So, Where Are We Headed?

In statistics released last month, the National Golf Foundation (NGF) again shows golf course closures dramatically outpacing openings, nationwide, by a count of 154.5 (closures) to 13.5 (openings).

What does it all mean? Well, it can be summed up by the old real estate joke that offers dramatically different views of the same house — there are the buyer’s and banker’s views (on the pessimistic side) set beside the tax assessor’s and seller’s views on the more favorable side. Most golf course owners and club operators see a reduction in course supply as a continued and welcome correction. To these guys, courses can’t close fast enough. As real estate markets recover, it’s likely that where zoning and restrictive covenants permit, more courses will close in favor of alternative uses, the highest and best uses.

In terms of transactions, there are more welcome indicators: More courses reportedly changed hands in 2012 compared with 2011 — and those courses typically sold more quickly than those sold in 2011. This could be a reflection of motivated sellers; it could be that buyers are simply ready and able to move. In some geographic areas, foreign (Chinese) investment has returned to the marketplace, thanks in part to the “EB-5” program, which encourages foreign investment where it helps create jobs. If this plays out the same way Asian (Japanese) influence did in the 1990’s, this could have a profoundly positive impact on golf property values and prices.

Golfers, on the other hand, have a negative view of the correction. For some time, golfers have named their price. Through a wide array of discounting in both the private and daily fee segments, loyalty has been lost and golfers simply go where the best deal is. As courses continue to close, it stands to reason that somewhere in the future, prices will have bottomed. Many say this is a ways off, but it stands to reason that dwindling supply will ultimately result in higher dues and fees.

Simply put, as golfers, we’d love to see continued depressed prices. However, I also know that if the industry continues to provide a product for less than said product costs to produce, it will continue to struggle. This phenomenon is not exclusive to golf. For example, look at the airlines. Do you really think they make a profit on those $250 cross-country flights? Do you want to fly with an airline that’s not profitable?

In golf, one of two things is bound to happen: Either the product declines in quality or the provider (course) goes out of business. Golfers then have limited choices, and pay higher prices.

So, where are we headed? All sources report increased rounds played in 2012. Some caution those increases were weather related, but nevertheless more rounds were played, about 6% nationwide. Combined with fewer courses, this should be a positive signal for the remaining courses along with the apparent return of equity and possibly debt capital to golf. Limited debt capital is still an obstacle to sales and more so to development, but most industry observers seem to suggest that better times are ahead.