HomeMy WebLinkAboutAgenda Statement 1976/12/14 Item 13CITY OF CHULA VISTA ITEM N0. 13
COUNCIL AGENDA STATEMENT 12_14-76
FOR MEETING OF:
ITEM TITLE Resolution No. 8446- Approving execution of a five (5) year agreement
with Golf Professional
SUBMITTED BY City Manager ~~~
ITEM EXPLANATION:
The current 5 year agreement with Golf Professional Joe Warburton expires December 31,
197f. It is our opinion that the public interest can best be served by executing a
new five (5) year agreement with Mr. Warburton under terms and conditions similar to
those currently in effect, with the following modifications:
1) The proposed contract provides„that the Cite at its. expense, will construct
additional electric cart storage facilities prior to July 1, 1978, subject to
the availability of funds.
2) The three week vacation leave provision has been revised to make approval of
leave, regardless of term, subject to the recommendation of the Parks and
Recreation Director and approval of the City Manager.
3) The section dealing with insurance requirements has been revised in conformity
with recommendations of our recently completed risk management study in order
to more clearly and adequately protect the City against liability claims.
4) The renewal and termination clauses have been rewritten to eliminate what
appeared to be some ambiguity but financially provides the Professional and
City with appropriate protection if termination should occur.
Continued on supplemental page
tXHltfll5 X11 I/-1LHtU
Agreement x Resolution X Ordinance Plat OtherX Exhibit F
X-Ex~i-i`6'f~' E
Environmental Document: Attached Submitted on
STAFF RECOMMENDATION:
Adopt resolution
BOARD/COMMISSION RECOMMENDATION:
COUNCIL ACTION Resolution offered with amendments (in the agreement)
to change the word "electric" to "powered" in Item (e), page 2, and
in Item 11 with changes proposed by Mr. Warburton except that the
financial statements be required monthly.
Form A-113 (Rev 5-75)
Supplemental Page No. 2
Item Plo. 13
5) A major revision has been made in the remuneration formula. In the current
contract, the Professional receives 4'z% of all greens fees collected in
addition to all income he derives from rental of golf carts, golf lessons,
sale of merchandise, etc. (Exhibit A attached tabulates the historical
pattern of income from 1970 and projected income from 1976 through 1981.)
The proposed agreement provides no absolute guarantee of a percentage of
greens fees but relates this remuneration for services on the gross profit
margin the Professional's annual financial statement reveals. Until the
Professional reaches an annual gross profit in excess of $95,000, he
would continue to receive 4z% of total greens fees. Our income projections
:~+culd 'indicate this could nccur in 1977 and in that event, the Professional
would receive 4% of greens fees if his annual gross profit hits our pro-
jection but does not exceed x100,000. (See Section ~3 of proposed contract
for complete schedule.)
!Ahile we are recommending the cross profit formula be used to determine the
amount of greens fees the Professiona] is entitled to, Exhibit 8 offers
three (3) other alternatives the City Council could consider if they
desire.
Each of the other three (3) alternatives, in our judgment, fails to ade-
quately protect the public interest in that the Professional vaould derive
a total income far in excess of estimated cost of operating the course with
City forces and secondly, except for the current n'l°= automatic formula, the
Professional would not be protected if economic or other conditions resulted
in an unanticipated drop in course activity. Isle believe the City and the
Professional more nearl~~ receive the desired protection under the gross
profit formula.
6) A, final revision involves more stringent requirements in the maintenance
of accounting records and the monthly/annual furnishing of financial statements.
i:Je believe there is substantial justification for requiring an annual audited
financial statement since the amount of greens fees owed to the City or to
be received from the Professional is recommended to be based on the gross
profit of the operation. Consequently, the accuracy of the statements becomes
more critical than under current circumstances. No!~iever, since an audited
financial statement entails considerably more expense for the Professional,
and we are reserving the right to require one if the Director of Finance
feels it justified, we are proposing a more complete financial reporting
but short of a complete audited financial statement prepared by a Certified
Public ,Accountant. !~!ith the reservation provision and our right to audit,
we believe sufficient protection is provided.
DATE: December 8, 1976
T0: Lane
FROtd: Gene
SUBJECT: Golf Pro Contract
A five (5) year agreement, with first right of refusal of any renewal by the Professional,
was executed between the City and Joe Warburton, Golf Professional, in 1971. That agree-
ment expires December 31, 1976.
The attached proposed agreement, for an additional five (5) year term, has been the
subject of many meetings with the Professional. Both parties generally agree on the
prepnsed modifications.
Mr_ 4]arburton originally requested consideration of:
1. A ten (10) year contract.
2. A percentage of greens fees increased from 4 1/2% to 5%.
3_ Changes in vacation policy.
4. Consideration of State retirement benefits.
5. Construction of necessary electric cart storage facilities.
Through the process of negotiation, we have:
1. Agreed on an acceptable vacation policy (to be handled administratively
with no maximum limit).
2. Agreed to construct, subject to availability of funds, additional golf
cart storage facilities, on or before July 1, 1978.
3. Agreed that inclusion under the State Petirement System is not feasible
unless the Professional became an employee of the City (inclusion did not
appear feasible).
4. Generally agreed the
of the income-producing
.contract was preferable
~1°g~rvss-pr°c~ri, furr.ula is proposed
and the percentage of greens fees,
Lhp torm,nf.the ntc, agreement.
jt, due to the uncertainty or unpredictable nature
capabilities of the course, a five (5) year
in terms of both the public interest and the Golf
to be used in determining remuneration for services
if any, the Professional will be entitled to during
-2-
The contract executed in 1971 provided for the Professional to receive 4 1/2% of all
greens fees regardless of total net income. Due to the Professional's inability to
derive what was felt to be sufficient annual income in previous years from the opera-
tion and the then estimated cost the City would experience if the course was City
operated, the current contract provided for the percentage split of all greens fees
referred to above. This percentage of greens fees is and has been in addition to any
earnings the Professional derived from the driving range, pro shop sales, golf lessons,
rental of carts, etc. Exhibit A, attached, is a historical review of actual revenues
produced at the course beginning in 1970 through 1975, and income that we believe can
be reasonably projected through 198i, the proposed term of the new contract. Exhibit A
indicates the Professional had net income before taxes of $16,000 in 1970; dipped to
$15,000 in 1971; and exceeded 519,000 in 1972 with the first payment made on a percentage
of the greens fees. Since 1972, income has grown steadily both in terms of greens fees
and the Professional's sales from other course activities. (Some of the greens fees
growth has occurred via greens fees increases approved in July 1975 and again in
July 1976.)
Attempts to project future income growth beyond 1981, and perhaps as early as 1978 or
1979, become increasingly difficult because:
1. It is anticipated that the player growth will increase at a much
slower rate beginning in 1978 or 1979 because the course will start
approaching a saturation point in terms of players able to get on the
course. This is particularly true during weekends and the more
desirable play times (weekends and summer months).
2. The Golf Professional projects 62,000+ players per year would be
reached sometime in 1979/1980. While some might question whether this
is near the saturation point (Coronado had 90,000+ players during 1975/76),
the Golf Professional made some assumptions based on his experience and
expertise and, therefore, feels "growth beyond this period (1979/1980)
in number of players would be minimal so any dollar growth would have to
come from a change in the greens fees structure".
3. We are unable, with any great degree of certainty, to predict that
the Professional will continue to show the substantial percentage in-
crease in annual net earnings that he has shown in 1974, 1975 and 1976.
We believe, however, that calendar years 1977 and 1978 should continue
to show good growth and, on this basis, believe some method should be
developed whereby the fixed percentage of greens fees revenue paid by
the City as a part of the Pro's compensation sh~ld be placed on an
adjustable scale. The scale would provide that, at some unpredictable
point, he would not only discontinue receiving a percentage of greens fees
but, if his gross profit from non-greens fees sources exceeds 595,000
per year, his greens fees percentage would decrease on the basis of 1/2
of 1% for each 35,000 additional gross profit. Ilf, for example, his
annual gross profit exceeds 5140,000, the Professional would be re-
quired,under terms of the proposed contract, tm day to the City 1/2 of
1% of his gross profit and, if that figure show-~ exceed 5180,000, he
would be expected to pay to the City 4 1/2% of his gross profit of
$180,000 or more.
It should be pointed out that the formula, as proposed in 3~ction 8 of the agreement,
would not limit the Professional's ability to grow economically from his endeavors
but would allow the City, and perhaps the golfers, to benefit from additional revenue
generated by the course. As you are aware, the golfing p>dh~lic has been required to
-3-
absorb greens fees increases the last two years due to increased operating costs of
the course and the Professional, under present circumstances, automatically derives
4 1/2% of the additional funds generated by the greens fees increases. Based on the
new greens fees structure adopted in July 1976, it is estimated the Golf Professional
will derive some $12,000+ in 1976, based on his 4 1/2% split. In other words, under
the present formula, what the Professional receives directly reflects the greens fees
schedule adopted by the City Council. The Professional's annual earnings in 1976,
with his share of greens fees, should exceed $45,000 with those fees and about $30,000
without those fees.
Staff had some difficulty in agreeing with all the assumptions made by the Professional
as it pertained to future earning capacities. tdhile we agree with his basic assumption
that earnings from the course through 1981 will increase at a slower pace, we cannot
entirely accept his assumption that his expenses will continue to increase at the
historical annual percentage without requiring some adjustments in charges he makes
for services he provides the golfer. If expenses do continue to rise, and we believe
they will, the Professional, like any good entrepreneur, will have to raise the price
of his services and reduce expenses wherever possible. We do not feel it is in the
public interest to look to the greens fees structure as the only means of offsetting
higher operating costs.
Based on all the facts we have been able to gather and assess, it is our conclusion
that:
1. The new contract should be limited to a five (5) period.
2. The contract should provide a flexible greens fees percentage
scale based or, the Professional's gross annual sales, whereby he
would continue to receive some percentage of greens fees if his
annual gross income (assuming a reasonable relationship between
gross and net income can be expected) does not continue to rise
in the historical pattern but, by the same token, if his annual
gross and net income should grow beyond "reasonable limits", the
City's obligation to support, through greens fees, should be
diminished. We believe the schedule we have developed should
enable the Professional to maintain a "net income" in excess of
$50,000 per year. This figure is not an absolute maximum since
the formula we have developed would allow the Professional to have
unlimited earning capabilities, but not at the expense of greens
fees revenue. If our projections of gross profit are not correct,
it would be incumbent upon the City, in fairness to the Professional,
to modify the agreement so that a more reasonable return for the
Pro's services is provided.
3. lJe believe the proposed contractual arrangement represents the
preferable manner of operating the golf course, since the cost/
income analysis as a City operation reveals that projected net
income to be derived by the Professional, and shown on Exhibit B,
is approximately the cost the City would experience if it were to
employ its own people to provide those services now provided by
the Professional.
ERA:mab
Attachments
(I) (2)
Greens
Year Fees
1970 151,626.35
1971 151,542.00
1972 157,472.15
1973 173,914.45
1974 202,345.67
1975 228,362.50
1976 260,274.00
1977 286,301.00
1978 309,205.00
1979 333,941.00
1980 353,972.00
1981 371,675.00
(3) (4)
Electric Manual
Carts Carts
18,437.05 2,802.30
19,808.25 2,288.50
26,220.00 2,475.25
30,111.50 3,158.50
37,196.50 2,899.75
38,946.50 3,615.46
46,495.50 3,579.60
51,145.00 3,936.00
55,236.00 4,250.00
59,654.00 4,590.00
63,233.00 4,865.00
66,394.00 5,108.00
HISTORICAL AND PROJECTED GOLF COURSE REVENUE AND EXPENDITURE RECORD EXHIBIT A
FOR CALENDAR YEARS 1970 THRU 1981
(See Notes Below)
(9)
(10)
(II)
(12)
(13)
(14)
(IS)
(5)
Golf (6)
Pro-Shop (7)
Driving (8)
Total Less Cost of Less Greens Gross Less Net Gr eens Fee Total
in
Lessons Sales Range Gross Income Goods Sold Fees Profit Expense Income Income come
553 4Z, 682.04 9,969.10 226,069.84 30,297.02 151,625.35 44,147.47
57 27,906.05
88
365
30 16,241.42
913.69
15 None
None 16,241.42)
15,913.691
699 44,330.52 9,695.25 228,363.52 30,541.95
73
4
825 151,542.00
472
15
157 46,279.
971.56
48 .
,
34,315.16 ,
14,656.40 4,460 19,Ii6.40)
6,351 39,281.14 9,469.90 241,269.44
52
78 ,
.
3
35
482
35 ,
.
914.45
173 ,
55,955.98 43,043.24 12,912.74 7,431 20,313.74)
807
965 43,716.58
657
98
52 13,644.75
171.50
15 .
265,3
311,236.40 .
,
44,222.95 ,
202,345.67 64,667.78
- 44,648.77 20,019.01
20
11 8,789
870
9 28,808.01)
11>
890
35
1,335 .
,
55,251.00 ,
16,598.15 344,108.61 39,087.00 228,362.50 76,659.11
~
340
08 50,639.00
00
600
55 .
26,0
740.08
32 ,
11,712 .
,
44,445.C8)
272 61,793.39 19,454.96 391,869.45 43,255.37
00
47
580 26C, 274.00
301
00
286 .
68,
364.00
97 .
,
60,000.00 ,
37,364.00 12,883 50,247,00)
500 67,972.00
409
00
73 21,391.00
00
102
23 431,245.00
702.00
465 .
,
51,306.00 .
,
309,205.00 ,
105,191.00 64,800.00 40,391.00 13,914 54,305.00)
500
500 .
,
79,281.00 .
,
24,950.00 ,
502,916.00 55,497.00 333,941.00 113,478.00
~57
®®
d 69,984.00
®®
94
I~3 43,494.00
®94:60
46 I§,027
19~4;31i 58,521.00)
64J904:00)
500 84,037.00 26,447.00 533,054.00
84
00 58,825.00
766
00
61 353,978.®®
675.00
571 ,
,
l;e
126,243.00 t
.
79,892.00 ~
A8, 351.00 16,92n6 65,699:6^01
500 88,238.00 27,769.00 .
559,6 .
, ,
NOTE:
I. Column 13 is net income Pro earned or wculd be expected to earn If no percentage of greens fees Is pa
2. Column 14 is greens fees earnings at 4 I/2$ of Column 2.
3. Column IS represents total actual income of pro thru 1975 and estimated thru 1981 if 4 I/2$ provision remains.
4. Column 9 represents cost of goods sold in Pro-Shop and is deducted from gross income to arrive at gross profit.
HISTORICAL/ESTIMATED
PERCENTAGE GROWTH RATES
Year Gross Prof It Expense Greens Fees
4
8$
8.8$ Actual
1971
1972 .
5.8$
13.0$ 3.9$
4$
10
1973 14.2$ 25.0$
7$
3 .
16.3$ "
1974 15.5$
18
5$ .
13.4$ 12.8$
1975 .
15
2$ 9_7$ Ig,q$ Estimated
1576 .
2$
10
8.0$ 10.0$ "
1977 .
B
C$ 8.0$ 8.0$
1978 .
7
8$ 8.0$ 8.0$ "
"
1979 .
5
9$ ~ 6.0$
1980 .
4
9$ 9.0~ 5.0$ n
1981 .
r~
~''w
6~. r'`
~~
~~
INCOME PROJECTION ANALYSIS
Current 4 I/2~ of Total Greene Fees
Estimated Net Income Add Greens Fees
t 4 I/2$
Year Greens Fees (No Greens Fees) a
1977 $286,301 $37,373 $12,883
914
13
1978 309,205 40,391 ,
027
15
1979
333,941 43,494
074
46
,
15,928
1980 353,972
675
371 ,
48,351 16,725
1981 ,
PROPOSED GROSS PROFIT BASIS
(Reduced $-Dependent on Gross Profit)
Estimated Estimated Net Income
F
es) ~ Add Greens
Per Schedu Fees
le
Year Greens Fees e
Gross Profit (No Greens
1977 $286,301 $ 97,364 $37,364 $1g~276 (3$)
1978 309,205 ~ 105,191 40,391
494
478 43
8,348
(2 I/2$)
1979 333,941 ,
113,
257 46,074
120 7 079 (2$)
1980 353,972 ,
243 48,351
126 3,716 (I$)
1981
371,675
,
GREEtJS FEE REDUCTION AT RATE OF I~ PER YEAR WITHOUT REGARD TO INCOME
Estimated Net~Income
f
) Add Reducing
Greens Fees
Year Greens Fees ees
(No Greens
373
$37 b12,883 (4 1/2$)
1977 $286,301 ,
391
40 10,822 (3 I/2$)
1978 309,205 ,
494
43 8,348 (2 I/2$)
1979 333,941 ,
074
46 5,309 (I I/2$)
1980 353,972 ,
351
48 1,858 (I/ 2$)
• 1981 37 I , 675 ,
GREENS FEE REOUCTION AT RATE OF I/2$ PER YEAR WITHOUT REGARD TO INCOME
Estimated
Year Greens Fees
1977 $286,301
1978 309,205
1979 333,941
1980 353,972
1981 371,675
Net Income
(No Greens Fees)
b37,373
40,391
43,494
46,074
48,351
Add Reducing
Greens Fees
$12,883 (4 I/2$)
12,368 (4$>
10,689 (3$)/2$)
9,291 (2 1/2$)
EXHIBIT B
Total
Income
$50,256)Represents Estimated
54,305)Income to Pro if
58,521)Current 4 I/2$ Contract
62,002)Provisions are
65,076)Retained
Total
Income_
$gg,789)Represents Estimated
49,667)Income to Pro
51,842)if Gross Profit Formula
53,153)ls used
52,067)
Total
Income
$50,256)
51,213)Reduced
51,842) I$
51,383)Per Year
50,209)
Total
Income ' ~_~
850,256) ~.
~
52,759)Reduced '
55,(81) I/2$
56,693)Per Year
57,642),
PROPOSED REVISIONS TO SECTION 11
OF CONTRACT BETWEEN CITY OF CHULA VISTA
P.f1D JOSEPH S. WARBURTON
11. FINANCIAL STA-("EMENIS REQUIRED.
Professional shall furnish City monthly (insert 1) income
and expense statements, prepared in accordance with generally ac-
ceptable accounting principles which shall accurately reflect Pro-
fessional's total monthly receipts, gross profit and net income
before taxes.
Insert (2)
Remuneration for services or payments made by the Pro-
fessional to the City as provided under Section 8 shall be made
on the basis of an annual financial statement and a balance sheet.
Said annual statement shall be filed on or before April 1 of each
year and shall be used to determine the percentage of green fees
the Professional is entitled to or the percentage of the Profes-
siona;`s gross profit owed to the City.
Notwithstanding the above, City reserves the right
Burin; the term of this agreement to require an audited annual
financial statement prepared by a Certified Public Fccountant
if in the judgment of the Director of Finance such an audit is
deemed necessary.
Insert {3)
Insert (11 Change from monthly to quarterly.
Insert (2! The gross profit percentage determined in the prior
year shall be used in preparing such financial state-
ments, except that annually Professional shall be
required to take a physical inventory.
Insert(3) If so deemed, the City Council shall designate an-
other Certified Public Fccountant who shall inspect
the books of Professional and recommend whether
such an audit is necessary. Professional shall
pay any fees of said designated C.P.A..
11. FINANCIAL STATEMENTS REQUIRED. (Proposed Revision)
Professional shall furnish City quarterly income and
expense statements, prepared in accordance with generally accep-
table accounting principles which shall accurately reflect Pro-
fessional's total monthly receipts, gross profit and net income
before taxes.
The gross profit percentage determined in the prior
year shall be used in preparing such financial statements, except
that annually Professional shall be required to take a physical
inventory.
Remuneration for services or payments made by the Pro-
fess?oral to the City as provided under Section 8 shall be made
on the basis of an annual financial statement and a balance sheet.
Said annual statement shall be filed on or before April 1 of each
year and shall be used to determine the percentage of green fees
the Professional is entitled to or the percentage of the Profes-
sional's gross profit owed to the City.
Notwithstanding the above, City reserves t`~e right
during the term of this agreement to require an audited annual
financial statement prepared by a Certified Public Accountant
if in t`~e jedgemznt of the Cirector of Finance such an audit
is dezrred necessary.
It so deemed, the City Council shall designate another
Certified Public Accountant who shall inspect the books of Pro-
fess'~-al and recommend whether such a~ audit is necessary. Pro-
fessicnal shall pay any fees of said designated C.P,A..
JOSEPH 5. WAP,BURTON
STATEPIENT OF PROFIT AND LOSS
TO
Sales
Cost of Sales
19
Period Endinq Year to Date
$ XX,XXX $ XXX,XXX
Inventory first of period $ X,XXX $ XX,XXX
Add purchases XXX X,XXX
Subtotal $ X,XXX $ XX,XXX
Less inventory end of period XXX X,XXX
Cost of Sales X,XXX XX,XXX
Gross Profit $ XX,XXX $ XXX ,XXX
Other Income
Rental income - golf carts XXX XXX
Driving range income XXX XXX
Electric cart rentals XXX XXX
Repairs - golf equipment XXX XXX
Gross Income Subject to City Contract $ XX,XXX $ XXX ,XXX
Add
Commissions - City of Chula Vista XXX XXX
Lessons income XXX XXX
Prizes - tournament play XXX XXX
Interest incor:e XXX XXX
Miscellaneous income XXX XXX
Total Income $ XX,XXX $ XXX ,XXX
Less Expenses (on separate schedule) X,XXX XX,XXX
Net Intone Before Taxes $ X,XXX $ XX XXX
Green Fees Collected for and
Turned Over to City of Chula Vista $_ _ X;XXX $ _ X.XXX