The Watchdog Report: Save the Community Center by Eliminating El Con Golf Operations

I suspect that the town officials who needed to read the contracted report on the golf operations probably put little effort into doing so. The mayor once said, "I don't need to know the Codes, that is why I have staff." Following the same logic, one might assume that, “We don't need to read the report, the contractor will advise us what to do.”

Below are direct quotes from the report:

Pages 1-4 discuss the current financial condition and the necessary upgrades/improvements.
"As a whole, the El Conquistador Golf and Tennis (ECGT) and Pusch Ridge golf facilities combined to produce total top-line revenue of just over $2.9 million in 2016, the vast majority of which comes from golf fees, member dues and Food and Beverage (F&B) sales. The on-site operating expenses at the facility totaled around $5.2 million resulting in a roughly (-$2.3 million) loss on operations (excluding other necessary costs such as capital upgrades and new investment in infrastructure).”

“The current financial condition is worse than most public sector golf operations in the U.S. where 67% of municipal golf course operations are able to cover on-site expenses, but not able to cover both onsite expenses and capital improvement costs (only about 33% can cover both)."

"Factors such as the recent recession, the declining interest in golf, growth in the number of competing golf courses and even ECGT conditions have all contributed to the recent decline."

"The National Golf Foundation (NGF) has estimated a total of $5.1 million in required repairs over the next few years, in addition to the $6.0 million estimated by the Town for clubhouse and community center improvements. This investment also includes upwards of $170,000+/- in annual recurring items."

"While losses on operations are common in municipal golf, the depth of this loss is less common."

"The overall demand/supply balance for golf in the greater Tucson market is very unfavorable to golf courses."

Page 6 summarizes the cost to implement each of the options presented.

Option A - Stay with 36 holes - Total investment = $5,115,775
Option B - Reduce to 27 holes - Total investment = $4,639,115
Option C - Reduce to 18 holes - Total investment = $4,200,795

Additional to all above options is to convert the Pusch Ridge course from a 9-hole course to a 12-hole, Par 3 course called The Dirty Dozen. Total investment = $3,013,120

The consultants recommended Option B. To go with Option B and the Pusch Ridge conversion will take an additional investment of $7,652,235.

Page 7 mentions outright closure of all golf courses.
"Outright closure, although perhaps the most economically beneficial decision, is not necessarily a “cheap” option, as there are costs to prepare the property appropriately and there may be additional contemporaneous impacts that have to be considered (property values, tax base, resort relations, etc.). Further study is recommended."

Pages 67-68 summarize closing all golf operations.
"Full closure of the El Conquistador 36-hole operation would involve significant costs to remove managed turf areas and, at minimum, plant and establish revegetation desert varieties to the areas removed from turf.”

“Based on 146± acres of existing managed turf, we estimate approximately $2.5 million for turf conversion and establishment at El Conquistador using a per-acre cost of $17,000 (slightly less per acre than shown for specific options A, B and C; based on volume). Added to this cost would be approximately 20% for soft costs (design, engineering, etc.) and a reasonable contingency. Our opinion of probable cost is approximately $3 million.”

Page 68 discusses closing the Pusch Ridge course.
"In order to fully close the Pusch Ridge facility, we estimate that an average cost of $20,000 per acre be applied to calculate removal of existing managed turf with re-establishment to native desert vegetation. This slightly higher amount per acre is recommended due to significant slopes involved in the Pusch Ridge terrain combined with more intricate access than at El Conquistador.”

“Based on a total turf footprint of 40± acres, we estimate full conversion of existing turf areas to be approximately $800,000 plus soft costs and contingency of about 20%, rendering an estimated probable cost of near $1.0 million. Additional costs to fully close the Pusch Ridge facility would need to account for razing the existing (old, now abandoned) maintenance facility (estimated at $40,000) and disposition of the existing irrigation storage pond, which has not been estimated."

As I understand it, it would cost $1,040,000 to close Pusch Ridge, and $3 million to close the remaining 36 holes.

Going back to Page 7, the NGF states:
"Continued operation with rounds at or near current levels (under 50,000 total) will not lead to profitability for ECGT, and severe losses will continue, but become more manageable for the Town under any of the renovation options presented."

The most cost-effective option.
The report states that no matter what option the Town Council chooses, golf will continue to lose money. It doesn’t take a CPA to see that investing $4 million to repurpose 45 holes and END GOLF is a more cost-effective option than spending $7.6 million in upgrades to continue golf despite no guarantees of breaking even in another 5 years.

Summary of the 170-page National Golf Foundation Study of Community Center Golf and Restaurant Operations. Part 1.

On July 12, the Oro Valley Town Council met in special session to review and discuss a consultants report of their analysis of selected usage alternatives regarding the Oro Valley golf courses and restaurant facility. You can watch this discussion.

According to a statement by Mayor Hiremath at the special meeting, this investment in these golf courses  has lost $1.1 million in two years, but "is trending upward." This loss is after consideration of the increased sales tax we now pay to subsidize it.

We present a summary of the consultant's report in this first of a 2-part offering, We will post Part 2 tomorrow. These postings are submitted as a summary only without comment or opinion.  An opinion piece will be published on Wednesday.

The study is a limited-scope study, limited to analysis of specific options as noted in "Basic Options" later in this posting. Multiple paragraphs in the report indicate that the consultants are recommending "Option B."

Option A: 36 holes…..$5,115,775 investment…..21.2 acres alternate use…..20% savings
This includes two 18-hole courses, a reconfiguration with six new greens, one expanded green, and new paths.

Option B: 27 holes…..$4,639,115 investment…..32 acres alternate use*…..35% savings
A reconfiguration of the Conquistador and Canada Courses, retaining three 9-hole loops. This includes three new greens and one expanded green and new paths.

Option C: 18 holes…..$4,200,795 investment…..83.2 acres alternate use*…..45% savings
An 18-hole reconfiguration of the Conquistador and Canada Courses, retaining one 9-hole regulation length course. The reconfiguration requires one new green and new paths. Turf reduction is significant by reconfiguring several holes and making some of the parcels available for non-golf uses. These include 83 acres of Town-owned land and 29 acres that would revert to HOA-owned.

Pusch Ridge: 12 holes…..$3,013,120 investment…..14.9 acres alternate use…..70% savings
Three options: 1. Close the facility and repurpose the land into non-golf uses. 2. Renovate the facility bringing all golf features and areas back to an acceptable condition. 3. Transform the facility into a 12-hole, 3-par course to be called “The Dirty Dozen”. This reduces maintained turf to 11.9 acres and frees up 15 acres for potential repurposing. Cost: $3 million.

*Town owned property only. Does not include HOA-owned parcels.

The 36-hole option is still providing too much golf and higher maintenance costs. The 18-hole option will likely chase away all but the most die-hard members with private carts, resulting in revenue that is much lower than the savings achieved from lowered maintenance expenses.

Pusch Ridge Problems
Low activity, low revenue, difficult layout, lack of walkability, declining maintenance, low interest in 9-hole golf.

Even with modest rounds of activity (7,500) this course could cover all its expenses. “If the Town and Troon were to significantly enhance the marketing and promotion of the facility, and gain full buy-in from the adjacent resort (possibly through pre-purchase of rounds), the Dirty Dozen course could add as much as $112,000 in profit to the system.”

“It is always an option for public-sector owners of golf facilities to close or reduce golf courses and consider alternate uses of golf course property.”

Basic Options to be considered

1. Outright closure of one or both Town golf facilities. Further study on this is recommended as property values, tax base, and resort relations have to be considered.

2. Repurpose portions of golf course property that may become available due to proposed changes in size and space of golf facilities. Remove 32 acres at El Con Golf and 15 acres at Pusch Ridge Golf. Use this as natural space, passive recreation, intense recreation, or repurposing/ development.

3. Continue “as-is” with no major changes but only repairs and minor improvements. However, the result will be ever larger losses on operations in the coming years as expense inflation out-paces revenue increases.

4. Completion of golf course renovation resulting in retention of 36 holes (Option A)

5. Renovation resulting in 27 holes (Option B)

6. Renovation resulting in 18 holes at El Con Golf and Tennis (Option C)

Converting the land for other uses

Naturalized Open Space
Cost is relatively low and renders the land back to its familiar desert terrain and landscape.

Passive Recreation
More costs due to development of trails, ADA access, restrooms, security, lighting, etc.

Intense Recreation Uses
This would involve the highest cost to the Town due to building new recreation structures, infrastructure, parking, etc., involving not only upfront costs, but also ongoing maintenance costs.

Development Uses
Only prudent for the Town if a lease or sale of certain lands could be structured to provide the Town with a revenue source.

Financial Projections
All of the options will improve the economic position of El Con Golf, largely through reduced maintenance expenses (fewer maintained acres) and by shifting Food and Beverage (F&B) operations to a third-party vendor. Even with these recommendations, they still expect financial challenges for the next five years.

Continued operation with rounds at or near current levels will not lead to profitability and severe losses will continue but will become more manageable under any of the renovation options presented.

If the Town reduces maintained acreage, provides a new and modern irrigation system, and a modernized clubhouse, the facility would see improvement in economic performance regardless of the number of holes.

The 27-hole option (Option B) will most likely result in the strongest net performance for the Town due to retaining a strong share of members, comparable amount of daily fee play, and flexibility to allow for “member blocks” of tee times.

If the club is upgraded and reduced to 27 holes, the net income will improve because the revenue drivers will still be present but the maintenance expense with only 27 holes would help close the gap on operations expenses, although they still expect a loss on operations.

If they contract a third-party vendor to operate and absorb the risk of F&B, the economic performance should improve with immediate elimination of the large loss on F&B operations.
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Part 2 of this article will be published tomorrow.