LTC 099-2009 Status of the City of Miami Beach Golf Coursesm MIAMIBEACH ~_~ w _~
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NC LTC # 099-2009 LETTER TO COMMISSIONa ~'
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'O: Mayor Matti Herrera Bower and Members of the City Commission - -'
FROM. Jorge M. Gonzalez, City Manager :\~
DATt April 13, 2009 1 ~-
SUBJECT: Status of the Ciry of Miami Beach Golf Courses
The purpose of this correspondence is to provide you with an update of the current
economic conditions and projections for the remainder of this fiscal year as well as actions
being taken to improve these projections.
Background
In the mid 1990s there was substantial discussion with the Ciry Commission, Administration.
our residents and businesses concerning the need and benefits of improving the City's golf
courses. At that time the Normandy Shores and Bayshore municipal golf courses were
reaching the end of their life cycle and in need of renovations if they were to address the
needs of our golfing residents, tourists and day guests. Over the period of the next five
years, the future renovations of these golf courses was discussed at no less than 15
Commission Commiriee or Commission meetings and community meetings. On October 20,
1999, the City Commission concluded the discussions by approving the overall plan for
renovation of the City of Miami Beach golf courses, clubhouses and related facilities, and
authorized the Administration to develop a plan to provide the necessary financing to
implement the project.
Since this approval, the Miami Beach Golf Club (formally known as Bayshore) was
renovated and re-opened to the public on December 17, 2002, and the Normandy Shores
Golf Club was renovated and opened to the general public on December 25, 2008.
Since opening in 2002, the Miami Beach Golf Club has been extremely well received by our
residents, tourists and day players. This positive response is supported by the fact that
through the fiscal year ending in 2008, the Miami Beach Golf Club generated sufficient
revenue to address all operational expenses, as well as an annual debt service of $810,000,
and conclude each year with a net positive balance to the City.
Current Status
At the beginning of the 2008/09 fiscal year, the Normandy Shores Golf Club was nearing
completion and the Administration was preparing a December opening. The Miami Beach
Golf Club was implementing its approved budget work plan and preparing for the upcoming
winter season. At about this time, the economy began its downward spiral, which has
seriously and negatively impacted the number of rounds of golf played at both golf courses.
In turn, this has resulted in reduced revenue projections.
A summary of significant factors that have impacted each of the City's Golf Clubs
performance and projections is provided below.
Miami Beach Golf Club
Given the condition of the economy, the Miami Beach Golf Club enjoyed relatively robust
revenues during the past summer and began the fiscal year with a strong month of October
when revenues grew by 2.5% over the prior year. By the beginning of November, however,
our business began to feel the reverberations of the economic crisis. While member, Miami
Beach and South Florida resident rounds experienced a slight decline, our visitor and group
business nearly collapsed, dropping close to 20% through February.
Companies such as Citigroup, Honeywell, Canon, Lincoln Financial, JP Morgan, G E, John
Hancock, Met Life, Chase Bank, IBM, and Goldman Sachs, which had become repeat
clients, either cancelled their meetings or eliminated golf as a sponsored activity. These
cancellations represented 5673,847 in anticipated revenue that was lost. As a result, we
have lowered our revenue projections for the current fiscal year by $468,477.
To mitigate the impact of the loss of revenues. golf club management implemented
operational changes that we expect to reduce expenses by approximately $312,000. This
expense reduction is a product of a combination of factors: lower prices on some key
supplies such as fuel, fertilizers, chemicals and freight costs; lower costs on items such as
credit card and payroll costs which have a direct correlation to sales volume; and an
aggressive cost-cutting program that includes pay and hiring freezes.
The objective of these cuts is to reduce operating costs as much as possible, while
maintaining the level of service and golf course conditions the Miami Beach Golf club has
been recognized for and our patrons have come to expect since it re-opened in December
2002.
At the same time, golf course management is redoubling their sales and marketing efforts,
with special emphasis in the hotel industry, destination management companies and travel
wholesalers. We expect that the PREMIER summer membership program will result in a
significant increase in rounds and revenues (4,500 and $250,000 respectively), sufficient to
offset the expected drop in domestic and foreign visitors in the upcoming months -which
were a significant contributing factor to our success last summer. The depth and duration of
the crisis will have a direct impact in the future operating results of the Club as corporate and
individual discretionary spending, such as recreation and golf in particular, are curtailed.
Normandv Shores Golf Club
The Normandy Shores Golf Club opened for business on December 25, 2008, receiving
great reviews from golfers, the general public and the specialized press. The golf course
layout, excellent playing conditions and service levels exceeded expectations; regrettably,
the timing of the opening could not have been less auspicious.
As part of the grand opening promotion, we established discounted introductory rates for
Miami Beach and South Florida residents of S50 and $75 respectively, keeping the tourist/
visitor (rack) rate at $160. The intent was to utilize these aggressive promotional rates for a
three to four week period to drive as many rounds as possible and provide an incentive to
the local golfer to experience this great new golf course. As we moved into the end of
January, it became clear that market conditions and volume of play would not warrant the
higher approved rates of $65 for Miami Beach residents and $110 for South Florida
residents; therefore. we maintained the lower rates and will maintain them through April 30,
when the summer rates take effect. At that time we recommend lowering the visitor rate to
$120, as the current $160 rate is no longer competitive in the marketplace.
Given the lower rates and volume of rounds (specially the high dollar visitor rounds) and the
fact that the Club will be open for only nine months of the fiscal year, we have revised the
original revenue projection from $2,337,850 to $1,154,762.
We have also reduced the expense budget from $2,863,745 to $2,152,739 using the plan
implemented at Miami Beach Golf Club, as well as consolidating administrative and
marketing positions. It must be noted that the expense budget for Normandy Shores
includes twelve months of expenses for a variety of line items such as debt service, internal
services, golf course equipment leases, etc. The budget also reflects approximately
$150,000 in F.F. & E, and pre-opening expenses which were budgeted FY 2008, but not
charged until FY 2009, due to the timing of the golf club completion and opening.
We expect the lower rates, the Premier summer membership program and the completion of
the road work on Biarritz Dr. to be key factors in our efforts to increase rounds and revenues
at the facility in the summer months and into the next budget year.
Revised Budstets
The following reflects the planned and revised budget information
Miami Beach Golf Club
Adopted F.Y. 2008/09 Expense Budget:
(Including debt service of $808,998)
Anticipated Revenue:
Anticipated Balance:
Preliminary Revised Year End Expense Budget
(Including debt service of S808,998)
Preliminary Revised Year End Revenue:
Preliminary Revised Year End Balance:
$4, 300,165
4.204,300
($ 95,865)
$3,987,328
3.735,823
($ 251,505)
Normandv Shores Golf Club
Adopted F.Y. 2008/09 Expense Budget: $2,863, 745
(Including debt service of $406,224)
Anticipated Revenue: 2.337, 850
Anticipated Difference: ($ 525, 895)
Preliminary Revised Year End Expense Budget: $2,152, 739
(Including debt service of $406,998)
Preliminary Revised Year End Revenue: 1.154, 762
Preliminary Revised Year End Balance: ($ 997, 977)
Future Projections
Given the condition of the current economy it is not practical to state with any certainty or
accurately predict the golf market and tourist industry for the next fiscal year. However, we
have analyzed the current golf-related data we have available and anticipate that F.Y.
2009/2010 will be similar to F.Y. 2008109 in terms of golf rounds played and revenues
collected. At this time we are projecting the two City golf clubs will cost the City
approximately $1,249,482 to operate after all revenue and expenses, as compared to the
original projection included in the 2008/09 Adopted Budget of $621,760. Additionally, the
preliminary deficit projections for 2009/2010 to operate the Miami Beach Golf Courses are
$919,229 based on current golf rates. If the rates at the Miami Beach Golf Club were
selectively reduced, which we anticipate would result in increased rounds of golf, we
estimate this deficit could also be reduced by as much as 20%.
To date, the City has invested millions of dollars to reconstruct the golf courses and related
facilities. with the Normandy Shores Clubhouse and Miami Beach Golf Club cart barn still to
be constructed. The Administration works very closely on a daily basis with PCM
(Professional Course Management), the City's Golf Courses Management Company, to
reduce operating costs as much as possible while maintaining the level of service and golf
course conditions that will generate maximum revenue at both the Miami Beach Golf Club
and the Normandy Shores Golf Club, always ensuring the maintenance and customer
service standards remain at the level our residents, tourists and day guests have come to
know, appreciate and expect for their golfing dollar. There is a fine point where the reduction
of these services impacts the current player's willingness to purchase the golf product, which
results in a loss of player interest. It is this fine point we are seeking to reach and not
surpass.
We will continue to analyze the impact the economy has taken on our golf clubs and make
prudent adjustments to the operations plan, fees structure and levels of service as deemed
reasonable. We will also report and discuss the clubs' status and future projections with you
during the upcoming budget discussions.
Please advise if you have additional questions, comments or concerns
JMGlRCM/KS/
c: Hilda M. Fernandez, Assistant City Manager
Robert C. Middaugh. Assistant City Manager
Kevin Smith, Parks & Recreation Director
Julio Magrisso, Assistant Parks & Recreation Director