Enter The Entrepreneur

Changing times in the industry

By Kim Uhlik

Among the many definitions of an “entrepreneur,” two words--business and risk—often are found. Traditionally, an entrepreneur was a gutsy visionary who gambled everything in the hope of a big payoff. Classical entrepreneurship was not for the faint of heart nor the fiducially responsible, resulting in both dismal failures and spectacular successes.

Public agencies--as keepers of the people’s trust--were not expected to be entrepreneurial, and often were prevented from being so by ordinance. How times have changed!

A Closer Look

In the November 2006 issue of PRB, three types of organizations and their funding sources briefly were discussed in relation to budget break-even points, but recent economic trends require a closer look at shifts in funding sources that lead to a business-like environment and an entrepreneurial mindset that may put people at risk in two ways, and even may threaten public recreation.

The original article by C. R. Edington divided agencies into three broad categories:

· Political (public)

· Voluntary (non-profit)

· Market (commercial).

Since that time, as J Crossley, L. Jamieson and R. Brayley have pointed out, all recreation has become commercialized, and the majority of agencies are being influenced by economic pressures to become entrepreneurial as well.

Through The Years

Ideally (in the good old days), public recreation was “by the people, for the people.” People paid taxes, so they all could partake in services offered. Because taxes were paid upfront, anyone could participate for “free.” The tax base was relatively stable, and public agencies programmed services at a level that allowed them to break even at the end of the year--dependable, responsible and risk-free.

Under more recent trends, however, expenses such as wages continue to increase, while collection of both sales tax and taxes based on the appraised value of land have diminished markedly. The result has been, of course, the entrepreneurial tactic of introducing a wide range of fees and down-streaming agency costs to the customer.

At the other extreme, private recreation businesses have always operated according to the “by a person, for a person” philosophy, directly collecting fees from only those participants who want a service, and can pay for it at a level that ensures the business a (sometimes handsome) profit. But many of these fees were higher than ordinary people could afford, so some were turned away. Turning too many people away risked earning a profit, which, of course is bad for business.

Fewer People All The Time

Given this dilemma, business owners must ask, “What if there is another source of funding to subsidize participant fees while still enabling a healthy profit margin?”

The entrepreneurial trend in this sector has been to persuade government agencies to cover items--infrastructure expenses and costs associated with operations--allowing the private owners to moderate customer out-of-pocket expenditures. A persistent example of this approach is the ability of major-league team owners to gain city and state government support for new stadium construction, despite evidence that actual economic gains are less than projected.

The end result is that the two extremes (public and commercial recreation), by adopting an entrepreneurial spirit, have migrated away from their “ideal” forms toward an entrepreneurial zone that mixes public and private funding (non-profits always have done this through the use of volunteers). Thus, public recreation has morphed into commercialized public recreation, wherein “many of the people are served some of the time and fewer of the people all the time.”

Public Perceptions

Curiously, the risk carried in both instances mainly falls on the public sector. For public recreation, the risk is in breaking the bond that distinguishes public from private--access for all people. Clearly, requiring fees to participate discriminates against some citizens.

In comparison, the alliance between public funding for private enterprise raises the equally unfortunate possibility that “the people” will be fleeced by private owners who will collect a healthy profit, while a municipal government spends its precious budget on crowd- and traffic-control on the new sidewalks and roadways it also paid for to get the stadium built.

The other risk concerns the agencies’ people. An entrepreneurial tactic having negative consequences is the right sizing of staff, which can involve outsourcing, independent contracting and part-timing, to list a few methods. Every normal business plan makes clear the enormity of labor costs as a percentage of the total budget, and entrepreneurship actually encourages the minimization of labor costs as a surefire way to increase profits.

The danger here is the destabilizing effect of losing--or not replacing--permanent staff. The public sector, while not necessarily paying top dollar, has been perceived as steady and dependable. When long-time, and favorite, staff members are laid off, the external people--citizens who pay the taxes--begin to feel uneasy, or even to lose confidence in their public agencies. At that point, they may ask, “If public recreation operates like (and costs as much as) any other enterprise, for what reason are we paying taxes?”

The present scenario continues to unfold, and the two trends (and risks) mentioned have not yet peaked. The entrepreneurs have arrived. What the people will make of them remains to be seen.

Works cited:

Crossley, J., Jamieson, L., and Brayley, R. E. Introduction to commercial and entrepreneurial recreation. 3rd ed. Champagne, Illinois: Sagamore Publishing, 2007.

Edginton, C.R., et al. Leisure programming: A service-centered and benefits approach. 4th ed. Boston: McGraw-Hill, 2004.

Uhlik, K. S. “The Breaking (Even) Point: Matching your organizational philosophy to financial reality.” Parks & Rec Business (November), 50-51, 2006.

Kim S. Uhlik is an Assistant Professor in the Department of Hospitality, Recreation and Tourism Management at San Jose State University. He can be reached via e-mail at kuhlik@casa.sjsu.edu.