PGA Show: The Golf Business in 2015

I sat down yesterday to watch Erik Compton win the Humana Challenge. Unfortunately, Compton started poorly and couldn’t quite catch up. Nevertheless, what an inspiration he is.

Just back from the annual PGA Merchandise Show in Orlando, I’m often asked what attendance was like. It seems to depend on who you talk to and some judge the health of the game by this. For the time I was on the floor it seemed at times busy and at others not so busy. Among other meetings and activities, I attended the Pellucid “State of the Industry” presentation by Jim Koppenhaver and Stuart Lindsey.

While I find Pellucid’s “macro” perspective of interest, I always think back to the NGF’s days in the early 90’s touting that we needed “a course a day” to meet demand. Problem is that I don’t believe (especially in the case of golf facilities) that there is one big national or global golf market. Just like “all politics is local” golf markets are much more “micro” and defined and some of the broader statistics can be misleading when applied to a specific market, submarket or property.

Of particular interest were the following conclusions:

  • 3.5% of public rounds are being bartered
  • Even though rounds were down 1.5% in 2014, PGA Performance Track projects a 3% increase in gross revenue in 2015, driven largely by Food & Beverage.
  • By Pellucid calculation, utilization in 2014 was 52% of course capacity. Desired rate more like 58-59%.
  • US golf participation now at 8% after net loss of 1 million golfers in 2014.

All of these statistics really go back to the fact that golf needs to retain players, increase frequency and accordingly, appeal to a broader base. While I do believe that the industry can help on a global basis, it really falls on each individual course to figure out how they can improve given the dynamics of their individual markets and specific facilities.

Some clubs will ask their members or patrons for suggestions of how they can do better. This raises the question of how honest are the responses and how much do the operators listen or care? One could make a list of ideas a mile long, all of which are good ideas. However, they don’t all apply to every facility. First and foremost, each and every club should have an independent, objective SWOT (Strengths, Weaknesses, Opportunities, Threats) Analysis done periodically.

Consider it like recurrent training that airline pilots do every six months or your annual medical checkup. A SWOT Analysis may point out ways you can improve that you don’t see right under your nose. Yes, it’s cheaper to simply attribute your club’s shortcomings to extrinsic factors, and for sure there are external factors that impact performance, however, the response to those externalities is very individualistic and intrinsic and must consider all the unique market and property factors of your club.

In my practice, I’ve observed that there are both more willing buyers and more willing sellers of golf course properties. If, as some believe we’ve reached the bottom of the value cycle, now is a good time to buy and some sellers are ready to move on. With seemingly the availability of some financing (albeit limited) and the generally perceived as improving national economy, golf could be perceived to have some upside as an investment. That being said, Pellucid says there are 700 too many courses in the US, which at the current rate would take about 4+ years to correct. This can be deceiving, because while some markets are clearly over-supplied, others are either in balance or under-supplied.

As all this relates to the value of golf properties, I’m anticipating a slight uptick as supply continues to decline toward more balanced levels and more buyers depart the sidelines for acquisitions. If the commonly used indices of gross revenue and cash flow multipliers elevate just a bit and revenues increase as projected, there should be a narrowing of the gap between buyers and sellers that should allow for more transactions, especially for clubs with positive cash flow.

Next up, in February the golf course owners (NGCOA) and superintendents (GCSAA) have their gatherings and we’ll take the temperature of the golf industry once again.