New Golf Industry Numbers: What do they mean for the game’s future?

Yesterday, the National Golf Foundation released its annual #’s on golf course supply in the United States. As expected, the US golf course supply continued to decline with a net loss of 190 courses nationwide.  This continues a trend that began in 2005 when there were 16,052 courses nationwide to where we sit now with 15,014.  This is a decline of 6.5% and an average decline of .6% per year.  The ratio of private clubs to public access courses remained steady at about 25%.

While many outside the golf industry see this decline as an indication that “golf is dying”, many within the industry see this as a needed correction in the market, and as good news.

Also, yesterday, Golf 2020, an organization promoting the future of the game distributed a “Frequently Asked Questions” (FAQ’s) summary to address some of the more positive economic news on the game.  They note:

  • Rounds played nationally were up in 2014, 2015 and 2016, and that the reduction in supply is not impacting demand;
  • Nearly 1,000 major renovation projects have been completed since 2006 with investment of $3 Billion;
  • The compression of golf facilities since 2006 of about 6% compares with growth of 44% from 1986 to 2005;
  • That bowling centers have decreased by 24% since 1998, ski areas 15% since 1991 and amusement parks by 6% since 2007.

Accordingly, golf seems to be faring better than some of the competing activities in nationwide supply.

Of particular interest in the Golf 2020 perspective is the information on millennials (age 18-34).  The Golf 2020 report states:

  • Contrary to belief, golf is fun, young and cool. There are 6.3 million millennials (ages 18-34) playing 14.7 rounds or more than 93 million rounds of golf annually. They represent roughly 25% of the golf population and spend about $5 billion annually in equipment, merchandise and playing fees.
  • Last year, Golf Channel grew its millennial audience by 33% compared to 2015, which doubled over the previous two years. For digital, Golf Channel had 264 million live streaming minutes, a 96% increase over 2015.
  • The industry is adapting to provide shorter golf experiences (e.g. six or nine holes) and non-traditional forms of the game (e.g. FootGolf, bigger holes) while still upholding the integrity and rules of the game.
  • Nine-hole rounds comprised an average of one third of rounds played in 2016, according to the USGA. Women, casual golfers and individuals under age 55 are driving the increase in nine-hole rounds.
  • In 2016, Topgolf had 10.5 million Topgolf visitors worldwide where 28% are occasional green grass golfers (1-7 rounds annually) and 37% are non-golfers (0 rounds annually). Additionally, 52% of guests are millennials (ages 18-34) and 32% of all guests are female. Topgolf has a total social media audience of nearly 2.4 million users and had 225.3 million mentions across all platforms in 2016.

In addition, junior golf has grown considerably.  As an example (according to Golf 2020) there’s been an 11.4% growth in the number of high schools fielding competitive golf teams, which, in turn has led to a 13.1% increase (72,582 participants) in girls participation.  The PGA Tour has experienced significant TV ratings increases and Golf Channel ratings reportedly increased by 60% since 2011.

So, with all these positive indicators (and more), why is golf perceived as “dying” by some and “struggling” by others?  What does it mean for golf’s future?

A very quick (and non-scientific) analysis of daily-fee golf courses we’ve surveyed in the past couple years shows that the average daily-fee golf course maintenance budget for the courses surveyed was about $467,000 per 18 holes.  This worked out to about $15 per round JUST FOR MAINTENANCE.  Golf 2020 says that the average round of golf costs $37.  Thus, golf course maintenance is about 40% of the cost.  From the operator’s perspective, that leaves just $22 per round to pay for staff, clubhouse, marketing, mortgage, insurance real estate taxes and a reasonable operating profit.  If the course does 25,000 rounds ($925,000) that leaves a limited amount of cash for everything else.  The question is not whether golf is expensive, but rather whether it’s too cheap.  It often seems like competitive market pressures motivate golf courses to provide the product (golf) for less than it costs to produce, obviously a recipe for disaster.

Accordingly, what I would anticipate is that there is still some market correction to occur before supply and demand are in balance to the point that golf courses can become more appropriately profitable.  What is “appropriately profitable” one might ask?  The Dictionary of Real Estate Appraisal defines economic feasibility as: A condition that exists when prospective earning power is sufficient to pay a requisite rate of return on the completion cost (including indirect costs). In other words, the estimated value at completion equals or exceeds the estimated cost. In reference to a service or property where revenue is not a fundamental consideration, economic feasibility is based on a broad comparison of costs and benefits.  The key here are the words requisite rate of return.  That is different to everyone, but for golf properties, due to risk, management, weather and supply/demand issues those rates are typically higher than most other forms of investment property.

Therefore, I would anticipate that golf courses will continue to close at faster rate than they are developed until they can become profitable.  Furthermore, it is incumbent on the industry to do a better job of growing the game to shorten this cycle.  Many of the economic indicators referenced by Golf 2020 are positive, HOWEVER we have too much attrition.

To those of us who are either in the golf business or are lifelong golf enthusiasts, we don’t understand how someone could leave the game.  But, golf is not WELCOMING to the casual player or the non-golfer.  The USGA and R & A have recognized this and proposed a streamlining and simplification of the rules.  This is a great first step.  Next, the game has to be perceived as “FUN”.  The “3 M’s” (Millennials, Minorities and Moms) that golf so badly needs have little interest in dress codes, cell phone bans and overly oppressive rules and procedures.  They just want to have a good time.  Millennials, in particular have demonstrated a willingness to spend, but not when they’re overwhelmed with rules.

What does this hold for the future?  It depends on whether the (grand and ancient) game can evolve with society.  Of course, there will be clubs that choose tradition over progress, and many of them will be just fine.  If those clubs were to “lighten up” would it help (or hurt) them?  Would it help the growth of the game?  Like any business, golf’s future depends on its ability to respond to the market(s).  With many different market segments, time will tell which ones respond best to various changes in policy.  In order for the game to grow, we need to do a better job of reaching the “3 M’s” to preserve the health of golf for future generations.