Friday, March 19, 2010

Is Golf Business an Oxymoron or a Regular Moron in Golf Attire?

It's easy to look back at golf's build-up prior to the collapse and wonder what were they thinking. How did the golf business get to this point? Obviously, this recession has affected businesses across the board and there will be no bailouts for golf. But there is more to Golf's economic free fall than easy financing and a market downturn.

People got into the golf business because times were good and the golf business is sexy. Sexy, you may be shaking your head but think about this, you are at a cocktail party and there is one fellow that owns at a mini-storage warehouse that is extremely profitable and another fellow that owns a golf course that loses a million a year, which fellow will get chatted up the most? A golf course and or development owner will really draw a crowd if he has used a "big name" to design the course. So, we have people that got into the business, that may have had only a cursory understanding of the golf business based upon playing the game and possibly having been on the board at their club and we wonder why our industry crashed.

Of course, in the 90s it seemed as if it was impossible to develop a residential community that didn't have a golf course. Golf courses were the answer to increased absorption and prices for real estate. One minor detail, the golf business models were unsustainable in good times let alone in a downturn. Wall Street's unsuccessful foray into golf, yet again, is just another example of golf's appeal to well-heeled investors.

The golf business is going through a painful correction, that may ultimately be good for golf, golfers and the golf business.

Examples of some decisions that, with hindsight, the industry would rethink:

  • Clubhouse expansions with the expectation that operations will pay the debt without a dues increase.
  • Huge golf course maintenance crews and budgets, hand mowing tees, approaches, and runoff areas, triplexes for fairways and even roughs. Will we see the return of the gang mower on roughs and even fairways?
  • 30 year deposits versus initiation fees, this scheme sounded great because deposits were not treated as ordinary income. Times change, when these clubs sell does anyone want to assume this liability? The answer is painful...bankruptcy.
  • Fine/formal dining at private and daily fee courses. Do I need to even comment on this one?

Those of you/us that will be around for the next golf boom should be taking notes about what the industry did wrong and the attributes of the courses/clubs/developments that survived or even prospered through the tough times. There are lessons to be learned because golf, really is a business.

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