which features banquet facilities upstairs (The Clubhouse at Boundary Oak) and a snack bar that serves golfers downstairs. The pro shop and cart barn are located on the lower level at the south end of the facility and are bounded by two practice greens. The east end contains a parking lot and is adjacent to the 55 stall driving range and practice green. BOGC is a full service golf course and is home to several user groups (Home Clubs) including the Men s Club, Women s 9-Hole Club, Women s 18-Hole Club, and SIR (Sons in Retirement). Additionally, BOGC is home to successful junior golf and youth development programs, including
2 PROS Commission Agenda Report Boundary Oak Golf Course Status Report and Six Months Operating Budget Results February 8, 2010 Page 2 LPGA-USGA Girls Golf and First Tee, and large middle and high school golf programs. BOGC offers lessons for all ages and abilities and also hosts local (e.g. Mayor s Cup) and professional tournaments (e.g. Stead Open) from time to time. In December 2007, City Council accepted the Boundary Oak Market and Financial Feasibility Study conducted by Economic Research Associates (ERA). Among many recommendations, Council accepted the recommendation to implement a single operator-management contract business model to ensure a seamless delivery of golf and food and beverage at BOGC. From January 2007 through October 2008, the City, with the help of the public, conducted a nationwide search for a new operator, ultimately selecting CourseCo, Inc. (CC) a regional golf management company based in Petaluma. The new operator s target start date coincided with the June 30, 2009 completion date of the existing operators contracts. Due to the subsequent early termination of the former food and beverage operator s contract, CC began food and beverage operations on February 26, 2009 and took over golf operations on July 1, The results in this staff report reflect the management contract business model under which the City receives all revenues, is responsible for all expenses, and the operator is paid a management fee for their services. Prior to July 1, 2009, the City received all green and resident card fees, a portion of the ancillary golf revenues (driving range, cart rental, lesson and merchandise sales) and a food and beverage lease payment. The City also paid for golf maintenance expenses, a share of the clubhouse facility expenses and funded certain golf operation support services. CourseCo manages seven Bay Area municipal golf courses in addition to Boundary Oak. These other courses are currently experiencing downward trends in golf rounds and golf revenues ranging from -2.4% to -5.4%. Higher end courses in the area (daily fee, semi-private, private) are experiencing a greater decline (some by as much as 10%). Rounds and revenues at most Bay Area mid-market municipal courses are down -5% to -10% on average. A perspective on the golf industry nationally can be found in Attachment 2, which is an excerpt from the National Golf Foundation s (NGF) Fall 2009 Golf Industry Report. The report indicates that focus on customer service and the golf and food experience are paramount for successful golf courses to reach satisfactory performance levels. While NGF reports that 10% - 15% of public courses are at risk, staff believes strongly that BOGC does not fall in this category. NGF points to the fact that successful facilities show a higher degree of good management behavior. The NGF report indicates focus on customer service, planning, player development, customer surveys, seeking new revenue sources and the player experience leads to positive results. Mid-Year Budget Results The state of the general economy has created a challenging business environment since fall The BOGC event/banquet component of the food and beverage business, which has been attempting to rebound from multiple operator changes and two years of limited marketing and sales activities, appears to be more adversely impacted by the general economic conditions than the golf business. The economic downturn has had an effect on the size of weddings, special events and golf
3 PROS Commission Agenda Report Boundary Oak Golf Course Status Report and Six Months Operating Budget Results February 8, 2010 Page 3 tournaments. The core golf business (regular rounds), whose foundation is composed of a strong local constituency, has responded positively to the improved golf course conditions, new pro shop merchandise offerings, and enhanced customer service. As a result, the golf business has not experienced as much of an adverse impact from the challenging business environment. Attachment 1 provides an overview of the BOGC budget results for the first six months (July through December 2009) of FY Paid golf rounds totaled 33,194 (53% of budget), an increase of 5.4% (1,679) over the comparable prior year period (July December 2008). Golf operations revenue and golf/maintenance contract operations expenses are both at 49% of budget. Golf green fee revenue for the first six months of FY is up (+ 9.4%) over the comparable prior period as a result of several factors including the full effect of the October 2008 green fee increase, increased rounds, and improved tee sheet management. Ancillary golf revenues (driving range, cart revenues, lessons, and merchandise) are generally even with last year and/or above FY budgeted levels. Food and beverage contract operations expenses are at 42% of budget, however, food and beverage revenues are only 34% of budget. The softness being experienced in food and beverage revenues is basically in the event/banquet area. The Other Expenses section of Attachment 1 reflects funds budgeted for annual debt service payments for the 1997 golf irrigation bond and the Clubhouse (Restaurant) enterprise fund payment for the longstanding General Fund loan. Other Expenses also includes funds budgeted for support services provided to BOGC by the ARCS, Administrative Services and Public Services Departments. Other Expenses are front-loaded as approximately 80% of the irrigation bond annual payment ($156,249) is made in the first half of the fiscal year. Excluding the irrigation bond payment, Other Expenses for the July 2009 through December 2009 period are below budgeted levels. ARCS staff and CC have reviewed the mid-year results, particularly with respect to the food and beverage event/banquet business. CC will be implementing actions to reduce food and beverage operating costs as much as possible without causing adverse impact to long-term business development efforts. The goal of these cost containment efforts is to improve the FY yearend food and beverage net cash flow position as much as possible. BOGC Improvements Made by CourseCo City staff believes that the New Boundary Oak single operator business model is already delivering improvements in the golf and food experience and that CC demonstrates many good management behavior characteristics. Staff feels confident that the continuing improvements in the BOGC customer experience and good management practices will enable the New Boundary Oak to combat the customer base dilution experienced in this region. As the PROS Commission observed during the October 2009 BOGC tour, CourseCo has made many improvements to enhance the golf and food and beverage experience, as described below:
4 PROS Commission Agenda Report Boundary Oak Golf Course Status Report and Six Months Operating Budget Results February 8, 2010 Page 4 Basic maintenance has been intensified with additional aeration, seeding, and topdressing of greens, tees and fairways and fresh plantings in public areas. Decayed debris has been removed, trees have been trimmed and chipped and mulched tree trimmings have been used to enhance the appearance of public areas and tree wells. New signage has been installed to provide a more customer friendly atmosphere. New driving range ball dispensing equipment has been installed. The range also now features new landing areas and mats, improved signage, and a new ball washing area. New carpet, fixtures and merchandise have been added to the pro shop. A flat screen TV and new Home Club Event Boards have been installed to foster a more customer friendly environment. New events, such as Night Golf, Home Club Appreciation, and Thanksgiving Day golf event have been created to encourage participation from both current patrons and to attract new golfers. It is also important to note that the arrival of new CC personnel and melding of previous BOGC staff has created a customer service and work ethic that has contributed to enhancing the guest experience. The golfer s grille has undergone a facelift as a result of interior painting, new signage, new chair cushions, and the addition of flat screen TVs. Menu offerings have also been changed and new selections are available to enhance golf event packages. The Clubhouse at Boundary Oak has hosted new events such as Happy Hours, Easter and Mother s Day brunches, Italian Night, New Years Eve Costume Party, and has provided banquets for various golf related events. Golf tournaments and special events are being bolstered with increased marketing and sales efforts. A new Outdoor Event Area has been created in the area east of the Hole #1 tee box. The area, along with the entrance from the east parking lot, has been beautified with fresh plantings and will be used for wedding ceremonies and other outdoor events. The availability of this new venue is expected to help grow the food and beverage event/banquet business. SUMMARY: The new business model at Boundary Oak Golf Course and Clubhouse has provided the opportunity to enhance the facility and to improve the customer experience. The changes to BOGC have been well received and created a new enthusiasm among existing customers and created an inviting environment for new customers. The City-operator partnership created by the management contract business model provides a working relationship that facilitates problem solving with mutually beneficial solutions and results. The general economic conditions continue to influence both the golf and food and beverage markets, nationally, regionally, and locally. Most of the initial
5 PROS Commission Agenda Report Boundary Oak Golf Course Status Report and Six Months Operating Budget Results February 8, 2010 Page 5 financial results for BOGC s first six months performance of the new business model are quite encouraging and steps are underway to contain food and beverage operating expenses to the extent possible. Staff anticipates that over the next couple of years the enhancements to BOGC, business growth resulting from increased sales and marketing efforts, improved customer service and improvements in the general economy, will yield increased market share and positive financial results, particularly in the food and beverage business. These results are expected to yield the revenues needed to sustain the golf and clubhouse enterprise funds in future years. DOCUMENTS ATTACHED: Attachment 1: BOGC FY Operating Budget Results (July 2009 December 2009) Attachment 2: Excerpts from Golf Industry Report: The Future of Public Golf in America, published by the National Golf Foundation, Fall 2009 report. COMMISSION ACTION REQUESTED: Receive this status report and review the report with staff. STAFF CONTACTS: Jacquelyn Harbert, ext 3561, Harbert@walnut-creek.org Barry Slavin, , slavin@walnut-creek.org
6 Boundary Oak Golf Course FY Operating Budget Results July December 2009 (50% of fiscal year) ATTACHMENT 1 FY /09-12/09 % of Budget Actual Budget Paid Rounds 62,500 33,194 53% Revenue Golf & Maintenance 2,907,075 1,417,522 49% Clubhouse 1,175, ,422 34% Total 4,082,315 1,822,944 45% Contract Operations Expenses Golf & Maintenance 2,507,175 1,218,127 49% Clubhouse 1,145, ,914 42% Total 3,652,651 1,702,041 47% Net Operating Income Golf & Maintenance 399, ,395 50% Clubhouse 29,764 (78,492) -264% Total 429, ,903 28% Other Expenses (debt service payments City support services) Golf & Maintenance 284, ,543 63% Clubhouse 161,425 12,599 8% Total 446, ,142 43% Net Cash Flow Golf & Maintenance 115,076 18,852 16% Clubhouse (131,661) (91,091) 69% Total (16,585) (72,239) 436% NOTES: 1. FY budget and actual expenditures as of 12/31/09 for BOGC contract operations (budget divisions ) and BOGC City operations (budget divisions ). Contract operations figures include shared golf course operations administrative expenses budgeted in Gen & Admin (division 318). Data were taken from the City financial system report for December 2009 dated 1/15/10. July - December 2009 represents 50% of the fiscal year golf & maintenance budget figures exclude start-up funds carried forward from FY A total of $174,892 was carried forward to the FY budget. A total of $153,057 of this carryforward had been spent as of 12/31/ City Support Services & Debt Service includes golf's annual 1997 "irrigation" bond debt service payment ($156,249), the Clubhouse's annual debt service payment ($60,000) for longstanding General Fund loan and support services from ARCS, Administrative and Public Services Departments.
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