the reston recreation center market under various scenarios--combined--blog

7/28/2019 The Reston Recreation Center Market Under Various Scenarios--Combined--blog

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The Reston Recreation Center Market: Usage & Revenues under Different Pricing Strategies

Terry Maynard, June 8, 2013

Issue: What is the market for a Reston recreation center and what are the impacts of managing it withdifferent pricing strategies?

A partial answer, focused on aquatics, is presented in the attached spreadsheet based on data in B&Ds2013 market update. The following is an explanation of what the spreadsheet shows.

At the top of the spreadsheets are B&Ds 2013 tables of the Participants and Participants Most Likelyto Use Private/Public Facility by activity taken directly from its report (p. 2.7). They show the Restonand non-Reston (two circles) markets for each activity planned for the new recreation center. In thelight blue columns on the right, I have totaled the non-Reston numbers and calculated the non-Restonpotential share of the market. In both cases, the potential non-Reston market share runs at better than 90% .

The third table below the two preceding tables uses the core user data from the table just above andshows how many of the non-Reston core users would use the recreation center under varyingassumptions of capture rate.

The first row ( YELLOW) uses the assumption in the B&D analysis: 95% of all users areRestonians.The next few rows show the number and share of users under varying assumptions of non-Restonian usage. The GREENrow (10%) reflects what B&D characterizes as a conservative

estimate of non-Reston capture rate, that is, 10% of the core users who do not live in Restonwill use the facility.The REDright-hand column shows the percentage increase in recreation center use by using oneof the more realistic estimates (including the conservative 10% estimate in GREEN) over thebase ( YELLOW) 95% Reston usage assumption. The point is that usage would nearly triple if 20% of the non-Reston market used the recreation center and nearly double under B&Ds

conservative 10% non-Reston usage norm.

The next table down does exactly the same thing as the preceding table, except that it restricts itself tothe aquatics marketsince it is the key market driving the recreation center proposal and I wasnt going

to try to work through all the sub-markets. It shows that aquatics usage would double if 20% of thenon-Reston market participated and increase by about one-third using B&Ds 10% standard.

Next is an effort to understand how two alternative pricing structuresLow Rate (Reston-focused) andMarket (competitive pricing)would affect usage and revenues for the recreation center. Again, Isimplified the task by looking only at the adult daily admission cost structure; there are literally dozensof cost structures by age and duration (20-swim, yearly, etc.). Nonetheless, I believe this simplificationdoes not distort the results because RCC (& the B&D study) apply the same pricing structure alternatives


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to all the prospective recreation centers activities. As a result, the tables dont show actual usage andrevenues for everything in the recreation center, they are indicative of the relative impacts of changingprices and participation assumptions. The ensuing four tables look at the impact of different pricingstructures. Each is these tables has a salmon-colored heading.

The first table shows the impact of changing participation assumptions affects usage andrevenues under the Low Rate schedule for daily adult swim admissions, that is, $4.00 forRestonians and $8.00 for non-Restonians in Fairfax County. (Non-county participation is sosmall as to be irrelevant to this limited analysis). The YELLOWrow shows the base casedescribed by B&D: 95% Reston participation. The ensuing rows show how usage and revenuesincrease if higher rates of non-Restonian participation occur. The REDright-hand columnreflects the percentage increase in revenues over the base ( YELLOW) case. Two key points:

o Non-Restonian usage exceeds Restonian usage at a less than 10% non-Restoniancapture rate, and dominates usage at higher rates.

o Revenues increase one and a half times at 20% non-Restonian participation and nearly

half at ten percent non-Restonian participation.The next three tables examine the effects on participation at the Market Rate schedule underdifferent assumptions of price elasticity (i.e.the degree to which participation changes as aresult of changes in prices).

o The most surprising finding is that there is very little change in the revenue impact fromthe base Low Rate structure. Non-Restonian participation increases slightly andRestonian participation declines as elasticity increases, but there is virtually no change inrevenues as elasticity grows.

o More importantly, as reflected in the right-hand REDcolumn, all three cases againhighlight the growth in revenues and overall usage by assuming more non-Restonians to

participate in the recreation center.

What this analysis does not examine is how much operating costs would rise with these operatingrevenues and usage. My guess, based on the basic generalization of economies of scale, is that thegrowth in revenues from the greater participation would outstrip added construction, debt service, andoperating costs associated with the revenue growth.

So what does this all mean? To me, it means that there is a huge untapped potential for a recreationcenter in Reston, but it lies largely in people who live beyond Reston. I believe it is unlikely that aReston-focused, Low Rate price structure (as examined by B&D) will ever achieve a successfulrecovery rate (covering 80%-plus of operating costs), much less generate an operating surplus as allFairfax County recreation centers have. The result will be that Restonians will see an increase in theirlocal property tax rate. On the other hand, a Fairfax County recreation center in Reston based on theCounty-wide pricing structure would almost certainly achieve an operating surplus in my view. Not onlywould the needed tax contribution be spread more broadly (and equitably), but the dollar sum of thatproperty tax burden is actually likely to be less than if the recreation center becomes a Reston-focused,Reston-paid for facility. In short, the proposed RCC approach would be an unnecessarily costly andinefficient use of tax dollars.


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All Potential Users

Activi ty Reston 0-5 Marke t 5-10 Marke tTotal Non-

RestonNon-Res % of Total Market

Fitness Activities 7,302 20,401 63,878 84,279 92.0%Weight and Fitness 25,699 72,048 227,455 299,503 92.1%Gymnasium 4,132 16,165 51,639 67,804 94.3%Aquatics 2,138 6,368 19,019 25,387 92.2%Total Core Parti cipants 39,270 114,981 361,990 476,971 92.4%

Core Potential Users

Activi ty Reston 0-5 Marke t 5-10 Marke tTotal Non-

RestonNon-Res % of Total Market

Fitness Activities 3,035 8,039 24,462 32,501 91.5%Weight and Fitness 13,958 36,971 111,831 148,802 91.4%Gymnasium 3,534 9,592

29,15738,749 91.6%

Aquatics 1,449 3,897 11,839 15,736 91.6%Total Core Participants 21,977 58,499 177,289 235,788 91.5%

Rec Center Use by "Core" Users--Overall Market

RestonUsers

Non-RestonUsers

% Non-Reston Users Total Users

% Increase inUse over 95%

Reston UseAssume 95% Reston Use 21,977 1,157 5% 23,134Non-Reston "Core" Use

5% 21,977 11,789 35% 33,766 46.0%10% 21,977 23,579 52% 45,556 96.9%

15% 21,977 35,368 62% 57,345 147.9%20% 21,977 47,158 68% 69,135 198.8%

Aquatics MarketRestonUsers

RestonUsers

% Non-Reston Users Total Users

Use over 95%

Reston UseAssume 95% Reston Use 1,449 828 5% 2,277Non-Reston "Core" Use

5% 1,449 787 35% 2,236 -1.8%10% 1,449 1,574 52% 3,023 32.7%15% 1,449 2,360 62% 3,809 67.3%

20% 1,449 3,147 68% 4,596 101.8%

B&D Market Update 2013--Reston & Non-Reston Market Shares, Number & Revenues

Participants Most Likely to Use Private/Public Facility

Participants


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Usage and Revenue--Aquatics Market--Daily Adult Swim Admission% Increase in

Revenue to Base"95% Reston Low

Rate Pricing"Low Rate Pricing Structure

RestonRevenues

RestonUsers

Non-RestonUsers

% Non-Reston Users

Non-RestonRevenues Total Users

TotalRevenue

Price 4.00$ 8.00$Assume 95% Reston Use 5,796$ 1,449 76 5.0% 6,626$ 1,525 12,422$

Non-Reston "Core" Use at:5% 5,796$ 1,449 787 35.2% 6,294$ 2,236 12,090$ -3%

10% 5,796$ 1,449 1,574 52.1% 12,589$ 3,023 18,385$ 48%15% 5,796$ 1,449 2,360 62.0% 18,883$ 3,809 24,679$ 99%20% 5,796$ 1,449 3,147 68.5% 25,178$ 4,596 30,974$ 149%

Market Rate Pricing Structure with No Price Elasticity

Reston

Revenues

Reston

Users

Non-Reston

Users

% Non-

Reston Users

Non-Reston

Revenues Total Users

Total

RevenuePrice 6.00$ 6.00$

Assume 95% Reston Use 8,694$ 1,449 76 5.0% 458$ 1,525 9,152$ -26%Non-Reston "Core" Use at:

5% 8,694$ 1,449 787 35.2% 4,721$ 2,236 13,415$ 8%10% 8,694$ 1,449 1,574 52.1% 9,442$ 3,023 18,136$ 46%15% 8,694$ 1,449 2,360 62.0% 14,162$ 3,809 22,856$ 84%20% 8,694$ 1,449 3,147 68.5% 18,883$ 4,596 27,577$ 122%

Market Rate Pricing Structure with Price Elasticity = -.2

RestonRevenues

RestonUsers

Non-RestonUsers

% Non-Reston Users


TotalRevenue

Price 6.00$ 6.00$Assume 95% Reston Use 7,825$ 1,304 69 5.0% 412$ 1,373 8,236$ -34%

Non-Reston "Core" Use at:5% 7,825$ 1,304 826 38.8% 4,957$ 2,130 12,781$ 3%

10% 7,825$ 1,304 1,652 55.9% 9,914$ 2,956 17,738$ 43%15% 7,825$ 1,304 2,478 65.5% 14,871$ 3,783 22,695$ 83%20% 7,825$ 1,304 3,305 71.7% 19,827$ 4,609 27,652$ 123%

Market Rate Pricing Structure with Price Elasticity = -.4

RestonRevenues

RestonUsers

Non-RestonUsers

% Non-Reston Users


TotalRevenue

Price 6.00$ 6.00$Assume 95% Reston Use 6,955$ 1,159 61 5.0% 366$ 1,220 7,321$ -41%

Non-Reston "Core" Use at:5% 6,955$ 1,159 865 42.7% 5,193$ 2,025 12,148$ -2%

10% 6,955$ 1,159 1,731 59.9% 10,386$ 2,890 17,341$ 40%15% 6,955$ 1,159 2,596 69.1% 15,579$ 3,756 22,534$ 81%20% 6,955$ 1,159 3,462 74.9% 20,772$ 4,621 27,727$ 123%

Non-Reston Users TotalsReston Users

the reston recreation center market under various scenarios--combined--blog

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