Date: September 13, 2018 To: From: RE: Mayor Blad and Council Members John Banks, Parks & Recreation Director Brett Hewatt, Parks Superintendent Golf Concession Agreement Request to Re-Negotiate Financial Obligations History/Background Information FORE Golf, Inc. has successfully provided operational management and maintenance of the City s Highland & Riverside Golf Courses for the past 18 seasons, through a series of 5-year Concession Agreements, the most recent agreement having been approved by Council in October, 2015 and covering the 2016 2020 seasons. Over that period, the golf concessionaire agreements and FORE Golf have made significant contributions to the Recreation Fund, for the overall benefit of the Recreation Department and the City. Below is a snapshot of expenditures & revenues for the previous ten completed seasons for Council reference, and which quantify Rec. Fund contributions in the amount of $1,043,358.00 during the Fiscal Year 2008 2017 period (yearly contributions prior to 2007 being similar in magnitude): Fiscal Year Expenditures Revenues Contribution to Recreation Fund FY 2008 $78,486 $196,047 $117,561 FY 2009 $62,443 $195,531 $133,088 FY 2010 $60,616 $187,587 $126,971 FY 2011 $5,705 $141,334 $135,629 FY 2012 $117,121 $174,827 $57,706 *Irrigation upgrade FY 2013 $10,796 $151,007 $140,211 FY 2014 $125,116 $153,163 $28,047 *Maint. buildings FY 2015 $62,996 $153,334 $90,338 FY 2016 $61,249 $164,104 $102,855 FY 2017 $60,364 $171,315 $110,951 Total Rec. Fund Contribution (FY 2008 FY 2017): $1,043,358 In general, the operation of municipal golf courses is not typically a large revenue generator due to the costly nature of comprehensive course maintenance (mowing & other landscaping, fertilization, weed control, water fees, irrigation repairs, extensive equipment/staff costs, etc.), as well as other additional significant expenditures (clubhouse Golf Concession Agreement Request to Re-Negotiate Financial Terms Page 1 of 5 September 13, 2018
merchandise/food/beverage, golf carts & associated maintenance, etc.). As a result, many of the municipal courses in the surrounding area including Blackfoot, American Falls, Rexburg, Burley and to a slightly lesser degree Idaho Falls, struggle to break even or are operating at a loss, sometimes extensive losses. To a large degree, Pocatello golf courses have been able to avoid these issues due to well-maintained/operated & popular courses, and through development & maintenance of of a loyal player base who frequent the courses. Most Recent Agreement Renewal (2016 2020 Seasons) The Golf Concessionaire Agreement for the 2011 2015 seasons included language which provided for the renewal of the agreement for an additional five year period; subject to negotiation of annual payments and other conditions which were acceptable to the City. Staff negotiated a renewal agreement for the 2016 2020 seasons towards the end of the 2015 season. Below is a summary of key agreement renewal revisions that were agreed upon: Addition of more specific and detailed maintenance practice language Clarification of water usage language Water use fee/rate updates Stepped yearly increases to base rent amounts Seasonal pass cost adjustments, beginning with year #1 of the agreement renewal Goal of Renewal Agreement: Mutually Beneficial for All Parties As is evidenced by Recreation Fund contributions previously noted, the City of Pocatello and FORE Golf have traditionally managed to avoid periods of operational losses that have plagued both surrounding and nation-wide municipalities, due to: Budget consciousness/discipline and extremely efficient operations Carefully considered planning and use of available staff & resources Very competitive seasonal pass and daily round rates/fees Well maintained courses that are consistently in great shape A loyal community player base, the majority of which returns from year to year Regarding concession agreement renewal terms, Staff based financial obligation negotiations with FORE Golf on successful season pass & daily round sale figures for preceding seasons, as well as a need to better quantify maintenance standards language, and more clearly specify course watering fees & charges in the agreement. The overriding goal of agreement renewal negotiations being that the final terms be mutually beneficial for all. In this regard, Staff views golf course operations in Pocatello via a three legged stool philosophy, in which operational and financial terms & conditions must be mutually beneficial to all involved entities, namely: The Golfing Community (particularly Pocatello resident golfers) The City FORE Golf Golf Concession Agreement Request to Re-Negotiate Financial Terms Page 2 of 5 September 13, 2018
Based on the recent preceding season history for season pass & daily round sales, both City Staff and FORE Golf representatives were in agreement that the renewal terms were fair and equitable. However, after many successful & mutually beneficial golf seasons at the City s Highland & Riverside courses, the current concessionaire agreement terms are unfortunately proving to no longer be beneficial, nor viable financially for FORE Golf looking into the future, or for that matter other potential golf concessionaires as well. This development can be attributed to a recognized and on-going trend of decreased play nation-wide, which is now negatively impacting Pocatello golf course operations, beginning noticeably with the 2016 golf season, and continuing to worsen in 2017 & 2018. The trend of decreased play can also be evidenced by the golf retail market in the U.S., which during the past several years has been, and remains challenged. Golf equipment sales have been on a downward trajectory the past several years, with 2017 sales alone declining in the mid-teens percentage wise from already deflated 2016 levels. For example, in 2016 Nike announced it was exiting the golf equipment business, large golf equipment super-store Golfsmith went bankrupt, and countless smaller golf equipment stores across the country went out of business. These impacts are largely due to the fact that Millennials are not picking up the game at the rate that Boomers are aging out of it, causing hundreds of golf courses around the country to close. Season Pass/Rounds of Play Summary and FORE Golf Financial Information Below is a summary of the season pass sale and rounds of play information for the past five full seasons, as well as year to date information (through August) for the 2018 season, which demonstrates the recognized trend of decreased play: Season # of Season Passes Purchased Total # of Rounds Played *Includes Season Pass Holder and Daily Rounds 2013 836 57,134 2014 856 59,948 2015 842 62,271 2016 792 56,921 2017 747 51,368 2018 *YTD *651 *YTD through August *39,976 *YTD through August The second chart below summarizes the corresponding revenues generated and fees paid to the City by FORE Golf, per terms & conditions of Concession Agreements: Season TOTAL Amount of Revenues Generated TOTAL Amount of Fees Paid to City *Includes: lease fees, water, utilities, % of revenues, etc. 2013 $1,354,753 $274,589 2014 $1,389,546 $262,642 2015 $1,400,095 $275,347 2016 $1,352,697 $264,504 2017 $1,206,164 $299,436 Golf Concession Agreement Request to Re-Negotiate Financial Terms Page 3 of 5 September 13, 2018
As can be seen above, the market decreases in numbers of season passes purchased and rounds played began a noticeable decline during the 2016 season, followed by another sharp drop for the 2017 season. Unfortunately, the combination of these season pass sale and rounds of play decreases joined with the revised and increased financial obligations for FORE Golf in the concession agreement renewal, have created a situation where FORE Golf incurred an overall operational net loss of $78,968 for the 2017 season, with similar or worse financial losses expected for final 2018 season accounting. Quantifying Additional Expenses Incurred Due to Water Hammer/Low Pressure Issues Water Department and Parks & Recreation Staff are in the process of addressing the water delivery and water hammer issues that have taken place at the Riverside Golf Course during the past 17-18 seasons. The Water Department has implemented the Council approved amended solution for water delivery to the course, which is now being supplied solely by the City s main water system (Bannock supply line), with Cree Well water to be utilized for future culinary purposes. The Parks & Recreation Dept. has secured the new and upgraded irrigation operating system & software, and will have the upgraded system programmed to best address the amended solution delivery prior to the 2019 season. The surge tank has also been ordered and will be installed by the Water Dept. upon arrival. Staff is confident that these combined measures will address on-going issues. Unfortunately however, FORE Golf has communicated that their operations have incurred significant expense and logistics over the years due to needed repairs as a result of ongoing water delivery issues. Staff has asked that FORE Golf specifically quantify these incurred expenses and provide them. FORE Golf provided information regarding incurred expenses is as follows: Seasons Issue Summary of Expense Incurred Total Expense 2001-2005 Low Water Pressure Additional Labor: -6 hrs./wk. x 30 wks. = 180 hrs. -180 hrs./season x 5 seasons = 900 hrs. -Pay Rate of Staff Assigned: $12.50/hr. -900 hrs. x $12.50/hr. = $11,250 $11,250 2006-2017 2006-2017 Water Hammer Water Hammer Labor: -95 breaks/season x 2 hrs./brk. = 190 hrs. -190 hrs./season x 12 seasons = 2,280 hrs. - Pay Rate of Staff Assigned: $14/hr. -2,280 hrs. x $14/hr. = $31,920 *Parts: *Elbow Breaks: 65 per season x $10/ea. -$650 per season x 12 seasons = $7,800 *Swing Joints: 30 per season x $35/ea. -$1,050 per season x 12 seasons = $12,600 $31,920 $20,400 Total approx. Cost to FORE Golf due to Water Delivery Issues: $63,570 Golf Concession Agreement Request to Re-Negotiate Financial Terms Page 4 of 5 September 13, 2018
Request to Re-Negotiate Concession Agreement Financial Obligation Terms FORE Golf and the Golf Advisory Committee have been, and continue to develop and implement strategies which a focus on participation, both in terms of holding onto their existing participants, and more importantly, attracting new participants. However, market condition realities have served to undermine the golf concessionaire/fore Golf leg of the three-legged-stool for provision of golf services to the community, to the point where sustained operational losses are no longer viable financially for FORE Golf in future seasons. As a result, Staff requests Council permission to re-negotiate the financial obligation terms & conditions of the Golf Concessionaire Agreement for the remaining 2019 and 2020 seasons. Based on market trends, Staff envisions a more dynamic agreement where financial obligation terms & conditions are no longer fixed, but rather can be adapted accordingly based on what the market will bear, and which will preserve service provision standards for the golfing community, as well as maintain fair & equitable financial arrangements that are mutually beneficial to the City and FORE Golf. Anticipated areas of focus for re-negotiated financial obligation terms & conditions include: Base Payment Amounts (i.e. yearly lease payments for the Highland & Riverside Courses) Utility Service Payment Terms & Conditions (i.e. course water & sewer) Percentage of Gross Revenue Remittance Terms & Conditions It is also requested that Council consider the following FORE Golf relief measures for 2018 season financial obligations, and to help preserve FORE Golf s ability to continue provision of superior golf services to the community in the future: Forgiveness of a Portion of Base Payment Amounts Due Credit for Expenses Incurred Resulting from Water Delivery Issues, and/or; Forgiveness of a Portion of Utility Service Payment Amounts Due Parks & Recreation Department Staff and the Golf Advisory Committee agree that FORE Golf has done a fine job of executing the terms & conditions of the various concession agreements over the past 18 seasons, and provided superior municipal golf services and financial benefits to the City and community. It is felt that a revision of concession agreement financial obligations to a market based approach that maintains fairness & equitability is in the best interest of the City, and will facilitate a continuation of the City/FORE Golf partnership for provision of excellent golf facilities and services for the community, in a manner that is mutually beneficial to all parties. Golf Concession Agreement Request to Re-Negotiate Financial Terms Page 5 of 5 September 13, 2018