Section 1 Intro Magnolia · the concept for both projects (either separate or in conjunction) is to provide supporting amenities for the town of Magnolia and provide facilities to

2017June

feasibility studyMAGNOLIA AQUATIC CENTER & PLAYING FIELDS

IN MAGNOLIA, AR

Prepared for:

The City of Magnolia

Prepared by:

Leisure and Recreation Concepts, Inc

2151 Fort Worth Avenue

Dallas, Texas 75211

www.larcinc.com

Project No. 1101

LARC, Inc. Table of Contents

Table of Contents

Description Section Page

Introduction I

Project Introduction I 1

Who is LARC? 2

Executive Summary II

Basic Conclusions II-1 1

Market Demand II-2 3

Operating Expenses II-4 5

EBITDA from Operations II-5 6

Net Warranted Investment II-6 7

General Assessment II-7 8

Concept and Programming III

Participation in Youth Sports III-1 1

Know Your Customer III-2 4

Free Play and Fun III-2.1 5

Swimming III-2.2 7

Aquatic Center Programming III-3 7

Aquatic Center Concept Considerations III-3.1 9

Sports Complex Programming III-4 9

Market Analysis IV

Resident Market IV-1 1

Resident Market Characteristics IV-2 3

Population Growth IV-2.1 4

Households IV-2.2 5

Feasibility Report Magnolia Aquatic Center and Playing Fields I-! 1

Prepared by Leisure and Recreation Concepts, Inc.

Section Table of Contents

Market Analysis (Continued) IV

Age IV-2.3 7

Income IV-2.4 9

University Presence IV-3 11

Southern Arkansas University IV-3.1 11

Economic Impact IV-4 12

Market Demand Analysis V

Capturing the Market V-1 1

Patterns of Market Penetration V-1.1 3

Penetration Rates V-1.2 6

Attendance V-1.4 8

Market Mix V-1.5 10

Playing Field Participation V-2 11

Baseball/Softball V-2.1 12

Soccer/Multipurpose Outdoor Field Use V-2.2 15

Financial Analysis VI

Establishing Revenue VI-1 1

Pricing Policy VI-1.1 2

Aquatic Center Admission Prices VI-1.2 3

Projected Operating Revenues VI-2 4

Admission Revenues VI-2.1 4

Food and Beverage Revenue VI-2.2 6

Merchandise Revenue VI-2.3 7

Swim Lessons VI-2.4 7

Table of Contents




Section Table of Contents

Financial Analysis (Continued) VI

Miscellaneous Revenue VI-2.5 7

Total Per Capita Revenue V-2.6 7

Operating Revenue Aquatic Center VI-2.7 8

Operating Revenue Sports Complex VI-2.8 9

Operating Expenses VI-3 10

Cost of Goods Sold VI-3.1 11

Payroll and Related Expenses VI-3.2 12

Advertising and Promotion VI-3.3 13

Maintenance and Operating Supplies VI-3.4 13

Insurance VI-3.5 13

Utilities VI-3.6 14

Management Fees VI-3.7 14

Other Expenses VI-3.8 14

Operating Earnings Analysis VI-4 16

Net Warranted Investment VI-5 18

Table of Contents




LARC, Inc.Section I - Introduction

Leisure and Recreation Concepts, Inc. (LARC) was originally engaged by the

City of Magnolia to conduct a feasibility analysis for an aquatic center. As the

research uncovered various opportunities for the area, the objectives of the

study evolved to include the potential for and playing field complex.

Throughout the course of the study, LARC proceeded to address the main

objectives study, which are:

• to increase the options for entertainment in and around Magnolia;

• stimulate development and tourism in the region;

• create a destination for sports teams and special events;

• enhance economic development in the area; and,

• establish a concept that will generate a feasible cash flow while meeting

demand.

The project will provide the facilities required for area field and aquatic sports

while providing new venues for leisure and entertainment. A significant piece of

the concept for both projects (either separate or in conjunction) is to provide

supporting amenities for the town of Magnolia and provide facilities to attract

events to the area, rather than funneling the potential outside of the

community. Both projects will provide the type of entertainment experiences for

which people are searching in surrounding markets.

Specifically, the envisioned projects would act as economic generators (through

attracting events, tournaments, competitions and meets) and public resources

for local residents (accommodating local sports and recreation activities).

Potential investment could include both new and enhanced facilities to

accommodate a range of sports and activities including: baseball, softball,

soccer, football, swimming, outdoor court sports, lacrosse, water polo,

recreational water play and other field sports and aquatic activities.



Section I Introduction

With these objectives in mind, Leisure and Recreation Concepts, Inc. has

prepared this analysis of the economic feasibility of a proposed aquatic center

and playing field complex and determined potential levels of attendance for

both projects during the first five years of operation. Based upon this, design

criteria are established and financial projections prepared, utilizing

assumptions derived from established industry criteria.

Following this Introduction are the detailed findings of this report. Section II

presents the major findings and conclusions established in this study. Section

III presents the concept. Section IV presents the market research that supports

the market demand analysis, including all attendance parameters presented in

Section V. Section VI documents the facility requirements for the project.

Section VII will analyze the financial aspects of the development of each

project.

Who is LARC?

In 1970, LARC’s president and founder, Michael A. Jenkins, sought to create a

company, unique to the entertainment and tourism industries, that could

provide a turnkey solution to every aspect of project development. Since that

time, LARC has been at the entertainment consulting forefront, as

demonstrated by a long list of clients and projects in 35 countries.

LARC is one of the most established entertainment consulting and

management firms in the industry. Regardless of the type of project and

whether it requires economic analysis, concept planning or design, LARC

provides a valuable service by addressing the fundamentals.

• What is the market and the visitor profile?

• What concept will best fit the development?

• Will the facility be self-sustaining and succeed in the marketplace?

• How should the facility be financed and operated?



Section I Introduction

• How will the development be of the best benefit to the community?

• Will there be a return on the investment?

LARC is divided into six main departments: research, design, management,

construction, rides and equipment, and tourism development.

Each project receives the personal attention and detail required to make it

successful. The core of the LARC team is comprised of professionals who

collectively bring over 250 years of experience in the industry to each project.

No other firm within the entertainment consulting industry offers the complete

turnkey approach LARC brings to every project. From initial economic and

market analysis through concept design, financing, construction and

management, all projects are granted the expertise necessary to bring a vision to

fruition.



LARC, Inc. Section II - Executive Summary

This segment of the report presents an abstract of the results of the research,

statistics and analysis contained in the body of the report and introduces

LARC’s basic conclusions and recommendations based on this data. The

supporting documentation and analysis used in developing the conclusions are

shown in considerable detail in subsequent sections of the report.

II-1Basic Conclusions

1. Specifically, the envisioned facilities would act both as economic generators

(through attracting tournaments, competitions, and meets with non-local

participants and attendees) and public resources for local residents (by

accommodating local sports and recreation activities). Potential investment

could involve new and/or enhanced facility products designed to

accommodate one or more sports and recreation types including, but not

limited to: swimming, water play, baseball, softball, soccer, football, rugby,

lacrosse, and other niche sports/recreation.

2. The complex would be designed to be “tournament ready,” and the aquatic

center would be designed to be “meet ready” in order to effectively compete

for non-local tournaments/meets (largely occurring on the weekends) that

would represent key generators of new visitation and economic impact in

Magnolia. The facilities would be positioned to accommodate local league

and tournament play by residents, which would ideally allow for the growth

of local programs, leagues, clinics and training.

3. Each facility should be designed with sufficient flexibility and standards to

attract a variety of sports/recreational activities. Each facility should offer

high-quality surfaces and equipment, spectator seating and other modern

amenities that allow them to effectively compete for tournaments,

competitions and matches, many of which represent participants and

spectators that do not reside locally—resulting in new visitation and

economic impact.

Feasibility Report Magnolia Aquatic Center and Playing Fields II- ! 1


Section II Executive Summary

4. The aquatic center should be designed to be appropriate for

accommodating competitive swimming and potentially diving programs and

local swim clubs, attracting non-local competitions/meets as well as

accommodating swim lessons, therapy and general recreation purposes.

5. Non-local tournament, meet and competition organizers and participants

can focus, in part, on the appeal of a destination when making a decision on

whether to attend. The variety and number of attractions available in and

around Magnolia may serve as a foundation on which to increase the

economic benefits associated with increased non-local attendance at

tournaments, meets and competitions held at potential new amateur and

recreational sports facilities.

6. Overall, the market research and analysis conducted for this study suggests

measurable market demand for non-local sports tournaments, competitions

and meets that is currently unmet by existing local facilities. In addition, the

existing inventory of sports/recreation facilities (in terms of number, quality

and decentralized nature) may be constraining long-term growth and

development of, and participation in, local sports leagues, clubs and

programs.

7. To ensure successful programming for the facility, the proposed events

center must strive for as large an initial impact as possible. The image and

word-of-mouth opinion of the facility among the market area population

during the initial operating years will greatly influence the degree of

subsequent success obtainable.

Based on the primary assumption that the proposed projects will be developed

as high quality sports complexes with imaginative design, outstanding

implementation, proper capitalization, and professional management and

operation, LARC has developed an economic profile to assess the feasibility of

the project. The findings of this report are summarized as follows:




II-2 Market Demand

Total attendance for the aquatic center in the first operating year is projected to

be 97,000 persons. Attendance is projected to increase annually, reaching

approximately 109,200 persons in the fifth year of operation. An estimated

average market demand for the participation in the sports programming of the

sports complex is 51,300 increasing to a level of 62,355.

Table II-1 presents attendance for the aquatic center by market segment for the

first and fifth operating years. See Section V for more detail.

II-3 Operating Revenue

Gross operating revenues are anticipated to be $1,861,000 for the aquatic

center and $1,248,930 for the sports complex during the first year, assuming the

estimated attendance and participation levels are achieved. Gross revenues are

expected to increase annually, reaching approximately $2,395,427 in the fifth

year of operation of the aquatic center and $1,832,064 for the sports complex.

Tables II-2 and II-3 present operating revenues by category for the first and

fifth operating years.



Table II-1 Projected Attendance

Market Segment 1 5

0 to 20-mile market 26,700 25,116

21 to 40-mile market 32,000 36,036

41 to 60-mile market 38,300 48,048

Total Aquatic Center 97,000 109,200

Total Average Sports Complex 51,300 62,355

Source: LARC




Table II-2 Gross Revenue Aquatic Center

Category 1 5

Admissions $815,000 $1,055,000

Swim Lessons $53,000 $73,000

Food & Beverage $260,000 $356,000

Merchandise $293,000 $373,000

Miscellaneous $90,000 $112,000

Special Events $150,000 $183,326

Facility Rental $200,000 $243,101

Gross Revenue $1,861,000 $2,395,427

Source: LARC

Table II-3 Gross Revenue Sports Complex

Category 1 5

Youth Tournaments $483,000 $714,000

Adult Tournaments $272,916 $403,221

Youth Leagues $40,014 $59,119

Camps $0 $53,623

Food & Beverage $115,000 $171,000

Merchandise $90,000 $124,000


Special Events $150,000 $182,326

Facility Rental $50,000 $60,775

Gross Revenue $1,248,930 $1,832,064

Source: LARC


II-4 Operating Expenses

Cost of goods sold and operating expenses, exclusive of depreciation, debt

service, and income taxes, are projected to be $1,286,000 during the first

operating year at the aquatic center and $1,152,000 at the sports complex. Cost

of goods sold and operating expenses are expected to be $1,672,000 in the fifth

year of operation for the aquatic center and $1,501,000 for the sports complex.

The following tables present cost of goods sold and operating expenses for the

first and fifth operating years for both facilities.



Table II-4 Operating Expenses Aquatic Center

Cost of Goods Sold 1 5

Food & Beverage $83,000 $114,000

Merchandise $73,000 $93,000


Total Cost of Goods Sold $170,000 $224,000

Operating Expenses 1 5

Payroll & Related $597,000 $783,000

Advertising & Promotion $156,000 $197,000

Maintenance & Repairs $67,000 $85,000

Operating Supplies $56,000 $68,000

Management Fee $45,000 $54,000

Insurance $47,000 $59,000

Utilities $115,000 $157,000


Total Operating Expense $1,116,000 $1,448,000

Total Expenses $1,286,000 $1,672,000

As a % of Revenue 60.0% 60.5%

Source: LARC


II-5 EBITDA from Operations

Financial projections for the proposed attraction produce positive EBITDA for

each of the first five operating years. EBITDA are projected to be $575,000 in

the first operating year for the aquatic center and $96,930 for the sports

complex. EBITDA increases over the five-year planning period to a level of



Table II-5 Operating Expenses Sports Complex

Cost of Goods Sold 1 5

Food & Beverage $37,000 $55,000

Merchandise $23,000 $31,000


Total Cost of Goods Sold $67,000 $96,000

Operating Expenses 1 5

Payroll & Related $570,000 $748,000

Advertising & Promotion $152,000 $192,000

Maintenance & Repairs $65,000 $82,000

Operating Supplies $43,000 $51,000

Management Fee $65,000 $79,000

Insurance $35,000 $43,000

Utilities $101,000 $137,000


Total Operating Expense $1,085,000 $1,405,000

Total Expenses $1,152,000 $1,501,000

As a % of Revenue

Source: LARC


$722,427 in the fifth year for the aquatic center and $331,064 for the sports

complex. Table II-6 presents this information.

II-6 Net Warranted Investment

Based on a projected principal payback to the investor of between six and eight

years, the net warranted investment in the proposed aquatic center is between

$3,855,000 and $5,138,000. The net warranted investment for the sports



Table II-6 Earnings

Aquatic Center

Category 1 5

Total Revenue $1,861,000 $2,394,427

Less: CGS -$170,000 -$224,000

Gross Margin $1,691,000 $2,170,427

Less:Operating Expense -$1,116,000 -$1,448,000

EBITDA $575,000 $722,427


Sports Complex

Total Revenue $1,248,930 $1,832,064

Less: CGS -$67,000 -$96,000

Gross Margin $1,181,930 $1,736,064

Less:Operating Expense -$1,085,000 -$1,405,000

EBITDA $96,930 $331,064


Source: LARC


complex between six and eight years is between $1,265,000 and $1,686,000.

The calculation is based on a five-year average EBITDA of $210,700 for the

sports complex and $642,194 for the aquatic center, exclusive of sponsorship

revenue and capital improvements.

II-7 General Assessment

LARC believes that, if built to high standards as planned, developed as family

attractions for participatory and spectators sports, adequately capitalized, and

maintained and operated by a professional operating group, the proposed

attractions should be financially viable and generate economic impact for the

city of Magnolia. If these factors are combined with adequate demand, event

promotion and creative event planning, conditions will be advantageous for the

development of the projects.



LARC, Inc. Section III - Concept and Programming

Multiple factors relating to the location of the project site will tend to influence

the ability of the proposed center to generate attendance at various events.

These include: site-specific characteristics, available supporting amenities,

available hotel rooms, the economic health of the region, and the presence of

existing competitive and complementary entertainment facilities in the market

area and region.

III-1Participation in Youth Sports

Over the last two decades, sports facilities have become destination tourism

generators, particularly when marketing strategies and event planning is

targeted to regional market areas. Whereas two decades ago the common tactic

was to develop single-purpose facilities with the intent to serve as a local

community resource, today’s facilities are often developed with the intent of

attracting a multipurpose niche of visitors to an area. As a result, they are

portrayed based on their ability to induce economic activity through an

increasingly diversified demand. As this has occurred, society has also become

more mobile and time constraints for families much greater, which has

translated to the rise of short duration, purpose-driven trips that coincide with

tournament and competition lengths.

For communities, the recreation and sports market has led to changes in

development strategies and the emergence of facilities and attractions that offer

either niche-focused venues or multipurpose multi-sport venues, and fee-for-

service amenities that appeal to everyone. In addition to the factors mentioned

above, the following characteristics have also contributed to this evolution.

• Heightened expectations that facilities or programs demonstrate some degree

of “return.” Historically, facilities were built by municipal departments for

civic and social service. For sports facilities that are typically not self-

supporting, the rationale for development is often infused with discussion of

the value it creates for the community through increased visitation and, thus

fiscal return based on increased lodging, restaurants, or retail spending. In

Feasibility Report Magnolia Aquatic Center and Playing Fields III- ! 1


Section III Concept and Programming

this instance, sports facilities are positioned or portrayed as an economic

development vehicle, rather than a community resource.

• Increasing expectation by elected officials who selected public sector

functions can be operated as enterprise accounts (e.g. use fees to minimize

operating support). This trend is most notable in sports facility operations

where recent fiscal constraints have led to increased reliance on revenue self-

generation for programs ranging from leagues to tournaments to skills

training sessions.

• Tournament and league organizers are looking to maximize the yield for

staging events and, as such, look for the facility that offers the best mix of

concessions, rental rates, capacity, and hotel packages.

• A more competitive environment has been fueled by an increased range of

facility types. As the development of private recreation offerings has increased,

so have the range of options available to the users. In the instance of sports,

the community recreation center or YMCA were once the only options, today

there may be numerous options. In the instance of zoos, for example, the

emergence of private game reserves, themed destinations, and the infusion of

“entertainment” into natural attractions has changed the landscape. As such,

each facility works hard to distinguish itself in a region, and often relies on

the continual addition (or subtraction) of amenities such as multiple fields and

courts, high-end locker rooms, increased seating or concessions to maintain

appeal.

• Increased specialization and sophistication in design and makeup of the

facilities has also changed. Facilities are now designed with the specific

mission of the building in mind and create an atmosphere with amenities that

drive the specialized business of the facility, such as “Championship

Stadiums” that target national and regional tournament play.

For the Magnolia region, the challenges inherent in developing a new

destination oriented sporting venue such as a sports complex, or nature-based

destinations, are to design specialized facilities that will accommodate enough




demand (e.g., attract visitors and events) to justify development and to ensure

that these facilities are distinct in relation to other regional, or even national,

offerings. The underlying intent is to create a total destination package that

builds on and supplements current offerings and introduces a new level of

appeal that extends the economic role and contribution of travel and tourism to

Magnolia.

The following analysis of team sports participation is based upon data

presented by the Aspen Institute in the State of Play Report for 2016. The

report presents a variety of trends in relation to the sports participation

industry, including those very revealing of the state of decline in sports

participation and the active health of both children and adults. The report finds,

for example, that girls were less active to a healthy level than boys. Additionally,

a very strong differentiator in participation of various sports is the result of

household disposable income. Only one in five children 6 to12 years old from

homes with less than $25,000 in income participated in any kind of sport; and

while activity levels were higher for youth ages 13 to 17 (27.5 percent), the gap

widens between them and kids from households with $100,000 or more in

income (45.5 percent).

In most market areas it is found very often that those kids who have the greatest

opportunity to continue playing into adolescence are those who can afford the

club teams, training, and equipment required to advance through the system. It

is also important to note that participation in team sports is up slightly from

2014 among children 6 to 12. Rates jumped in 2015 more than three points, to

56.6 percent of kids. Among “core participants,” those who play on a regular

basis, the rate moved from 37.3 percent to 40 percent.




III-2 Know Your Customer

One of the most fascinating conclusions to be derived from the State of Play

study is the conclusion that youth sports are not designed with the kid in mind.

Although the kids are the main participant, the kid “experience” is not

considered a part of the programming, scheduling for even design of the

facilities. Video games (and the technology industry, more broadly) are very

often the culprit when it comes to understanding the sedentary nature of

younger generations. However, in surveys, children and teens revealed that

video games and even e-sports provide much of what children want out of a

sport experience, including: “lots of action, freedom to experiment, competition



Table III-1 Core Participation in Team Sports

Sport 2011 2012 2013 2014 2015

Basketball 15.5% 14.1% 16.0% 14.7% 14.7%

Baseball 14.9% 12.5% 14.2% 12.9% 13.2%

Outdoor Soccer 11.2% 9.2% 9.3% 9.1% 8.9%

Tackle Football 3.2% 3.6% 3.5% 3.3% 3.3%

Gymnastics 4.1% 3.5% 2.9% 3.0% 2.7%

Flag Football 3.0% 2.8% 2.8% 2.4% 2.6%

Volleyball (court) 1.8% 2.4% 2.7% 2.8% 2.5%

Ice Hockey 0.9% 0.8% 1.1% 1.1% 1.1%

Track and Field 1.5% 1.7% 1.1% 1.2% 1.0%

Lacrosse 0.9% 0.7% 0.8% 0.9% 0.7%

Wrestling 1.0% 0.8% 0.7% 0.6% 0.7%

Field Hockey 0.3% 0.5% 0.6% 0.4% 0.5%

Source: Derived from 2016 State of Play by Aspen Institute Project Play


without exclusion, social connection with friends as co-players, customization,

and a measure of control over the activity – plus, no parents critiquing their

every move.” The children become the masters of their own experience, all

made possible by research and feedback loops that seek input from its young

customers.

This type of interaction and kid-shaped experience has not been translated into

youth sports. According to the results of surveys, sports organizations continue

to design policies, for the most part, with little input from children, their main

“customers.” For example: the US Soccer Federation mandated that affiliated

youth organizations move to the birth year in assigning players to teams, as is

done in European countries. Until this year, most teams were segmented by

school calendar year, allowing classmates to play together. In academic surveys,

many participants cited that playing with friends was a priority. Skye Eddy

Bruce of the Institute for Soccer Parenting stated, “I believe this will

significantly impact the number of kids we have playing soccer.”

III-2.1 Free Play and Fun

Due to a reluctance of parents to allow their children to venture out in

neighborhoods on foot or bike, children are less likely to engage in free play or

pick-up games that once was a staple of older generations. Programs are being

introduced to this generation of children to not only encourage more free play

and finding the fun in sports, but to increase participation in organized sports

by adding a free play component.

The academic, social, and sport performance benefits of free play has seeped

into the vernacular of coaches, educators and parents. It has become a topic of

interest for many major media outlets including NPR, Washington Post,

Psychology Today. This rise in the awareness of the success and social

implications of free play has encouraged some sport providers to include kid-

led programming. For example, at Giraldo Elite Futbol Club, in Corpus Christi,

TX, every fourth training session is organized by kids, and winter league is

entirely run by the enrolled participants.




Pressure is also growing from parents for schools to add daily recess. A report

prepared in 2016 found that only eight states require elementary schools to

offer as much, largely unchanged from 2012. In fact, one school district in Texas

implemented a 2nd recess program in specific schools throughout the district.

This program includes an additional recess period executed in morning hours

during which kids can create their own games and play freely before the day

begins. Though the program is still in its infancy and has not been mandated

throughout the district, although parents continue to lobby for the change.

Major sports organizations (which are fed by the interest in participation in

team sports) are also seeing the value in free play enhancing sports activities.

Major League Baseball and USA Baseball created a program called Play Ball, a

$30 million initiative designed to encourage participation in all forms of

baseball activities. Whiffle ball, stickball, skills competitions like Pitch, Hit &

Run, home run derby, and just playing catch in the backyard are all part of the

Play Ball program. The program was created in a response to decreasing

participation in a sport that is increasingly being dominated by organized

leagues and travel team ball which can ask a lot of families in terms of financial

and time commitments. The program was introduced in 140 cities through the

US Conference of Mayors.

One very important revelation in the programming of athletic complexes and

sports centers is the lack of diversity in the participation. The report detailed

the efforts of some municipalities that are acting to engage low-income children

in programming efforts. In Salida, Colorado, for example, the local parks and

recreation department has created a fund that provides up to $100 in program

fees to any child who qualifies for free or reduced-price lunch at school. In

Sylvania, Ohio, the city analyzed its participation numbers against the economic

data from seven neighborhoods and found disparities by income. As a result, it

created new programs to engage underserved children more effectively. In

Lancaster, Pennsylvania, the parks and recreation department joined forces with

the school district, Police Athletic League and other local sport organizations

and providers to leverage the assets of each including facilities, high school




athletes as coaches, curricula and scholarships. and create joint programming.

As a result, according to the city, the partnership has increased sports

opportunities in four sports, with more planned.

III-2.2 Swimming

Based on national statistics, there are approximately 85 million regular

swimmers or water play participants, 21 million individuals who are

characterized as “fitness” swimmers, and 2.4 million individuals that swam

competitively at least once within the past year. Of these amounts,

approximately 17% (3.6 million) were considered frequent participants, having

participated in swimming more than 100 times in the last year. Of the 2.4

million competitive swimmers, approximately 37 percent (882,000) were

considered frequent participants, having participated 100 or more days in the

last year. Approximately 35% (7.5 million) of “fitness” swimmers and 63% (1.5

million) competitive swimmers participated at le7ast 50 times.

III-3 Aquatic Center Programming

The requirements of an aquatic center vary depending on identified uses and

area groups that will be regularly participating in events or meets. These

requirements are further detailed below.

• Competition pools are lacking in the city, as the current pool remains

outdated and ill-equipped to handle the needs of the community and the

needs of competitive swimming.

• It is possible that clubs cap their participants based on the lack of available

facilities which limits participation and use.

• Magnolia faces a limited ability to host meets due to limited pool size, lack of

seating, and age of facilities.

• Cost of swimming lessons in the community can be cost prohibitive due to

lack of facilities.




• Competitions could last 2 to 3 days depending on the participation and the

size of the event.

• An aquatic complex could expect to attract 200 to 300 participants for

relatively smaller-sized meets.

• There are typically 2 to 2.5 people that will attend an aquatic activity per

participant.

• Most clubs host one meet per month; potential exists to host 2 to 3 large

competitions per season (4 to 6 large competitions annually).

• Attractions and activities should be created in the aquatic center to attract the

general public and welcome the community.

• A range of activities need to be created to enhance the experience and

encourage visitation from members of the community, particularly due to a

new, increased admission fee.

• Season and family passes can be made available to present a reasonable

pricing structure to regular visitation.

• The various components of the aquatic center will provide a relatively

inexpensive outing for the family. Active participation of visitors will be

emphasized in the design, and attractions will be included to ensure this

aspect of the facility. It is envisioned that the facility will be upscale and

attractive to all market segments. This mixture of leisure activities will be a

draw to a family seeking a unique entertainment experience in the Magnolia

area.

• The development of the aquatic center in Magnolia should achieve the

valuable objective of creating an additional reason for residents to spend

leisure time and money within the community as well as visitors from outside

of the designated market areas.

• With careful planning, marketing and an efficient operating system, the

proposed aquatic center should make a significant contribution toward




increasing visitation to the area, raising the self-esteem of the local populace

and promoting economic growth within the region. Differing from leisure

facilities offered elsewhere, the proposed aquatic center will lead, rather than

follow, the leisure and participatory sports trends in the area. It will also

provide a unique and innovative facility in which Magnolia and area residents

can take pride.

III-3.1 Aquatic Center Concept

Considerations

The concept of the aquatic center should include specific attributes to meet the

market needs. In order to accommodate the potential market demand, the

following facilities should be considered an integral part of the development.

• 6 to 10-lane 25 to 50 meter competitive pool

• Diving well and platform for diving competitions

• Bleacher seating

• Leisure pool for community and guests

• Additional attractions to include for guests and community use

including splash pad, a slide and diving board.

• Locker/changing rooms

• Restrooms

• Concession area

• Administration and coach offices

• Admission desk and controlled entry

III-4 Sports Complex Programming

There is currently inadequate space and capacity in the municipal fields and

the boys and girls club to host tournaments and hold any regional

programming. The lack of a sizable conglomeration of fields prevents local




leagues from hosting large tournaments that can generate larger economic

impacts.

The following requirements would be necessary to host events to extend

practice spaces and game spaces to organizations that struggle with finding

locations for regular practices and games.

• The sports complex would require a minimum of 4 to 6 baseball/softball fields

to accommodate tournament and event demand.

• Ideally, youth infields would be skinned (dirt) with portable mounds available

and adjustable base lengths and portable fencing.

• Skinned infields would accommodate all softball demand and youth baseball

demand up to 13-year olds, assuming fields have portable mounds available.

• Potential exists to host regional tournaments that typically attract 20 to 40

teams per tournament.

• In order to attract state tournaments, the complex first needs to establish its

reputation by successfully hosting regional and other invitational

tournaments.

• Accessibility to and from the sports complex needs to be considered during

larger-sized tournaments. Non-local participants need to be able to easily find

and access the sports complex without a hindrance to the local market.

• Tournament play generally requires one field per ten participating teams.

• Tournament organizers often cite that natural infields can provide a high

quality game experience consistent with anticipated future tournament field

conditions.

• Teams average 12 to 13 kids per team and approximately 1.5 people travel per

participant for 13 and under baseball or softball.

• Directors from comparable nationwide venues suggest that facility concession

sales and the overall economic impact generated through softball




tournaments tends to be greater than that of comparable baseball

tournaments (in terms of size, origin of participants, age group, etc.), as more

family members generally travel with girls’ softball teams than boys’ baseball

teams.

• Older youth baseball (14U through 18U) and adult baseball teams can often be

accommodated at a single field or two field complexes; potential exists to grow

this demand through redevelopment of existing infrastructure to improve to

industry standard fields.

• Lighting for all fields would be required to offer extended play and practice

days.

• Concession facilities will be a necessity for operations.

• Equipment storage on site would aid in the transition to different sports and

different levels of play.

• Include 2 to 4 soccer/football fields in addition to the baseball/softball fields

to expand programming and potential for hosting other types of events. The

additional fields can also be used as practice areas for any field sport.

• Restroom facilities.



LARC, Inc. Section IV - Market Analysis

Potential attendance at any type of sports facility or community aquatic center

is the function of several factors, including market size and characteristics,

competition, propensity to spend on leisure and sports, and local attitudes

toward attractions. Market characteristics to be considered include the size,

economic well-being and distribution of the available markets, and the number

of similar types of attractions in the market. Of equal importance is the scope

and quality of the proposed project. While all these factors interrelate, it is

obvious that a larger, more affluent market normally offers the greatest potential

support for an attraction. However, smaller niche markets, particularly when

related to unique attractions or experiences, should not be discounted or

ignored.

While demographic indications such as population and income levels are not

strict predictors of market support for use of sports facilities and aquatic

centers, they do provide valuable insight into the overall capacity of a market to

support such facilities and sporting events. In addition, other economic

indicators such as a region’s employment and business market can affect the

performance of facilities developed for a particular market. This section

provides an overview of the market area’s demographic and economic

characteristics, and will provide a foundation for other analyses that appear

later in this report.

IV-1Resident Market

The resident market is generally very important to attendance results at smaller-

sized facilities and sports complexes that may not be located in large cities.

Within the leisure industry, however, the impact of this market varies

accordingly to the nature of the facility and its location. For example, recent

surveys indicate that water parks generally attract from 50-90% of their total

attendance from within 50 miles of the park site. Industry data for outdoor

dramas reveals that approximately 25% of total attendance comes from within

100 miles of the theater site, the remainder of the attendance coming from

Feasibility Report Magnolia Aquatic Center and Playing Fields IV-! 1


Section IV Market Analysis

beyond this distance. Major theme parks normally attract approximately 65% of

total attendance from within 150 miles, or roughly a three-hour drive of the site,

depending on the population of the near-in market area and population density

in the outlying areas. On the other hand, other parks and attractions located in

highly popular tourist destinations (such as Central Florida, Southern

California, and other coastal regions like Myrtle Beach, South Carolina) attract

greater than 50% of total attendance from beyond 150 miles of the site. These

facilities are promoted on a regional and national basis.

The propensity to visit attractions quite often decreases as the distance between

the residence and the facility increases. As a result, analysis of the resident

market begins with segmenting, by driving distance and time, areas from the

proposed site for further analysis. The total resident market population for the

analysis of the aquatic center has been defined as those persons living within 60

miles of the proposed project. These persons would not necessarily be staying

overnight in the Magnolia area when visiting the project, since they should be

able to travel from their residence to the project and return home within the

same day. It is, however, anticipated that those traveling to Magnolia from

outside this resident market would be in the area for other organized events. As

a result, the aquatic center could anticipate that some of the visitors originating

from outside of the 60-mile market area would be attending the facility.

While there would presumably be some overlapping in the operation of both

facilities, examining the market for the aquatic center and the market for the

sports complex requires specific sets of data in determining potential demand.

In this section, the demographic data presented for the resident market applies

to either concept, however, further analysis of sports participation was utilized

to determine the potential for the playing fields.




IV-2 Resident Market Characteristics

The permanent resident market population has been divided, as noted, into the

following three segments defined by distance (and time) from the site: 0 to 20

miles (within 30 minutes), 21 to 40 miles (30 minutes to 50 minutes) and 41 to 60

miles (50 minutes to 1 hour and 10 minutes). The data is analyzed in this

manner because the relationship between drive time or distance from an

aquatic center or sports complex and the achievable participation levels is well

documented. The populations for these market segments are listed in the

following table. The current estimate of the permanent resident population in

each segment, as provided by ESRI and the U.S. Census Bureau, was projected

as follows for 2016:

Examination of the demographic characteristics and trends relating to the

resident population provides insight into the viability and the potential of the

local marketplace to contribute its support to the proposed facilities.



Table IV-1 Population of Resident Market Segments in 2016

Market Segment Drive Time Population

0 to 20-mile market Within 30 minutes 31,586

21 to 40-mile market 30 to 50 minutes 125,667

41 to 60-mile market 50 mins to 1 hour and 10 mins 376,271

Total Within 1 hour and 10 mins 533,524

Source: U.S. Census Bureau; ESRI


IV-2.1 Population Growth

Between 2010 and 2016, there was only a slight increase in the overall market

with the near-in market segments showing a decrease. The 60-mile market area

demonstrated the largest compound annual growth rate of 0.47% during the

six-year period. The annual growth rate of the total resident market between

2016 and 2021 is anticipated to increase, but at a slower rate of 0.41%.

The following table demonstrates the historical and anticipated growth of the

resident market segments from 2010 to 2021.

Population in the overall resident market is projected to increase by 1.7%

between 2016 and 2021. This annual rate of growth (0.41%) is lower than the

national annual rate of growth (0.74%) during this same period. The 0 to 20-mile

resident market is projected to have an annual growth of -0.22% between 2016

and 2021, the 21 to 40-mile resident market is projected to have a slightly slower

annual growth rate of -0.23%, and the 41 to 60-mile resident market is projected

to have the highest annual growth of 0.56%.



Table IV-2 Historical and Projected Resident Market Population

Year 0 to 20 miles 21 to 40 miles 41 to 60 miles Total

2021 31,244 124,231 386,959 542,434

2016 31,586 125,667 376,271 533,524

2010 31,268 126,377 361,156 518,801

CAGR (2016-2021) -0.22% -0.23% 0.56% 0.41%

CAGR (2010-2016) -0.01% -0.29% 1.16% 0.47%

CAGR (2010-2021) -0.01% -0.16% 0.63% 0.33%



IV-2.2 Households

Within the United States, demographers have noted that for several years the

number of households has been increasing at a much more rapid rate than the

population has increased. This trend is supported by several factors relating to

household formation. Americans have been marrying at a later age, but this is

the same age group of young adults that has continued to form independent

households, either as singles or with other non-married persons. One result has

been a rapid increase in the number of households without the parallel

increase in population. Essentially, the households are forming, but the

population in those households are remaining stagnant (families are not being

formed).

This trend is also apparent in the near-in resident market areas, albeit to a

lesser degree in recent years. Although this trend was greatest between 1980

and 1990, it is continuing, to a lesser degree, in the current decade.



Table IV-3 Historical and Projected Resident Households

Year 0 to 20 miles 21 to 40 miles 41 to 60 miles Total

2021 12,324 49,479 152,707 214,510

2016 12,513 49,942 148,158 210,613

2010 12,607 50,077 141,658 204,342

CAGR (2016-2021) -0.21% -0.11% 0.69% 0.44%

CAGR (2010-2016) -0.12% -0.04% 0.75% 0.51%

CAGR (2010-2021) -0.30% -0.19% 0.61% 0.37%



Between 2016 and 2021, households in the overall market are projected to

continue to increase. As detailed in Table IV-3, households in the 41 to 60-mile

market segment are projected to increase by 0.69% from 2016 to 2021. This

increase is higher than the increase projected for the population (0.56%) of this

market segment during the same period of time.

A second characteristic of households that impacts available discretionary

income is the number of persons per household. As the number of persons per

household decreases, the available household discretionary income may

increase. Households with fewer persons tend to have more discretionary

income to spend on activities such as dining out, travel, entertainment and

recreation.

Household size has remained relatively the same in each of the 20-mile market

areas. From 2016 to 2021, the households in the near-in market areas increase

slightly, while the households in the 21 to 40-mile and the 41 to 60-mile market

areas stay the same. The estimated increase in the near-in resident market

household size is from 2.39 to 2.40 persons per household. The relatively

stagnant growth in household size is consistent with national trends. Household

sizes are further detailed in Table IV-4.




Year 0 to 20 miles 21 to 40 miles 41 to 60 miles

2021 2.40 2.41 2.45

2016 2.39 2.41 2.45

2010 2.37 2.42 2.46



IV-2.3 Age

In evaluating the suitability of a market for an entertainment attraction, the age

distribution of the resident population is an important consideration. The

market areas must have a sustainable number of persons in the age categories

that tend to visit similar aquatic centers and sports complexes. In this study

area, the majority of the permanent resident population was below the age of 44

in 2012. This group constituted 61.6%, 59.2%, and 56.7% of the total resident

populations of the 0 to 20, 21 to 40 and 41 to 60-mile market segments,

respectively. It is important to note that while a younger age guest may be more

apt to participate in sports or aquatic plan, the facilities quite effectively

combine experiences for a variety of ages. No part of the project is age

restrictive.

The population under 45 years is of importance to aquatic centers and sports

parks in general. Statistics published by the National Sporting Goods

Association (NSGA) and the Sporting Goods Manufacturers Association

(SGMA) reveal various levels of sports participation in the United States.

Participation rates for selected activities are available by region, age group (age

7+), frequency, gender, and other variables. These rates are based on

participation levels, including by age and sport. Each market area includes a

large percentage of the population of age groups known to participate in a

variety of field sports.

Likewise, statistics published by the International Association of Amusement

Parks and Attractions indicate that, on average, over 80% of the persons

attending theme and amusement parks and attractions in the United States

with attendance over 975,000 guests are 45 years of age or younger. While the

proposed aquatic attraction would not fit into the amusement park category,

this statistic reveals that a younger age group may be attracted to this type of

leisure entertainment.

As previously stated, the concept of each project is designed to appeal to a

range of age groups. It is important to not exclude specific age groups for a




number of reasons, including building attendance, generating interest in the

project and keeping the visitors in the area longer, as each age range of visitor

will find something appealing within the experience.

The resident population is only slightly older than the median age of the

United States population (38.1). This project will appeal to the family market, in

particular, within these age groups. This is indicative of the importance of

wholesome family entertainment sought by many. as a result, the attendance




Age 0 to 20 miles 21 to 40 miles 41 to 60 miles

0 to 4 5.7% 6.2% 6.5%

5 to 9 5.8% 6.2% 6.4%

10 to 14 5.8% 6.2% 6.4%

15 to 19 8.0% 6.3% 6.2%

20 to 24 7.8% 6.3% 6.4%

25 to 34 12.6% 12.4% 13.2%

35 to 44 10.5% 11.4% 12.1%

45 to 54 12.3% 13.0% 12.9%

55 to 64 13.1% 13.9% 13.2%

65 to 74 10.1% 10.3% 9.7%

75 to 84 5.7% 5.5% 5.0%

85 and older 2.6% 2.3% 2.0%

Median Age 39.2 40.7 39.0



projections in this report have been approached on the basis of a conservative-

likely-optimistic range of market penetration and their corresponding levels of

attendance. The size of each facility and, therefore, the size of the investment

and resources that are needed for operation depend directly on the size of the

market potential.

IV-2.4 Income

Income levels and household income trends in the resident market are

important indicators of the ability of a market segment to contribute

significantly to the support of either facility. Based on data from ESRI and the

United States Census Bureau, income (per capita and household) are projected

to increase during the period from 2016 to 2021, as shown in Table IV-6.



Table IV-6 Income Characteristics of the Resident Market

Type Year 0 to 20 miles 21 to 40 miles 41 to 60 miles

Per Capita 2016 $21,024 $20,739 $23,240

2021 $22,970 $22,609 $25,306

% Increase 9.3% 9.0% 8.9%

CAGR 1.8% 1.7% 1.7%

Average Household 2016 $51,261 $50,769 $57,341

2021 $56,410 $55,423 $62,492

% Increase 10.0% 9.2% 9.0%

CAGR 1.9% 1.8% 1.7%

Median Household 2016 $36,736 $36,520 $40,533

2021 $40,192 $39,377 $43,982

% Increase 9.4% 7.8% 8.5%

CAGR 1.8% 1.5% 1.6%



The 60-mile resident market has slightly higher income levels than the other

two market segments, and the levels are projected to continue to increase into

2021.

In addition to the income figures presented in Table IV-6, the distribution of

households within income ranges can have an effect on the discretionary

spending ability of the population. The next table presents the distribution of

households by total household income in 2016 and 2021. During this five-year

span, in each resident market segment, households earning less than $35,000

are projected to annually decrease, while the households in the resident

markets earning more than $50,000 are projected to increase between 2016 and

2021. As households move into higher income categories, they tend to have

more discretionary income for leisure activities and sports events.



Table IV-7 Distribution of Households by Total Household Income

Age 0 to 20 miles 21 to 40 miles 41 to 60 miles

2016 2021 2016 2021 2016 2021

Less than $15,000 21.5% 22.5% 21.3% 21.8% 19.0% 19.1%

$15,000 to $24,999 14.5% 12.1% 14.5% 13.1% 13.2% 12.9%

$25,000 to $34,999 11.6% 8.8% 12.0% 9.7% 11.2% 9.6%

$35,000 to $49,999 15.1% 15.7% 15.4% 14.7% 14.7% 12.6%

$50,000 to $74,999 16.3% 16.1% 16.6% 17.0% 17.1% 16.8%

$75,000 to $99,999 8.9% 9.9% 9.2% 10.5% 10.3% 12.1%

$100,000 to $149,999 8.4% 10.7% 7.3% 9.0% 9.2% 10.8%

$150,000 to $199,999 2.2% 2.7% 2.1% 2.5% 2.9% 3.5%

$200,000 and over 1.5% 1.5% 1.6% 1.7% 2.4% 2.6%



IV-3 University Presence

The presence of colleges, universities and educational institutions within a

market area can serve as a significant source of event demand for a public

assembly facility, such as a proposed multi-use sports facility. The number of

college students in the area is important because it represents a target audience

for education-related events, intramural and club sports. Colleges and

universities are not only a large source of event demand (for tournaments,

camps and exhibition games), but are also among the most active within the

athletic community and, as a result, would be likely spectators and participants

at sporting events.

IV-3.1 Southern Arkansas University

The enrollment of Southern Arkansas University has steadily risen since 2012

and continues to grow in development of new courses of study and the physical

expansion of the campus. Current Spring 2017 enrollment is 4,341 with no

signs of slowing down. The new construction and improvements of the nursing

program, science and engineering programs, and agriculture education present

well-rounded programs to attract a larger student body each year. The health of

the university and the retention of its students can be a significant factor in the

success of any sports complex within a community. The healthier the city

becomes, as a whole, the more likely it will be to attract students to the

university and for the university retention rates to steadily increase. Currently,

the retention rate is 65.5%.

Although sports facilities exist on the university campus, the primary use rests

with the athletic and physical education programs. Student athletes and

students have regular use of the facilities, but outside groups are unable to use

the facilities for events and tournaments. Potential exists in coordinating with

the university to book tournaments or events for intramural teams or non-

sanctioned athletic competitions.




IV-4 Economic Impact

The operation of a sports and recreation complex can impact the local economy

in a variety of ways. Initial direct spending is generated during construction on

materials and labor and during operations at events on registration fees, facility

rentals, concessions and advertising, as well as before and after events

throughout local hotel, restaurant, retail and other establishments.

Although not all spending is likely to impact the local economy, a large amount

related to the operation of either facility will directly affect the community.

Adjustments must be made to account for the fact that a certain amount of

spending associated with the potential facilities will be made by local residents

and, therefore, likely represents money already spent in the economy in another

form. This phenomenon is called displacement and reduces the overall new

impacts. This type of spending is not considered net new to the local economy.

Additionally, not all spending associated with the potential facilities will take

place in the local economy. A portion of this spending is likely to occur outside

the immediate area. This phenomenon is called leakage and reduces the overall

impact.

Indirect effects refer to re-spending of the initial or direct expenditures. These

indirect impacts extend further as the dollars constituting the direct

expenditures continue to change hands. This process, in principle, could

continue indefinitely. However, recipients of these expenditures may spend all

or part of it on goods and services outside the market area, put part of these

earnings into savings, or pay taxes. This spending halts the process of

subsequent expenditure flows and does not generate additional spending or

impact within the community after a period of time.

Induced effects consist of the positive changes in spending, employment,

earnings and tax collections generated by personal income associated with the

operations of a sports and recreation complex. Specifically, as the economic

impact process continues, wages and salaries are earned, increased employment

and population are generated, and spending occurs in virtually all business,




household and governmental sectors. This represents the induced spending

impacts generated by direct expenditures.

Both facilities, particularly with the eventual planning of regional events and

tournaments, have the capabilities to generate a turnover of revenue in the

community 2 or 3 times. As travelers come to Magnolia from outside of the

designated market area and spend money on hotels, restaurants, fuel and other

required necessities, new revenues are being generated in local businesses

without tapping into the support of the local community. This type of economic

impact requires that both facilities work to host events that will attract visitors

from outside of the designated market areas.



LARC, Inc. Section V - Market Demand

The most accurate method of projecting attendance to an aquatic center, such

as the proposed facility is by applying reasonable market “penetration” or

capture rates to the available resident and visitor markets. This is the approach

used to forecast attendance at other entertainment attractions throughout the

United States and this same method will be used to project the attendance

levels for the proposed aquatic center. An explanation of this process and how it

applies to the proposed concept is further detailed in this section.

Projecting attendance to playing fields, however, requires a different method of

analysis. A variety of techniques were used to estimate the market demand and

use characteristics of the potential field complex. These techniques include, but

are not limited to:

• interviews with local community stakeholders, business leaders,

potential users and recreational sports teams;

• acquiring information from regional, state and national youth

tournament organizations;

• a review of industry trends in youth sports and the various

participation levels;

• a comparison of demographic, socioeconomic, transportation and other

visitor industry infrastructure elements among markets hosting

comparable facilities; and,

• a review of the historical utilization levels at comparable facilities.

This section has been divided into two parts. The first part details the market

demand of the aquatic center and the second part details the market demand of

the playing fields.

Feasibility Report Magnolia Aquatic Center and Playing Fields V- ! 1


Section V Market Demand

V-1 Capturing the market

The success of an aquatic attraction is determined by several variables.

Historically, an analysis of the experience of most of the major North American

themed attractions indicates that market penetration is a function of attraction

size and scope, and that it varies inversely with distance, i.e., that the propensity

to attend the attraction tends to drop off demonstrably as the travel time

increases. Only in a select few situations is the placement of a project deemed

ideal to its financial success. In all other cases, it is necessary to establish certain

parameters and analytical processes to result in acceptable alternatives for

considering how the location will affect the proposed entertainment project,

such as the aquatic center that is proposed. It is essential to understand that

one of the main reasons for the failure of certain aquatic attractions can be the

choice of location.

Certainly, other elements exist that can affect the choice of location such as

tangible and intangible costs. Additionally, large-sized themed attractions are

often situated in regions of significant tourism visitation, and each capitalizes

on the popularity of its respective components and themes. The components

and concepts around which these facilities are developed are wide in variety

and include themes such as eco-tourism, botanical gardens, natural wonders,

recreated historic events or settings, marine life, technology, popular lore,

culture and legends. By assigning a theme or a group of themes to a

development, an overall image and identity can be gained and associated

throughout the project’s components and future development. Essentially, there

are three factors for situational aspects of a themed attraction:

• the size and characteristics of the market;

• the concept; and,

• the requirements for management and operation.




V-1.1 Patterns of Market Penetration

The method of applying penetration or capture rates to the available market

segments will be used to forecast anticipated attendance for the purposes of

this report. However, other factors influence the anticipated penetration rates:

• Uncertainty of attendee perception

• Project concept, particularly in relation to other market area

entertainment

• Competition for the leisure dollar

• Time in the marketplace

As a result, the attendance projections in this report have been approached on

the basis of a conservative-likely-optimistic range of market penetration and

their corresponding levels of attendance. The size of the park and, therefore, the

size of the investment and resources that are needed for operation depend

directly on the size of the market potential.

These influencing factors should not be considered as deterrents to the

development of the themed entertainment attraction but should be recognized

realistically when approaching project development in a prudent manner. If the

project is well-planned and executed, and its operation and promotion are

perceived to be of similar quality within the industry, this project should prove

successful.

It is important to establish an effective market within the geographical reach of

a park. The effective market is defined as those who would potentially visit

entertainment attractions such as an aquatic center either on occasion or more

than once per year. Additional market groups can also be established by

examining socio-demographic and motivational characteristics such as age, sex,

family status, income level, origin market, type of transportation available to get

to the park, personality, lifestyle and expectations. When primary data is

unavailable, the estimated penetration rates rely on a culmination of the market

characteristics.




The key aspects of deriving a themed attraction’s penetration rates include:

discovering the target market, how many people are going to visit, the sphere of

influence and when visitors are expected. Aquatic centers in smaller

communities typically anticipate to be a regional draw during special events,

competitions, city festivals or university events. An aquatic center developed in

a smaller populated area can expect to flourish by serving a wide range of

aquatic needs and the entire community by:

• engaging a wider range of community residents in aquatic activities;

• offering a great variety of programs and activities for youth, teens,

adults and seniors; and,

• providing the ability to host swim competitions, tournaments and

events to generate great cost recovery and economic development by

inviting cash expenditures from outside of the community.

The most significant aspect of the effective market within an hour drive is the

proximity to larger markets and established regional visitor markets. While it is

important to note that this is just as similar as a near-in resident market

because of the proximity to the site, the origin markets are potentially far-

reaching beyond a typical drive time analysis. This project is, therefore, not

depending on visitors to come from other parts of Southern Arkansas, Texas

and Louisiana just to visit the project, rather, and most significantly, those

visitors are already coming to the area for events and sports activities.

After applying estimated penetration/capture rates to each segment of the

resident population, it is possible to calculate the resultant attendance

anticipated from each category. These components of anticipated attendance,

when added together, total the overall attendance figure and penetration/

capture rate for the project.

The propensity to visit attractions quite often decreases as the distances

between the residence and the site increases. As a result, analysis of the




resident market begins with segmented areas from the proposed site for further

analysis.

The following markets should be distinguished when applying penetration

rates.

• Resident Market - typically defined as the total number of inhabitants that

reside in the catchment area of influence. The resident market is that area

from which a trip can be made to the attraction without a required overnight

stay. This area is often broken down by distance to the project and sub-

grouped into primary, secondary and tertiary markets. There are differences in

the approach to park radius, depending on the concept and surrounding area.

The following table details the typical approach to market segmentation:

➡ For the purposes of this report, the resident market has been

segmented by the drive times typical for the industry: 20, 40 and 60

miles.

• Visitor Market Beyond Segmented Resident Market - This market is the

number of potential visitors who may require an overnight stay during their

visit to the themed attraction. This market is not available to every type of

aquatic attraction and depends entirely on proximity to resident market areas

beyond the tertiary border.

Table V-1 Typical Resident Market Segmentation

Segment Regional Water Park Community Aquatic Center

Primary Up to 30 miles Up to 20 miles

Secondary Up to 60 miles Up to 40 miles

Tertiary Up to 90 miles Up to 60 miles




➡ For the purposes of this report, since this market is based upon the

participation in events, festivals or regional tournaments it is not

accounted for in the market segments, rather as potential attendees to

events.

V-1.2 Penetration Rates

Projected first-year penetration rates from the proposed aquatic center are

presented in the following table. This table illustrates the anticipated

penetration rates for the three different levels of planning (conservative-likely-

optimistic) for each segment of the resident and visitor markets. The attendance

of each market segment for each level is determined by applying the relevant

penetration rate to the appropriate market segment population. The rates are

based on industry averages, the potential in the market area, a synthesis of data

provided by comparable facilities, and LARC’s experience within the industry

and are consistent with rates achieved by similar attractions in their first

operating years. Additionally, proposed admission prices for the attraction are

lower than those for many similar parks, a factor that should allow for greater

penetration of the resident market segments.

Table V-2 Initial Year Penetration Rates

Market Segment Conservative Likely Optimistic

0 to 20-mile market 74.0% 85.1% 97.0%

21 to 40-mile market 22.1% 25.7% 29.2%

41 to 60-mile market 8.5% 10.0% 11.4%

Total 15.4% 18.0% 20.5%

Source: LARC




The penetration rate in the first year of operation for the 0 to 20-mile market is

projected to range from a conservative 74% to an optimistic 97%. The likely

penetration rate is estimated to be 85.1%. While these penetration rates may

seem rather high, it is important to remember that these numbers take into

account a higher frequency level the closer the market is to the aquatic center.

Within the 21 to 40-mile market segment, the likely penetration rate is

projected to range from a conservative 22.1% to an optimistic 29.2%.

Penetration rates within the 41 to 60-mile market area are projected to range

from 8.5% to 11.4%. The likely total market penetration rate for the proposed

aquatic center is expected to be 18.0%. This includes visits from all specified

market segments.

Resulting penetration rates by market segment are presented in Table V-3.

Although the table demonstrates that penetration rates in the two furthest

market segments remain nearly the same rate in year two due to the hangover

effect of the heavy promotion in year one, it is anticipated that penetration rates

in all market segments will increase by year five. Total market penetration in

year five is anticipated to be 20%, a slight increase from 18% in year one.

These rates should be considered conservative, as penetration rates after the

first year will depend on the project’s initial perception amongst guests,

marketing success and execution, and the addition of new attractions. Our

estimates are based on typical, or average, reception in those areas.




In addition to a range of small to mid-sized municipal water park projects,

LARC also examined a number of aquatic centers for the purposes of this study.

The following aquatic centers were used as comparable for generating marked

demand data:

• Capitol Federal Natatorium in Topeka, KS

• Matthew T. Doyle Natatorium in Texas City, TX

• Tualatin Hills Aquatic Center in Beaver, OR

• Greensboro Aquatic Complex in Greensboro, NC

• St, Peters Rec-Plex Aquatic Operations in St. Peters, MO

• Holland Community Aquatic Center in Holland, MI

• Mecklenburg County Aquatic Center in Charlotte, NC

V-1.4 Attendance

Based upon the penetration rates, attendance at the aquatic center in the first

operating year is projected to be approximately 97,000 persons, within a

predicted range of 83,200 to 110,600 persons. This data is shown in Table V-4.

Table V-3 Projected Penetration Rates

Market Segment 1 2 3 4 5

0 to 20-mile market area 85.1% 79.8% 79.2% 81.8% 81.0%



Total 18.0% 18.5% 19.0% 19.5% 20.0%

Source: LARC




Attendance for the proposed aquatic center has been projected for the first five

years of operation. This forecast has been based on the assumption that the

facility will be well-designed and executed and operated in a high-quality

manner associated with successful themed attractions. Also, capital must be

invested in the attraction in the form of new features, landscaping, attractions

or events.

As presented in the following table, attendance is expected to increase annually,

with an overall increase of 12.6% during the first five operating years, reaching

a forecast level of approximately 109,200 persons during the fifth year. This

growth is also based on the attraction introducing new components and

attracting more guests from the visitor market sectors.

Table V-5 Project Attendance for the First Five Operating Years


0 to 20-mile market 26,700 24,975 24,696 25,440 25,116

21 to 40-mile market 32,000 33,966 34,986 34,980 36,036

41 to 60-mile market 38,300 40,959 43,218 45,580 48,048

Total 97,000 99,900 102,900 106,000 109,200

% Increase 3.0% 3.0% 3.0% 3.0%

Source: LARC



Table V-4 Projected Initial Year Attendance Range

Market Segment Conservative Likely Optimistic

0 to 20-mile market 23,200 26,700 30,500

21 to 40-mile market 27,500 32,000 36,500

41 to 60-mile market 32,500 38,300 43,600

Total 83,200 97,000 110,600

Source: LARC


V-1.5 Market Mix

The proportion of attendance that originates from each market segment is

relatively even. For the project to be successful, it must effectively penetrate

each market segment, particularly when there are events and festivals planned

in the town. It is important to note, here, that the proposed project will rely on

the support of the local community.

A strong marketing program, begun early, will be necessary. The resident

markets will account for any repeat visitation to the facility, and, until the

facility becomes well-known in more distant market areas through promotions

and word-of-mouth publicity, it will rely heavily upon internet marketing and

advertising to bring visitors to the attraction.

Table V-6 presents the attendance mix by market segment forecasted for the first

five operating years. The proportion of attendance from the near-in resident

market segment is expected to decrease slightly over the five-year period, while

the furthest resident markets are expected to increase their share somewhat.

As the word-of-mouth knowledge of the project radiates geographically over

time, the popularity of the themed attraction can be expected to grow in the

market segments more distant from the site. By the fifth year of operation, the

project should generate 44% of its attendance beyond the 40-mile market area.

Table V-6 Projected Attendance Market Mix


0 to 20-mile market 27.5% 25.0% 24.0% 24.0% 23.0%

21 to 40-mile market 33.0% 34.0% 34.0% 33.0% 33.0%

41 to 60-mile market 39.5% 41.0% 42.0% 43.0% 44.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0%

Source: LARC




V-2 Playing Field Participation

Participation in organized team sports through youth leagues and high schools

across the country has remained steady in recent years. The prevalence of

organized participation illustrates the shift sway from the spontaneous pick-up

play of individuals or small groups to more serious adult-directed activities that

are less like play and more like competition. Sports participation for youth now

begins at an earlier age than in previous generations. This trend of younger and

younger play can be attributed to a number of factors including:

• Pressures of college scholarships;

• Professional success of famous athletes; and,

• Stress and importance of activity in the battle against childhood obesity

and juvenile diabetes.

Amateur and recreational sports facilities, like those evaluated for this study,

typically host a mix of local and non-local sports and recreation activities. In

most cases, these facilities are conceived, developed and operated with the

intent of providing optimized venues to best compete for tournaments that

draw new visitors to the area (participants and spectators), thereby generating

new economic impact in the host communities. Nevertheless, local usage of

these facilities (through local league play, recreation, clinics and camps) is

typically critical in sustaining utilization levels and generating operating

revenue, in addition to providing an attractive community resource and

enhancing quality of life for local residents.

Local, regional, state and national athletic associations were contacted or

researched to understand the level and type of use that could result upon

completion of new amateur and recreational sports playing fields in Magnolia.

Additionally, a variety of field sports were considered in the determination of

user levels including baseball, softball and soccer.




V-2.1 Baseball/Softball

Based on national statistics, there are approximately 13.6 million individuals

that participated in baseball at least once in the past year. Of this amount,

approximately 52% (7.1 million) were considered frequent participants, having

participated 25 more days in the past year. Further, there are approximately 10.2

million individuals that participated in softball at least once in the past year in

the U.S. Of this amount, 36 million were considered frequent participants,

having participated 25 or more days in the last year.

A variety of techniques were used to estimate the market demand and use

characteristics of a potential playing field complex in Magnolia. These include:

interviews with local community stakeholders; determination of potential

complex users; information provided by regional, state and national youth

tournament and competition organizers, a review of industry trends and youth

sports participation levels; and a review of historical utilization levels and

comparable facilities.

The following comparable projects were researched and used as a basis of this

analysis:

• Terry Sims Diamond Sports Comlex in Batesville, AR

• Field of Dreams Sports Complex in Van Buren, AR

• Sheridan Sports Complex in Sheridan, AR

• Overland Park Soccer Complex in Overland, KS

• Lawrence Soccer Complex in Lawrence, IN

• Ethel S. Abbot Sports Complex in Lincoln, NE

• Tyson Sports Complex in Springdale, AR

• James W. Cownie Soccer Park in Des Moines, IA

• Ballfields and Craig Ranch in McKinney, TX




• Vandalia Sports Complex in Vandalia, OH

• Alma Baseball Complex in Alma, AR

• Eligin Sports Complex in Elgin, IL

• CB Rec Complex in Council Bluffs, IA

• Plano Sports Authority Star Center in Plano, TX

• East Cobb Baseball Complex in Marietta, GA

Data was collected with respect to the historical and expected number of

participants of each of the tournaments/competitions, average number of family

members/spectators per participant, hotel requirements, facility complex

requirements, facility/complex requirements (specifications, amenities, number

of courts/fields, parking, etc.), and expected rental rates. All of this information

was utilized in the study to determine the most appropriate programmatic

elements of the potential baseball/softball complex and use characteristics, to be

subsequently discussed.

Potential users of a new baseball/softball complex include:

• Cal Ripken Baseball

• Babe Ruth Baseball

• Independent tournament organizers

• USA Baseball

• USSSA Baseball

• U.S. Specialty Sports Association

• USA Softball

• AFA Fastpitch Softball

• ASA Fastpitch Softball

• AAU Baseball




• AAU Fastpitch Softball

Based on the results of the research and trends across the country, and the

southern United States in particular, it was deduced that there are strong

interest levels among both baseball and softball user groups. Although there is a

strong interest in both programs within and around Magnolia, there is a

significant lack of resources to support larger events or tournaments. There is a

limited access to practice facilities and batting cages, leaving teams with few

options outside of game and tournament play. It was estimated that the local

and near-in market teams spent in excess of $5,000 annually per team traveling

out of the area to participate in league play and tournaments.

After reviewing a variety of complexes that host a range of field events, it was

determined that the Magnolia playing field complex would require a minimum

of 4 to 6 youth fields to accommodate tournament play and 2 to 4 to

accommodate regular, continued local usage. The demands for tournament play

require that specific elements be in place to act as the hosting facility. A review

of these demands is not only a significant factor in developing the concept of

the complex, but the potential tournament and events schedule. The demands

include the following:

• Dirt infields for both baseball and softball.

• Portable mounds for fast pitch.

• The capability in hotels and area amenities to host regional tournaments that

could attract up to 30 teams.

• Two to four weekend tournaments per month for fundraisers.

• Facilities must be available to and accessible to residential areas, local

communities and local youth sports teams.

• The baseball and softball fields currently available to the Magnolia community

would not be able to accommodate larger sized tournaments, nor are they up

to the condition required for regular play.




• Teams average 12 to 13 players per team and approximately 1.5 people travel

per participant for 13 and under baseball/softball.

• Facility directions from comparable nationwide venues suggest that facility

concession sales and the overall economic impact generated through softball

tournaments tends to be greater than that of comparable baseball

tournaments.

• Some facilities estimated a non-local participation rate as high as 30 to 40

percent and growing to levels of 50 to 70 percent as events continue to grow.

• More than 20 baseball and softball tournaments per year could be attracted to

a new facility in Magnolia, with an average of approximately 25 teams per

tournament.

• Older youth baseball/softball and adult baseball/softball can often be

accommodated at a single field or two field complexes.

V-2.2 Soccer/Multipurpose Outdoor field use

Based on national statistics, there are approximately 13.6 million individuals

that played outdoor soccer at least once in the past year. Of this amount,

approximately 3 million were considered frequent participants, having

participated 52 or more days in the last year. Approximately 6.4 million played

soccer at least 26 times in the last year.

In terms of football, there are approximately 12.7 million individuals that played

football at least once in the last year. Of this amount, 4.2 million were

considered frequent participants, having participated 25 or more days in the last

year. Approximately 52 percent (6.6 million) played football at least 13 times in

the last year.

Lacrosse, rugby, flag football, and field hockey are other sports that utilize

“rectangle” outdoor fields of this nature. Many of these sports are rapidly

gaining popularity throughout the country. Although no interest in league in




these sports could not be determined at the time of the study, the demand for

fields for a range of sports still exists and the potential for these sports to utilize

the complex is an important factor to consider in later years.

The following observations were significant in determining the potential for

soccer and other field sports in Magnolia

• There is moderate interest levels among those interested in soccer and

football usage.

• Event organizers typically search for a complex that offers 3 to 5 soccer/

football fields to be able to accommodate events and plan for growth.

• Existing area fields do not offer enough space to accommodate events or are

overused and not well-maintained.

• On average there are 12 participants per team and 2.5 attendees per athlete.

• The ability to host these events has previously seemed limited due to the lack

of facilities and fields.



LARC, Inc. Section VI - Financial Analysis

Certain analyses must be performed so that the viability of an idea may be

assessed and for conceptual and operational strategies to be developed to meet

those expectations. LARC determines that an attraction is financially viable to

the extent that its development can support itself without relying on significant

subsidies or outside investment. The projections presented in this section are a

measure for establishing an investment level that can be supported with a

forecast of the balance of revenues and costs associated with the operations.

It is important to note that while many of the perceived benefits of the potential

aquatic center and playing fields are intangible, including providing enhanced

sports and recreation participation opportunities and stimulating community

pride among other qualitative benefits, the annual operations can provide

quantifiable benefits to an area. Specifically, the annually recurring impacts of

an amateur sports and recreation complex begin with the initial direct spending

made during operations related to participant fees, camps, clinics, facility

rentals, concessions, advertising and other income as well as expenditures made

before and after events throughout local hotels, restaurants, retail,

entertainment and other establishments.

VI-1 Establishing Revenue

The revenue projected to be generated by the anticipated attendance, the

estimated operating expenses and the resultant earnings from operations are

discussed in this section. These financial projections will be based on the

results of previous sections of this report. The largest percentage of projected

revenue is anticipated from tournaments and admissions. However, before this

category can be properly forecast, it is necessary to first establish the pricing

policy.

Aquatic centers/water parks and sports complexes generate income primarily in

two ways. Firstly, the well-developed concept aids in establishing a quality

experience for which visitors will choose to pay an admission. The pay-one-

Feasibility Report Magnolia Aquatic Center and Playing Fields VI- ! 1


Section VI Financial Analysis

price concept established by Six Flags in the 1960s is well known in the

industry as the most common entry policy for an attraction. Although this

policy will fare differently for tournament play, the idea is still the same: pay to

play. Secondly, income through per capita expenditures will support both

projects. Attractions and sports complexes can generate up to 25% of their

income from merchandise and food and beverage sales, particularly when both

aspects are well-organized and well-selected. The viability of an aquatic center

and a sports complex is, therefore, reliant upon participations levels and guest

expenditures during events, games and typical visits.

VI-1.1 Pricing Policy

The pricing policy established by the aquatic center and for sports participation

is an important factor in the initial market response and acceptance of the

facility. It is critical that the marketplace perceive both projects as excellent

entertainment value in relation to the total expenditure and as adequate

facilities to host sporting events. This can be best accomplished by offering a

variety of options for guest participation. Through the use of a combination of

admissions and a pay-for-play sports structure, visitors would be allowed

admittance to the designated areas and participation in specific activities.

Spectators would be required to pay to enter either facility and watch sporting

events.

Tickets would allow guests unlimited visits for the day only. Guests may leave

the park and re-enter the park on the same day with one admission ticket if it is

for the same sporting event. Additionally, the community may want to consider

discount structures for members of the communities, parents of players or

coaches.

It is necessary that the planner of the facilities offer a carefully planned mix to

ensure adequate guest distribution and participation. This is one of the reasons

why design criteria are developed. Capacity of specific areas must be sufficient

to handle the increased demand levels resulting from the combination of guests

who are attending the sporting event or some other area of the complex.




For the purposes of this report, it has been assumed that both facilities will

include the elements necessary to successfully market the admission policy and

sport team fees. The actual price of the admission, in LARC’s opinion, must be

analyzed and carefully positioned with regard to the attraction product and to

competitive facilities in order to ensure marketplace acceptance through its

awareness of a high value/price relationship.

In today’s economy, it is important that the facilities be reasonably priced to

encourage early trial and acceptance in the marketplace. The resident market

and visitors from surrounding communities will be able to afford the admission

rates set for the proposed facilities because relatively low prices have been

projected. The attraction will have a slightly lower admission price than other

attractions of similar size and scope, as a method for enhancing market

penetration. This practice will allow the project to penetrate a larger

percentage of its market and gain a foothold in the sport hosting industry.

VI-1.2 Aquatic Center Admission Prices

Table VI-1 presents admission prices for the first five years of operation for the

aquatic center. As the table indicates, admission prices vary depending on the

age. This pricing should place the facility in a strong value to price relationship

that should help reinforce positive “word-of-mouth” advertising from those

persons attending the attraction. Admission prices are anticipated to increase

over the course of the first five operating years to keep pace with inflation and

as new attractions or activities are added.




VI-2 Projected Operating Revenues

In addition to carefully projecting the market penetration of a themed

attraction is the method of establishing pricing levels and per capita

expenditures. As mentioned previously, setting pricing to encourage

participation and additional spending with a high value relationship to the

concept is a major factor in generating revenue. The concept and mix of events

and activities is significant to both the overall experience and the

encouragement for guests to increase their length of stay in the facilities and in

the town of Magnolia.

VI-2.1 Admission Revenues

Assuming the proposed aquatic center adopts in its first operating year the

recommended admission of $10 for adults, $8 for children, $7 for seniors and

$8 for groups of 15 or more, the anticipated non-discounted per capita revenue

is $8.40. The per capita figures are based on the total number of attendees of

each admission type sold and the corresponding price of that ticket.

The ratio between adult, child, and group ticket pricing is similar to that found

in other area attractions and in other themed attractions, in general. Attendance

levels are based on the ratio of three adults to each child or senior ticket sold, a

ratio considered normal at similar themed attractions in the United States. Also,

group sales tickets are assumed to be 10% of all tickets sold. The following table

Table VI-1 Admission Prices for the Aquatic Center

Category 1 2 3 4 5

Adult $10.00 $10.00 $11.00 $11.00 $11.50

Child $8.00 $8.00 $9.00 $9.00 $9.50

Senior $7.00 $7.00 $8.00 $8.00 $8.50

Group $8.00 $8.00 $9.00 $9.00 $9.50

Source: LARC




presents the estimated tickets sold by ticket type for the first five operating

years.

As the project will need to assume an aggressive marketing posture within the

local market, the effective admission discount rate can be expected to be 10% of

all full-priced adult and child admissions in each of the first five years of

operation. Therefore, the effective admission per capita revenue is $8.40. The

following table presents the total admission revenue by ticket type and effective

admission per capita for the first five years.

The discount factor considers all promotions, coupons and agency rebates

within each market area. Because it is projected that a percentage of the

attendance will originate from beyond the resident market, the area where the

discounting will be heavily focused, a 10% discount factor should be adequate

and in keeping with industry norms.

Table VI-2 Projected Attendance by Admission Type

Category 1 2 3 4 5

Adult 64,700 65,930 67,910 69,960 72,080

Child 19,840 20,220 20,830 21,450 22,100

Senior 1,730 1,760 1,810 1,870 1,920

Group 9,700 9,990 10,290 10,600 10,920

Comp 1,030 2,000 2,060 2,120 2,180

Total Attendance 97,000 99,900 102,900 106,000 109,200

Source: LARC




VI-2.2 Food and Beverage Revenue

The projected per capita revenue for food and beverage is estimated at $2.68

during the first operating year. Allowing for inflation and the expansion of food

and beverage services justifies this projection. This figure is comparable to food

and beverage revenue generated at other aquatic centers, taking into account

the income levels and expenditures within the market segments. Per capita

revenue during the study period is presented in Table VI-4. This revenue

category is expected to increase by approximately 5% annually, reaching $3.26

in the fifth operating year.

This per capita revenue is from the project-operated food and beverage only.

Other food and beverage opportunities are included in leased space. Therefore,

the revenue generated for the project will come in the form of lease payments.



Table VI-3 Admission Revenue by Ticket Type

Category 1 2 3 4 5

Adult $647,000 $659,300 $747,010 $769,560 $828,920

Child 158,720 161,760 187,470 193,050 209,950

Senior 12,110 12,320 14,480 14,960 16,320

Group 77,600 79,920 92,610 95,400 103,740

Comp 0 0 0 0 0

Total Admission Revenue $895,430 $913,300 $1,041,570 $1,072,970 $1,158,930

Base Per Capita $9.23 $9.14 $10.12 $10.12 $10.61

Discount Factor 10% 10% 10% 10% 10%

Per Capita Discount $0.83 $0.82 $0.91 $0.91 $0.95

Effective Per Capita $8.40 $8.32 $9.21 $9.21 $9.66

Source: LARC


VI-2.3 Merchandise Revenue

Revenue from the sale of merchandise is projected to be approximately $3.02

during the first operating year. Merchandise per capita revenues are expected

to increase by approximately 5% each year thereafter. This results in per capita

income of approximately $3.41 during the fifth year’s operation.

VI-2.4 Swim Lessons

Offering swim lessons as a part of the programming at the aquatic center allows

for an additional use of the facility while also extending safety and training

potential to the public. The cost for these programs would be minimal, but

would make use of the facility in off-hours or during periods with no events

planned. LARC has assumed a cost per lesson of $50.

VI-2.5 Miscellaneous Revenue

Miscellaneous revenues include those items not covered in the other categories.

These may include revenues such as vending, rentals and similar products or

services. This category is expected to generate approximately $0.93 in the first

operating year. Revenue in this category has been forecast to increase at the

rate of approximately 2.5% annually, as prices are increased and additional

products or services are offered. This results in estimated revenues of $1.03 per

capita in the fifth operating year.

VI-2.6 Total Per Capita Revenue

Total per capita revenue (excluding admissions and swim lessons) is projected

to be approximately $6.63 during the first year of operation, as shown in Table

VI-4. In this scenario as discussed formerly in this section, all categories of

revenue are expected to increase annually, resulting in a total per capita revenue

of $7.70 in the fifth operating year. This results in an increase of $1.07 per

capita, or approximately 16.1%, during the study period. In practice, actual

economic conditions and opportunities in the marketplace may allow additional

increases beyond those projected.




All per capita operating revenue projections are presented in Table VI-4.

VI-2.7 Operating Revenue Aquatic Center

Total operating revenues for the project are presented by category for each

operating year of the planning period in Table VI-4.

Total operating revenue from the aquatic center during the first year of

operation is forecast to be in excess of $1.8 million. Total revenue is projected

to increase annually, reaching more than $2.3 million during the fifth year of

operation, a growth in revenues of 28.7%. This results from increases in per

capita revenues, increases in attendance and increases in the number of special

events and competitions booked as the project grows in popularity.



Table VI-4 Per Capita Revenue

Category 1 2 3 4 5

Admissions $8.40 $8.32 $9.21 $9.21 $9.66

Food & Beverage $2.68 $2.81 $2.95 $3.10 $3.26

Merchandise $3.02 $3.17 $3.25 $3.33 $3.41

Miscellaneous $0.93 $0.95 $0.98 $1.00 $1.03

Total Per Capita Revenue $15.03 $15.25 $16.39 $16.64 $17.36

Source: LARC


VI-2.8 Operating Revenue Sports Complex

As an initial step in assessing the revenue associated with the potential sports

facility/complex, a detailed analysis was conducted to estimate use, participation

and attendance. A detailed market, financial and economic model was

developed for the analysis. Included in this analysis are estimates of league play,

tournaments, and the organization of baseball clinics and camps. As expected,

tournaments generate the highest level of participation and attract the largest

number of spectators. Increased attendance from year one to five is primarily

driven by the ability to attract and host more small, medium, and large

tournaments after the facility establishes its name and operations.



Table VI-5 Gross Revenue Aquatic Center

Category 1 2 3 4 5

Admissions $815,000 $831,000 $948,000 $976,000 $1,055,000

Swim Lessons $53,000 $58,000 $62,000 $67,000 $73,000

Food & Beverage $260,000 $281,000 $304,000 $329,000 $356,000

Merchandise $293,000 $317,000 $334,000 $353,000 $373,000

Miscellaneous $90,000 $95,000 $101,000 $106,000 $112,000

Special Events $150,000 $157,500 $165,375 $173,644 $183,326

Facility Rental $200,000 $210,000 $220,500 $231,525 $243,101

Gross Revenue $1,861,000 $1,949,500 $2,134,875 $2,236,169 $2,395,427

Source: LARC


VI-3 Operating Expenses

Expenses incurred by aquatic centers and sports complexes vary widely,

depending upon attendance levels, operating schedules, location and the scope

of facilities. Also, company policies and operating philosophies impact total

operating expenses. The distribution of operating expenses at two selected

facilities (one an aquatic center and one a sports complex) and those projected

for the proposed facilities are presented in Table VI-7. Facility A is the existing

aquatic center, Facility B is an existing sports complex. The two facilities are

used as examples in this analysis because of their similarity to the proposed

attraction regarding size, scope and market. They are also attractions for which

very accurate data, provided to LARC confidentially, is available.

The ratio of operating expenses to total revenue is normally higher during the

first year due to lower attendance and a less efficient operation. Expenses

should decline as a percent of revenue during the five-year planning period.



Table VI-5 Gross Revenue Sports Complex

Category 1 2 3 4 5

Youth Tournaments $483,000 $533,000 $587,000 $648,000 $714,000

Adult Tournaments $272,916 $300,890 $331,731 $365,734 $403,221

Youth Leagues $40,014 $44,115 $48,637 $53,623 $59,119

Camps $0 $0 $44,115 $48,637 $53,623

Food & Beverage $115,000 $127,000 $140,000 $155,000 $171,000

Merchandise $90,000 $100,000 $107,000 $115,000 $124,000

Miscellaneous $48,000 $51,000 $55,000 $59,000 $64,000

Special Events $150,000 $157,500 $165,375 $173,644 $182,326

Facility Rental $50,000 $52,500 $55,125 $57,881 $60,775

Gross Revenue $1,248,930 $1,366,005 $1,533,983 $1,676,519 $1,832,064

Source: LARC


The distribution of operating expenses projected for the proposed facilities are

presented inTable VI-9. Operating expenses, excluding cost of goods sold, are

projected to be approximately $1,116,000 in the first operating year for the

aquatic center and $1,085,000 for the sports complex. Operating expenses

increase in each of the first five operating years to a level of $1,405,000 for the

sports complex in year five and $1,448,000 for the aquatic center.

VI-3.1 Cost of Goods Sold

Expenses incurred for cost of goods sold are a function of volume of goods sold

and revenues generated by each type. In Table VI-8, the total cost of goods sold

for the first operating year is projected to be $170,000 for the aquatic center

Table VI-7 Comparison of Operating Expense Distribution

Category1 A2 B2 Aquatic

Center

Sports

Complex

Payroll and Related Expense 55.3% 53.0% 53.5% 52.5%

Advertising/Promotion 13.0% 13.1% 14.0% 14.0%

Maintenance and Supplies 10.1% 8.0% 11.0% 10.0%

Utilities 9.0% 9.6% 10.3% 9.3%

Insurance 4.0% 3.8% 4.2% 3.2%

Other3 8.6% 12.5% 7.0% 11.0%

Total 100.0% 100.0% 100.0% 100.0%

Operating Expense Ratio4 60.2% 78.0% 60.0% 87.0%

1:Excludes cost of goods sold, debt service, depreciation and income taxes

2: New facility within its first five operating years

3: Includes commissions, rents, misc. operating expense, professional fees and other taxes

4: Operating expense divided by total operating revenue

Source:LARC; Individual Attractions




and $67,000 for the sports complex. The cost of goods sold will increase

annually for the first five operating years to $224,000 in the fifth year of

operation for the aquatic center and $96,000 for the sports complex.

Projected ratios of costs to sales should remain constant throughout the first

five operating years. The cost of goods sold, as a percent of applicable revenue

of each type, is projected as follows.

VI-3.2 Payroll and Related Expenses

Payroll and related expenses consist of salaries, wages, benefits, and payroll

taxes. For the aquatic center, this expense is expected to be $597,000 in the first

operating year, increasing 7% annually. Expenses for this category account for

approximately 53.5% of the total operating expenses and 32.1% of revenue

during the first year of operation. For the sports complex, this expense is

expected to be $570,000 accounting for 52.5% of the budget and 45.7% of

revenue.

These percentages are based on standards of new aquatic attractions within the

industry similar to the proposed attraction in size, scope and theme. The

expense, however, does not include management fees, which is a separate cost.

For the individual operating year expense, see Table VI-9.



Table VI-8 Cost of Goods Sold Ratios

Category % of Applicable Revenue

Food & Beverage 32%

Merchandise 25%

Miscellaneous 15%

Source: LARC


VI-3.3 Advertising and Promotion

Advertising and promotion are based on a rate of approximately $1.61 per guest

for the aquatic center and $1.52 per guest for the sports complex in the first

year of operation. Based on industry standards, this is necessary to penetrate

the resident markets. Marketing expenses are expected to increase 6% annually.

The expenses include those for direct advertising, web design, public relations,

social networking, merchandising, agency fees, special promotions and all other

marketing expenses. There is typically a relationship between marketing

expense and attendance or number of planned events, and, in order for the

facility to successfully achieve the assumptions of tournament success and

attendance, the facility should not underspend in this area. Until a full

marketing plan has been established, these figures should be used as budgetary

goals.

VI-3.4 Maintenance and Operating Supplies

This combined expense is estimated to be $123,000 in the first year of

operation for the aquatic center and $108,000 for the sports complex.

Maintenance and repair costs are expected to increase 6% annually throughout

the first five operating years and operating supplies are expected to increase 5%.

In the course of operating the business, various supplies such as those for the

administrative offices, tickets, guest supplies, office supplies, light bulbs, paper,

register rolls, etc. will be required. After the first five operating years, repair and

maintenance expenses often increase more rapidly to accommodate aging and

necessary replacement.

VI-3.5 Insurance

Based on operating results at similar facilities and industry standards, the

estimated cost for insurance in the first operating year for the aquatic center is

$47,000 and $35,000 for the sports complex. Until each facility is completed

and a written quotation is given, this figure should suffice for budgetary

consideration. Because of the uncertainty of increases in insurance costs, it is

estimated that this expense will increase 6% annually.




VI-3.6 Utilities

Energy costs for the facility are projected to be $115,000 in the first operating

year for the aquatic center and $101,000 for the sports complex. This includes

electricity, water, gas, sewer, internet, cable and telephone. Because of the long-

term instability of these costs, they are projected to increase 8% annually

throughout the first five operating years.

VI-3.7 Management Fees

The management fee refers to the fees to be paid to a professional operating

group for a sports authority to manage the types of facilities. These fees vary

from company to company depending on the services and provisions. An

average range is 2% of the operating budget or 1% of the operating revenue. For

this project this fee has been projected at $45,000 in the first operating year for

the aquatic center and $65,000 for the sports complex. While this arrangement

is not imperative to the operation, it is important that the operational structure

include professionals with experience in the industry. More details are

presented in Table VI-9.

VI-3.8 Other Expenses

Miscellaneous expenses are based on the experience of other similar facilities

and are projected to increase at an annual rate of 8%. This expense category

should include such items as licenses, commission, professional fees and other

non-identifiable operating costs. The higher annual increase accounts for the

unknown nature of these expenses.






Table VI-9 Operating Expenses

Aquatic Center

Cost of Goods Sold 1 2 3 4 5

Food & Beverage $83,000 $90,000 $97,000 $105,000 $114,000

Merchandise $73,000 $79,000 $84,000 $88,000 $93,000

Miscellaneous $14,000 $14,000 $15,000 $16,000 $17,000

Total Cost of Goods Sold $170,000 $183,000 $196,000 $209,000 $224,000

Operating Expenses 1 2 3 4 5

Payroll & Related $597,000 $639,000 $684,000 $732,000 $783,000

Advertising & Promotion $156,000 $165,000 $175,000 $186,000 $197,000

Maintenance & Repairs $67,000 $71,000 $75,000 $80,000 $85,000

Operating Supplies $56,000 $59,000 $62,000 $65,000 $68,000

Management Fee $45,000 $47,000 $49,000 $51,000 $54,000

Insurance $47,000 $50,000 $53,000 $56,000 $59,000

Utilities $115,000 $124,000 $134,000 $145,000 $157,000

Miscellaneous $33,000 $36,000 $39,000 $42,000 $45,000

Total Operating Expense $1,116,000 $1,191,000 $1,271,000 $1,357,000 $1,448,000

Total Expenses $1,286,000 $1,374,000 $1,467,000 $1,566,000 $1,672,000

As a % of Revenue 60.0% 61.1% 59.5% 60.7% 60.5%

Source: LARC


VI-4 Operating Earnings Analysis

While the operating expenses are components in the calculation of earnings,

there are also other critical inputs, such as additional expenses and capital

improvements to include new attractions. The following table presents the



Table VI-9 Operating Expenses

Sports Complex

Cost of Goods Sold 1 2 3 4 5

Food & Beverage $37,000 $41,000 $45,000 $50,000 $55,000

Merchandise $23,000 $25,000 $27,000 $29,000 $31,000

Miscellaneous $7,000 $8,000 $8,000 $9,000 $10,000

Total Cost of Goods Sold $67,000 $74,000 $80,000 $88,000 $96,000

Operating Expenses 1 2 3 4 5

Payroll & Related $570,000 $610,000 $653,000 $699,000 $748,000

Advertising & Promotion $152,000 $161,000 $171,000 $181,000 $192,000

Maintenance & Repairs $65,000 $69,000 $73,000 $77,000 $82,000

Operating Supplies $43,000 $45,000 $47,000 $49,000 $51,000

Management Fee $65,000 $68,000 $71,000 $75,000 $79,000

Insurance $35,000 $37,000 $39,000 $41,000 $43,000

Utilities $101,000 $109,000 $118,000 $127,000 $137,000

Miscellaneous $54,000 $58,000 $63,000 $68,000 $73,000

Total Operating Expense $1,085,000 $1,157,000 $1,235,000 $1,317,000 $1,405,000

Total Expenses $1,152,000 $1,231,000 $1,315,000 $1,405,000 $1,501,000

As a % of Revenue

Source: LARC


operating earnings for each project before interest, taxes, depreciation and

amortization (EBITDA).

This financial analysis indicates a positive EBITDA is projected for each of the

five operating years analyzed. It is expected to begin at $575,000 for the aquatic

center in the first year and $96,930 for the sports complex. Cumulative

EBITDA during the first five years is projected to be $3,210,971 for the aquatic

center and $1,053,501 for the sports complex or an annual average of $642,000

and $351,167, respectively. This average represents 20% and 33% of total

revenue collected during the period. All financial projections are based upon

the market demand data presented in Section 5.




VI-5 Net Warranted Investment

The technique of capitalizing income allows the investment which is warranted

in any project to be determined as a function of projected future income,

effectively determining the amount a prudent investor would pay to secure a

particular stream of income. Based on industry criteria, it would be appropriate

to capitalize earnings at a rate between 12.5% and 16.6% -- a rate which reflects

the perceived level of inherent risk in an endeavor such as developing an



Table VI-9 Earnings

Aquatic Center

Category 1 2 3 4 5

Total Revenue $1,861,000 $1,949,500 $2,134,875 $2,236,169 $2,394,427

Less: CGS -$170,000 -$183,000 -$196,000 -$209,000 -$224,000

Gross Margin $1,691,000 $1,766,500 $1,938,875 $2,027,169 $2,170,427

Less:Operating Expense -$1,116,000 -$1,191,000 -$1,271,000 -$1,357,000 -$1,448,000

EBITDA $575,000 $575,500 $667,875 $670,169 $722,427

As a % of Revenue 30.9% 29.5% 31.3% 30.0% 30.2%

Sports Complex

Total Revenue $1,248,930 $1,366,005 $1,533,984 $1,676,518 $1,832,064

Less: CGS -$67,000 -$74,000 -$80,000 -$88,000 -$96,000

Gross Margin $1,181,930 $1,292,005 $1,453,984 $1,588,518 $1,736,064

Less:Operating Expense -$1,085,000 -$1,157,000 -$1,235,000 -$1,317,000 -$1,405,000

EBITDA $96,930 $135,005 $218,984 $271,518 $331,064

As a % of Revenue 7.8% 9.9% 14.3% 16.2% 18.1%

Source: LARC


aquatic center or sports complex. These percentages relate to a six to eight-year

payback of principal for the investor.

Based on average annual operating earnings during the first five years of

$642,194, the warranted investment in the proposed aquatic center is between

$3.8 and $5.1 million, as presented in Table VI-11. The warranted supportable

investment range for the sports complex is projected to be between $1.2 million

and $1.6 million base on five-year average earnings of $210,700.



Table VI-11 Warranted Supportable Investment

Aquatic Center

Average 5 Year Earning $642,194

Payback Required Cap Rate Investment

3 Year 33.70% $1,906,000

4 Year 25.00% $2,569,000

5 Year 20.00% $32,111,000

6 Year 16.66% $3,855,000

7 Year 14.29% $4,495,000

8 Year 12.50% $5,138,000

Sports Complex

Average 5 Year Earning $210,700

Payback Required Cap Rate Investment

3 Year 33.70% $625,000

4 Year 25.00% $843,000

5 Year 20.00% $1,054,000

6 Year 16.66% $1,265,000

7 Year 14.29% $1,475,000

8 Year 12.50% $1,686,000

Source: LARC

Documents

Section 1 Intro Magnolia · the concept for both projects (either separate or in conjunction) is to provide supporting amenities for the town of Magnolia and provide facilities to