The Answer is “$6M in Capital Improvements”: What Was the Question?

A colleague recently forwarded me an article headlined “Consultant urges Park Board to make $6M in improvements to its 2 golf courses.” Given the heightened interest by the general population and various municipal governing bodies around the topic of golf course profitability and taxpayer subsidy, I was curious as to how a “hand out” for $6M, in either tax dollars or debt financing, was being supported by market analysis and the financial pro forma.
While the article was light on details and the minutes of the meeting and any submitted documents weren’t yet available, there was enough to highlight some upsides/downsides as well as point out that many well-meaning municipal golf conversations are often fact-challenged when one compares the meeting conversations against the public-record financials (darn that transparency!). In the end however, someone has to outline and do the math as to how some combination of incremental revenue and/or reduced expenses will generate the principal and interest to cover NGF’s proposed $6M bet:
• “Anything you can do to increase capacity would be a big help” – This is a synopsis quote from the NGF’s consultant regarding the benefit of better drainage and irrigation improvements at the heart of the project. I’ll take a look the differences between increasing capacity (available rounds) and increasing demand (played rounds) and why you should have both elements if you’re going to invest 7 figures in your course
• Everyone can have their own opinion but not their own set of facts – I’ll point out the consistent pattern here, based on the account of the Board Meeting reported in the local news, that when public officials gather to discuss the pros and cons of municipal golf operations, everyone inevitably tends to bring their own set of facts
• Looking at historical performance, market trends (demand and pricing) and existing financial obligations, can the math pencil out? I’ll lay out the topline of the 5-year history and outline why projecting any topline revenue growth is challenged and which would then put the repayment squarely and almost fully on (further) expense reduction
The instructive part of this story is that the independent, professional recommendation being paid for by the municipal body focuses on the (necessary) capital improvements but appears to be silent on the critical financials necessary to cover the bet. My analysis suggests that it’s a “tough bet” or that it needs to incorporate some meaningful percentage of the loan proceeds to revenue generation strategy and efforts alongside fixing physical assets in need of replacement or repair. For our subscribers, read on for the rest of the story and supporting facts. For our Executive Summary recipients, you can get the rest of the story one of three ways (all can be previewed and purchased at Pellucid’s website www.pellucidcorp.com):
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