Monday, April 3, 2017

Losses grow for UMMC Wellness Centers

The University of Mississippi Wellness Centers have lost $516,000 eight months into the fiscal year.  JJ obtained the "financial statements" through a public records request.  The wellness centers are the former Courthouse racquet clubs and fitness centers.

The actual losses are worse than the net amount.  The wellness centers lost $850,016 from July 2016 to March 2017.  However, the loss is mitigated somewhat by an annual gift of $500,000 from the seller of the courthouses.  The gift is pro-rated for eight months to yield  $333,333.

UMMC purchased the six Courthouses from John Black in 2014. UMMC soon closed the Byram location.  UMMC closed the downtown and Northtown locations last month.  Only the locations in Brandon, Flowood, and Madison remain open.

The income statements state that the wellness centers had revenue of $2 million in FY 2017 (not including the annual gift) and expenses of $2.9 million.  However, the projected revenue was $2.7 million (p.3). UMMC projected to lose $666,672 on the wellness centers for the first eight months of FY 2017 but that excludes the $333,333 gift. Thus actual losses are running $183,344 above projections.

JJ reported on the purchase of the Courthouses in November 2015:

JJ  obtained a copy of the purchase agreement for the sale of the Courthouse to UMMC through a public records request.  However, the term "sale" must be loosely used because much of the transaction appears to be a donation.  The contract is posted below. Earlier post and copy of purchase agreement. Some observations of the transaction are:
*The Courthouse owed $9,259,786 on a note held by Trustmark in December 2014.
*The "consideration for the assets shall be equal to the amount of the debt" mentioned above.
*UMMC paid a price that did not exceed the average of two appraisals.
*The owner of the Courthouse transferred $4.8 million to UMMC as a gift at closing.
*The owner will pay another $5 million to UMMC in $500,000 annual payments for ten years.
*The annual payments are to be used for operations, capital spending, and offset of losses.
*Attorney William Smith, III of Watkins Eager handled the transaction.
*Courthouse was transferred to UMMC free of all debts.
*Closing Costs were split between buyer and seller.  The seller paid the attorney's fees, debt, and required donations.  The buyer paid its own attorney's fees, recording fees, and title insurance. They paid their own closing costs that they incurrred.
*The agreement was signed by Dr. James Keeton (UMMC), John L. Black, Jr., and John L. Black, III. *UMMC spent $9.2 million for the purchase of the Courthouses. 

Kingfish note: JJ would love to publish an itemization of the expenses and revenues.  However, UMMC did not provide such documents because  the actual operation of the fitness centers was off-loaded to a Chicago-based management company. 

UMMC issued this press release in December 2014:

The University of Mississippi Medical Center will acquire the Courthouse fitness centers under an agreement approved Monday by the board of the Mississippi Institutions of Higher Learning. The transaction, part purchase/sale and part gift, will give UMMC immediate presence in the field of medically related health and wellness programs.

Owned by Madison businessman John L. Black Jr., Courthouse Racquet and Fitness includes four fully owned fitness centers in Brandon, Byram, Flowood and north Jackson as well as leased facilities in Madison and downtown Jackson.

UMMC will spend approximately $9.2 million for the Courthouse, which is the amount of debt carried by the business. However, as part of the broader agreement, Mr. Black will make a $4.8 million gift to UMMC by year-end. He will make additional $500,000 gifts annually over the next 10 years, for a total of $5 million.

UMMC plans to operate the centers as an integral part of the health-care continuum, recognizing that adequate exercise and proper nutrition are a cornerstone of good health and disease prevention.

“This is really about our mission to achieve a healthier Mississippi,” said Dr. James E. Keeton, vice chancellor for health affairs and dean of the School of Medicine. “We can treat people once they get sick, but that’s only half the job. We also have to encourage them to be healthy and stay healthy. That’s been a gap in what we can offer. We’re grateful to John Black for enabling us to do this.”

Keeton added that it’s important that trainees in UMMC’s six health professions schools be exposed to this wellness model as part of their training.

The board also approved UMMC’s agreement with Power Wellness Management, LLC, to manage the six facilities. In the five-year contract, UMMC will pay Power $144,000 per year as a base management fee. In addition, Power will be eligible to receive an incentive fee based on financial performance.

Current Courthouse employees will become employees of Power Wellness Management and the number of staff is expected to increase in the first year to implement the wellness model.

Power is a Chicago-area firm that partners with hospitals and health-care systems to create, develop and operate medically integrated wellness centers. Among their academic medical center clients are Loyola University and Rush University Medical Center, both in Chicago.

UMMC expects to invest about $1.3 million in upgrades to the facilities during the first year of ownership. Based on financial projections, the business is expected to operate at a loss for 2015 and to produce excess revenue over expenses in subsequent years.

The appraised value of the four owned Courthouse properties, based on the average of two appraisals, is $10,545,000.

Mr. Black, through his Lexington Foundation, has previously partnered with UMMC on a program to enhance Medical Center employees’ health and fitness status. The “Get Healthy” program offers free family memberships to the Courthouse and access to personal trainers to 40 employees over 12 weeks. The program has been in place since 2011 and engaged more than 400 UMMC employees.

Keeton said he was impressed by Mr. Black’s philanthropic spirit.

“It’s nice to think that people who have been successful in life care enough about Mississippi to do things like this,” he said.

Here is what is intriguing.  UMMC renovated the downtown location since the purchase.  The Lakeland Drive location has been left to wither on the vine.  Guess which one was shut down by UMMC?

Keep in mind that the Courthouses no longer pay property taxes since they were purchased by the government.


Anonymous said...

So a governmental entity bought a business from an individual and paid an amount that would match what the individual owed the bank. And the business was losing a ton of money. Crony bail out if there ever was one.

Anonymous said...

Here is what is intriguing. UMMC renovated the downtown and Northtown locations since the purchase. The Lakeland Drive location has been left to wither on the vine. Guess which ones are shut down by UMMC?


Have to hate it when this happens.

Anonymous said...

So a governmental entity bought a business from an individual and paid an amount that would match what the individual owed the bank. And the business was losing a ton of money. Crony bail out if there ever was one.

What are the tax implications for the former owner who has so generously donated a significant portion of the "negotiated" sale price? One reason I'm wondering about this- was this actually a going business in the foreseeable future with this level of debt (absent the "sale" to UMMC)? The tax implications for the taxpayers are already obvious.

Anonymous said...

Do these wellness centers offer anything besides what every other gym provides? Cardio, weights, classes, trainers? Am I missing something? Is there some crucial reason that the government needed to become involved in an enterprise that was going along just fine in the private sector?

Anonymous said...

How could the four properties be worth over $10,000,000 showing that kind of negative cash flow? Typical appraisal bailing out a going concern that had been losing money and Trustmark, who carried the debt on the properties. Also seems like the Chicago management company had been bleeding them dry since UMMC's ownership.

Anonymous said...

Sounds like the enterprise wasn't going too well in the private sector. I was a member at the Madison 51 location up until the "donation". The last month or so I was a member there wasn't any hot water. That was a pretty good sign that things weren't going too well. The other was that when the annual "club enhancement fees" were collected, nothing ever got enhanced.

Anonymous said...

Imagine if UMMC would just stick to being a "university medical center" instead of trying to compete with the private sector.

How "small government" is that, Legislature?

Anonymous said...

Appears that Trustmark was the real beneficiary here. I wonder if it was really UMMC that initiated this transaction of some higher ups in state government.

Anonymous said...

Is this a good time to take a look at Mr. Black's political donation history?

Anonymous said...

The Northtown facility was NOT renovated.

Anonymous said...

I have a feeling that this is just the beginning of this saga. I am not an expert on either business law or governement ethics, but this does not pass the smell test. This is a plot from a Turow novel.
Black owns a failing business, that is about $10 million in the red. He "sells" the business to the State, the consideration being the State pays the $10 million note. At the closing, he gifts them almost $5 million and agrees to pay another $5 million over a term. He also obtains an agreement by which he becomes the CEO/director (or whatever) of the venture at an undisclosed salary. The State then takes over the business and slowly begins shuttering the business. And we are left with yet another State owned store front in downtown Jackson.
1. How is this not illegal?
2. If it is not illegal, then Black's legal team at "Cochran & Eager" was worth every cent.

Anonymous said...

UMMC needs a complete overhaul.

Why can't they stick to being a teaching hospital and stop competing with the private sector. Again, our elected officials are letting the tale wag the dog.

Come on Senator Harkins and put your foot in their ass and get rid of all the waste and corruption. We the people are counting on you !!!!!

Kingfish said...

Was told it was. My apologies.

Anonymous said...

2:08, I got totally lost with your explanation and I've been in business over 50 years---please try to explain this to me again !

Anonymous said...

William Smith @ Watkins and Eager is the real estate attorney that signs off on everything UMMC does from a real estate standpoint. William is very smart---I can't believe he would approve any of this bull shit. Someone is not telling the true story.

UMMC is in a lot worse shape than we know !!!!!!!!!!!!1

Anonymous said...

Time to check the building permits and inspections to see what they show as far as renovations?

Anonymous said...

The place would NOT be losing money, except that it's been GROSSLY mismanaged since Chuck Minor (Miner?) left. Adding bastibawl cotes, of course, was stupid. And allowing billboards to go up in the slums of Northwest Jackson was stupid - compounded by the stupidity of printing free trial membership coupons ON THE BACKS OF GROCERY STORE RECEIPTS - this running concurrently with the billboards. You can imagine who showed up for the free memberships - and what they broke - and what they STOLE (stuff from lockerrooms, and even CARS, whose keys were being kept by the front desk. Guys were buying groceries with their babymamas' foodstamps, and using those membership coupons on the grocery receipts, to get into the Courthouse.

Do I have to tell you what an incentive THAT was, for finding ANOTHER GYM? Women, in particular, left in droves.

But beyond the huge mistakes, there was the accretion of little omissions. The showers and steam rooms went, for DECADES without re-grouting for the tile. This led to tile failure and leaks, of course. Exhaust vents in the wet areas went, for DECADES, without being cleaned. So, the exhaust fans failed, over and over, resulting in condensation damage (not to mention inadequate venting and higher energy costs, even when the fans were operational).

All over the facility, little things that could have been corrected (things as simple as peeling a sticker off a surface, or scrubbing the grime off a surface, or replacing a cable on a machine, or just vacuuming the damn dust off the damn floor fans), went uncorrected. If you complained, you got attitude, instead of action. And so, the little flaws added up - eventually adding-up to become one giant patchwork of SHABBINESS.

A year or two back, a great new manager was hired for the Lakeland location. He got a lot done. I haven't seen him around, lately, though. Is he still around? Or was he a threat to certain entrenched parties? Did he make them look bad?

Anonymous said...

Looks like UMMC gave Black a 10 Million dollar loan and in return they got (get) 10 million and the Courthouse facilities ????

No doubt, Trustmark breathed a sigh of relief.

Anonymous said...

Trying to understand the shell game here, and I'm giving the stinkeye to Trustmark. Black owed them $9.3 million secured by deteriorating assets which were losing money with no reasonable expectation of a turnaround. Normally that means bankruptcy for the borrower plus a big bank haircut, but not this time. Instead UMMC assumes full responsibility for the bad debt and Black's fake "philanthropy" consists of turning his bank debt payments into tax-deductible donations to UMMC, so he effectively saves 30% or so.

As usual, the stupid taxpayers take it in the neck, only this time we get it TWICE -- the first time when UMMC (i.e., taxpayers) pays off a dead-duck loan dollar-for-dollar, and the second time when we subsidize Black's philanthropy through tax-deductions.

And oh yeah - Trustmark laughs all the way to the bank. Which is kind of funny when you think about it.

Anonymous said...

There has to be a connection between Black, a UMMC official and a very high state official. UMMC did not dream up this transaction so they could own a few gyms. Wonder who Mr Black has contributed to in the past?

Anonymous said...

UMC is so screwed up, it's sad. I feel sorry for anyone who has to interact with their incompetent contracting office. The vast majority of those who work at UMC are unhappy. The good ones leave for better jobs and most of what you're left with are the hangers on who nobody else wants and who don't know what the hell they are doing. This shady deal isn't surprising. That place is the most poorly run, unnecessarily political organization that I have ever seen.

Kingfish said...

That new manager was pretty good but then moved up to GM. He has been hard to replace.

I'll put it this way. The weight room is so cluttered that you literally can not walk across the room in a straight line from one side to the other.

Anonymous said...

Sounds like a savvy way to acquire real estate and expand a Metro footprint to me.

Anonymous said...

Dr. Keeton was Johnny Black's fraternity brother at Ole Miss per the C.L. article on this written in 2014. Not necessarily any wrongdoing, but a sweetheart deal was thus begun.

Anonymous said...

Help me with the math here.

UMMC paid almost $10 million.
UMMC acquired some real estate, but money losing operation.
UMMC got $5 million (now, net outlay is $5 million)
UMMC gets $5 million, over time (UMMC will be out interest on the time lapse of initial payment, and receipt of the 'donation')

Trustmark walks away wiping the big smile off their face.

Black loses the amount he owed, but gets a good tax deduction for the 'donation'.

If UMMC quit trying to operate these money losers and just shut them down, wouldn't the state come out ahead in this deal? ($10 mil out/$10 mil in; owns several pieces of real estate). What am I missing here that everyone is bitching about?

Anonymous said...

Giving $10 million for a chain of health clubs doesn't look that great when you go ask the legislature for additional money.

Baskebawl Jone said...

'Sounds like a savvy way to acquire real estate and expand a Metro footprint to me.'

Please explain the 'value' of an 'Expanded Metro Footprint'? How would that value compare to ,say, buying up all the Krystal Dining Establishments in Da Metro?

Kingfish said...

Same William who signed off on Lost Rabbit deals, Evans brothers deals, and Frazier deals?

Anonymous said...

William works for the same law firm that signed off on the Bailey/First Investors deal.

Anonymous said...

Thanks Kingfish---that was your first acknowledgement !!!!!!!!!!!!!!

Now may be the time to unload the whole story.

Anonymous said...

The stink is worse than a road kill skunk ripening in the summer sun!

Anonymous said...

It starts at the top with the admin office. They fire two hundred good faithful employees then hire a 10000 a month consultant who is nowhere to be seen half the time then make plans to hire 25 doliar per hour temp workers to replace them who know nothing about ummc. It is okay for to approve trips to Orlando at spring break and Hawaii at Christmas but we will fire a bunch and then joke about it. We wonder where the hell Kevin cook
Is Hiding under his desk from the.Attila the hun we guess. Then we have archie on TV begging for more money. It is time for a complete audit to see where the money goes

Anonymous said...

@10:11 - I need help to understanding this. I didn't understand it when it first came out.
UMMC pays $10 million, but that goes to the dept.
Black gives $10 million to UMMC over the next few years.
If Black had millions laying around to donate, wouldn't a smart business move be to spend some money to renovate/relocate your facilities and continue to make more money? OR...and here's a novel idea. If you owe $10 mill and you have $10 mill, pay your bills and get your business back on track.

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