This is an excerpt from Leisure Services Financial Management by David N. Emanuelson.
Challenges Facing Managers Today
Leisure services managers have their challenges, making them no different than managers in other professions. Leisure services managers, however, are especially vulnerable to changes in the economy and the political environment. When the economy is bad, people defer their vacations until times are better and the government cannot afford to spend money on publicly provided leisure services. This provides challenges to leisure services professionals, particularly financial managers who have the task of funding the services. Unfortunately, when the economy is bad, more people have forced leisure time on their hands because of high unemployment, but the government is not in a position to accommodate their leisure needs because there is no money to do so.
Managing Commercial Leisure Services
As a leisure services manager, you need to understand that each of the leisure sectors—commercial, nonprofit, and public—has its own rules for financial management, some of them formal and others informal. These sectors have their own traditions, rules, and standard operating procedures that not only make them different from each other but also make them different from other services in their sector.
For-profit leisure services need to identify human needs and offer services to meet those needs. These businesses must focus on the customer because it is the transaction between the business and the customer that provides the business its lifeblood. This is known as taking a marketing approach.
This singular focus on the customer provides challenges to commercial leisure services that don’t exist in the public and nonprofit sectors. With no taxes or donations to sustain commercial leisure services, there is no safety net. These managers walk a tightrope without a net. Stockholders and owners expect a return on their capital, and lenders need to be repaid with interest. Customer needs change and there is a constant threat of competition. Like their counterparts in the other two sectors, commercial leisure services are susceptible to economic downturns and must comply with government regulations.
Leisure services managers in the commercial sector also have advantages compared with managers of nonprofit and public organizations. For instance, much less transparency is required of businesses. The media do not have access to the financial records of privately owned companies, and they have limited access to those of publicly traded companies.
Another advantage for managers in the private sector is that their employees have fewer rights than do employees in the public sector. The salaries and wages of corporate employees can be kept secret from other employees. In some cases, it is actually possible to terminate corporate employees for divulging their pay, allowing managers to use pay as a motivational tool.
Leisure services providers in the private sector do not have public board meetings like governmental units do. There is no state open meetings act requiring that their business be done in public; in fact, to do so would be providing competitors with strategic information. Therefore, setting prices for services is not open to debate in the private sector the way it is in the public sector. And board members of commercial leisure services can be paid substantial amounts of money for attending meetings, but board members of nonprofit and public leisure services agencies are not compensated.
Another advantage of being a commercial manager is the compensation. If a manager is the owner of the company, she is entitled to all of the profits. If the manager works for a corporation that he does not own, there is an opportunity for pay to be commensurate with performance. It has been said that there are only two ways of acquiring wealth in the United States: one is investing well, and the other is owning or being the senior manager of a business. That’s the upside. The downside is that the majority of businesses fail.
It takes a business-minded person to manage in the private sector. With a focus on the needs of the customer and the art of the deal, managing in the commercial recreation sector can be rewarding. But walking a high wire without a net has its risks.
Managing Nonprofit Leisure Services
With their primary source of income coming from fees and donations, nonprofit organizations need to focus on revenues to remain financially viable. Just like commercial endeavors, this focus causes nonprofits to be creative in the services they provide to their clients.
Transparency is another issue for nonprofit organizations. Although freedom of information and open meetings acts do not apply to nonprofits, charitable organizations must file IRS reports that reveal financial information and some salaries. These reports are available to the public by request or through Internet sites such as GuideStar. Because they solicit donations from the public and their membership, nonprofits also have an ethical obligation to be transparent about their finances.
Boards of directors for nonprofits are usually appointed or nominated by other board members and then approved by a vote of the board. Sometimes nonprofits have annual membership meetings, where all in attendance approve or elect those nominated for the board or even nominate a different person. Also, board meetings are not open to the public or regulated by state open meetings acts, so replacing board members can be done without public scrutiny. Nonprofit board members are rarely compensated for their service to the organization. In fact, their primary responsibility may be to bring money into the agency through their fund-raising efforts.
Nonprofit leisure services managers share the challenge of customer relations with their business counterparts. But for managers of charitable nonprofits, there’s a political dimension of maintaining the goodwill of customers who also may be donors. For example, you may feel it’s time to raise prices, but in order to maintain the donor or customer relationship, you do not.
Managing employees can be different from the other sectors as well. Because employees are generally not rewarded by sharing profits, managing nonprofit employees is similar to managing public employees. It is generally done using sociological principles of group motivation, which suggest that people behave differently in groups than they do as individuals.
Nonprofit managers focus on how their agency generates revenues from fund-raising and fees, who receives free services, how the agency judiciously spends its money, and how the agency maintains an environment where clients can be donors and employees only have nice things to say about the organization.
The good news is that nonprofit leisure services organizations usually succeed. Of the new nonprofit organizations created each year, it is estimated that less than 2.3 percent fail each year (Bowen, Nygren, Turner, and Duffy 1994). This is partly due to the stability of their revenue streams and the safety net that donors provide. When nonprofits are chartered by states, the people who charter them usually have established a need for their services and sources of revenues for their operations. People who pursue a career in nonprofit leisure services often are intrinsically motivated, wanting the security of a stable environment while performing a service to the community.
Managing Government Leisure Services
It has been said that public administration is like managing in a fishbowl—nothing is private. Part of the reason is that government taxes its citizens. Unlike businesses or nonprofit organizations where revenues are exchanged through transactions that both parties agree upon, taxation is not voluntary.
To protect its citizens, the United States has built a system of checks and balances that permit taxpayers to see how their tax money is spent. Called transparency, these laws require all but personnel information to be public. In addition, meetings must be announced and take place in public, and individuals or companies doing business with the governmental unit must bid competitively for that business. The salaries of public leisure services managers are public information, as are the salaries of everyone within the governmental unit, whereas salaries in corporate leisure services are private.
Another challenge in managing governmental units is that public employees have greater rights than do business and nonprofit employees. In most states, public employees cannot be hired and fired by managers without the consent of the elected board. This means employees have the right to a board hearing before termination.
Boards in the public sector are unique as well. The governing boards levying taxes and approving budget expenditures must be elected. Appointed park and recreation department boards may have advisory authority, but only the elected boards have the power to decide. This means that directors of park and recreation departments have two boards as their bosses, the city council and the appointed advisory board. Sometimes leisure services managers have three bosses: the city council, the park board, and the city manager. This can make managing a public leisure services agency the most difficult of all assignments.
Working for an elected board in an environment where everything a manager does is public information adds a dimension of politics to the management process. Nonprofit leisure services managers might worry about offending potential donors, but if governmental leisure services managers offend a member of the public, that person can run for election to the governing board, as can a disgruntled employee.
Another challenge of managing governmental leisure agencies is the need for two types of financial management skills. One is the management of tax-supported services, typically parks, which are used for free and supported entirely from tax revenues. The other is the operation of recreation programs and facilities, which generate self-
sustaining revenues from user fees. Managers in the public sector are, therefore, running governmental units, providing tax- and fee-supported services in a transparent arena where disgruntled employees or members of the public can run for their boards.
Governmental units that provide leisure services have had their tax funding reduced in recent years, forcing their managers to take a more businesslike approach to revenue generation. But taking a businesslike approach does not change the legal requirements of being transparent, adding another level of complexity to their management responsibilities.
Skills Needed for Managing Leisure Services
Managers in all the sectors need to be good communicators and knowledgeable about accounting, marketing, and organizational theory. Coursework should be broad, including economics, finance, political science, psychology, sociology, and organizational behavior. If you want to own or manage a large leisure services business, you might want to focus on business administration. If you want to be a manager in the public sector, you should take courses in public administration and park and recreation management. Some universities have niche programs in sport management, tourism, and nonprofit administration. Universities with programs in parks and recreation or leisure services administration should give you the skills and knowledge base to work in any of the three sectors, including coursework that provides a solid understanding of financial management.
To work in the public sector, you need to understand government accounting, which is different from business or nonprofit accounting. To maintain the required levels of transparency, governmental units have much more complex accounting rules compared with business and nonprofit accounting. If you oversee the operation of parks, your skills need to include those related to park maintenance and conservation. If you manage recreation programs or facilities, skills need to include marketing and financial management as well as skills related to the recreation facility or program.
If it seems that management in the public sector is the most difficult of the three sectors, why would someone choose to do it? The answer is that it is just as rewarding as working for a nonprofit organization. Serving the public has its intrinsic rewards. There are also long-term financial rewards. Government service is one of the few professions where there are still pension programs available that provide a defined annual income no matter how long the manager lives after retirement. In the private and nonprofit sectors, defined annual incomes are becoming less common. In those sectors, retirement benefits are the amount of wealth that can be acquired during the individual’s work life. Whatever you have in your 401k or other investments is what you have as a nest egg for the rest of your life. But for a government retiree, a defined lifetime annual benefit provides security for life.
Learn more about Leisure Services Financial Management.