AGENDA #9

 

MEMORANDUM

 

TO:                  Mayor and Town Council

 

FROM:            W. Calvin Horton, Town Manager

 

SUBJECT:       Proposed Amendment to the HomesteadParkSkatePark and Batting Cage Concession Agreement

 

DATE:             September 10, 2001

 

The attached Resolution A would amend the existing concession agreement with Ryan’s World of Chapel Hill, Inc. for operation of the Homestead Park skate park and batting cage facilities.  The Manager recommends adoption of Resolution A.

 

Resolution B would authorize the Manager to cancel the current agreement in 180 days and to then operate the facilities with Town resources.

 

BACKGROUND

 

In September 1999, the Homestead Park skate ramps were completed.

 

On October 27, 1999, the Council approved a concession agreement with Ryan’s World for operation of the skate park and batting cage facilities.  Please see the attached agreement.  There were no proposals in response to the Town’s advertised Request for Proposals except that of the present concessionaire.

 

The skate park opened for business in November 1999.

 

The batting cage facility was completed and operational on September24,2000.  An addendum to the concession agreement associated with operation of batting cages was approved in April 2000. Please see the attached addendum.

 

In July 2001, the concessionaire notified the Town that the batting cage/skate park facilities were not operating profitably under the current terms of the agreements.  He requested that the agreement be modified.  Please see the attached letter.

 

DISCUSSION

 

It was the original intention of the Council to allow a private concessionaire to assume the skate park and batting cage operations in exchange for the right of the concessionaire to keep the majority of revenues collected.  Ryan’s World submitted the only proposal and has been the concessionaire of the skate park since November 1999 and the batting cage facility since September 2000.  The current agreement (and an amendment to the Agreement) covers a multitude of financial, operational, and safety issues.

 

The agreement was structured to allow the Town to collect a small percentage of the gross revenues for both facilities (10% batting cage admissions; 5% of skate park admissions and 10% of merchandise sales) and recover $40,000 pledged by the concessionaire toward the cost of the batting cage facility.  The concessionaire offered to contribute this amount toward the cost of the facility when higher than expected bids were received.  The Town has collected $7,000 of the $40,000 as of this date, leaving a balance of $33,000.

 

We have generally been pleased by the manner in which the concessionaire has operated.  The skate park facility is particularly well-used, operations appear to be run in a manner suitable for a municipal Parks and Recreation Department, and the concessionaire has developed a positive rapport with patrons and their parents.  In addition, the concessionaire constructed a new ramp at his own expense and has maintained a high standard for routine maintenance of the site.

 

Unfortunately, the concessionaire has reported that he has operated unprofitably since assuming operations and has requested that the Town modify the agreement.  He notes that unless a way is found to gain profitability he may have to give his required 180-day notice prior to ceasing operations.  Since July we have delayed collecting some of the concessionaire’s required payments pending a decision by the Council.

 

Financial Issues: The concessionaire's primary concerns are the terms of the agreement related to the batting cage. He is required to make a minimum payment of $1,000 per month for the batting cage facility regardless of revenues collected. The $1,000 per month payments are credited toward his pledge to contribute $40,000 over 40 months toward the cost of the batting cage facility. In the period September 2000 – July 2001 the $1,000 amount has exceeded actual revenues produced by the facility in 6 out of 11 months. In addition, he must pay 10% of actual revenues collected from the batting cage operations. The following chart illustrates the effect of these payments on his profitability.

 

Batting Cage Revenue and Payments to Town
September 2000 - July 2001

 

MONTHS

TOTAL REVENUE

CONTRIBUTIONS TOWARD BATTING CAGE 1

10% OF ACTUAL REVENUE 1

TOTAL

PAYMENTS

DIFFERENCE

 

Sept 2000

1,080

1,000

108

1,108

(-) 28

Oct 2000

1,612

1,000

161

1,161

451

Nov 2000

1,236

1,000

123

1,123

113

Dec 2000

0

1,000

0

1,000

(-) 1,000

Jan 2001

0

1,000

0

1,000

(-) 1,000

Feb 2001

0

1,000

0

1,000

(-) 1,000

Mar 2001

0

1,000

0

1,000

(-) 1,000

Apr 2001

210

1,000

21

1,021

(-) 811

 

 

 

 

 

 

May 2001

650

1,000

65

1,065

(-) 415

June 2001

1,082

1,000

108

1,108

(-) 26

July 2001

1,614

1,000

161

1,161

453

 

 

 

 

 

 

TOTAL

7,484

11,000

747

11,747

(-) 4,263

 

1 These amounts are what are required by contract, and we have included them to illustrate the impact of the present fee structure. Beginning with the June 2001 payment we have been accepting payment of 50% of gross revenues in order to keep the concessionaire in operation.  The amount due from the concessionaire will not change unless the Council approves a change.

 

2. Profit figures listed here do not account for other expenses such as personnel, repairs, routine maintenance, utilities, and promotion. Most of these expenses cannot be separated out from the expenses attributable to the skate park.

 

The owner of Ryan’s World contends that current expenses (especially the batting cage payments) makes operation of the complex unprofitable. The concessionaire contends that a combination of factors has affected his financial performance. These include mandated low entrance fees, Town concession fees, relatively remote location of the facilities, and weather related closures. Below is a breakdown of expenses and revenues for the past 6 months, which is the only period for which we have detailed expense information.

 

Six-Month Summary of Revenues, Expenditures, and Profit

                  

YEAR 2001

EXPENSES 1

SKATE PARK REVENUES 2

BATTING CAGE REVENUES

PROFIT       

January

4,257

4,393

0

136

February

4,601

4,099

0

(-) 502

March

5,256

5,330

210

284

April

6,214

4,618

650

(-) 946

May

4,768

2,850

1,082

(-) 836

June

5,534

3,788

1,614

(-) 132

TOTAL

30,630

25,078

3,556

(-) 1,996

 

1.      This amount includes $2,947 paid to the Town as concession fees and $5,000 in payments toward the cost of building the batting cages.

2.      Skate park revenues include all skate park admission fees plus sales of equipment, food, and drink.

 

OPTIONS

 

We believe that the Council has two primary options.  The concessionaire has recommended that the batting cage payments be reduced to 50% of actual revenues collected.  This recommendation is included in Option 1.

 

Option 1: Modify the Agreement

The concession agreement could be amended to give the Manager a greater amount of flexibility to address Ryan’s World’s financial concerns.  If the Council agrees to modify the agreement the Manager could restructure the concessionaire’s payments to the Town.

 

If such authority were granted the Manager would notify the concessionaire that batting cage payments toward the $40,000 would be changed (from $1,000 per month plus 10% of revenues) to 50% of actual gross revenues collected.

 

Benefits of this approach include:

 

Costs associated with this approach include:

 

Option 2: Assume Operations

The Town could issue a 180-day notice to cancel the current agreement and operate the skate park and batting cage facility in the same manner that we operate revenue producing facilities and programs such as the Chapel Hill Community Center, Northside Gymnasium, Lincoln Arts Center, athletic programs, and street fairs.

 

We estimate that the direct costs for Town operation of these facilities at about $85,000 per year.  (Please see Attachment 5 for a projection of what our costs would be to operate the facility.)  In addition to the operating costs, an initial additional investment of $13,600 for equipment and merchandise would be needed before opening. 

 

Based on the financial performance history established by Ryan’s World we would estimate annual offsetting revenues of about $60,000. 

 

Benefits of this approach include:

 

Costs associated with this approach include:

 

CONCLUSION

 

We believe that the current concessionaire has successfully operated the skate park and batting cage facility for over 20 months.  He is willing to operate the facility at a marginal profit level because of his interest in working with young people.  In addition he has maintained a good safety record, maintenance has been of a high quality, he is knowledgeable about skate park and batting cage operations, and he has established excellent relations with patrons and their parents.

 

We believe that efforts should be made to retain the current concessionaire.  We are currently able to offer a skate park and batting cage facility to our citizens at reasonable rates with no cost to the Town.  If we are forced to assume direct operation of the facility we would likely have to do so at a loss, primarily because we would have to hire a new full-time staff person as a facility manager.  We believe that the cost of hiring a facility manager would be more than the cost of reducing the concessionaire’s current payments to the Town.

 

RECOMMENDATIONS

 

Parks and Recreation Commission’s Recommendation: The Parks and Recreation Commission met on August 15, 2001, and voted unanimously (9-0) to strongly recommend that the Council renegotiate the contract with the concessionaire operating the skate park and batting cage at Homestead Park.

 

Manager’s Recommendation: That the Council adopt the attached Resolution A, authorizing the Manager to amend the existing concession agreement with Ryan’s World of Chapel Hill, Inc. to give the Manager flexibility in setting concession payments and fees, establish an annual review process, and establish a mechanism for levying fines for non-compliance of contract terms.

 

Resolution B would authorize the Manager to give 180-days notice to Ryan’s World to cease operations and plan for Town operation of the facility at the end of the 180-day period.

 

ATTACHMENTS

 

1.      Concession Agreement(p. 8).

2.      Amendment to Concession Agreement (p. 24).

3.      Letter from Ryan’s World of Chapel Hill Inc.(p. 29).

4.      Parks and Recreation Commission Recommendations (p. 31).

5.      Projection of Costs for Town Operation of the Skate Park (p. 32).

 

 

RESOLUTION A

 

A RESOLUTION AUTHORIZING THE MANAGER TO AMEND A CONCESSION AGREEMENT WITH RYAN’S WORLD OF CHAPEL HILL, INC. FOR OPERATION OF THE CHAPEL HILL SKATE PARK AND BATTING CAGE FACILITIES (2001-09-10/R-11a)

 

WHEREAS, the Town of Chapel Hill has constructed a skate park and batting cage at its Homestead Park; and

 

WHEREAS, Ryan’s World of Chapel Hill, Inc. has been the concessionaire since November 1999; and

 

WHEREAS, changes to the concession agreement would allow the Manager to address concerns that affect both parties;

 

NOW, THEREFORE, BE IT RESOLVED by the Council of the Town of Chapel Hill that the Council authorizes the Manager to amend the existing concession agreement with Ryan’s World of Chapel Hill, Inc. to give the Manager flexibility in setting concession payments and fees and establish an annual review process for setting concession fees.

 

This the 10th  day of September, 2001.

 

 

RESOLUTION B

 

A RESOLUTION AUTHORIZING THE MANAGER TO ISSUE NOTICE TO RYAN’S WORLD OF CHAPEL HILL, INC. TO CEASE CONCESSION OPERATIONS IN 180 DAYS AND PREPARE FOR ASSUMPTION OF OPERATIONS BY THE TOWN (2001-09-10/R-11b)

 

WHEREAS, the Town of Chapel Hill has constructed a skate park and batting cage at its Homestead Park; and

 

WHEREAS, Ryan’s World of Chapel Hill, Inc. has been the concessionaire since November 1999; and

 

WHEREAS, Ryan’s World has not been successful in realizing a profit;

 

NOW, THEREFORE, BE IT RESOLVED by the Council of the Town of Chapel Hill that the Council authorizes the Manager to give Ryan’s World of Chapel Hill, Inc. 180-days written notice that the Town is canceling the current concession agreement if the concessionaire cannot meet the terms of the agreement.

 

BE IT FURTHER RESOLVED that the Council authorizes the Manager to begin planning for eventual Town control of the operations including preparation of a budget for future Council review.

 

This the 10th day of September, 2001.

 

 

 

ATTACHMENT 5

 

Projection of Costs for Town Operation of the Skate Park

 

 

Facility Manager *                                                                    $28,000

 

Retirement                                                                                $5,400

 

Health                                                                                      $3,500

 

Misc. Benefits                                                                           $1,000

                                                                                               

Contract Employees @ $8 pr hour                                            $32,000

(4,000 total hours per year)                                                     

 

FICA                                                                                       $2,500

                                                                                               

Utilities (electric, telephone, water)                                            $5,000

                                                                                               

Maintenance and Repair                                                           $5,000

 

Office and Misc. Supplies                                                         $2,700

                                                                                               

Total                                                                                        $85,100

 

 

* Facility Manager would plan and run programs and classes, handle maintenance issues, handle cash deposits, supervise contract employees, and act as a supervisor during periods of heavy use.