ONTARIO SPORT LEADERSHIP CONFERENCE

© 2003 Deloitte & Touche. Deloitte & Touche refers to Deloitte & Touche LLP and related entities. All rights reserved.

Facility Access andHow to Get It!!

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Presentation Format

Presenter Ronald Bidulka – Firm Director

Real Estate Advisory Services

Format of Presentation About Deloitte & Touche Facility Economics Facility Access Affordable Facility Access

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About Deloitte & Touche

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About Deloitte and Touche

Deloitte & Touche Founded more than 150 years ago in Canada 6,600 professionals in 46 locations across the country Firm provides a broad range of services including:

• Audit• Tax• Business Consulting Solutions• Management Consulting• Corporate Finance• Specialty Consulting Services

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About Deloitte and Touche

Real Estate Advisory Services Transaction Advisory Services Corporate Real Estate Services Valuation and Appraisal Real Estate Finance Development and Project Management Services

• Facilitating development projects from Idea to Implementation• Involves development strategy / pre-planning / project

structuring / project implementation• Specific expertise in Recreation, Sports and Entertainment

Facility Advisory Services

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About Deloitte and Touche

Recreation, Sports & Entertainment Facility Advisory Services

Assist in realizing the development / enhanced utilization of recreation, sports and entertainment facilities

Services include:• Project Feasibility Assessments• Public-Private Partnership Services• Development Assistance• Operating Cost Analysis and Improvement

Providing services to municipalities, investor groups and sport organizations since 1996

Portfolio of work includes advising on over 35 major national, regional and community sports and recreation facilities

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About Deloitte and Touche

Projects include

Most new Sports and Entertainment Facilities (Kingston, Oshawa, Toronto, Brampton, Guelph, London, Windsor, Owen Sound, SSM)

Community recreation facilities (Ottawa, North Grenville, Kingston, Oshawa, Toronto, Guelph, London, Goderich, Cochrane, Kelowna)

Major sports facilities (Corel Centre / Ottawa Senators, Ontario Baseball Centre of Excellence, Toronto 2008 Olympics, Vancouver-Whistler 2010 Olympics, proposed National Soccer Stadium)

Sports facility costing (Guelph, London, Ottawa, Kingston)

Services geared to realizing facilities, expanding existing facilities, understanding operating constraints and opportunities

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Facility Economics

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Facility Economics Historically, sports / recreation facilities provided by municipalities

service provision seen as a “public good” for the benefit of all usersaccess seen as a public right - cost of access based purely and simply on a

perceived ability to paycapital funding for facilities previously provided through government grants /

transfers

More recently, provision of facilities negatively impacted by provincial downloading and a perceived need to keep taxes as low as possible lack of capital dollars for facilitiesmonies to provide facilities competing with other municipal capital funding

requirements (roads, sewers, water / wastewater facilities)operating budgets impacted from ballooning costs of other servicesnecessitated that facility user fees begin to creep to achieve cost neutrality

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Facility Economics

Increased pressure on capital budgets caused facility development to be postponed or ignored

Situation made worse as population continues to grow

creates more demand for facilities (which are in static supply)creates increased competition for available facility hourscauses user group “stress” as participation rates / membership levels

want to increase but can not be accommodated by lack of facilities Situation also impacted by success of emerging sports / pursuits

increases even more the competition for available facility hoursincreases even more user group stressincreases even more the necessity for innovative solutions to

creating new facilities

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Facility Economics What is the cost to provide and operate a facility

Ice Surfaces• Cost of building one basic ice pad: $5.0 million (excluding land)

• Cost of building two basic ice pads: $9.0 million (excluding land)

• Cost of operating one basic ice pad: $0.4 - $0.6 million per year

• Cost of operating two basic ice pads: $0.8 - $1.1 million per year

• Net operating costs (after user fees $0 to loss of $200,000+but before financing costs): per year depending on

rates

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What is the cost to provide and operate a facility Ice Surfaces – Specific Example

• Cost to operate twin ice facility: $1,000,000• Facility utilization: 80%• Operating revenue (all sources): $750,000• Hourly cost to users: $135 per hour (adult)

$90 per hour (youth)• Net hourly loss: $30 per hour• Hourly charge needed to cover

operations from all users $130 hour• Including capital repayment, rate

needed to “break even” $250 - $300 per hour

Facility Economics

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Facility Economics

What is the cost to provide and operate a facility

Sports Fields

• Cost of building one soccer field: $350,000 (excluding land)

• Cost of operating one field: $10,000 per year

• Net operating costs (after user fees): $4,000 per year (depending on rates)

• Net, Net obligations (including debt): $50,000+ per year

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Facility Economics

What is the cost to provide and operate a facility

Aquatics Facilities

• Cost of building a leisure pool: $5.0 million (excluding land)(lap pool, kiddie pool, slide, therapy pool)

• Cost of operations: $600,000 per year

• Net operating costs (after user fees): $200,000 per year (depending on rates)

• Net, Net obligations (including debt): $700,000+ per year

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Facility Economics

What is the cost to provide and operate a facility

Competition Facilities

• Cost to construct significantly greater as facility sizing, need for spectator viewing areas, training amenities increase costs dramatically

• Net cost to operate also significantly greater as direct operating costs significantly larger; programming revenue potential also significantly reduced

• Programming difficulties / difficulties in ensuring broadest utility to all potential users limits development interest for these facilities

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Facility Economics

Recent Trends in Facility Provision

Ontario SuperBuild Corporation / Canada-Ontario Infrastructure Program funding for new facilities• serves to reduce significantly net capital obligations

Void in facility development also being somewhat filled through private sector development / ownership / operation• generally viewed to free-up time in municipally-run facilities• requires that users pay significantly more than at comparable

municipally-run facilities• provides false sense of security to municipal facility providers

and politicians

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Facility Economics

Recent Trends in Facility Provision

Public-private partnerships seen as vehicle for ensuring community access to new facilities• developed in conjunction with shared-use agreements

guaranteeing community access at existing municipal rates• municipality able to gain access to a facility with no up-front

capital requirements and reduced operating obligations• private sector operator seen as being more able to generate

ancillary revenues• application has, however, seen limited use outside of hockey

arenas (limited application to aquatics / indoor sports fields given more limited revenue generating capabilities)

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Facility Economics

Summary Recreation / sport facilities historically operated at a deficit

• user access fees set with no regard to operating costs but rather against a perceived ability to pay

Increased view to cost recovery in sports facilities• for ice facilities means a minimum 30% increase in rates• for other facilities, trend is to more multi-use facilities which

cater to a broader demographic at the expense of competitive users

Increased interest in P3 structure to develop facilities• structure is not a panacea and may not result in preferred

access• process is also time consuming and costly

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Facility Access

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Facility Access

Facility access generally a function of Municipal allocation policies

• generally a function of age and size of organization and their respective political / bureaucratic influence

Willingness to take non-prime / off peak time hours Facility availability

For most facilities in many municipalities Demand for facility access outstrips supply Ability and willingness to invest in new facilities is limited Lack of supply necessitates that a concerted effort to maintain

current access takes as great a priority as does seeking additional access

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Facility Access

Approaches taken to maintain / improve access Creation of facility user organizations

• Ice Councils, comprised of boys minor hockey, girls minor hockey, figure skating, speed skating, sledge, ringette, etc.

• Aquatics Councils – swim teams, polo, synchro, schools, special needs (rehab / therapy), etc.

• Sportsfield Councils – baseball, soccer, rugby, ultimate, etc. Rationale is that individual organizations do not necessarily have

the size and hence political clout – given constant supply, increasing access for one group can only be at the expense of another

Working together to achieve a common goal increases size of constituency and therefore able to exert greater political pressure

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Facility Access

Approaches taken to maintain / improve access Being “Part of the Solution” to realize new facilities

• agreeing to pay increased user fees – serves to bring into better balance facility net operating costs

• agreeing to a “Facility Use Surcharge”, an add-on facility use charge dedicated to paying for the cost of a new facility

• agreeing to a “Facility Surcharge” as part of annual registration fees, with this amount again dedicated to paying for the cost of a new facility

Net effect is to bring open dialogue / a sense of partnership to discussions of increased facility access• groups seen to be bringing something to the table (not simply

“my group needs better access”)

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Facility Access

Approaches taken to maintain / improve access

Actively supporting P3 initiatives• participating with municipal sponsors to be “part of the solution”• seeking out prospective partners and securing long-term use

agreements• educating municipal officials on what peers jurisdictions have

accomplished

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Facility Access

“a public-private partnership is a relationship structured between a government entity and the private sector wherein the private sector assumes a defined level of

responsibility for the provision and/or operation of a facility or service which had previously been the sole responsibility of the government”

RISK TRANSFER

PRIVATEPARTNER

partnershiparrangement

BENEFIT TRANSFER

PUBLICSPONSOR

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Facility Access

Design /Build

WraparoundAddition

TemporaryPrivatization BOOT BBO

FullyPublic

FullyPrivate

LDO BTO BOOOperation &Maintenance

PermanentPrivatization

The Public-Private Partnership Continuum

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Facility Access

P3 Approaches taken by other municipalities

Ottawa / London• purchase sizable blocks of time at privately funded and

operated facilities

Guelph• seek to augment facility uses by attracting private sector

investors / users

Kelowna• finance the construction of the facility, but lease it to a third

party operator subject to certain use / usage requirements

North Grenville / Goderich / Waterloo• lease-back and operate a portion of a privately-built facility

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Facility Access

User Group Input

Council Input

revenue assessment

expense analysis

financial assessment

Development scenarioanalysis

Recommended Development Scenario

P3 Strategy

Potential Partner Identification

Legal Agreement

Report to Council

Refinement and Analysis

Business Plan Development

Tender / RFP Process

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Facility Access

Summary Facility access generally set by historic policy

• unless substantive alteration of supply occurs reallocation of supply to individual user groups is difficult

Lobbying for increases in supply is most effective through concerted efforts by a “common voice” of user groups• increases size of lobby and seriousness of issue

Common voice coupled with financial commitment increases likelihood of positive results• assists in minimizing two main financing risks to facility

development – capital and operating P3 structure can effect positive results, but all parties must be

aware of issues and opportunities

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Affordable Facility Access

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Affordable Facility Access

Affordable facility access does not mean priority access to sports / recreation facilities at nominal cost

Affordable facility access does not also mean priority access at full cost recovery

Affordable facility access does mean that government facility providers recognize the benefits of sport within

their community that government facility providers recognize that sport and recreation

facilities are a public good that it needs to provide and invest in that facility users recognize the financial pressures of facility providers

and that they are committed to working to balance facility revenues and costs

that facility users recognize competing users and that they accept to work together to balance and maximize access for all

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Questions