El Segundo reconsiders TopGolf driving range at the Lakes

Nine months after approving the replacement of its decidedly low-tech municipal driving range at The Lakes in El Segundo with a $23 million high-tech TopGolf facility, the El Segundo City Council last month tabled the deal and moved to have an independent study completed in order to reconsider the financial impact of the proposal.

The council’s action came after TopGolf’s local partner, El Segundo-based development firm CenterCal, declined to execute its part of the contract, leaving the city without an agreement. But the reconsideration of the TopGolf deal was also pushed by a downward reassessment of the proposal’s financial benefits.

Last November, city staff projected TopGolf would net city coffers $332,000 annually. But when newly elected Councilman Mike Dugan questioned that number, city staff conducted a new assessment that showed the deal may only generate $66,000 for the city.

Dugan, who as a citizen questioned the proposal’s financial assumptions prior to the council approving the deal in a 3-2 vote last year, said that the new numbers confirmed what he’d argued last November to no avail.

“You are probably asking why are we looking at these numbers today and they have changed so much,” Dugan told the audience in council chambers. “Part of the reason is I am asking some questions. I stood here as a citizen last November trying to get my point across to the council, who wouldn’t listen, and trying to get the point across to our city management, and they wouldn’t listen.”

Dugan, a former Chevron executive, also questioned current assumptions. He said by his calculation the TopGolf deal would likely end up losing the city well over $100,000 annually, in a contract that would tie up the use of the property for half a century.

“Everything was smoke and mirrors, and guess what? It didn’t pan out the way people on the dais here said it would,” he said. “Now we have a situation that loses money because we didn’t follow a good process.”

TopGolf is a Texas-based company expanding throughout the nation. The PGA has lauded it for its ability to bring new people to the sport of golf. Its concept involves a patented, high-tech reinvention of the traditional driving range. TopGolf uses microchip-embedded balls and field sensors to make a driving range into a game that tracks and tallies every shot a golfer makes. Additionally, TopGolf facilities include a social component, with as many as six players able to play together while being served food and drinks in a high-end lounge-style environment and an adjoining corporate meeting facility.

The city built the Lakes in El Segundo in 1991 with the intention that the nine hole, par three golf course and adjoining driving range would fund itself. The facility has yet to fully pay back the city’s general fund, with $5.7 million remaining with a $200,000 annual debt service payment that the golf facility has been only able to meet sporadically.

But last year, as the city negotiated with TopGolf, the Lakes outperformed expectations, generating $750,000 in revenue, enough money meet expenses, pay the debt service, and net $98,000.

The City Council directed staff to hire an independent consultant to provide financial analysis of the proposal, including factors not included in direct revenue projections — such as the financial impact of the projected 125 new fulltime jobs and potential benefits for surrounding businesses. The Council is expected to revisit the matter within the next month.

“This isn’t about who was right,” said Councilwoman Marie Fellhauer. “It’s about what is right for El Segundo.

Both TopGolf and its local partner, El Segundo-based CenterCal, reaffirmed their intentions to build a new driving range at The Lakes in El Segundo.

TopGolf did so by substantially increasing the terms of its offer to the city. In a letter dated Aug. 19 — the same date the council reconsidered its former agreement — TopGolf’s chief development officer Randy Starr outlined new terms that include an increase in ground lease rent from $425,000 to $525,000 with 2 percent increases annually and a $250,000 donation intended to provide lighting at the adjoining golf course. Additionally, the firm is committed to spending $300,000 annually both to market the TopGolf facility and the golf course.

In an interview, Starr acknowledged that TopGolf had been caught off guard by the political obstacles the proposal has faced. TopGolf has been recruited by most communities it has entered, he said, which at present includes 10 driving ranges in the U.S. and nine more currently under construction.

“It couldn’t have gone worse for us,” Starr said of the political difficulties in El Segundo. “The tough part for us is we aren’t always here and it’s a very localized debate, so it’s hard for us to have a voice. But we still remain really excited about the potential of coming into El Segundo, where we’d be partnering with the golf course.”

Starr vigorously disagreed with Councilman Dugan’s financial assessment of the deal.

“I have a finance background and I fail to see how a guarenteed ground lease with no capital expenditures [on the city’s behalf] loses money,” Starr said. “Think about that: the city will have a dependable source of revenue that will increase every year and no responsibility for maintence or ongoing capital expenses — when something happens to a net, or parking, or all those things that come up. We’ll also increase revenue generated at the neighboring golf course, which we will market, and generate sales tax of $100,000 or more. We’ll employ 400 people and spend $23 million on construction, using all local people.”

“Maybe I’m missing something,” Starr added. “But to me it’s a simple formula: a good solid ground rent that goes up over time and protection in the form of lack of responsibilty for any capital improvements or maintenance. I fail to see how that loses money.”

Starr also noted that the agreement will open the range at 6 a.m. and offer reduced rates as a traditional range for local resident until 9 a.m. and would provide free access and training for youth golf teams. He noted that TopGolf, which parters with the PGA and Callaway Golf Company, has launched the biggest free lesson program in golfing history — one that offers free lessons for children in hopes of creating a new generation of golfers.

“We are not doing this just as a business model,” Starr said. “This is about the future of the sport. It may not be your grandfather’s traditional driving range, but your grandfather’s driving range is not the future of getting people interested in the sport. It’s a fun, non-intimidating way to build people’s confidence and get a golf club in their hand. We are doing the most aggressive lesson program that has ever been done and have the ability to create more new golfers than any company in history.”

Rupesh Bhakta, CenterCal’s vice president of acquistions and development, said that his company remains committed to the project as well. In an interview, he said that CenterCal did not execute its due diligence contract because it was approved last year in a 3-2 vote — meaning that the election of Dugan endangered the final approval of the project. He said the cost of due diligence and conceptual design would be “north of $700,000” and so Centercal could not risk the investment if the project could subsequently be squashed by council.

“Any logical person would not sign up for something they know is going to get killed,” Bhakta said.

Bhakta told the council that CenterCal’s interest in the project was more about commitment to the community than as a major moneymaker for the company. He said he became aware of the city’s financial struggles with The Lakes and personally reached out to TopGolf, which he saw as a good fit for the city’s economic vision.

“The premise of TopGolf all started with one concept,” he said. “The concept of, ‘How do I help?’”

Bhakta and Starr both welcomed a third party independent analysis.

“I support the truth,” Bhakta said.

Starr said his hope is just that whatever decision the city makes is made with accurate information.

“At the end of the day, if city doesn’t approve TopGolf, we’ll shake hands and walk away,” Starr said. “It will be a disappointment for the community, I think, but fine — just don’t say what has been offered is not in the city’s best economic interests. I don’t understand that argument.”

Editor’s note: The Easy Reader previously reported, in error, that no CenterCal representative attended the previous meeting at which TopGolf was addressed. Two representatives were in attendance. We apologize for the inaccuracy.