Yesterday, I wrote about the closure of Muskegon Community College’s Health and Fitness Center, under financial stress from the pandemic. MCC bought the building in 2015 on a whim. MCC had not intended to purchase it, but the Muskegon YMCA was looking to get out from under it. The MCC administration thought it would be a good move.
It wasn’t.
MCC lost $5M on the purchase and nearly five years of negative net revenues. MCC’s trustees voted last Friday to stop the bleeding. At the time MCC made the purchase in 2015, people questioned whether a community college should be chasing profits.
MCC’s Health and Fitness Center never made a profit. It operated for nearly five years, accruing an average annual loss of half-a-million dollars. MCC papered over the losses by shifting money from other areas of the budget, while it poured more than $1.4 million into building improvements. Each time MCC asked the Board to approve large expenditures to fix this or repair that, Trustees questioned the wisdom of operating the Health and Fitness Center. Ultimately, the pandemic made it impossible to ignore the Health and Fitness Center’s mounting losses.
But the MCC administration intended the Lakeshore Health and Fitness Center to make a profit. It was a speculative venture funded with public dollars that no one looked closely at before diving in.
Should have, could have, would have
The YMCA built the building in the 1970’s and operated it until 2015. When the Y bailed out, its debts were consuming it. By itself, that should have been a big red flag to any prospective buyer. If the facility could have made a profit, certainly the YMCA – with its years of organizational experience operating such clubs – would have.
But MCC – with little organizational experience in operating health and fitness centers – was undeterred. The industry average cost for a gym membership is $696 per year. An annual membership at the Lakeshore Health and Fitness Center cost nearly $750 per year per person. Student memberships were $300.
Just to cover the operational losses, MCC would have to raise the membership cost by more than $130 per person per year. That increase would not fund any improvements to the facility. It would just allow MCC to break even on the center.
Ultimately, the pandemic and its promises of lost funding shifted the Board of Trustees’ interest from making money to recovering investment losses. Currently, MCC plans to sell the building, which sits on lakefront property. The next owner will determine whether it continues to operate as a fitness center, or transforms into something else. Fortunately, the fitness center is not situated on MCC’s campus. That allows the trustees to separate the college from the building more easily.
There is a cautionary tale here about the wisdom of publicly funded institutions engaging in unrelated profit-seeking ventures. Arbitrary and unpredictable forces will affect all for-profit businesses at some point – even those operated by non-profit entities. Non-profit status will not save you from the worst impacts the market can dish out.
The moral of the story? Stay in your lane.
Photo Credit: Thomas Hawk
