Park board heard faulty profit data before vote to privatize Wichita golf courses

The city of Wichita is changing the terms of a proposed contract to privatize the city’s golf course operations after KemperSports presented data that understated how much money the private company stood to gain on the deal.

Kemper CEO Josh Lesnik told Wichita’s park board members that the city’s golf fund would benefit from a profit-sharing arrangement that gave Kemper 90% of concession income.

“You get 10 percent, so you’re going to get the upside with none of the risk,” Lesnik told park board members.

To reinforce that claim, he provided numbers.

Lesnik said the city gets about $75,000 a year in profits on concession sales.

But city data shows he was off by more than $200,000.

According to it, the city’s golf courses turned a $277,132 profit on concession sales while under public management in 2021. City officials say that doesn’t account for certain unspecified salary expenses.

City Parks Director Troy Houtman did not dispute the profit margins put forth by Kemper during the park board meeting.

The difference matters because City Hall has repeatedly said that privatizing the golf system would improve the city’s golf courses, including finances. Any profits on the city’s side of the agreement go back into the golf system while those for Kemper go into the company’s coffers.

The once-struggling Wichita public golf courses have enjoyed back-to-back years of operating profits, including more than $1 million last year. But city officials say they lack the expertise to successfully run the golf courses in the future.

Lesnik gave Wichita Park Board members the $75,000 number before they voted to recommend outsourcing management of the city’s four public golf courses to the Illinois-based company on Feb. 14. He told The Eagle he did not misrepresent revenue numbers.

“If we did that, we wouldn’t be in business. It’s not what we do,” Lesnik said in a phone interview Friday.

City staff continues to push for privatization and will ask the City Council to approve handing over the golf system to Kemper on Tuesday.

But the terms have changed.

The park board voted in favor of a contract option that would give Kemper 90% of golf concessions revenue on top of the $200,000-a-year management fee.

Now, the City Council will vote on an alternate version of the contract that would flip the arrangement, giving Kemper 10% of concessions profits.

City data obtained by The Eagle shows that under public management, Wichita made $277,132 in net profit ($479,915 gross) on food and beverage sales last year and $233,009 in 2020 ($345,255 gross).

City Manager Robert Layton said those figures don’t account for certain salary expenses but could not provide specifics. Under public management, golf course concessions are operated by each course’s golf pro and part-time clubhouse assistants.

“After looking at it additionally, we felt that it probably was worth the risk for the city to take on responsibility for inventory, capital expenses, and get 90% of the gross revenue,” Layton said at Friday’s City Council agenda review meeting. “Over time, we think the city will come out in a better financial position.”

Under the defunct agreement lobbied for by Lesnik and approved by the park board, Kemper would have guaranteed the city $75,000 or 10% of gross concessions revenue while investing $150,000 in food and beverage operations.

“You’re making about 75 (thousand) now at the four courses net F&B,” Lesnik told board members. “So what we’ll do is we’ll guarantee you that 75 or 10%, and we’re going to try to improve it.”

Lesnik suggested Kemper’s management would be better financially for the city.

“You’d get the benefit of that 10%, so you might make $85,000, $90,000, $100,000. Who knows how far we can improve these numbers.”

That would actually represent a substantial loss to the city. The most generous of those estimates would be a $177,132 reduction in concession profits for the city.

Lesnik said the city’s reported 2021 food and beverage net profits of $277,132 may have failed to account for other expenses on top of labor, although he could not provide specifics.

“I think basically, you just took the cost of goods sold out and that’s it, which maybe gets you around to that 270 number,” he said.

The city data reports $479,915 in golf concession gross revenues in 2021 with $202,783 in expenses, including beer license and fines, hood cleaning, ice machine lease, equipment repair and other expenses.

Lesnik said Kemper worked with the city of Wichita to settle on $75,000 as a reasonable minimum annual guarantee under the food and beverage model that would have given the private company 90% of gross revenue.

“That number was a negotiated number between the city and KemperSports,” Lesnik said.

During the meeting, park board member Troy Palmer asked Houtman where the $75,000 figure originated.

“The $75,000, is that a number that you gave?” Palmer asked. “I mean, I know it’s a guess but is that, the minimum of $75,000, that comes from us, right? Or you?”

“It did,” Houtman responded. “We actually had a little bit higher number and we came up with the $75,000 as a joint agreement.”

The Eagle reached out to all six park board members to ask if they had access to accurate city data on concession revenue before the Feb. 14 vote. Only board President Eddie Fahnestock responded.

“Troy Houtman has been great at providing accurate information in a timely manner when it is requested,” Fahnestock said. “After further review, it makes more sense to proceed with Option ‘B,’ which is what will be presented to council on Tuesday.”

Dale Goter, an avid golfer and former park board member, said he believes data was misrepresented in an effort to secure the most favorable contract option for Kemper.

“While the change from 90% to 10% sounds like a compromise, it doesn’t cover up the fact that KemperSports and Houtman blatantly lied to the park board about the revenues from food and beverage,” Goter said. “That was done with deceitful intent and makes it impossible to have any faith in Kemper under any circumstance.”

“I never said that $75,000 is what the revenue of food and beverage has been past years,” Houtman responded in an email. “I do think the Park Board understood that the $75,000 is a minimum guarantee; as they had the draft contracts prior to the meeting.”

Privatization debate

Kemper, which manages more than 100 courses around the U.S., including Newton’s Sand Creek Station, was one of seven companies that applied to take over course management when the city initiated a competitive bid amid concerns that the public golf courses were losing money.

Golf’s resurgence as a pandemic-friendly leisure activity has flipped the script on profitability for Wichita’s public courses, which went from losing a net $477,892 in 2019 to earning $468,664 in 2020. Last year, the four courses made more than $1 million in profits collectively.

District 6 City Council Member Maggie Ballard said she plans to vote against awarding Kemper the five-year management contract.

“It doesn’t make sense to go with Kemper,” she said. “If we had a bunch of support from our constituents or from the actual golf community, that would be one thing, but we literally don’t.”

Last week, Ballard hit the greens of her district’s Sim Park course, where she said none of the 17 golfers she asked supported the potential Kemper partnership.

“I didn’t talk to one person that was pro-privatization,” she said. “Actually, I haven’t even received any emails that are pro-privatization.”

Layton said he worries the city courses won’t remain profitable for long under public management.

“Prior to COVID and the popularity of golf that came from COVID, we were in a deficit position and the deficits were growing to the point where we had to use property tax money to subsidize the golf system,” Layton said.

The city would still be responsible for any losses incurred under Kemper’s management.

“What the industry says is, they’re not confident that those levels will stay where they are. So what we want to do is get creative in terms of bringing somebody in here who understands what it’s going to take to grow golf,” Layton said.

“Let’s say golf goes down and they’re unsuccessful in marketing, then the city would go back to bearing those losses, and if that were to happen on what I would say is a consistent basis, we would reevaluate where we are.”

Fahnestock of the park board said Kemper is an ideal fit for Wichita’s golf system.

“I don’t see any reason to doubt these guys,” Fahnestock said at the Feb. 14 meeting. “They care about each and every one of their golf courses.”

Ballard said she worries the park board and city management have fallen out of touch with the city’s public golfers, many of whom she says want to see the city put forth a viable public management alternative.

“Why are we only talking about a privatization contract?” she said. “I have not seen anything of, what if we stick with the traditional model that we have been doing for decades. Nobody’s showing those numbers and I think it’s because that’s what makes sense. We need to hire a golf director.”

Wichita’s golf director position has been vacant for more than a year. If Kemper hires its own golf director as it has promised to do if selected, that person’s salary would be paid for separately out of the city’s golf budget rather than being derived from Kemper’s $200,000 management fee.

Privatizing management has been a contentious issue at City Hall, where Layton and the City Council have been criticized recently for private management agreements at Century II Performing Arts and Convention Center, Riverfront Stadium, Naftzger Park and the Wichita Ice Center.

Ballard pointed to the decade-long Ice Center management partnership with Genesis Health Club as a cautionary tale of privatization. The council voted to cut management ties with Genesis in January after 3,700 people signed a petition complaining about conditions at the rink.

“The city doesn’t do a great job when we outsource management,” Ballard said. “Unfortunately, the Genesis contract kind of tainted the whole idea of privatization period. It was very poorly done for a very long time.”

This story was originally published February 26, 2022 at 4:17 AM.