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2019-02-26; City Council; ; The Crossings at Carlsbad Report on 2018 Calendar Year Financial Performance
agreement, the successor agreement allowed for one five-year extension of the initial term. During this contract term however, some organizational issues and criminal activities were identified. Staff worked with KSM to implement measures to prevent these issues and activities from occurring again. Staff was not completely satisfied with the progress towards meeting those objectives. Instead of exercising the agreement extension at that time, staff opted to conduct a new RFQP process to ensure the Golf Course was managed and operated by the best qualified firm. On Sept. 5, 2017, a RFQP was advertised for Management and Operations of the Golf Course. The RFQP detailed that the chosen firm would be responsible for the management of the entire operations of the Golf Course, including administration, budgeting, marketing, course maintenance, tournaments, food and beverage, volunteer program, and special events. On Sept. 21, 2017, staff conducted a non-mandatory pre-submittal conference call to review the RFQP and answer any questions from interested firms. Five firms participated in that conference call. In addition, staff accepted written questions regarding the RFQP from interested firms through Sept. 28, 2017. Six firms submitted a total of 30 written questions regarding the RFQP. On Oct. 5, 2017, staff posted answers to those questions for the interested firms to review. On Oct. 12, 2017, after 38 days of advertisement of the RFQP, staff received two responsive submittals. One of the responsive submittals was from KSM and the other response submittal was from JCM. The same staff currently designated to the Golf Course Steering Committee (Committee) served on the selection committee to review and rate the submittals, interview the responsive firms, and make a recommendation on the award of a new agreement. Those staff are in the following positions: Administrative Services Director, Finance Manager, Parks & Recreation Director, Parks Services Manager, and Parks Planning Manager. The submittals were reviewed and rated by the selection committee, according to the following pre-determined and advertised evaluation criteria: • Track record of success operating venues similar in scope/quality to the Golf Course • Operational concepts and plans • Ability to fulfill any reporting requirements • Proposed use, addition, or improvement of equipment and facilities currently available to perform the requested services, or demonstrated to be available at the time required • Recommendations from referenced clients where like services are or have been provided • Quality/detail of the proposed operation, promotion and marketing services • Experience with golf course turf and pest management plans involving stringent operations, integrated pest management practice, oversight and conformance with conditions required by environmental resource agencies, and particular familiarity with California Coastal Act • Financial resources to operate and maintain the facilities properly After reviewing and rating the submittals, the selection committee scheduled interviews with representatives of both KSM and JCM. On Nov. 9, 2017, those interviews were conducted. On Nov. 29, 2017, a second interview with representatives of JCM only was conducted. February 26, 2019 Item #5 Page 2 of 13 Upon the conclusion of all of the interviews, the selection committee determined that JCM was the best qualified firm for recommendation of execution of the Agreement. Coupled with meeting the RFQP evaluation criteria, JCM was favored due its strong showing in areas such as financial processes/accounting, internal and external auditing, human resources culture, information technology and administration, tournament conduction, food and beverage capabilities, sales and marketing, course maintenance and regulatory compliance, local region industry experience, and for having the leading Southern California affinity program. In addition, JCM's Fixed Management Fee per Agreement year was less than that of KSM, and JCM's Percentage Management Fee was flat compared to that of KSM's tiered fee structure. The Agreement is structured in a way that shifts operational responsibility from the city to the Golf Course management company, currently JCM. This structure saves the city time and resources as the expertise, day-to-day operational requirements, financial requirements, and regulatory compliance requirements are the primary responsibility of JCM. While JCM has assumed this responsibility, JCM is required to comply with all applicable laws of the city and other governmental bodies with jurisdiction over the Golf Course. As such, JCM's operational activities adhere to the same types of regulatory requirements which govern city operations (e.g. bidding requirements for capital projects or workplace discrimination and harassment). JCM's financial activities adhere to Generally Accepted Accounting Principles and the annual budget is approved by the Authority, similar to other city operating budgets approved by the City Council. The city maintains oversight responsibility through the standing Committee and other ad-hoc meetings. As discussed above, the Committee includes the following city positions: Administrative Services Director, Finance Manager, Parks & Recreation Director, Parks Services Manager, and Parks Planning Manager. The Parks & Recreation staff members are responsible for operational oversight while the Administrative Services staff members are responsible for the financial oversight of the Golf Course. The Committee also includes various JCM positions such as Golf Course General Manager, Vice President of Golf Operations, and Corporate Director of Golf Operations. The Committee has several responsibilities. For example, the Committee meets monthly to review the operational and financial performance of the Golf Course. The Committee also meets to review the annual budget proposal, operating and marketing plan, etc. Parks & Recreation staff also conduct monthly "standards of care" meetings to review the condition of the course, compliance with environmental regulations, and status of the clubhouse/restaurant. Additionally, specific Committee members may meet on an ad-hoc basis to address items that need immediate attention. For example, members of Parks & Recreation staff met with Golf Course staff immediately following the small kitchen fire in the Canyons Restaurant on Nov. 11, 2018 to determine the impacts and best course of action forward. And lastly, the city's external auditors also meet with JCM staff as part of the city's annual audit process. For example, for the Fiscal Year 2017-18 audit, the city's external auditors reviewed JCM's internal controls and found them to be appropriate. The city's external auditors also issued an opinion that the Golf Course financial statements were fairly presented and free of material misstatements. February 26, 2019 Item #5 Page 3 of 13 The level of city oversight coupled with JCM's operational responsibility for the Golf Course provide a good balance between resources spent on operating the Golf Course and assurance the course is being operated efficiently and effectively. Fiscal Analysis One significant factor in the RFQP selection committees' recommendation to select JCM as the new Golf Course operator centered on JCM's strong showing in financial processes/accounting and internal and external auditing. For example, JCM has strong financial internal controls such as requiring two wet signatures on every accounts payable check. This operational practice significantly reduces fraud risk. JCM also employs an internal auditor, similar to the city's internal auditor position, that is responsible for ensuring both the operational and financial activities adhere to JCM, city, and general regulatory requirements. The selection committee felt this strong financial foundation was a key component for driving positive operational performance, along with the other factors listed in the discussion section above. At the Dec. 18, 2018 City Council meeting, Roxana Asian, representing Unite Here Local 11, spoke during Public Comment regarding JC M's operation of the Golf Course. Ms. Asian distributed a document titled "In Carlsbad, Crossings Golf Course Operator JC Resorts Continues to Disappoint" (Exhibit 1). Staff has provided written responses to the individual and applicable questions presented in the Unite Here Local 11 document (Exhibit 2). The document provided by Ms. Asian focused on JCM's budget performance at the Golf Course making statements such as "JC Resorts underperformed its budget" or "Revenue from The Canyons restaurant was below projections." Ms. Asian included selective information to support these statements. For example, a chart showed July 2018 had a $60,797 variance between "Net Operating Income Actual v. Budget." This information is accurate. However, solely focusing on budget variances does not provide a complete picture of financial performance. Staff focuses its' attention on all relative data effecting JCM's performance in order to evaluate and understand operationally where funds came from, where they went and why, and the overall net cash flow of the Golf Course. The financial information presented below is from March through December 2018 as this timeframe corresponds to JCM's operation of the Golf Course. Other timeframes are referenced for context. Further, the data provided below will focus on net cash flow (predominantly operating revenues and operating expenses, though capital expenditures are included) to provide the Board Members with a better understanding of the Golf Course's financial performance. This understanding is important for three reasons. First, it focuses on the financial items the Golf Course operator has control over. It will exclude non-cash expenses, like depreciation and financing activity expenses such as the capital reserve or debt since those financial items are outside of the operator's control. Second, it focuses on actual financial performance and not performance against a budget. Budgets are a planning tool useful for guiding management decisions but less useful when comparing financial performance over time. Third, it is an indicator of whether the General Fund would need to subsidize the operations. Please note all amounts discussed or visually presented may be rounded. February 26, 2019 Item #5 Page 4 of 13 Since JCM has taken over the Golf Course management, revenues have totaled $6.9 million while expenses have totaled $6.0 million. This has created a net cash flow of $909 thousand. For comparison, over the same period the prior year under KSM's management, revenues totaled $6.6 million while expenses totaled $6.1 million. This created a net cash flow of $508 thousand. The table below compares the net cash flow by month: 2017 (KSM) 2018 (JCM) Difference March $57,712 $159,277 $101,565 April 94,476 132,198 37,722 May 38,599 166,616 128,017 June 11,792 (13,794) (25,586) July 155,840 121,494 (34,346) August 117,634 109,982 (7,652) September (64,174) 19,315 83,489 October 84,622 160,889 76,267 November (100,404) (11,646) 88,758 December 112,038 64,843 (47,195) Total $508,135 $909,174 $401,039 Please note several operational challenges that have tempered the positive financial results since JCM became the Golf Course operator. Each of the following items had an adverse impact on the financial results of the Golf Course during 2018, by no fault of JCM: • The city's decision to accomplish certain Golf Course tasks with paid/benefited positions, instead of with volunteers, as had been the case under KSM • Two months of limited alcohol sales at the Golf Course during the transfer of the liquor license from KSM to JCM • 11 days of reduced food and beverage service capabilities at The Canyons restaurant, due to a small kitchen fire o It should be noted that the financial impacts of the kitchen fire are anticipated to be almost fully recoverable via JCM insurance. Payment of the insurance claim will negate the loss shown in November. Despite these challenges, JCM has continued to grow revenue. As shown by comparing the time periods above, under JCM's operation, $909 thousand in cash was added to the Golf Course while only $508 thousand was added under KSM's operation of the Golf Course, a difference of roughly 79 percent greater. Thus far, JCM's performance has been consistent with the selection committee's expectations and reaffirmed the decision to recommend JCM to the Authority as the Golf Course operator. While the purpose of this report is to focus on the financial performance from March to December of 2018, looking at the financial performance of the course since its inception is useful. The financial performance of the Golf Course has been increasing since Fiscal Year 2010- 11. In particular, Fiscal Year 2012-13 was the first year operations generated positive cash flow for the Golf Course. February 26, 2019 Item #5 Page 5 of 13 In Carlsbad, Crossings Golf Course Operator JC Resorts Continues to Disappo.int Firms Poor First Quarter FY2019 Performance at The Crossings at Carlsbad Mirrors Problems in Escondido and Encinitas Key Points • During the first quarter of the new 2018-2019 fiscal year, new Crossings at Carlsbad operator JC Resorts operated the golf course at a deficit, with monthly net operating income budget deficits totaling $115,020 a total revenue budget deficit of $121,968 and $33,997 less in golf profits as the previous manager over the same time period. • For the past nine years in Encinitas, JC Resorts has not generated enough revenue for the Encinitas Ranch Golf Course to pay its fair share of the CPD # 1 Special Tax Assessments, leaving Encinitas homeowners to cover $2,352,420. • In Escondido, JC Resorts has operated Reidy Creek at a loss for each of the past seven years, forcing Escondido taxpayers to provide $991,580 in subsidies to make ~p for the firm's poor performance over the past twelve years. JC Resort's Sales and Marketing Plan for the Crossings, including its JC Players Card, has not yielded the budgeted merchandise, food and beverage sales, with a professional shop revenue deficit of $33,203 and a restaurant revenue deficit of $64,973. • If current trends continue, the Crossings could lose an additional $345,060 in net operating income over the remainder of the fiscal year. Background The Crossings at Carlsbad golf course that opened in 2007 cost the city nearly $70 million, making it one of the most expensive courses to construct in the United States, according to the San Diego Union Tribune.1 On January 16'\ 2018, the board of directors of the Carlsbad Public Financing Authority adopted a resolution authorizing the Chairman to execute a five-year agreement for golf course management and operations with JC Management (JC Resorts), in an amount not to exceed $270,000 per agreement year.2 During the RFQP process, staff favored JC Resorts, citing its "strong showing in areas such as financial processes/accounting, internal and external wditing, human resources culture, information technology Exhibit 1 February 26, 2019 Item #5 Page 8 of 13 Exhibit 2 Staff Response to Key Questions and Points in Unite 11 Document 1. Unite 11: In an effort to increase transparency, will the Carlsbad City Council direct staff to make golf course performance documents readily available to the public through the city website as is done in Encinitas and Escondido? Staff Response: Information regarding the financial performance of the Golf Course is readily available from three sources. First, the City of Carlsbad posts its Comprehensive Annual Financial Report (CAFR) to the city's website. The CAFR details the annual financial position of the city. As such, it also contains the financial position of the Golf Course. Second, the city also posts its annual budget to the city's website. The city's budget outlines the planned expenditures for the ensuing fiscal year and contains the planned expenditures for the Golf Course. Both the CAFR and budget may be found on the finance department page of the city's website: http://www.carlsbadca.gov/services/depts/finance/default.asp Lastly, the Golf Course's monthly financial statements are available under the Public Records Act and easily requestable through the city's website. Requests can be made on the clerk's page of the city's website: http://www.carlsbadca.gov/cityhall/clerk/records/default.asp In accordance with Government Code Section 6256, the city has 10 days to respond. 2. Unite 11: Will Council direct staff to implement a plan for annual reporting of JC Resorts' performance, including steps the firm should take to correct problems with its Sales and Marketing Plan? Staff Response: According to Section 2.3 of the Agreement for Golf Course Management and Operations (Agreement), JC Resort Management (JCM) shall prepare an annual plan that includes "an operating budget containing bona fide good faith estimates," a "capital improvement plan," and "recommendation for all fees and charges." The annual plan should also include "the course maintenance plan, the marketing and business plan for the Golf Course." Further, according to Section 2.4 of the Agreement, "every three (3) months, the Executive Director [or his/her designee] and JCM shall meet and discuss the operating results of the Golf Course ... " The Agreement was approved by the Board on Jan. 16, 2018. While the city is only contractually required to meet once a quarter to review JCM's performance, the Steering Committee meets once per month to review the operational and financial performance of the Golf Course. Further, the Committee also meets to review the annual budget proposal, operating and marketing plan, etc. Parks & Recreation staff also conduct monthly "standards of care" meetings to review the condition of the course, compliance with environmental regulations, and status of the clubhouse/restaurant. Additionally, specific Committee members may meet on an ad- hoc basis to address items that need immediate attention. 3. Unite 11: ... total golf operations profits were $33,997 less than the previous year (Figure 1). Figure 1. [statement] During the first quarter of Fiscal Year 2019 (July 2018 to September 2018), JC Resorts underperformed its budget and yielded lower golf February 26, 2019 Item #5 Page 12 of 13 Exhibit 2 operations profits than the prior year when Kemper Sports Management managed the golf course. Staff Response: While there was approximately $35 thousand less profit in golf operations during the first quarter of Fiscal Year 2019, as compared to prior year, a city decision surrounding the previous volunteer program was the primary cause for this variance. The city decided to discontinue the volunteer program at the Golf Course and directed JCM to replace the volunteers with paid employees. This decision resulted in approximately $50 thousand in additional operating expenses during the first quarter. Adjusting for this city decision, JCM was actually more profitable than Kemper Sports Management during the first quarter by almost $15 thousand. February 26, 2019 Item #5 Page 13 of 13 ITEM #5 Feb. 26, 2019 Laura Rocha, Administrative Services Director Chris Hazeltine, Parks & Recreation Director Aaron Beanan, Finance Manager The Crossings at Carlsbad 2018 Financial Performance Request Dec. 18, 2018 City Council Motion: “Council Member Schumacher, seconded by Council Member Bhat-Patel, requested that staff report back with a report on the 2018 calendar year financial performance of the Golf Course no later than the end of Feb., 2019.” History •Kemper Sports Management •Two five year agreements •2007 –2012 •Four proposals received •2013 –2018 •Ten proposals received History (cont.’d) •Fall 2017 RFQP process (two respondents) •Selection committee •Parks & Recreation Director/Parks Services Manager/Parks Planning Manager/Administrative Services Director/Finance Manager History (cont.’d) •Evaluation criteria •Track record •Operational plans •Ability to fulfill reporting requirements •Proposed use, addition, or improvement of equipment/facilities •References •Experience with turf and pest management plan and Coastal Act •Financial stability History (cont.’d) •Selection committee: •JC Resorts Mgmt. was best qualified •Recommended JC Resorts Mgmt. to the Board •Board approved 5-0 on Jan. 16, 2018 Roles & Responsibilities Operator (JC Resorts Management )City Expertise Oversight Day-to-day operations Review operational/financial performance Accounting Review annual budget/capital plan Regulatory compliance Review operating/marketing plan Standards of Care meetings Annual financial audit As-needed meetings Staff Report Exhibit 1: Unite 11 Handout •Transparency –Comprehensive Annual Financial Report (incl. audit findings) –Budget –Public Records Act •Annual Reporting/Meetings –Monthly meetings, annual audits, as-needed meetings •Budget Variances –Discussed monthly –Best practices Financial Performance •Approach: −Focuses on actuals −Operating revenues, operating expenses, & capital −Focuses on net cash flow •Benefits: −Focuses on what the operator can control −Focuses on actual performance −Indicates potential General Fund subsidies Financial Performance (cont.’d) 2017 (Mar – Dec)2018 (Mar – Dec)Difference March $57,712 $159,277 $101,565 April 94,476 132,198 37,722 May 38,599 166,616 128,017 June 11,792 (13,794)(25,586) July 155,840 121,494 (34,346) August 117,634 109,982 (7,652) September (64,174)19,315 83,489 October 84,622 160,889 76,267 November (100,404)(11,646)88,758 December 112,038 64,843 (47,195) Total $508,135 $909,174 $401,039 Financial Performance (cont.’d) Golf Course Financial Performance 9,000,000 8,000,000 7,000,000 6,000,000 : : : : I 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 ~Revenue Carlsbad 800,000 600,000 400,000 200,000 (200,000) (400,000) (600,000) (800,000) (1,000,000) Golf Course Net Cash Flow 644,663 694,198 528,837 443,987 407,734 •mm~: !IP.P., ·-• ■ {674,046) (572,033) {778,880) {863,814) Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 ■ Golf Course Net Cash Flow Thank You Golf Course Construction Funding Funding Mechanism Amount Bonds $18,540,000 General Fund 53,093,585 East/West Parcels (4,229,417) Net Cost $67,404,168 Golf Course East/West Parcels Total Land $4,841,667 $233,561 $5,075,228 Improvements 62,562,501 3,995,856 66,558,357 Construction Cost $67,404,168 $4,229,417 $71,633,585 Golf Course Advances As of Feb., 2019 Amount Principal $51,213,964 Interest $12,633,405 Sub-total $63,847,369 Misc. Repayments (4,113,826) East/West Parcels (4,229,417) Total $55,504,125 Pro Forma Financial Performance 2017 (KSM)2018 (JCM)Difference March $60,191 $159,277 $99,086 April 96,196 132,198 36,002 May 38,599 166,616 128,017 June 34,716 1,655 (33,061) July 184,636 140,170 (44,466) August 128,971 127,161 (1,810) September 34,394 34,477 83 October 153,059 175,505 22,446 November 29,334 1,191 (28,143) December 161,394 77,177 (84,217) Total $921,490 $1,015,427 $93,937 Pro Forma Financial Performance 2 2017 (KSM)2018 (JCM)Difference March $60,191 $159,277 $99,086 April 96,196 132,198 36,002 May 38,599 166,616 128,017 June 34,716 1,655 (33,061) July 184,636 163,255 (21,381) August 128,971 151,226 22,255 September 34,394 27,647 (6,747) October 153,059 189,228 36,169 November 29,334 22,641 (6,693) December 161,394 77,215 (84,179) Total $921,490 $1,090,958 $169,468 Financial Performance (Inflation Adj.) 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 Golf Course Financial Performance (Inflation Adjusted) _:_ .. : ...... .......____ ........ : __ : __ ......._____ .... i 800,000 600,000 400,000 200,000 (200,000) (400,000) (600,000) (800,000) Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 (1,000,000) ~Revenue (1,200,000) Golf Course Net Cash Flow (Inflation Adjusted) -■mm"":•--• ■ (786,142) (639,805) (913,907) (993,083) Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 ■ Golf Course Net Cash Flow Golf Course Rounds Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Player’s Lounge Net Operating Income 300,000.00 250,000.00 200,000.00 150,000.00 100,000.00 50,000.00 Financial Analysis •Types of Financial Analysis 1.Vertical 2.Horizontal (analyzing several years of financial data and comparing them to each other to determine performance) 3.Leverage 4.Growth 5.Profitability 6.Liquidity 7.Efficiency 8.Cash Flow (includes “Free Cash Flow” analysis –referred to as “Net Cash Flow” in the staff report –that analyzes the cash left over after a company pays for its operating expenses and capital expenditures) 9.Rates of Return 10.Valuation 11.Scenario & Sensitivity 12.Variance (comparing actual results to a budget or forecast and important part of internal planning) Sales/ Marketing Report The Crossings at Carlsbad I January 2019 ~~ •••• ~--~ :"11111,..,:; ■ --• Total Revenue Outing Revenue Catering Revenue Membership Sales Actual $508,000 $6,402 $113,598 320 (1,548 YTD) Budget $510,573 $13,748 $117,426 117 (775 YTD) Prior $517,919 $14,633 $129,429 n/a Website Email Social 32,001 Page Views 6 Email Blasts 11 19 Posts 2,132 Likes 323 Referrals 16% Open Rate ~ 14 Posts 2,452 Fol lowers 105 Wedding & Event Leads 48,002 Valid Addresses w 14 Tweets 2,395 Fol lowers All Channels Member Rounds Tournament Other 3'• Party 3,906 Paid Rounds 1,837 JC Players (47%) 113 Actual 60 Adidas/Cobra 1,152 Weekend 1,548 PY (35%) 208 Budget 47 Sheraton/Grand Pacific $60.04 ADR $110,978 GF (47%) 200 PY 1,750 Online Bookings (45%} Major Marketing Activities for the Month: o Saw 105 leads come through the website which resulted in $114,230 in future catering bookings. o Sold 320 JC Players Cards to a budget of 117, continued to convert Crossings Club Members into new JC Players Card Holders. o Continued final stages of designing new website with TinyFrog. Goal is to launch in March. o Promoted sales rack for merchandise at 40% off to blow out 2018 closeout items. o Started promoting our venue as a great place to watch the Super Bowl with 3 120" Screens. o Started promoting our Valentine's Day 3-course dinner with a goal of 120 people @$60/person. o Started promoting our "Feel The Love" Wedding special if you book your wedding in February. Major Marketing Activities Planned for Future o Continue promoting Valentine's Dinner and Menu with a goal of 60 couples or $7,200+ in revenue. o Continue promoting Super Bowl Sunday and utilize our new projector screens and surround sound. o Finalize flyers and promotions for Spring/Summer events such as Hits & Giggles, Friday Unwind, etc. o Continue Outbound sales visits with the sales team to local business and promote events/Canyons . o Start promoting aerification specials from 2/26-3/14. Facility to be closed for aerification 2/25. o Start promoting Leprechaun Scramble for Friday, 3/15 with live music and glowball contest on #9 o Start promoting our Spring Wedding Showcase for Sunday, 3/31 llam-2pm. ~ Category Golf F&B Overall Average Rating 4 .6 4.3 4.42 Golf Course Supply Change Table:Net Supply Loss for 12 Years in a Row A 1% Annual Decline Rate Source: Internet Golf Course Database (IGDB)22© 2018 Pellucid/Edgehill, all rights reserved # of EHE Ann. 5-yr CAGR Year Gain/Loss Openings Total EHEs Red . Rate Red. Rate '17(e) (150) 25 13,577 -1.1% -1.0% '16 (155) 22 13,727 -1.1% -1.0% '15 (225) 9 13,882 -1.6% -0.9% '14 (143) 42 14,107 -1.0% -0.8% '13 (144) 14 14,249 -1.0% -0.6% '12 (141) 14 14,393 -1.0% -0.6% '11 (120) 30 14,534 -0.8% -0.4% '10 (61) 46 14,654 -0.4% -0.3% '09 (90) 50 14,715 -0.6% '08 (34) 72 14,805 -0.2% '07 14,839 -0.1% '06 14,848 '05 14,874 '04 '03 103 '02 182 '01 252 17-Yr Sum (64 1) (2,146) 1,506 Golf’s Recreational Relevancy Shrinks as Golfers Decline, Population Grows Modestly 23© 2018 Pellucid/Edgehill, all rights reserved* Source:NSGA, Pellucid transformations 35.0 30.0 25.0 20.0 15.0 10.0 5.0 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% <D w s'! g,"> ._CJ 0 :... <D 11'-11'-11'- ._off> ~., ~ The US Golfer Base Age7+ The US Participation Rate 7+Pop co 11'- ,I' #"' ,£>"" <' i' CD CD ..... ..... "' C> "' w 11'-11'-11'-11'- i>'"' i>'" i'~ i>""' Baby Boomers vs. Millennials: Generational Shifts Continue •The lower frequency golfers we lose in younger age segments are being offset by larger numbers of golfers migrating into older age segments. •Basically, these older, high frequency golfers are covering about 2 of the low frequency, younger golfers that are not being attracted to the sport. •“Red numbers” are creeping up as Gen X/Y move into middle age (45-54) while Millennials continue to not embrace golf like their predecessors © 2017 Pellucid/Edgehill, all rights reserved 24 Age Group #Golfers(Ms)‘05 #Golfers(Ms)’15 # Chng(Ms)%Chng Avg.Freq. (rds/golfer/yr)’15 18-24 2.9 1.2 -1.7 -59%12.9 25-34 4.4 2.6 -1.8 -41%14.1 35-44 5.4 3.1 -2.3 -42%14.3 45-54 4.2 3.3 -0.9 -22%17.9 55-64 2.9 3.3 +0.4 +15%27.3 65-74 1.5 3.0 +1.5 +98%33.6 75+0.7 0.4 -0.3 -37%47.8 * Source:NSGA, Pellucid transformations Shift is more prominent when we translate golfers to rounds! 25© 2018 Pellucid/Edgehill, all rights reserved* Source:NSGA, consumer reported annual rounds 18-24 25-34 35-44 45-54 55-64 65-74 75+ Shr Pt Chng -3 -5 -6 -4 +4 +14 +1 ‘08 Cume, 75 down 100%92%76%58%40%21%8% ‘16 Cume, 75 down 100%95%84%72%58%36%8% '08 Rounds Contribution by Age 30.0% ~--------------- 25.0% +---------------- 20.0% +---------------- 15.0% +--- 5.0% 0.0% 18-24 25-34 35-44 45.54 55-64 65-74 75+ 5.0% 0.0% '16 Rounds Contribution by Age ■%of Tot. Rds 18-24 25-34 35-44 45.54 55-64 65-74 75+ - - --~~~~~-~~~~--,.. ... ... ...