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Whatever your needs we aim to provide you with peace of mind through tailored solutions delivered by highly experienced industry specific professionals.

The Golf Consultants Association can provide help across all areas of golf, but below we have categorised sectors to assist you.

One Stop Shop

If you are unsure as to whether we can help, just contact us >> and we will clarify your requirements and how we can assist you.

 

So the Golf Business is not that different after all

 

by Ian Bulleid 

I take comfort when reading articles in the Sunday business papers where “the experts” analyse the opportunities and problems facing this weeks chosen business.  You know the style, a brief history of performance to date and a potted view from the Owner/Directors of the current issues and dilemmas and then a quick paragraph from a number of guru’s from allied disciplines across industry generally, with their thoughts on the way forward.

This strange comfort is derived from the certain knowledge built up after reading endless versions of these that a few key problems continually emerge and surprise, surprise, when considering the general problems faced within Golf management, they are exactly the same!

So, despite our tendency towards insularity, we can’t avoid it, golf as a business is no different to any other when it comes to the key fundamentals driving success.

Ah, I hear you say, not Consultants, those guys you pay a fortune to and have your own ideas repackaged and sold back to you.  Well no, although I realise the cynicism that surrounds consultancy (A very UK thing, I might add).  These people have long track records in their own specialism within Golf, but most are also running their own businesses (the majority for a number of years) and in that context, following all the same sound good practices that will be introduced here.

When I first set up in business, I was hell bent on improving my financial skills.  I was challenged by a good friend who couldn’t understand why (as she put it), I was wasting my time.  Her thought process was driven by the fact that I had spent twenty years developing expertise, which had made me successful in my field.  This was exactly what clients needed and would buy and I should therefore concentrate in those areas and employ experts to help me in my areas of weakness. 

A very sound piece of advice, its amazing how often you come across Golf businesses being developed and/or operated by individuals with little or no relevant skills, who have been highly successful in other areas and believe they need no help to make a go of the Golf business.

The Golf Consultants Association (GCA) was formed in 1999 in response to the Golf market need for a “one stop shop” facility where investors, developers and operators could turn to find authoritative independent advice across the full range of golf related requirements.

The GCA provides golf development solutions, from analysis of clients’ “gleam in the eye” ideas based on research and appraisal, innovative design through construction and turf grow-in monitoring to operational management and marketing of both golf and real Estate.  Beyond this, members also undertake many widely varied studies.

Members’ track records are impressive; probably unmatched, with their collective service of over 275 years and 2140 assignments (as at the beginning of this year) of great variety in over 50 countries.  Commissions over the past 12 months have included work in the UK, Germany, Poland, Czech Republic and most recently Greece and Wales, whilst active discussions are under way with a number of Government Agencies in relation to strategies to develop and grow Golf Tourism. 

For ease of reference for potential clients, the Association’s expertise is grouped under a number of headings covering all stages of golf development work.

The GCA provides:

 

·        A full and flexible range of specialist consulting services tailored to clients’ requirements, whether by single members or teams

·        Unemotional understanding of the business of golf and the application of key principles to maximise potential success across myriad types of location and concept

·        Market lead analysis and business plan development

·        Accumulated experience of how golf operations work year in year out and the application of this experience to enhance the development process

·        Technical expertise throughout the process, from water resourcing, irrigation and drainage, through site mapping and environmental planning to soil nutrition and ongoing turf management

·        Skilful management for timely completion of golf construction projects to budget with appointment both pre and post tender

·        Commissioning of completed facilities

·        Operational management, staff recruitment and training

·        Sales and marketing, including real estate related developments

 

Planning is about shaping the future of new and old golf developments, whether in a strategic and/or operational sense.  Together with members’ traditional belief in ethics, their wholly compatible expertise makes for ideal teams, whether a seamless start-up to a new project is needed or quick solutions to problems required.

Well, enough of the advert, what were those constantly reoccurring themes that emerge from the aforementioned business articles?

How about…Realistic capitalisation at the beginning of the business, staying focussed on the plan (even having a plan!), recognising the skills available within the business and using them smartly… and linked closely to it, recognising skill gaps and recruiting accordingly.

Then there is…being market led and market aware, being customer focussed and engraining feedback loops within the culture of the business.

Lots of “pat” phrases, which don’t mean much until you try to apply them within your own set of circumstances and understand the “how” as opposed to the “what”.

Future articles will cover many of these areas in more detail but for this overview I am going to make a few general observations against different points of a development. 

The flow chart illustrated reflects the likely steps in the development of a successful project.

 

What to build

 

At the risk of offending golf architects everywhere, one of the most common mistakes is that they are often employed too early within a project.  This generally results in design lead solutions rather than the more robust market lead approach.  Architects have a key role to play in ensuring that the best use is made of the available land resource, but the decision concerning which architect to appoint should be driven from the site appraisal, initial business plan and thereby positioning that the facility must have.

In effect it is a marketing lead decision.  There is plenty of evidence to support the use of a “signature” name in a real estate lead development.  A Jack Nicklaus design will help sell houses at a premium.  The likely premium paid for such a designer has to be costed into the plan and justified financially in either the level or speed of return.

That “positioning” of the Golf course is a market lead decision, which will depend on:

 

§         Location

§         Type and nature of competitive supply and demand

§         Topography of site and position in relation to major roads etc.

§         Attitude of planners to the site development

It is only after the decision in relation to the type of development is made that an architect should be retained to develop route plans and costings to match the style of course required.  The whole project must be explored in extensive detail following this appointment, resulting in a full investment appraisal.

 

How to fund it?

 

By following this market lead route, there is a greater chance that realistic financial projections can be made and thereby the danger of undercapitalising the development avoided.

Because of the heavy cash requirements at the front end of a Golf project, developers are constantly seeking ways of reducing this burden, through early membership sales, ancillary real estate and hotel developments etc.

How this funding can be achieved, the different types available and the information required to secure it will be a subject in its own right within this series.

 

Ensuring the long term health of the course

 

As the development proceeds, quite often, not enough attention is given to ensuring that all environmental issues are addressed.  Water in particular is an increasingly hot potato and sound advice at an early stage can reduce the likelihood of the golf course being stressed in the future because of lack of this essential commodity. 

A clear understanding of the local ecology and the potential impact of the course along with plans to mitigate any downside whilst clearly illustrating the benefits will reap dividends with local opinion, but is also the right thing to do.  It is as important as its commercial viability as it could be the difference between the project proceeding and failing at the planning hurdle.

This whole area will, again be covered in more depth in future.

 

Getting it Right

Although I would admit to some bias, another common fault is the delay in involving experienced operators in a Golf Course project.  This is usually driven by a wish to save money short term, but in my experience, it ends up costing more in the long run. 

A Course Manager or Superintendent should be on board with a new development soon after the contractor is on site and building the course.  The incentive of knowing that they are going to have to live with the end product will motivate them to closely monitor what the contractor is up to and to ensure a full understanding of drainage lines, irrigation runs and as built plans.

Similarly a review of clubhouse plans and the golf course layout by an experienced operator can enable adjustments to be made to enhance the customer experience and to reduce on going labour costs through an understanding of how the Clubhouse will operate from an early stage.

 

Running it Well

Once open, there is a clear balancing act to be maintained.  On one side there is a need for rules, regulations and procedures to ensure that the business is managed effectively whilst working against this, in most instances is the need to deliver good service.  The old 80:20 rule applies.  If you control for every eventuality you will reduce customer satisfaction.  Again we will return to this in more detail at a future date

Two other points are linked closely to the above.  In almost every operational audit our Company have undertaken, we have been amazed at the lack of good management information on which to base future decisions.  Key information like the number of rounds played across different market segments, average income per round, even number of members is not readily available.  Course plans and even scorecards are often found to be inaccurate.  Given the availability of golf specific information technology it is unforgivable and a severe handicap to any successful business.

In addition, staff often are unsure of their roles and duties and are not given sufficient freedom to interrelate to customers and provide good service.  Good managers should be reducing the barriers preventing the staff performing, not increasing them!

As has been intimated both in the introduction and at various points throughout the article, many of the themes outlined in this article are to be developed further in the coming months.  The GCA would welcome your feedback in relation to particular issues and concerns you have and will try to adapt future articles to meet these.

 

 

 

 

 

 

 

 

GOLF COURSE INVESTMENT APPRAISAL

 

by John Ashworth

 

Introduction

 

When someone asks me to help them appraise a proposed golf course development, one of my first questions is – do you want an apple golf course, a pear golf course, a plum golf course or a banana golf course?

They usually decide that I am nutty as a fruit cake but also ask what I mean. The answer – there are golf courses and golf courses; there are membership offers and membership offers; there are locations and locations; there are course designers and course designers, and so on.

It is not just a question of whether a golf course will work; it is a question of what kind of golf product will work. It is also a question of – work for whom?

Decide on your objectives.  

Who are you? What are you trying to achieve?

Are you a farmer diversifying in the aftermath of foot and mouth?

Are you a hotel operator looking to golf to generate conference business and boost weekend occupancy?

Are you a branded operator such as Clubhaus or American Golf adding a new course to an existing chain of golf courses?

Are you a local authority aiming to provide a Payp alternative to member clubs?

Are you a resort developer using golf as an aid to real estate sales?

Are you a golf mad entrepreneur who always wanted to own a golf course?

Are you a private members club replacing or adding to your existing facility?

If you are any one of these, your objectives may well be different from those of the others.

 

 

Who are your customers?

 

The golden rule is that at least 65% of them will live within 30 minutes drive of your golf course. That rule takes a lot of shifting. You might dislodge it by adding overnight accommodation to your product offer, but even then, to make the golf club work financially, you will need to attract a local customer base. The exception is the resort development where tourists (villa owners, time share owners, holiday makers) are your customers. There are very few Portuguese golfers, yet the Algarve (with Spain) is the most successful golf tourist destination in Europe.

So you know the area in which two thirds of your future customers live and from there, you can get a well defined picture of the characteristics of your target market. Are they rich or poor? Are they densely or sparsely populated? Are they old or young, with families or empty nesters? How many of them now play golf or would do so if the opportunity presented itself? What other golf courses draw from the same catchment population; what market segments do they attract; how well are they doing?

There are several firms which can help you find answers to these questions, including some in the Golf Consultants Association, using census and other data supplied by data providers such as CACI.

 

Product Response

 

What golf product would work for the catchment population you have identified? Where are the gaps or opportunities in the local market?

When demand significantly exceeds supply, as it did in the early 1990s in the UK, developers were less concerned with this issue than they should have been. Now that the worm has turned, it is vital to position a new golf product offer (or reposition a failing business) in a way that responds specifically to local demand.

 

Can you deliver?

 

Not only can you deliver, but do you still want to? If you had aspirations for a Wisley but found that the market needed a cheap and cheerful Payp, you may well conclude that you  should look elsewhere.

In any case, you should critically appraise your ability to deliver what the market needs both from a personal and a product viewpoint.

Ask yourself what expertise you have to assist you to make the right decisions about the viability of the project and to manage it once it is up and running. Have you run a golf business before? Have you run any business? Have you been involved in project management, construction, agriculture or horticulture? Do you have financial expertise, knowledge of planning law? Make sure that you fill the gaps in your own knowledge and experience with expert help from people with the relevant skills. It is false economy to try to save on professional fees in the early days of a project if bad decisions lead to losses when things later go wrong.

Location is a key determinant of success. Can people drive easily to your site? Do lots of people live close by? Is yours a natural golf course site or will you have to invest heavily in construction if you want to create an appropriate course for the market.

Stick to what the market needs. The number of so called Championship golf courses built in recent times is legion – I have even seen courses described as Championship 9 hole courses – but most of them will never host a major championship. Some of the most successful golf businesses have grown from a modest golf course and a portakabin for the clubhouse. And some of the best Championship courses leave you feeling so miserable about your own golf game that you might never return – have you played Carnoustie on a windy day?

 

Do your sums.

If you decide to go ahead, you need to get estimates of the cost of building a golf course and clubhouse to suit the market and your own objectives. You need also to prepare 5-10 year estimates of future earnings from the operation of the business. The assumptions underpinning these estimates have to be clearly spelled out.

Be realistic; and remember that we are back to apples and pears here. Some key thoughts:

 

 

Funding Strategy and Return on Investment  

Finding development funds will be the subject of a future article in this series, but you can be sure that anyone seeking external funds will need to produce a business plan that demonstrates the viability of the project and your ability to deliver.

Remember that golf rarely produces a high return on investment. So scrutinise costs continually. There is little point in making a strong business case in your business plan if you then overshoot your capital budget by 25%.   

 

Summary and Conclusions

 

Decide on your objectives for building a golf course

Identify your target customers and consider their perspective

Determine the style of golf product that will best meet your customer expectations

Critically appraise your ability to deliver that golf product

If the appraisal is positive, evaluate the costs and returns

Decide a funding strategy

What return will you get on your investment? Monitor costs continually.

 

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Development Funds for Golf Courses

 

Question: How to make a small fortune in the golf business ?

An earlier article in this series, written by John Ashworth, a council member of the Golf Consultants Association, raised all the relevant questions that would-be golf developers must ask themselves before committing to a project.

Sadly, Europe – including such perceived success stories as the Algarve - is littered with golf projects that have failed because they were inadequately capitalised and/or developers didn’t, or wouldn’t, face up to the realities of developing and operating a golf course as a business. Every failure makes it ever harder for the next golf course to get adequate funding.

While this article is based on the UK experience, the key issues to recognise when endeavouring to fund a golf project anywhere are much the same, namely:

• The lengthy development and maturity programme to develop a golf course results in significant funds being invested for a long period of time before any trading receipts are ever received.

• Until a golf course is operational and successful, it has only limited residual value which, together with the fact that there are only a limited number of buyers, results in there being little realisable security for a lender.

• Most golf courses are highly seasonal in terms of cash flows yet are both capital intensive in terms of maintenance and highly operationally geared in that there are few costs that can be reduced if revenues fail to achieve targets.

The first of these points results in the development cash flow of a golf course following a classical J-curve with the maximum funds exposure being some considerable time before there are any positive cash flow. This can be seen in Table 1 below which shows the number of months that investment has to be committed, assuming a typical 24-month building programme.

Table 1: Typical Cost and Phasing of a Developing a New Golf Course in the UK

 
Month Of Expenditure
Number of Months
Pre-Opening
PAYP
£
Top of the Range
(Minimum)
Land.
Say 100 acres at £3,000
Say 120 acres at £3,200 		1 24 300,000 360,000
Course (minimum) 2-24 11 720,000 1,620,000
Clubhouse 18-24 3 250,000 500,000+
Sub Total     1,270,000 2,480,000
Fees at, say, 5% 1-24 11 63,500 124,000
Machinery etc 22-23 1 200,000 300,000+
Cost of money during
construction, say		     40,000 75,000
Minimum Total     1,573,500 2,979,000

While there are ways of reducing this level of commitment (such as leasing equipment, rather than purchasing etc.) these will either reduce future profits or increase the total development cost.

Given the above indicative cost of construction, it is perhaps salutary to realise that of the 30 golf courses sold in the UK last year, some one third were sold for less than £1.25 mn, thus suggesting that the vendors had made little or no capital gain on their investment.

Recognising that there is little security for a lender until such time as a golf course is operationally successful, then it is apparent that the majority of the above development cost has to be funded other than through normal bank lending. Where there are other components of the development (such as real estate, hotels etc.) then these might either provide the necessary cash flow or the security for bank lending. However, often the golf course itself is the ‘honey-pot’ being used to sell the real estate and hence is essentially part of the infrastructure.

Where no such alternative means of funding exist, and the developer has no other assets to offer as security, then the developer has to be creative in structuring their funding.

In Objective 1 regions of Europe (which includes parts of Ireland, Italy, Spain, Portugal and Greece – and will probably include all those central European countries seeking EU membership)
there are EU grant funds available. As an example, Ireland received some 20 mn Euros of grant aid in the 10 years to 1999 towards the development of some 34 new courses – including some world famous courses.

Another way of achieving development funding might be to negotiate with the land owner and course builder such that payment will only be made on completion of construction. This will effectively increase the actual cost of development (as the land owner and course builder will effectively roll up interest on their exposure). However, it will also preclude seeking bank finance until such time as the course is actually constructed, at which time there is at least some security for a bank lender.

The more normal ways, however, of generating finance include:

• Equity funding;
• Debenture Sales; and
• Membership pre-sales.

Sadly, people remember the failures and frauds that have occurred in each of the latter examples but, properly structured and managed, and for the right course in the right place, such methods can still be utilised provided the risk investor (the debenture holder or member) is protected. One way of doing this is to deposit the debenture holders’ or members’ investments in a deposit or escrow account with a Bank which will then lend the developer the equivalent monies at a notional interest rate (typically the difference between the then ruling deposit and lending rates). This has advantages:

• for the member-investor, through providing protection against the unscrupulous developer;
• for the developer, through the provision of development finance at a much lower rate of interest; and
• for the banker, through there being no risk attaching to the loan.

However, it is fair to say that a golf course would need both to be located in an area and be of a standard where there is proven, frustrated demand for a new, quality membership based-course for this method of funding to succeed and justify the extra administration and fees.

Without such sources of funding then a would be developer needs to realise that they will need to finance the development themselves through equity, with bank lending providing them with an exit for part of that investment on the opening of the course.

It is also important to remember that the funding of a golf course does not finish when the course is constructed. As seasonal businesses, golf courses can have highly volatile cash flows. It is imperative therefore that the business plan recognises when cash flows are positive and when an overdraft might be required. Too many operators fail to allow for the fact that, in pure usage terms, most north European golf courses are cash negative from November until April. This trading seasonality requires that operators manage their cash effectively as many banks will refuse to finance the first winter of negative cash flows. Indeed, one banker I know has a policy of never lending to a golf course until it has gone bankrupt twice – this attitude reflecting the fact that most courses take longer than envisaged to achieve sustainable profits and the fact that re-sale prices are often below construction costs.

When the appropriate time is reached to approach a bank then it is worth recognising that, typically, those banks that do lend in this sector (and there are many who don’t) might lend at 60% loan to value. The critical word being ‘value’ which is not the same as ‘price’ or, as shown at Table 1, ‘development cost’. Like any other business, a golf course is only ‘worth’ what a normal buyer is prepared to pay for it as a business. i.e. x times sustainable profits.

Banks also have to consider the underlying asset value against which their loan is secured and which, at worst, can be no more than the agricultural value of the land - hence why golf courses are not lenders’ favourite propositions !

One also needs to understand Banks’ requirements, both in respect of their terms of lending and the requirement this makes of the trading performance of the business. Most banks will:

• only provide lending for up to 10 years and will require at least some capital repayments during that period – few, if any, will provide interest only loans;
• require the business to generate EBIT (Earnings before Interest and Tax) at twice the level of annual interest charges; and
• require the business to generate EBITDA (Earnings before Interest, Tax and Depreciation/Amortisation) at 1.5 times the combined level of annual interest and capital repayments.

In addition, most lenders will also request regular and accurate management accounts and cash flow reports as well as audited accounts, thus showing them that the business is being managed professionally and that cash is being managed adequately. Taking the examples at Table 1, we can see that the minimum capital costs are likely to be between £1.57m and £2.98m. If a bank is to lend 60% of these sums then the cost of these funds might be as shown in Table 2.


Table 2: Trading Requirements to meet Bank Need

  PAYP
£		 Top of the Range
(minimum) £
Total cost (from Table 1) 1.575 m 2.979 m
60% Loan to Value = 945,000 1,787,000
Bank interest at, say, 6.5% 61,425 116,155
Therefore, twice interest cover requires
a minimum EBIT of:		 122,850 232,310

 

From Table 2, it would therefore appear that if a PAYP golf course can deliver an EBIT of £123,000 (and the better golf course an EBIT of £232,000) then it can satisfy a bank’s cash flow requirements. However, as stated above, most Banks will only lend at a maximum 60% loan to value which raises the question as to whether either of these golf courses is worth the ‘cost’ of their development.

A rule-of-thumb suggests that an unquoted business is worth between 6 and 8 times its sustainable EBIT. Even at 8 times EBIT, the two examples above would only be worth £983,000 and £1,858,500 respectively and, as such, would ‘fail’ the bank test on loan-to-value. To be worth the equivalent of their development costs, the courses would need to be generating a minimum EBIT of £197,000 and £372,000 respectively which, in turn, suggests a minimum level of revenue of nearly £1 mn and £1.96 mn respectively (assuming an revenue conversion of 20% to EBIT). Given that there are many golf courses not generating revenues of £1 mn pa, then it is hardly surprising that few golf courses achieve a selling price equivalent to their re-build or even actual build costs.

The cause of many failures in the golf business has been inadequate capitalisation from the outset. Add to this the risk of:

- over-specifying the product (and hence over-spending);
- delayed building programmes;
- failing to achieve revenue budgets or control operational costs;
- developers’/owners’ egos; and
- poor management

then one can see why banks, typically, don’t like funding golf courses.

As such, the over-riding advice to any developer is be adequately capitalised, very sure of your market, your development costs/cash flows and your objectives before even approaching a bank for lending.

Answer: Start with a large one.


Mike Stapleton
November 2001

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Too Old and Ready For A Face-Lift

 

by George Shiels

 

We all get older, some stay alert but many fail to keep pace with modern technology and start to sag where once they were firm and toned. Some accept this as natural decline and learn to live with the expected signs of ageing but others have been known to fight the process and even to benefit from a makeover or the occasional face-lift. We can stretch the surface and redefine the contours but we have not yet discovered the secret of immortality. Your golf course is no different and the natural ageing process may be the explanation for some of its apparent peculiarities and waywardness of the greens during recent years.

Courses that were built around the start of the 20th Century probably catered for just a few golfers and then only when the weather was good. Demands, exerted by the weather and level of play, made upon such courses in recent years have shown up some of their weaknesses, usually in terms of the soil that was used originally but also in many cases the actual design of the greens themselves. Before irrigation systems were commonplace it made sense to construct greens that would retain water but today these greens are retaining too much. Changing weather patterns are showing that such greens simply can’t provide the year round golf that members now expect.

The situation arises where golfers complain about the condition of their course and they begin to look around for the course that has a reputation of being dry or at least open for much of the year. Others will continue to play but may consider claiming against their insurance policies for the countless golf balls that plug and disappear into the soft, wet, greens.  All may be well until the triplex mower is reported missing on the 18th green and then you know that you have a problem that is not going to go away.

What to do about it? I think the options can be briefly summarised as follows: - The first stage is to get independent advice about the problem and then Clubs can (a) follow a maintenance route to improve their greens, (b) they can install drains or (c) they can rebuild.

Which route should be followed by any particular golf club depends on lots of factors, some technical, some financial and some political. There is no way that a brief article can answer a specific club’s needs and each club must investigate fully their own problems before they decide what to do about them. If the problems are serious it may be affecting the club financially, unplayable greens soon deter members and in most areas there are many newer courses with dry greens so the unhappy member votes with his feet. If that is a major problem some clubs will undoubtedly follow the paths of many others and opt to give their course a major face-lift to bring it into the 21st century.

Having made the decision to rebuild and redesign they then need to allocate time for planning and setting up the project in such a way that it goes smoothly and so that they do the work just once. How many clubs have faced the problem of spiralling costs on a project such as the clubhouse, this leaves the members suspicious about the cost of any major project and there can be nothing that is bigger or more significant than the course itself.

Where remodelling is being considered there is an obvious need for an architect but the Club should have a clear idea of what they want and should not be led down a route that they might regret. A committee of some sort will be needed but it should be small. This small committee should however ensure that they obtain the views of most or all of the members before they make a commitment to any particular direction or design. The views of the high and low handicap golfers are important, as are the views of male and female members, if they vote and pay their fees they deserve a say in the future of their course. Make sure that the architect has a style that the club members will enjoy and it is no bad thing to meet and seek the views of several architects before deciding which is best for the club and who the club can best work with.

No matter how carefully the club selects its architect or contractor it never fails to amaze me how quickly bad or misinformation can get around a clubhouse. Only this year I heard that a crop of turf, which was awaited by a club, had died in the field. At another club I was informed by a member that the contractor was building the greens wrongly, the evidence for this being the views of another member who had seen a course being built elsewhere.

If the Club has chosen a good architect or project manager he can probably deal with the rumourmongers but it sometimes pays to have regular updates on the notice board to explain to members what is happening and then less credence may be given to views expressed at the bar by “local experts”.

The architect will guide the club through the whole process but there is no harm in the club, or at least the committee, being aware of some of the requirements of a successful project. If they have a brief to produce a golf course for the future they may wish to ensure that: -

 

a)                  The greens are large enough to cope with the level of play they expect, if not immediately then in the future.

b)                  The greens are interesting to play but that they do not lose too much valuable pin area because of severe surface undulations.

c)                  Where undulations are included in the design of the green they should not impound water and cause problems with wetness and thatch in the future. Ideally the surface of the green should shed water in several directions, away from the green and not through the lines of main traffic flow.

d)                  The greens are not located in positions that will lead to future management problems, for example in shade or at the foot of a slope that will shed water onto the green.

e)                  The greenkeeper will need to manage traffic levels going into the green and off towards the next tee if he is to avoid areas of bare ground developing. Ensure that there are several alternative routes so that while one may be closed for repair there are others to take the traffic.

f)                    The greens are constructed to a good specification and that all materials are thoroughly tested by an Accredited laboratory such as European Turfgrass Laboratories in Stirling (ETL is currently the only USGA Accredited Laboratory outside the USA.).

 

If greens are going to fail it tends to be because of their location or the selection of materials used in construction and most often it is the rootzone that fails. Having gone through the process of selecting suitable materials and having them tested at the outset they must be monitored as the construction project progresses because they will vary and could deteriorate sufficiently to fall below the minimum acceptable level.

Rootzone materials will always vary from the original approved sample and so parameters should be set to identify the extent of acceptable variation. If the sample shows that a delivery or mix is outside the acceptable range it may have to be remixed or even replaced but this is better than using it only to find that the greens fail after a very short time. To keep everything on line and to ensure everyone knows exactly what is expected identify a stage in the mixing process where the testing will take place. Samples may be taken at the point of delivery if premixed or in the stockpile immediately after mixing if the materials are blended by the contractor. In either case ensure the materials are tested for conformity with the original sample before they are spread on individual greens.

If the greens are well designed and constructed, using approved materials that have been monitored throughout the project they will have the best possible start to life. It is then down to nature and to the greenkeeper. Make sure that he has the necessary resources and opportunity to do the job well and the investment made by the club will pay dividends for many years to come. Fail to provide the necessary resources or the opportunity to do the work at the appropriate time and even the most costly project can turn into a disaster within a short time.

In many cases developers learn valuable lessons when they construct their first golf course but their mistakes can prove to be costly lessons from which they never have the opportunity to learn because they only ever construct one course. The only way to overcome this limitation is to ensure that the project is handled by experienced people who have had the benefit of acquiring experience and expertise over many years and many projects. A team approach is the safest way forward so that a range of specialists is involved from the outset, each taking care of his aspect but helping to bring the whole project to successful completion.

If the golf course needs a make-over or even major surgery it is worth investing wisely. A quick fix to soothe the pain without dealing with the cause can be a costly mistake, far better to investigate the cause and plan for a period of intensive medication or surgery that not only soothes the pain but takes away the cause too. In the long run it should be much less costly, painful and disruptive.

 

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Golf Operations

by Ian Bulleid

In our role as Golf operations specialists Impetus typically will spend a period of time at the front end of any new project reviewing the approach being taken to the management and operation of the particular business.  This audit will look at everything from management systems and procedures through staffing levels and the way in which the team are treated to the condition of the golf course and the financial position.

A typical golf business can be separated into a number of profit centres.  Most will have Golf Course income and expenditure and food and beverage, whilst others will add retail and possibly a driving range to this mix and obviously in Country Clubs further areas including leisure and spa may be included.

Each of these centres is effectively a mini business in its own right.  Their overriding interdependence means that each should be viewed in the context of the whole.  However, by breaking out information in such a way that the performance of each area can be monitored enables responsibility and authority to be clearly allocated to team members, which in turn will encourage more effective management.

In this article I have focused on what we believe is a key fundamental in establishing and maintaining a successful business.  Yield Management seems still to be in its infancy in Golf.  Looking across other industries it is a common approach to getting the most from fixed resources.  The Hotel industry is a good example because of its striking similarity to golf.

·        A hotel has a totally consumable product, i.e. a bedroom for tonight, golf has start times running across a day.  In both cases once the day or time is passed it cannot be sold.

·        Both have variable capacity, hotels prefer twin occupancy to maximise income, whilst a four-ball will generate more income than a smaller group on the same start time.

·        Generally speaking a conference group in a hotel will spend more across other facilities e.g. meeting rooms and food and beverage than a regular commercial traveller.  Golf is the same where corporate days will generate more revenue than individual members.

 

Hotels therefore look at key levers to effectively manage their business.  They look at Average room rate, total revenue per room and sleeper ratios for example.

How many golf directors (or owners for that matter) do you know who, when asked, could tell you;

·        Income per round

·        Total income per round

·        Average number of players per start time?

We believe that these are important indicators for your business and create a benchmark against which to monitor your performance

 

Market Segmentation

 

Within any typical golf operation, income from the course can be segmented and this segmentation used as the basis for driving the business.

Typically golf income from the course will be generated from:

·        Members

·        Members guests

·        Casual green Fees

·        Corporate days

·        Society days

Depending on the style of operation, some of these categories can be divided further (particularly when the Golf operation is part of a Resort style complex where hotel residents may play a significant role).

In all our work, we advise clients to record round usage and income across each of these segments.  Typically, this includes allocating all golf membership incomes against the members segment.  It also means educating members to “sign in” before play, not a problem if you are operating some form of tee time booking, much more difficult if the Club is well established and the Members used to just turning up and playing.

From this it is possible to calculate an income per round, which forms the basis of a simple yield management approach to the business,

Start times are a precious commodity, they are time bound and if you do not sell today at 10.00am it will have no value to you at 10.01 am.

Similarly selling peak times to 2 balls, halves the potential revenue the time slot can generate.

This very simple and crude approach needs to be developed in sophistication to take account of other elements that impact on your decision as to which market segment you are prepared to accept at what time.

Each of the segments will have its own characteristics and by understanding these and how they work, further enhancements can be made.

In general terms:

 

·        What about secondary spend?  The simple calculation outlined above concerns itself with the primary spend on the Course.  But what of the impact of secondary spend.  Which segment is the most lucrative for; buggy use? Food and Beverage sales? Retail purchases?

·        What value cashflow?  You could chase the best dollar or Euro for every start time, but what happens when it is wet and windy and no one wants to play?  What happens on World Cup final day?  Because of the amount they will play, income per round from members is likely to be lower than from other segments, they are likely to spend less per round in secondary areas such as food and beverage and retail.  However their annual fees provide guaranteed cashflow whatever the weather and it is not surprising therefore that virtually every successful golf operation will operate some form of membership scheme.

·        Corporate Golf is likely to produce the highest overall spend per round.  This is driven by the higher rate per round for golf coupled with a great preponderance to spend in secondary areas.

 

If you are clear about the level of business you are looking to generate to optimise the business performance, it will immediately impact on your sales and marketing plan for the future.  In particular it will:

 

·        Help you focus the sales and marketing spend against the segmented targets, perhaps increasing focus on membership sales at the expense of alternatives or attacking one or more of the potentially more lucrative opportunities.

·        Make you examine your existing facilities in your competitive environment.  If you intend to chase Corporate Golf, the requirements in terms of course presentation, food and beverage availability and style, changing accommodation etc. are different to the society or member markets.  As a result, capital expenditure may be required before you can effectively tackle these opportunities.

The clear advantage of a segmented approach is the diversification it brings within your business.  If you are dynamic in your approach, you can flex your business to take advantage of particularly strong segments and respond to weak performance in other areas.

One final point with regard to yield management.  In the USA now, it is possible to purchase systems which will enable flexible green fee pricing across days of the week, times of day and different months of the year.

Flexible pricing should enable you to increase rates during the busy time and reduce them during the quiet time.

 

Conclusion

 

The key messages from this article are quite simple:

 

1.      Monitor the usage of the golf course to develop your own segmentation model

2.      Use the information you start to gain from this model to create your own benchmarks for the key levers of income per round, players per start time and total income per round

3.      Develop your “ideal” segmentation.  The one that is right for your business in your competitive environment.

4.      Ensure future sales and marketing and capital expenditure are geared towards achieving the segmentation in terms of both volume and rate.

 

Ian Bulleid is a founder member of the GCA and director of Impetus Golf and Leisure Ltd., who specialise in helping Golf Operators improve and optimise their returns.  He can be contacted on +44 1923 252002

 

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Membership and Green Fees

By Vince Davies

 

Many golf course operators say that golfers in the UK are not prepared to pay the market price for their golf. Looking wistfully across the Atlantic they wish they could charge the same fees as their American counterparts.

The hard fact is that UK golfers are indeed prepared to pay the market price but the price remains less than the operators would like. The structure of the golf sector in the UK is dominated by private members clubs that are concerned only with generating sufficient surpluses to maintain their fixed assets. They have paid for their sites, courses and clubhouses long ago. As a consequence they are in a position to charge relatively low fees.

Commercial operators, many burdened by capital and interest repayments, want to generate sufficient surpluses to be able to withdraw cash from their businesses. They are working on a different business model and need to either charge high fees or generate higher levels of activity than private members clubs.

Operators have to accept that the structure in the UK that favours a low fee environment is here to stay. So how can operators achieve the returns they require?

The most efficient way to improve profitability and cash flow is to increase membership and green fees. As the costs of providing the course are effectively fixed, 100% of these fees flow through to the bottom line. To match £1 of incremental membership and green fee income an average golf operation in the UK will have to generate either £2 of food and beverage income or £4 of pro shop income. In addition increasing the number of members or green fee payers will increase food and beverage and retail pro shop income; the reverse is not true. 

I have set out below just some ideas on how to improve membership and green fees. These have been derived from the work undertaken at many golf clubs.

Most golf operations either do not have adequate management information systems in place or have them but do not use them. All golf clubs should have:

§       Accurate membership databases – amazingly most clubs do not know how  many  “active” members they have.

§       A profile of members: occupation, age, sex, location etc.

§      Information on where their visitors come from and why they chose their course.

§      Research on what their competitors are doing, including their membership and green fee pricing.

The offer made to prospective customers has to be perceived as “value for money”. This can mean high or low prices as long as customers see a consistency between what they pay for and what they receive. An example of a course that achieves this consistency is Kingsbarns, near St Andrews. It is a pay and play course that charges a green fee of £125 per round. It has been structured to meet the requirements of its prime target market – tour customers. It offers a very high quality course and clubhouse and importantly easy access when access to other local high quality courses is heavily restricted. Although its green fee is very high it is successful because it offers its target customers value for money.

Marketing has to be focussed to be effective. Surveys of golfers and analyses of the membership rolls of golf clubs show that most courses will earn the majority of their income from a very local area. Approximately 40%-50% of an average golf clubs’ members come from a 10 minute drive time, 70% from a 20 minute drive time and 90% from a 30 minute drive time. Marketing efforts outside of these areas, particularly to attract members, are, for most clubs, a waste of resources.

Membership pricing must be logical both in its internal structure and after taking into account competitors quality and pricing. As an example of a logical internal pricing relationship we have found that pricing of 5 day membership should usually be set at 60% to 70% of 7 day membership. When trying to recruit members, operators should pay particular attention to the first year costs that a new member will pay (joining fee and annual subscription combined). It is this figure that can act as a barrier to new members joining.

Joining fees should be retained but kept competitive. Private members clubs tend to have joining fees of at least one times their annual subscription, and sometimes as much as two or three times; paying a high joining fee buys the new member a right to the low subscription. This is too high for commercially run clubs. Joining fees of half to one times the annual subscription are usually competitive whilst still providing a disincentive to members moving to other clubs.  It is not recommended that joining fees are dropped altogether as membership retention declines, causing an ongoing problem at renewal times.

The membership subscription year should start when the weather and course conditions are improving and members can look forward to the season. If the existing renewal time is not in the Spring or early Summer it may be worth looking at the feasibility of changing it.

Membership should be structured to maximise utilisation of the main asset, the golf course. Basic target numbers for an 18 hole course are 500 adult seven day members and 200 adult five day members. However some very successful courses have a relatively complicated membership structure, not for the sake of complexity, but in order to ensure that the course is utilised at all times. All courses run on a membership basis are empty at some times during the week and also, usually, on Saturday and Sunday afternoons. One of the more successful courses that Davies Associates has worked with had a membership category for every eventuality – five day, five and a half day, six day, seven day, etc etc. It was no coincidence that it had over 1200 members, the highest we have seen at an 18 hole membership course – the operator had effectively found a way of increasing the capacity of the course but avoiding overcrowding at the busiest times.

Research should always be undertaken on what types of memberships have worked at other developments. For example we have found that a joint membership for couples offered at a discount to two single memberships is usually successful - a 10-20% discount on the joining fee is often enough to attract couples. Conversely sales of high numbers of corporate memberships should never be planned. Corporate memberships are notoriously difficult to sell, even when generous terms are offered.

There should be a balance in joining fees, annual subscriptions and green fees. In particular annual operating income should not be sacrificed to increase up front income. In the early 90’s some operators sold high value memberships by offering substantial discounts on annual subscriptions. This policy caused them serious problems as they struggled to cover costs once their facility opened. Other operators thought that a good marketing initiative to attract the purchasers of high value memberships was to only allow visitors if accompanied by a member. They sacrificed the opportunity to earn green fees from visitors. In the majority of cases these clubs have reversed this policy, or would like to reverse it but are prevented from doing so by binding agreements with members.

New green fee offers should be introduced regularly using the database of previous visitors to target the offers (any operator that does not use a database should start one now). Green fees give even greater opportunities to maximise the utilisation of the golf course than memberships as offers can be very short term and targeted at very specific times. There are many options ranging from the offer of four green fees for the price of three to the sale of tee times rather than individual slots.  Discounted pricing at specific times, for example twilight fees, often seem to be confined to low cost pay and play courses, but there is no reason why high fee membership courses should not make such offers.

A common green fee offer made by clubs is “Two for One”. There is a proliferation of these schemes and we have debated their merits with various operators. Taking into account the fee that operators have to pay to those that administer the schemes, they have to attract twice the number of “Two for One” visitors to generate the same amount of income. Nevertheless many clubs have found that overall they do generate a greater level green fees when they participate. 

Particular attention should be paid to members guest green fees in the green fee structure; the overall income from these fees is often higher than the income generated by either visitor or society green fees. They perform two functions  - to provide fee income and as a benefit to members. They should be priced aggressively, usually at no more than half of the fee for visitors unaccompanied by a member and often considerably less.

We have examined just a few points relating to membership and green fee structures. Of course each golf development is individual and must take into account its competitors and target customers. There is no substitute for operators undertaking detailed research on an ongoing basis or from learning from the successes and failures of other operations. It is those that undertake such research that will have the tools to generate higher levels of income.

Vince Davies is a Director of Seymour Davies Ltd, a golf consultancy advising developers and operators on a range of issues including feasibility, business planning, acquisitions and raising finance.

 

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