SOA SGCC Benefit Cost Analysis

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Cameron Freeman
5 years ago
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1 SOA SGCC Benefit Cost Analysis The following analysis evaluated the SOA SGCC Contract ( Contract ) from two perspectives. The first was a straightforward analysis of the cost of accessing each amenity. The second looked at the value of the convenience to SOA members having access to the amenities. Below is a summary of the analysis. 1. Straightforward Analysis In 2012 SOA paid SGCC $430,605 for the amenities in the contract. SOA members accessed the amenities 4,039, or $107 per access. Each bag of golf balls hit or restaurant bill paid cost SOA members $107 on top of any user fees charged. The $40 round of golf actually cost $147 per round. The Contract has been a financial disaster for SOA members. 2. Benefit Cost Analysis The main benefit of the contract to SOA members is the value of convenience. Having access to a driving range next door is more convenient than driving to another area to use a range. Convenience can be valued by estimating the cost savings from travel, i.e. the cost of car operations and the value of travel time. The methodology section below explains the estimates for each amenity, a summary table is below. The value of the convenience to SOA members in 2012 was $68,431 versus a cost of $430,605. SOA members received only $16 of benefits for every $100 paid to SGCC. SOA effectively overpaid about $360,000 for the benefits delivered. This is not surprising. SOA did not solicit the amenity package and members were not surveyed as to what amenities they wanted. Low utilization could have been anticipated. Value of Benefits Driving Range $16,637 Restaurant $22,643 Golf Rounds $25,504 Bocce ball $3,646 Fishing 0 Putting Green 0 Undefined Amenity $0 Total Value of Convenience $68,431 SOA Payments for Amenities $430,605 Net Benefit -$362,174 Benefit/Cost 16% In both cases the analysis indicates that the Contract has been extremely costly to SOA members for limited benefits. Moreover SGCC should refund at least $300, ,000 to SOA for overcharging for amenities in The SOA Board has a fiduciary responsibility to seek recovery of SOA funds as

2 well as to renegotiate a lower community access fee in line with the value of the amenities to SOA members. Methodology Straightforward Analysis: User statistics came from the SOA monthly financial review Usage Range Balls 728 Golf Rounds/Lessons 744 Handicap Fees 4 Merchandise 69 Bocce Ball 80 Food and Beverage 2414 Total 4039 SOA Payment for Amenities = $430,605 Amenity Usage = 4039 Cost per Use: $107 Benefit Cost Analysis: Several data points are needed in addition to the usage statistics. Driving Range: Sierra Sage driving range was used as the benchmark alternative rather that the closer Washoe County Golf Course. SSGC offers a full service practice facility including all grass range tees, two putting greens, a short game practice area with two more greens. Users pay for range balls but there is no access charge for the other practice facilities. The round trip travel time to SSGC is.87 hours according to MapQuest. The cost of car usage is $.23 per mile using the IRS rate for non-business travel. Lastly the value of time was based on the median annual personal income for Bachelor or higher from the 2006 Census divided by 2080 hours. Lastly it was assumed each golfer hit 1.5 bags per visit. The Value of Convenience for having driving range access was $16,637 in The table below displays the arithmetic.

3 Driving Range Total RT miles 36 Cost $8.28 Time RT hrs 0.87 Cost $26.00 Cost per Player $ D.R. Usage bags 728 bags/player 1.5 players D.R Summary Travel cost/player $8.28 Time/player $26.00 st $34 Players 485 Value of convenience $16,637 Food and Beverage: The analysis follows the same method as for the driving range. Travel time and miles to Mae Ann restaurants was 6 miles and.27 hours. The arithmetic below values the convenience at $22,643. An alternative approach would value this benefit at $0. Country dining facilities struggle to breakeven. For this reason many clubs charge members a monthly dining minimum, e.g. $100, whether the member uses the facility or not. This encourages members to use the facility and insures enough revenue for the food and beverage service to breakeven. SSGC needs the additional restaurant business from SOA members to reach break even. So SGCC needs the added volume as much as SOA members may want the convenience. Lastly SGCC competes with the two dining facilities at the Town Center. By diverting business away from the two facilities, the likelihood of their success is reduced which imposes a cost on all SOA members.

4 Restaurant RT miles 6 Cost $1.38 Time RT hrs 0.27 Cost $ Usage Rest. Users Rest. Summary Travel cost/user $1.38 Time/user $8.00 st $9.38 Rest. Users 2414 Value of convenience $22,643 Golf Rounds: The same method was applied to golf rounds. Again the value of time and travel to Sierra Sage Golf Course was used as a benchmark for valuing convenience. It is not clear from the data if the 744 golf rounds were all played by SOA members or if this included guests in the foursome. The agreement calls for 2 foursomes per year at $40 per round. If non-soa members are included, then the value of the benefit calculated at $25,504 is overstated. If the 744 rounds were played at 2 per SOA member, then the value of the benefit is only $12,752. An alternative methodology indicates the value is likely somewhere in the middle. In the past, SGCC offered residents a special Member of a Day rate, making the the golf course accessible already to SOA members. In addition, other local courses like ArrowCreek offer special rates on better terms that SGCC. The ArrowCreek Players d costs $50. With the card the player can play an unlimited number of rounds for $45 weekdays and $55 on weekends during the summer. Lower rates apply in the off season. This is a better value than the SGCC amenity but obviously involves the cost of inconvenience of travel time.

5 Golf Rounds RT miles 36 Cost $8.28 Time RT hrs 0.87 Cost $ Usage 744 Adjust Golf Rnd. Summary $8.28 Time $26.00 st $34.28 Adj Rounds 744 Value of convenience 744 $25, $12,752 Bocce Ball, Fishing, Putting Green and Undefined Amenity: SOA member s usage of these amenities was very small. Bocce ball courts are available in Golden Eagle Park in Sparks. The value of convenience was $3,646. (See below) No statistics were available in fishing. Crystal Peak Park offers two newly constructed, stocked ponds with benches, etc. as well as access to the Truckee River. The value of the fishing amenity is inconsequential. Lastly neither the putting green nor the $5,000 unnamed amenity were available in 2012 so the value was nil.

6 Bocce Ball RT miles 46 Cost $10.58 Time RT hrs 1.17 Cost $ Usage 80 Adjust Golf Rnd. Summary $10.58 Time $35.00 st $45.58 Adj Rounds 80 Value of convenience $3,646

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