Under a new agreement between the city of Morgan Hill and the operator of its outdoor sports fields complex, the city could end up gaining either a windfall of new revenue, or lose exactly half the funds it projected receiving from the facility in coming years.
But the City Council is poised to take the risk that a new concessionaire arrangement will pay off and bring even more users to the Outdoor Sports Center as they voted 4-0 to approve the amended payment structure two years into the existing five-year contract Wednesday. Rich Constantine was absent.
The financial benefit to the city depends on how successful the Morgan Hill Youth Sports Alliance - the nonprofit manager of the facility on Condit Road - will be at rolling out a new marketing plan, according to MHYSA president Jeff Dixon.
“The city could get more money (from MHYSA) than they would have gotten” under the existing payment schedule, Dixon said.
The city signed a contract with the nonprofit Morgan Hill Youth Sports Alliance to run the 38-acre complex of artificial and natural turf soccer fields in 2010.
As the facility operator, the MHYSA is responsible for maintaining the facility, scheduling field use for soccer and other sports, and collecting fees from patrons.
The organization pays the city a quarterly fee that has increased over the last two years, topping out at a total of $130,000 per year, or 15 percent of annual revenue - whichever is greater - starting in the current fiscal year, according to the contract signed in 2010.
However, the council approved a contract amendment proposed by MHYSA to instead pay the city $65,000 per year, plus 15 percent of revenue from advertising, sponsorships, grants, camps and clinics.
City staff will write up the contract amendment for final approval at a future council meeting.
Although that kind of “secondary” revenue has been virtually nonexistent at the Outdoor Sports Center the past two years, Dixon said the MHYSA is “aggressively pursuing” more advertising dollars, and some big-name sponsorships for the facility or its events.
That effort includes selling advertisements to local businesses in the form of banners displayed throughout the facility, and Dixon expects to announce that campaign to potential advertisers this week. For the fiscal year that ended July 1, the Outdoor Sports Center did not generate any revenue from advertising or sponsorships.
Plus, the MHYSA is currently working with the San Jose Earthquakes, Univision, and the California Youth Sports Association - the regional soccer league that uses the Outdoor Sports Center more than any other patrons - to help the MHYSA gain more advertisers and sponsors, or even sponsor the facility themselves, Dixon said.
At Wednesday’s meeting, Councilmember Gordon Siebert wondered about the impact to the city’s budget if advertising, sponsorships and other secondary revenue from the Outdoor Sports Center remain out of sight. The new agreement would require the city to amend its budget to reflect a loss of $65,000 half the expected revenue from the facility for each of the next three years.
“It bothers me to write off that ($65,000) for three years with no guarantee for the 15 percent” of secondary revenue brought in by the fields, Siebert said by phone from Pennsylvania at Wednesday’s meeting. “It’s 15 percent of zero as the history of the past two years shows.”
Dixon added that MHYSA’s original projections about the facility in 2010 did not show significant revenue from advertising and sponsorships to start rolling in until the third year of the contract, which started July 1.
City staff also said under the new agreement, the Outdoor Sports Center could still be run and used frequently at no cost to the city.
Mayor Steve Tate noted that if the city itself was running the Outdoor Sports Center, operation costs to the tune of $600,000 or more would fall on the general fund’s shoulders.
Plus, the fear over the potential lack of advertising revenues gives the city an incentive to work with MHYSA to gain those dollars, said Councilmember Larry Carr. He said his primary concern with the MHYSA is that the Outdoor Sports Center gains more field rentals and be available to a variety of local users - which he said has been accomplished in the last two years.
“We’re in a better place today” at the Outdoor Sports Center, Carr said. “Now it’s time to grow the marketing side of it. We’re giving them the confidence that (those revenues) can grow as well.”
City staff recommended the council approve the new payment agreement after the parks and recreation commission evaluated the proposal and the Outdoor Sports Center’s performance over the last two years.
Field use has increased during that time, but the MHYSA has not reached a goal of ensuring at least 60 percent of use is for local residents. Instead, about 40 percent of total field hours have been used by local users, with the other 60 percent used by regional users.
Dixon said that is because the most common use for the facility - regional soccer tournaments - take up most weekends, when substantially more fields and hours are available than on weekdays. During a weekend soccer tournament, the facility generates between $4,000 and $7,000 in field rental revenue.
City staff added that MHYSA has made a “reasonable effort” to include more local users the last two years.
The MHYSA has operated the Outdoor Sports Center at a financial loss the last two years - of about $58,000 in 2010-2011 and about $21,000 in 2011-2012.
That was mainly due to higher-than-expected costs for water for field irrigation, Dixon said.
The organization, however, is encouraged that it cut its losses in half after the first year, and for the current year which ends June 30, 2013, Dixon anticipates an “incredible amount of revenue” from still-increasing field rentals and marketing.
The MHYSA proposed the new payment agreement in June, because they knew their third-year payments to the city were set to increase substantially to $130,000 - a rate that Dixon didn’t think was sustainable for the Outdoor Sports Center operations.
“We expect to move toward profitability by this year,” Dixon said.
Part of the MHYSA’s proposal in 2010 was to bring a wider variety of users to the sports fields, including even non-sports uses. The organization is currently working on a bid to the U.S. Dog Agility Association to host a national competition in October 2014, Dixon said.
The Outdoor Sports Center has traditionally been use predominantly for soccer leagues and tournaments. In the last two years, new field users include rugby, football, flag football, ultimate Frisbee, lacrosse and even special events such as this summer’s No Bull BBQ Cookoff.