While there may be light at the end of the tunnel for the things many of us took for granted a few short months ago – shopping, meeting friends for dinner, seeing family – there may be long-lasting impacts for some services we’re used to accessing. Admission to leisure facilities – pools, gyms and sports halls – are likely to face restrictions for some time to come.
Their closure, of course, was correct. The dangers posed by Covid-19 are exacerbated in small spaces such as gym and changing rooms, and with a vaccine not imminent, their continued closure poses challenges for the operators in the coming weeks and months, particularly for cash flow.
The Government – through the PPN 02/20 guidance for local authorities – encourages local authorities to continue to protect local service during the pandemic to prevent issues later. However, what the guidance doesn’t do – but is outlined by the Local Government Association’s detailed Options for councils in supporting leisure providers through Covid-19 advice note – is recognise the unique nature of leisure operator contracts.
Unlike some local authority services, the running of leisure facilities is usually outsourced to a third party – which may be a charity, community trust or community interest company. In each case, these organisations typically rely on small margins which cover maintenance and overhead costs as well as generating management fees and a share of profit back to the local authority. Any change to operating hours can have a huge impact on cash flow, so the required closure of leisure facilities as a result of Covid-19 has removed any regular income stream and risks putting some operators out of business.
In many cases, both operators and councils have interpreted the required closure of facilities as a ‘change in law’ and ‘relief event’ which means that service provision, centre opening, and standard profit and management fee transactions have been paused, with termination rights suspended too. While in most cases force majeure has not been activated, the change in law often qualifies as an event which requires the operator to be placed in a ‘no better and no worse’ position than as if the event had not occurred. That’s good news, but overhead costs for a closed leisure are still significant.
Maintenance and staff costs are likely to be the biggest source of outgoings – especially for centres with swimming pools, and whilst most staff can be furloughed there are still essential services and testing that need to be performed for operators to comply with law and good industry practice, and to be able to resume services when possible. This expense is further compounded by the fact that leisure facilities owned by local authorities haven’t been able to access the same retail, hospitality and leisure grants, loan finance and Sport England’s emergency response packages that private operators have.
As a result, how to manage leisure services is falling to local authorities who – understandably – have other challenges to contend with too but should still be thinking about ways to protect these services. There are good reasons for this. Not only are the social and health benefits of leisure facilities important – and are likely to be even more important coming out of this crisis - but a failing operation can leave significant financial black holes for a local authority that will need to be addressed.
Instead, it makes sense for councils to work with operators now to ensure support is in place – putting them in the best possible position once lockdown is lifted and leisure centre operators and users can get back to normality. Above and beyond the PPN 02/20 advice, local authorities should consider:
- Waiving for the shut-down period any monthly fees or sums to be paid to the council if an authority hasn’t already done so.
- Agreeing hibernation costs to cover security, plant checks and other maintenance.
- Introducing cash flow protection and interest free loans to operators, perhaps recoverable through future profit share payments.
- Advancing payments covering second quarter of 2020 – and as outlined in PPN 02/20 – to ease cash flow challenges, with accounting on an open book basis.
- Encouraging operators to maintain their memberships and income streams, by planning and implementing a safe phased or staggered re-opening in line with the local market.
Not all measures will be necessary; each facility will be unique, offering different services and pose different challenges, but it is likely almost every operator, however prudent, will face cash flow issues. What matters is that local authorities take a partnership approach with operators to understand their situation and take pragmatic action now to shore up these services. As the lockdown eases, access to leisure services will be vital to restoring social participation and support across the UK, and in ensuring the health and wellbeing of their communities in post-covid Britain.
Penny Rinta-Suksi is a partner at Blake Morgan where she leads the firm’s local government team