There are scores of examples of successful golf course privatizations, as well as a number of failures. More than 500 municipalities throughout the United States have successfully completed the privatization process. Much can be learned from their experiences.
The city of Detroit, for example, has privatized four of its six golf courses. (The city continues to manage two courses.) In the first year of private management, the total revenue generated for the four courses was $200,000, compared to a deficit of $500,000 when they were run by the city. Detroit Free Press business columnist Doron Levin reported that "American Golf has invested $2 million in improvements and pays the city at least $250,000 a year."
According to Detroit's former director of recreation and parks, Dan Krichbaum, "It's been a win-win situation." The new management "improved the condition of the course and increased the number of rounds played," making capital improvements the city could not afford. Krichbaum added that the competition has also improved operations at the two courses the city continues to manage. In addition, the public has reacted positively to the improved playing conditions and the more efficient operations. No municipal workers lost employment due to the changes; all were either hired by the private contractor or transferred to other positions within the city.
In Chicago, privatized golf courses and driving ranges posted $279,000 in net income for 1996. Kemper Sports Management turned what was a $530,000 operating deficit on Chicago's golf programs in 1992 into a profit of $550,000 in 1994 and, despite an abnormally hot summer, $250,000 in 1995. The Kemper contract guarantees the Park District $250,000 a year up front for capital improvements. Kemper and the district split the remaining revenues 50-50.
As a result of Kemper's capital improvements and more efficient operations (such as computerized reservations), course reservations increased from about 4,000 before Kemper's contract began to about 40,000 in its second year of operation. Kemper runs Chicago's courses under a 10-year lease agreement. "There is a greater incentive for an up side on leasing than collecting a management fee but also a greater down-side risk," says Kemper senior vice president Jim Seeley.
The golf courses have improved dramatically. Prior to privatization, there were asphalt tees at Marovitz, security problems at Columbus, and graffiti on the walls at South Shore. Yardage markers were infrequent and largely inaccurate. Conditions were haphazard at all locations, and the telephone reservation system was a joke. In 1993 and 1994, the Kemper management program provided more than $570,000 for capital improvements at the courses and driving ranges. These improvements have included replacing 36 asphalt tees with natural grass, building 15 new tees and 16 new sand bunkers, and putting up a canopy at the Diversey range so golfers can use it year-round. At several courses, golf carts are now available. And Kemper has greatly expanded the instruction programs and held the first-ever Women's Amateur Tournament.
Successful transitions from public golf course management to private management require extensive evaluation of the existing golf course operation. After evaluating the current operation, the next step is an in-house cost evaluation. Since the reason for contracting is to achieve cost savings, one must understand current costs before determining whether privatization will generate savings. The in-house costs are then compared against estimates of all direct costs associated with private management, plus any administrative costs associated with implementing and monitoring the golf course privatization. This task is difficult because the public sector often underestimates the cost of providing a service by as much as 30 percent. Golf is no exception.
The federal government, for example, owns 300 golf courses and claims it makes money on its golf courses. Outside groups, however, have noted that when properly accounting for all costs, these courses lose about $60 million a year. Since staff, salaries, and resources are often spread throughout parks and recreational facilities, it is often difficult to tell where the resources are being spent. In Denver, for instance, one park official announced that the city would earn $1 million from golf operations, while an official from the city auditor's office argued that the courses would actually lose $400,000. Similarly, in Buffalo, one city council member estimated that it cost the city about $300,000 annually to operate its golf courses, while another council member estimated that the cost was closer to $400,000 or even $500,000 since some park workers and equipment not specially assigned to the courses still perform duties associated with the courses.
One of the most important elements of a successful golf course privatization is a well-written request for proposals (RFP). Los Angeles County officials emphasize that developing very specific and all-inclusive work specifications is the most important element in effectively contracting out golf operations. The RFP should identify each activity that could occur in golf operations and define the specifications for the performance of those activities. It should also describe the background and existing conditions of the golf course and give a date at which prospective bidders can attend a site meeting. The following are important provisions to consider including in an RFP:
The final key to a successful contracting program is the implementation of an effective contract monitoring system. This point was stressed by officials in Indianapolis, Los Angeles County, and New York City. Generally, monitoring includes making on-site visits to make sure that the operation and condition of the course meet specified standards. Indianapolis frequently conducts "secret shopping" on its courses and compares course ratings against each other and against benchmark performance standards each month. There are also checks of accounting procedures to ensure that the city is receiving the correct amount of rent. In other words, there should be a clear specification of the desired objectives and a means of holding the provider contractually accountable. There should be financial penalties associated with repeated serious failure to meet objectives and financial rewards for exceeding or regularly meeting objectives.