Yesterday, I wrote about the Health and Fitness Center’s revenues and costs as they compare to industry averages. In short, the Health and Fitness Center costs users more per month and generates revenue less efficiently than clubs of similar size. That means WCC has to subsidize the operation of the Health and Fitness Center with money meant to fund the operation of the College.
That’s not even considering the impact of the pandemic, which has been disastrous for the out-of-home fitness industry. Analysts estimate that 20% of all fitness centers will close as a direct result of COVID-19. Whether individuals who had subscribed to fitness centers in the past will return remains to be seen.
The Trustees of Muskegon Community College had the good sense in 2020 to permanently close their fitness center. They had purchased the former Muskegon YMCA with the hope that it would turn out to be a good investment. Suffice it to say, it was not. The fitness center churned out average annual losses to Muskegon Community College of $1M. After five years of trying, the Muskegon Trustees finally gave up.
There’s no getting out from under the Health and Fitness Center
Sadly, the taxpayers of Washtenaw County will have no such luck. The WCC Trustees have saddled the college with millions of dollars in debts and ongoing operational costs for the Health and Fitness Center. With millions already paid and millions more to go, the building requires significant annual maintenance on major systems and components.
WCC built the building at the beginning of the Great Recession, and the construction suffered predictably. By itself, that has cost WCC millions more in repairs and rehab since the building opened in 2007.
Layered onto that is the oversubscription of the facility. Originally designed to serve 6,000 members, the WCC administration overstuffed the building with an additional 1,200 subscribers. This has only accelerated the wear-and-tear on the building. This approach has created a dismal cycle for the building. Oversubscription generates more revenue, but also increases the wear on the facilities. The increased wear increases operating costs, which drives the need for additional subscriptions.
Raising subscription costs is of limited value, since WCC already charges above-market rates for the facility. In addition, the annual bond debt on the building grows with time. Expanding the size of the building will only create additional debt. The WCC administration doesn’t want to take on additional debt for the HFC, mainly because it wants to take on additional debt to pay for the SC rehab and the “Advanced Transportation Center.” If selling additional subscriptions is the preferred way to generate revenue, the coming years will certainly be interesting.
Perpetual oversubscription is not a good business model
To cover the coming bond debts, WCC will need to increase the number of paying users to something in the neighborhood of 9,500. Remember, the building was designed to serve 6,000 users. It’s also not clear how long it will take the HFC to recover its subscriber base following the pandemic. (Or whether that’s even possible.)
I’d be curious to see the business plan that sold the Trustees on this insanity. What was the plan to address the growth in bond debt and operating costs for the last years of the repayment? Unrestrained oversubscription? Leeching operating dollars from the General Fund?
Or did they just blindly accept the WCC Administration’s reassurances that the building would pay for itself without ever independently verifying that the building could pay for itself?
These are the people we elected to look out for the financial well-being of WCC. It’s a problem when they don’t ask questions.
Photo Credit: Georgios Liakopolous , via Flickr