Monday, May 14, 2012

Advertising on Public Lands

I couldn't decide if this was exactly relevant here, but the proposal in Florida to allow private advertising in state parks and public lands caught my eye (via Huffington Post).

I am not anti-advertising per se, and I suppose if this was the be-all end-all approach to keeping parks open, I could get comfortable with it.  But as I discussed here last week, the main purpose of state parks agencies is to maintain the character of, and public access to, unique lands.  Allowing advertising seems to be taking a significant risk with this mission.

For a private company, one of the biggest outsourcing mistakes it can make is to outsource the activities that are core to its success and competitive advantage.  Advertising in public parks seems to be a mistake of this sort.  Parks refuse to consider alternatives to performing non-core activities cheaper (ie by continuing to use high-cost civil service employees to mow grass and clean bathrooms) but threaten the basic character of the park, the protection of which is the heart and soul of their mission, for trivial revenue gains.

One problem I have found is that public agencies like to shift attention to new revenue opportunities and away from expense reduction, even if the revenue opportunities are relatively small.  In so doing they often lose sight of what is core and non-core to their mission.

In most cases, the revenue improvement initiatives are an order of magnitude smaller than potential expense reductions. 
Let's take one state that will remain nameless.  It rejected out of hand private concession proposals to operate whole parks and said it would focus on private concession proposals to increase revenues by paying concession fees, in this case seeking a private company to rent bicycles in the park.  So let's look at the park: 
Park gate fees:  $500,000
Park expenses  (probably missing some stuff):  $800,000
Situation:  The park requires at least $300,000 a year of general tax funds to stay open.  These are going away, so this gap must be closed or the park will close. 
Proposal #1:  Revenue Enhancement.  A private company will be enticed to open an equipment rental (bicycles, etc.) in the park (there is already a store).  In the best case, this might net $100,000 a year in revenue for the private company which would pay the state 10% or $10,000 in annual concession fees.  The state's $300,000 loss is reduced to $290,000 
Proposal #2:  Expense Reduction.  A private company proposes to take over all expenses of the park in exchange for keeping the park gate fees, paying the state a 10% concession fee.  This is entirely possible in this example, as private concessionaires often have 50% or more cost reductions for the same or better service levels in operating parks  (remember, most of park operations is cleaning bathrooms and mowing the lawn).  In this example, the park's $300,000 loss is reduced to zero, and in fact the state now receives $50,000 in concession fees from the park which can cover supervision of the concessionaire and perhaps some improvements to the park. 
Hopefully, this helps explain my issue.  Focus on revenue enhancement, and taking risks with the character of the park through things like advertising, have almost trivial impact on park financial sustainability when compared to addressing the expense side of the equation.
Here is the best analogy I can think of for this -- A state parks agency cleaning the bathrooms itself but allowing private companies to post ads in the park is as if Apple outsourced iPhone design to the lowest bidder in China and then assembled the phones itself in Cupertino.

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