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If You Build It, They Won't Necessarily Come
E.M. SWIFT
November 15, 2004
Egged on by industry cheerleaders and promises of a golf boom, developers have oversaturated the U.S. with courses and driven each other to financial ruin
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November 15, 2004

If You Build It, They Won't Necessarily Come

Egged on by industry cheerleaders and promises of a golf boom, developers have oversaturated the U.S. with courses and driven each other to financial ruin

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Americans began traveling less, but it wasn't simply resort courses that were hurt in the aftermath of the destruction of the World Trade Center. "Our rounds fell from 90,000 in the peak years of '98 and '99 to 77,000 in 2002," says Lankau of Stow Acres, a facility that caters almost exclusively to area residents. "Overbuilding wasn't the only factor. The economy was weak, the weather was bad, and 9/11 made people rethink how they wanted to spend their time. People indicated to us that they wanted to spend more time with their children."

Nationally, that translated to less time playing golf. "People don't have six hours to burn, which unfortunately is the time it takes to play 18 holes by the time you have a drink with your buddies afterward," says Tom Landry, executive director of the Massachusetts Golf Association. "The last three years the number of golfers has been stagnant, and those who play are playing less. Folks want to spend more time with their families, and right now junior players are the most-discriminated-against segment in golf."

Alarmed by the trends, the golf industry belatedly initiated efforts to make the game more kid- and woman-friendly. The First Tee program, Play Golf America and Golf 20/20 are three programs designed to encourage young golfers. Many courses have started hiring women pros and have launched executive women's leagues, but it will take time for those initiatives to yield results. In the meantime people are leaving the game faster than they're picking it up. "The industry's problem isn't attraction, it's retention," says Koppenhaver, who cites research showing that between 2001 and '03, four million new golfers picked up the game while six million players abandoned it. "It's too expensive, it takes too much time, and it's too difficult to play," he says. " Tiger Woods has done wonderful things to increase TV viewership, but the numbers show that he hasn't inspired people to pick up a club, play and stick with it."

Rising supply? Falling demand? The laws of economics tell us there's only one possible result: Prices fall. That's good news for the average golfer. "In today's market you can play at a 10- to 20-percent discount to what you paid five years ago," Koppenhaver says. "Courses that were built with a $75-a-round price target are now getting only $50. It's a double whammy: The owner can't hold his rate, and he's losing rounds. We still have a significant buying cycle to go through before we absorb the oversupply, and people are going to lose a lot of money. It's not like dry cleaners, which get shut down when they fail. When a golf course fails, it's still there. Very few are plowed under. Even in a down market there are plenty of people ready to jump in and buy."

Sometimes irrationally. "Ego gets involved," says David Southworth of Willowbend Development, a course development company owned by Paul Fireman, the CEO of Reebok. "Someone has a dream, so he wants to build something nice. He wants a nice clubhouse, a big-name architect. He wants to drive his buddies over and have them play the course and make an impression. Pretty soon he has overbuilt. He has spent too much. Some courses that were built for $10 million are now for sale for $2 million, but if you look at the cash flow--courses typically sell for somewhere between six and 10 times cash flow--they're only worth $1 million. We have an expression in the industry: It's good to be the first son, the second wife and the third owner of a course. It's only then that your costs are low enough to make it work."

"A rule of thumb for course owners is you have to charge $1 of greens fees for every $100,000 of invested capital," says Stuart Lindsay of Edgehill Consulting, a golf-industry specialist based in Mequon, Wis. "So if you spend $12 million building a course, you have to charge $120 in greens fees. Very few people can afford to spend that on a regular basis, and many who do already belong to a private club. So the guy goes under, and the new owner who buys the course at auction for $7.5 million only has to charge $75 a round. That has a ripple effect throughout the market, deflating prices. This is a lousy time to be an owner, but it's a great time to be a golfer."

As in any other business, the owners who've survived the current downturn are the ones who've prudently managed their finances and best catered to the needs of their customers. "You get one shot at the public," says Dewling, "and you can't fool them. They vote with their dollars. You have to exceed their expectations to get them back." Far from feeling gloomy about the glut in Michigan, Dewling regularly visits distressed golf properties and auctions, looking to add to his stable of courses. "The economies of scale absolutely work in golf," he says. "It gives you buying power with foodstuffs, equipment, merchandise for the pro shop, advertising and cross-marketing. We have a frequent-player program offering discounts at all our properties. We have a database. If the weather looks like rain, we send out an e-mail saying we'll give you a 10-percent discount if you show up. There's a lot of creativity that course owners are beginning to tap into."

In Massachusetts, Lankau has started using progressive tees for beginners, which are simply markers set in the fairway so kids and beginners can find a level of play they enjoy. "To create players, you have to do more than teach them how to swing," he says. Responding to surveys that say the game takes too long, he's offering nine-hole greens fees and opening the course earlier so businessmen can play nine before work.

In northern Michigan, Rick Smith, who's Phil Mickelson's swing coach, is a partner in the 81-hole Treetops Resort, which has a reduced twilight rate to take advantage of the long summer days in the short season there. "It stays light until 10:30 here," says Smith. "We have golfers who eat dinner at 6 p.m. and still get in 18 holes."

Treetops is about 45 minutes north of Forest Dunes, and rather than seeing the Weiskopf course as a threat, Smith sees it as a regional asset and is talking to the owners about package deals. "I like what they did," Smith says. "Their timing was a little off, but it's one of Weiskopf's best courses, and the pension fund is in it for the long haul. If we can work out a reciprocal agreement, it would help both of us."

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