In selecting private golf operator, city treads well-worn path

In selecting private golf operator, city treads well-worn path

Michele Ellson
Chuck Corica Golf Complex

When the City Council contemplates a long-term lease deal that would put the Chuck Corica Golf Complex in the hands of a private operator, they’ll tread on ground that has been well worn by other Bay Area cities – to mixed results.

The council meets on Tuesday to have their say on a proposed deal, which would lease the 85-year-old, 45-hole complex to Greenway Golf for up to 25 years in exchange for rent and upgrades. Efforts to address the complex’s finances and its renovation needs have been underway since 2007, when a report issued by the National Golf Foundation said the complex needed nearly $10 million in improvements council members said the city couldn’t afford.

Over the last decade or so cities from across the Bay Area have contemplated handing over management of their golf courses to private operators, in an effort to maximize revenues while minimizing the risks of rising costs, pricey renovations and declining play.

The City of San Francisco initiated such an effort in 2007, when a National Golf Foundation report on that city’s five municipal golf courses found that rising costs and declining play fueled by a $23 million renovation of the Harding Park Golf Course and a lack of maintenance at the city’s other courses was impacting its finances and that the city’s courses could be better maintained and run.

A second report issued in August 2008 by PROS Consulting, which noted that the city had “struggled for years” to manage operations at its public golf courses, suggested the city turn over management of the courses to a long-term operator. The city has not acted on that recommendation from the report, which was blasted by some as an effort to justify a giveaway of public land to private interests.

Gleneagles Golf Course has been run by a private operator since the 1960s, with the current operator’s contract set to expire by 2013. That course was contributing $48,000 a year to the city, NGF’s report said. San Francisco’s Harding Park and Lincoln Park golf courses are managed by two separate operators, while Sharp Park and Golden Gate are city-run.

The city opted to self-finance upgrades to Harding Park, which cost $7 million more than originally envisioned, the National Golf Foundation report said. Green fees from the course exceeded $6 million, which at that time were among the highest in the nation, the report said. But the KemperSports-managed course also became one of the nation’s most expensive to maintain and operate, it said, with a 2006-07 budget of $8.6 million (the PGA Tour-affiliated TPC has since taken over management of the course).

The PROS Consulting report’s authors, who analyzed six different models for management of the city’s golf courses, said that while bringing in a professional firm to operate them would provide for lower revenues than other management models, it would also eliminate the city’s maintenance and operational costs at a time when the city was subsidizing golf operations to the tune of $1.5 million, an amount that was expected to double by this year.

“The key is to have a proven operator who understands how to manage public golf and will invest money to keep the golf courses well positioned in the marketplace,” the report’s authors wrote to San Francisco city leaders, who have not acted on the recommendations. They said the model had worked well in Los Angeles County, Long Beach and elsewhere, “but requires a well written contract and good management of the contract by the city.”

Indeed, in the face of a tough economy and what experts have dubbed an “oversupply” of golf options, hiring a private operator to run a municipal course isn’t always a panacea for cost and revenue issues. The City of Oakland in 2001 chose to hire a consortium headed by Petaluma-based CourseCo, Inc. to build and manage Metropolitan Golf Links on the site of the former Lew F. Galbraith Golf Course near Oakland International Airport. But rounds played at the course, which cost $14 million to construct, fell far short of the 70,000 a year operator Oakland Golf LLC predicted, and like those at many golf courses have declined over the last few years.

Over 2010 and 2011 Oakland Golf, which has a 25-year lease on the course with three five-year extensions, has cut staff and maintenance at the course in an effort to eliminate annual operating deficits, and city and port leaders – who share the rental income on the course – have agreed to halve Oakland Golf’s rent for each of the past four years in order to keep the course open and properly maintained (the rent breaks, which could total as much as $1 million, could be made for one more year under a lease amendment approved in 2008).

City officials blamed a weak economy and nearly 200 new holes of golf that have come online at public courses in Alameda and Contra Costa counties for Metropolitan’s poor performance – factors that have also been blamed for Chuck Corica’s dwindling finances (though golfers blame the city for taking outsize payments from the complex and giving its upkeep short shrift).

“Nationally, an unanticipated sharp downturn in the region(’s) golf market due to the expansion of golf supply in the Bay Area, a weakened economy and the unanticipated reduction in golf demand due to changing consumer recreational preferences has impacted the industry,” Office of Parks & Recreation Director Audree V. Jones-Taylor wrote in a 2010 report to Oakland council members that showed Metropolitan operating at an annual deficit between 2004 and 2009.

San Leandro has also had a private operator, American Golf Corporation, running its Monarch Bay Golf Club since 1997, an arrangement the city has cast in favorable terms. Data on annual rounds played and rent paid to the city wasn’t immediately available.

A 2011 city staff report requesting the council okay increased greens fees said American Golf Corporation pays the city about $800,000 a year to operate the golf course, and in its report to San Francisco, NGF said the company paid $8 million to renovate it. Recent city budgets show the fund the payments are placed in is running at a deficit, though the budget documents say dredging costs are responsible for the shortfall.

Under the deal being considered by Alameda’s City Council, Greenway would pay $75,000 a year in rent for each of the next four years and a minimum of $350,000 by the ninth year of the proposed lease, along with $1 million upfront toward renovations at the golf complex and additional capital improvement funds each year. Greenway will also pay taxes and a maintenance assessment for Harbor Bay Parkway. The amount is less than the city had taken out of the complex in prior years.

Greenway will have the right to set greens and other fees, though they will be required to offer discounted fees to residents, seniors and students, along with free golf to Alameda’s public high school golf teams. The city can terminate the agreement after four years if the complex’s drainage and irrigation problems have not been resolved to city officials’ satisfaction.

Stevinson-based Greenway had offered $3.4 million in rent over its first 10 years as operator of the golf complex and $6.7 million in improvements, an amount that included a $5.1 million investment in the Jack Clark Golf Course. Greenway bested KemperSports Management, which the council selected in December 2008 to manage the complex on a short-term basis, when the council unanimously voted to negotiate a deal with them in May.

The council meets to discuss the proposed lease deal at 7 p.m. Tuesday at City Hall. The meeting will be broadcast live on the city’s cable Channel 15 and on the city website.

AT A GLANCE

Terms of the proposed deal allowing Greenway Golf to lease and operate the Chuck Corica Golf Complex are as follows:

Lease term: Twenty years, with a possible five-year extension; the city could terminate the deal after four years if drainage and irrigation issues not adequately addressed.

Rent payments: Payments would be $75,000 a year for the first four years; $300,000 a year or 8 percent of revenues up to $4 million/12 percent of revenues over $4 million for years five through eight; $350,000 a year or 10 percent of revenues up to $4 million/12 percent of revenues over $4 million for the remainder of the lease term, including any extension.

Other payments: One million in upfront payments toward renovations; taxes on the property and a $14,000 annual assessment for maintaining Harbor Bay Parkway; $94,288 for pro shop property and maintenance equipment; $70,000 over five years for the city to administer the agreement; utilities charges, less an $80,000 annual storm water utility fee.

Fees: Greenway can set green, cart, driving range and other fees; must provide discounted fees to residents, students and seniors with city approval, free play for Alameda’s three public high school teams, one free tournament a year to the nonprofit Friends of the Parks foundation.

Source: City of Alameda

Related: Council chooses Greenway to operate golf complex

No decision yet on golf course operators

Prospective golf complex managers present to council Tuesday

Comments

Submitted by golfwriter on Mon, Jul 23, 2012

Oakland made a mistake when it chose the CourseCo lease for Metropolitan (formerly Galbraith GC). CourseCo did not have the financial wherewithall to weather the economic storm that our nation endured in the past few years. We are fortunate to have a city manager who negotiated that Oakland contract, when he was the city atty for Oakland. He learned a valuable lesson that will not be repeated.

San Francisco made millions of dollars through their contracts with the PGA Tour. Major tournaments have been held at Harding Park muni, with the world watching on television. This is not noted in the lease agreements described above.

I have always been against leasing out our Chuck Corica Golf Complex, because the golf complex HAS made money through recent difficult financial times. It is the city's accounting practices which show the golf complex losing money. The city has taken up to $1 million off the top for the general fund, then balanced the books. Take a million dollars away from any business, and of course the books will show a loss. Include that $1 million, account for it, and the complex is doing fine.

Specifically because of these accounting practices on behalf of the city, and other city negligence of the CCGC, it is very clear that the city will never operate the golf complex in an effective manner. The only solution that is viable is to get the golf complex out of the city's hands, before they completely destroy our beloved asset.

Greenway is not CourseCo. I have known George Kelley for a very long time. He has always completed his financial obligations, and would not have taken on this project if he did not know that his plan would work. George grew up in the East Bay, and played in many Alameda Commuters championships. He knows from personal experience how important the Corica Golf Complex is, not only to Alameda, but to the entire Bay Area. He is dedicated and successful.

It is time to fire the city, get their greedy hands away from any financial aspect of our golf complex, and hire an effective operator.

RS

Submitted by snaphooker on Mon, Jul 23, 2012

I moved away from Alameda 40 years ago but still have ties to golf in the city. I played the "New" course the day it opened in the mid 50's. I now live in Oroville,Ca and have been associated with it's public golf course since 1973. The golfers here formed a non-profit corp and leased Table Mtn. GC in 1984 after local government proved incapable of operating it profitably. Our motto is 'For golfers by golfers". I realize we are a much smaller business than yours and we only have 250,000 residents in Butte county but we have just concluded negotiations on our second 25 year lease. We are not the only course to have done so. Our play is increasing even in this poor economy. We have just completed our clubhouse renovation and are working on our second new irrigation system since 1987.There is a way out of the mess you are in. Tom Merrill

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