The Pellucid Perspective - June 2018 - 5

GOLF COURSE
OPERATIONS

CapEx: The looming monster
under the bed for munis
By Jim Koppenhaver

W

hile one can choose to ignore economic reality by deferring investment decisions, the hard truth is that doesn't
make it go away. A pattern which I've been following
in the various daily golf industry media as well as conversations
we've been having with a number of municipalities is that folks
are starting to wake up to the fact that figuring out how to not
lose money annually in municipal golf isn't necessarily their biggest challenge. It's obviously the most immediate challenge but
the bigger economic hurdle is coming 5-10 years out when deferred Capital Expenditures (CapEx) can no longer be avoided.
The vast majority of the discourse the past two years regarding
municipal golf has centered around:
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*
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Should municipalities be in the golf business at all?
If yes, then should golf be required to be self-supporting
(i.e. break even annually or over any 3-5 year period) or
subsidized?
If subsidized, how much is an acceptable annual subsidy
for golf?

The above questions have had us as analysts focused on the
questions of whether the course could make money at the Operating Income level. The answer to that was more municipalities
than we thought are finding ways to come out $0-$100K in the
red for OI which is better than I had expected. The next burden
was that a number of them took on renovation debt in the past 10
years to "keep up with the Joneses" so their bottom line goes deeper
in the red after debt service. So the next question to us as analysts
has been, "What changes in revenue (increased rounds, pricing or
both) can we reasonably expect and what cost-trimming can be
done (which doesn't negatively impact the topline)
to get back to even at EBITDA and
how long would it
take?"

Unfortunately, for a number of these we're unable to come up
with any realistic scenarios that get them back to breakeven at
this level so we're obligated to just advise them on how to lose less
money over the next 3-5 years.
A recent article in USA Today Network-Florida report which
was forwarded to us by one of our loyal followers provided some
3rd party, non-Pellucid client datapoints for the Sunshine state
which would seem to suggest that our observations aren't unique
or limited to some special "bubble" we live in.Through Freedom of Information Act (or FOIA as it's affectionately called)
requests and interviews with some of the municipality managers, they were able to come up with a fairly alarming tally that a
basket of municipal courses across the state had managed to lose
nearly $100M over the past 5 years. The municipalities were able
to offset roughly $35M of that with various accounting sleightsof-hand but, according to their investigation and analysis, this
basket of courses ultimately needed $65M of subsidies over that
period to stay afloat (ouch!). The article doesn't specify how many
courses were involved but, of the specific examples given, it appears the per facility loss ranged from over $1M annually (Martin County, wow!) to $750K (Sarasota's Bobby Jones Golf Club)
down to $100K (City of Fort Myers losses of $200K across two
municipal courses).
The NGF has recently been touting the investments over the
past several years in course renovations as a show of confidence
and industry economic health. As a counterpoint to
that and demonstrating that it's always
easier to spend someone
else's mon-

As evidence that no good deed goes unpunished,
this brings us to the burning question for a
number of municipal golf operations based on
our recent engagements: "What's my deferred
CapEx liability going to be in 5-10 years and
what is the size of that 'balloon expense' that
I'm going to need to cover?"

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