pellucid_perspective_201310 by Matt Campbell

The Vol. 4, No. 10

Pellucid Perspective October 2013

GOLF’S LEADERSHIP

2 Are golf ’s nonprofit “emperors” fiddling while Rome burns? By Jim Koppenhaver

AGE AND DISCOUNTS

5 Seniors in their golden years, but are you? By Harvey Silverman GOLF PARTICIPATION

7 A new determinant on “weather” golfers play or not? By Stuart Lindsay

GOVERNMENTAL AFFAIRS

9 Golf needs a voice in the regulatory process By Jim Dunlap INDUSTRY SCORECARD

10 September golf weather impact: Positive month caps positive Q3 MARKET FOCUS

13 Established SF courses leap-frog larger markets HEARD ON THE STREET

15 ClubCorp IPO shares priced lower than expected at opening, rise 10% in debut THE LAST WORD

16 The show must go on By Jim Dunlap www.PellucidCorp.com

The Pellucid PersPecTive

GOLF’S LEADERSHIP

Are golf ’s nonprofit “emperors” fiddling while Rome burns? Time for golf’s “leadership” to lead with their bankrolls By Jim Koppenhaver

nless you’ve been living under a golf industry rock this calendar year, you’ve no doubt seen the golf industry’s three major nonprofits, the PGA TOUR, the USGA and the PGA of America, in the news with big events and announcements. Part of the challenge however is that none of those headline events had anything to do with the immediate challenge before the industry: stabilizing and growing the golf participation base and getting existing golfers to play more. While I can’t contest the fact that all three organizations, as part of their basic business model (and to deflect ongoing scrutiny into the size and growth of their respective war chests), have philanthropy and the best intentions of spreading the love in their heart, it does seem increasingly curious to me that while the industry flounders, they aren’t stepping up and investing in the charitable cause of putting the industry back on its feet. The USGA got the ball rolling with its ill-timed announcement of switching networks to Fox Sports back in August. The reasons cited by the USGA for the switch were expanding the exposure of the national championship, having more control over the product and messaging and using the US Open as a platform to make “the game compelling, dramatic and fun to as wide an array of current and potential players and fans as possible.” That last one was the one that caught my eye. While nothing quite says “grow the game” like changing the network coverage of the US Open (tongue-in-cheek intended), it never ceases to amaze me how most of these things in golf that are about the money are never, supposedly, about the money. Instead these massively profitable nonprofits wrap themselves in the flag of “grow the game,” “touch more lives,” and “being part of the communities in which we participate.” As interesting for the USGA in particular is the fact that they sit on an investment portfolio of $300M+ which has thinly (but successfully over decades) been rationalized as being a necessary reserve to defend the Association in the event of a lawsuit over rules or equipment regulations at some future point in time. Heck, with that kind of money, the USGA could afford to run for office at either a large state or national level. Who are we kidding here? I think back to the inaugural session of Golf 20/20 with myself and other research entities petitioning the initiative’s executive board for $200K to establish basic information systems to track and diagnose industry health at the most basic level. Their response? Crickets. The most deafening silence came from the USGA, which neither attended nor sent a delegate to most of the discussions and decisional meetings. Really? Later in August this year, the PGA TOUR found itself ac-

2 The Pellucid PersPecTive

cidentally in the cross-hairs of one congressman from Oklahoma regarding its nonprofit status. Yes, this is one of the very same people who are now responsible for dysfunctional government at the national level but hey, they were busy at the time trying to figure how to close the NFL’s tax loophole, never mind the impending train wreck of the federal government exceeding its borrowing limit once again in October. Back to the story, Senator Tom Colburn (R-OK) introduced a bill called the PRO Sports act that would strip the NFL of its tax-exempt status. Within the definition of organizations that enjoy this benefit today but would lose it if the bill were passed at some future date (right up there with hell freezing over, reading the current political tea leaves) are the NHL, the PGA TOUR and the ATP World Tour (tennis). Interestingly, Major League Baseball and the NBA have chosen not to live in the nonprofit world and it seems they’re both doing OK without that shelter and associated benefits. I acknowledge and admit that the PGA TOUR has a larger, more visible and more purposeful emphasis on charitable giving, but one does have to scratch one’s head when a multi-billion dollar revenue organization whose leader takes home $5M+ annually and whose leading members can make 2x or more of that amount by winning a season-long competition pays a pittance to the federal coffers even as the federal government is shut down for not having enough money to pay its bills. The timing and irony couldn’t possibly be better, not only for the PGA TOUR but also the much better endowed yet beloved NFL. While fixing this wouldn’t put a dent in the national budget mess, it’s the optics and the principle of it that make you stop and wonder. But that’s not the focus of my beef. My particular issue is that, in the midst of all that revenue being generated and then dragged across the salary, benefits and administration line of Ponte Vedra, Fla., set aside for reserves by the PGA TOUR and then the remainder being distributed to charity, wouldn’t you think that somewhere in there the PGA TOUR could find a couple hundred thousand to a million to put some serious muscle into fixing the golf industry’s problem with participation and demand? With the benefit of 13 years industry exposure and knowledge now, it’s comical to me in retrospect that the PGA TOUR organized and hosted the various iterations of the Golf 20/20 Conferences and yet, at every one I attended, there was an inevitable “passing of the figurative hat” on the closing day, with the people on the stage representing those who had the money in the industry and those in the audience the ones most suffering the brunt of declining participation and the fallout from builda-course-a-day. Who needs fiction writers? You can’t make October 2013

JOIN THESE INDUSTRY LEADERS The Pellucid Perspective sincerely thanks and recognizes our current sponsors – Troon Golf, KemperSports, GolfSwitch, as well as new sponsor Bayer – for both their financial support and their shared commitment to elevate the discussion of key industry issues among thoughtful stakeholders, to grow their business and perpetuate the industry at large. Other companies who would like a unique opportunity to convey their marketing message to roughly 27,000 industry recipients are invited to join the companies above as Pellucid Perspective sponsors. Contact Jim Dunlap at 760-212-3714, jdgolfer@cox.net regarding sponsorship benefits and cost.

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GOLF’S LEADERSHIP

more curious and compelling storylines than this reality stuff ! In what may be the closing chapter of the nonprofit headlines this year, just this morning I saw an announcement by the PGA of America which also announced a major new network deal with NBC Sports. While they didn’t do anything dramatic like switch networks for “love” (yeah, $20M worth of love in the USGA’s case), they signed a very successful and lucrative renewal and expansion of their relationship which will benefit their organization and stabilize its future finances (fair enough). It would also be fair to say that, of the 3 nonprofit emperors in golf, the PGA has done the most to put its money where its mouth is in investing back to fix some of the industry’s inherent problems. That said, they also have the most direct connection to the actual health of the industry (i.e. when all those golf courses shut down or transact at prices that require trimming the professional instruction staff from 3 to 1) vs. the USGA, which is just out there protecting the ethereal “honor of the game of golf ” or the PGA TOUR, which really only cares about chasing eyeballs (whether they actually play golf or not). So, in the immortal words of Tim Finchem, they’re predictably “acting out of their own enlightened self-interest” but one has to give them credit for being invested in Get Golf Ready as the tip of the executional spear as well as implementing and

maintaining PerformanceTrak, which I can tell you from professional experience was $100K+ to get up and running and likely is a low six-figure investment annually to keep it plugging along (warts and all). Somewhere however in their reserves as well, there has to be real money which could be intelligently invested, along with the coin from the PGA TOUR and the USGA, in figuring out and aggressively, persistently attacking the decline of our industry. In summary, maybe the headline is casting too harsh a light on these three large, well-intentioned golf industry “emperors,” but it sure seems to me with all the money that goes across their books in any given year and with the reserves they’ve amassed, that they could be putting more of a shoulder to the wheel of fixing the industry’s real and extended malaise. I’ve said before in Outside the Ropes, the phrase “charity begins at home” comes to mind here, and it’s not unreasonable to think that in times of distress, part of what the war chests of these nonprofit entities should be in reserve for is rescuing the very industry that underpins their reason for being. In my humble opinion, we shouldn’t have to be collectively panhandling these flush, industry-dependent entities and asking, “Brother can you spare a dime?” Let’s see if any of them step up to the 1st tee with financial driver in hand in 2014. n

Superintendents Can Apply Through Nov. 1 for the Chance to Win! Bayer Superintendent Grant Program Winners Receive an Expenses-Paid Trip for Industry-Leading Education at GIS 2014 in Orlando For the last decade, Bayer has teamed up with the Golf Course Superintendents Association of America (GCSAA) and the Environmental Institute for Golf (EIFG) to send golf course superintendents to the annual Golf Industry Show (GIS).The purpose of the grant program is to assist superintendents with their professional development through participation in the annual event that features the most comprehensive education program available in the industry. Through this year’s program, Bayer will send seven golf course superintendents to the 2014 Golf Industry Show in Orlando. Superintendents who have not attended GIS in the prior two years are eligible to apply for five new grants that will be awarded via random selection. All winners will receive

4 The Pellucid PersPecTive

attend the 2013 show. Bayer’s Green Solutions Team is offering technical support to those winners affected by natural disasters, to help get their courses back up and running.

2013 grant winners visiting the Bayer booth at GIS in San Diego.

Superintendents can apply online for the Bayer Superintendent Grant Program through Nov. 1 at [http://www.gcsaa.org/ Conference-and-show/BayerSuperintendent-Grant-Programapplication-form.aspx]. The application can alternatively be mailed or faxed. The EIFG will notify winners by Nov. 8, 2013.

airfare, hotel accommodations for five nights, conference fullpack registration, two education seminars, and $200 of spending money.

superintendents impacted by hurricanes. Due to the severity of the hurricane impact, those superintendents were unable to

The remaining two participants were selected last year as part of the 2013 program to benefit

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Help grow your business and the expertise of your team by encouraging your course superintendent to apply today!

October 2013

AGE AND DISCOUNTS

Seniors in their golden years, but are you?

Course operators may want to consider raising their senior discount age By Harvey Silverman

“G

etting older is no problem. You just have to live long enough”…Groucho Marx Another birthday recently passed, not a milestone birthday, but I’m now closing in on one. So I told my lovely wife Bonaventure (yes, her given name) that I’ve decided to stop counting. It doesn’t really matter to me anymore, and I’m assured of receiving constant reminders from AARP, Social Security, and the various rewards programs I subscribe to anyway, so why torture myself by keeping count? Others are doing it for me. I played golf on my birthday with my friend Ollie. Playing with Ollie is what it must be like to play with Robin Williams. Ollie has a hundred voices and a thousand lines to go with them. When he plays, he never keeps score (and others who play with him can’t either). “Why ruin a beautiful day when all you care about is a number,” Ollie will say in his finest Irish lilt. But then he said something that hit me right between the bags under my eyes: “Now you’re that much closer to getting senior rates at more golf courses.” Unfortunately, he’s right. Watching “senior age” creep lower in the golf industry has been a bone of contention of Pellucid collaborator Stuart Lindsay for some time. And when we look under the covers, what we find may convince you to increase the senior age at your facility, or abandon senior rates altogether. Pellucid pointed out in the 2013 State of the Industry report that 60% of all golf rounds are played by people age 50 and over; and 48% of all rounds played are by people age 55 and older. These percentages are not going to drop. In fact, they may increase as golf continues to fail to attract younger customers. More on that later. In essence, discounted senior rates reward people who play the most with lower rates. That may not be a bad thing based on your market and other factors, but the question then becomes what is the best age for courses to establish for eligibility. The philosophy behind senior rate discounts starts, or should start, with the premise that people of a certain age have limited income to spend on discretionary activities like golf. If correct, is that at age 55? 60? 62? 65? Or even older? Who was the first to decide 55 was the right age, and what did this person use to support that decision? My guess is that the age creep to lower numbers was fueled by the pervasive follow-the-leader mentality found in the golf industry. “Hey, my competitor down the street just lowered his senior age to 39 – I’d better too.” Thank you, Jack Benny. Taking Ollie’s statement further, I wondered who defines the age of seniority? The most logical would be the Social Se-

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curity age when we qualify for benefits – 62. AARP, what my lovely wife calls “the senior discount wonderland,” notifies us (over and over and over) at 50 that we not only can or should retire, but that by joining their legions we can obtain discounts by the boatload and thus tuck more of our hard earned cash into our 401k’s and IRA’s. I looked at senior ages in other industries, to see what I might look forward to and benefit from. Most major airlines, including United, Southwest and American, have discounted fares for seniors age 65 and older. But if you fly Bearskin Airlines in Canada (it’s true – check it out), you can get a discounted senior rate at age 50. Greyhound’s senior age is 62. Hyatt, Holiday Inn, DoubleTree, and Marriot are 62. La Quinta has the oldest at 65, and Starwood and Wyndham the youngest at 50. Best Western is 55, and Motel 6 and Radisson are 60. Want senior discount movie tickets? The most common age to qualify is 62. Want senior discount sporting event tickets? There are some, although they are hard to find. Most commonly the age is 65. Many of the companies listed above, along with all car rental companies and thousands of others offer AARP member rates. Meaning at the end of the day, unless you just don’t want to pay the AARP annual fee ($16 a year including a spouse), discounts are prolific for those 50 and over. How pervasive is the 55 senior designation? Mike Dickoff, CEO of GroupLooper.com, spent a good deal of time and money examining public golf course websites to create a database not found anywhere else. He shared with us some numbers, including the senior age at nearly 4000 courses. Here are his findings: Age

% of courses

2.5%

21%

29%

17%

Unknown

25%

Taking the numbers from the chart above, more than 50% of courses that have senior rates have decided that age 60 or younger defines this ripe market. I have yet to see a golf course offer AARP discounts, but after this article publishes, who knows? But as a higher percentage of rounds are played by The Pellucid PersPecTive

AGE AND DISCOUNTS

Let’s go back to the premise of why senior rates were introduced in the first place - the premise being that seniors have less money to spend. If true, why does that premise not include golfers between the ages of 18-30?

people declaring themselves as discount eligible, what should a golf course do? We advise our clients that 55 is just too young, that 60 is the minimum, and 62 is just right as defined by the Social Security Administration. Courses at 55 now can make the quantum leap to 60 or 62 but risk angering many of their best customers. The best way to raise the senior age is one year at a time until the desired age is reached. Using some discretion with those suddenly locked out of senior discounts is a good idea, especially if they pledge some sort of loyalty to you. Let’s go back to the premise of why senior rates were introduced in the first place - the premise being that seniors have less money to spend. If true, why does that premise not include golfers between the ages of 18-30? The economic data is indisputable – it shows this group to be much more economically challenged than

6 The Pellucid PersPecTive

people age 62, let alone 55. Through August of 2013, the U.S. unemployment rate for people 55-64 was 5.1%. The rate for people 20-24 was 12.5%, and 7.8% for people age 25-29. According to 2011 Bureau of Labor statistics, the highest median income per member of household was among those between the ages of 54 and 64. And we think we need to offer these people discounts? Not surprisingly the lowest income group was composed of those households headed by individuals younger than 24. As dynamic pricing based on day and time tries to go mainstream in the golf industry, maybe first we should examine rates by age and make the adjustments that can attract the right people with the right rate, and improve revenue and profits at the same time. Gotta run. Have to get to the local café before 5:30 for senior special dinner prices. n

October 2013

GOLF PARTICIPATION

A new determinant on “weather” golfers play or not? Data indicates meteorology more important than time, money or difficulty By Stuart Lindsay

ast month, we touched on the data that shows annual golf rounds demand has closely tracked weather variances in 2011, 2012 and so far in 2013. We also noted that this would seem to indicate that we had achieved some sort of equilibrium where weather was becoming more of a factor in determining rounds demand than discounting, which is having little impact on raising the demand for golf. I didn’t realize I was unleashing Pavlov’s dogs and would end up in a byzantine mathematical analysis of golfers as creatures of habit. Annual Rounds

# of Golfers

Total Rounds

2,700,000

11.1%

2 to 9

9,423,000

38.6%

10 to 39

7,820,000

32.0%

40 +

4,463,000

18.3%

20.2

24,406,000

100.0%

moving them up the frequency ladder as they age. The one constant for all these time periods is that the 10 – 39 rounds and 40+ groups play about 90% of all golf rounds. The big problem is that the number of golfers in those groups is dwindling and we are becoming more dependent on a smaller group of “habitual” golfers to generate the bulk of golf demand – only 50% of all golfers were in those groups in 2012 compared to 57% in 1990 and 63% in 2000. The good news is that the remaining golfers in those groups are increasing their frequencies to maintain that 90% of demand threshold, but the bad news is that the 5 million golfers we have lost have actually ended up coming from the high par-

The big problem is that the number of golfers in those groups is dwindling and we are becoming more dependent on a smaller group of “habitual” golfers to generate the bulk of golf demand – only 50% of all golfers were in those groups in 2012 compared to 57% in 1990 and 63% in 2000.

If you look at the 2012 data on golfer population and frequency from our State of the Industry, we know the number of one-time participants and rounds and then take the mid-point of the 2 – 9 round participants (5.5), the 10 – 39 group (24.5) and then subtract those rounds from our total to get rounds for the 40+ group, we can triangulate the number of rounds for the 40+ group (55.3). Short of having the median rounds for each of the groups (we’ll try to get that number for the next SOI), the above numbers are at least very instructive, especially if we look at them over time. As Jim Koppenhaver points out every year, new golfers don’t go from 0 to 55 annual rounds as fast as a Porsche and frequent golfers don’t go from 55 to 0 as if they are braking for a deer. It turns out that there is a lot more fluid movement within and between these segments than we may have previously recognized and seems to show that we have not been very successful in retaining existing golfers, let alone

ticipation and frequency groups. While we have pointed out for several years that we can find 4 – 5 million missing golfers in the decreased participation in the 18 – 35 age group, this data suggests we really need to be working on existing golfers of all ages in terms of increasing retention and frequency. We also have to pay attention to our existing constituency – in 1990 golfers over 55 played 37% of all rounds compared

Annual Rounds

# of Golfers 1990

# of Golfers 2000

# of Golfers 2005

# of Golfers 2012

1,419,000

5.8%

2,506,000

8.5%

3,023,000

10.8%

2,700,000

11.1%

2 to 9

9,084,000

37.3%

8,385,000

28.5%

10,422,000

37.3%

9,423,000

38.6%

10 to 39

9,061,000

37.2%

12,000,000

40.7%

9,275,000

33.2%

7,820,000

32.0%

40 +

4,794,000

19.7%

6,580,000

22.3%

5,236,000

18.7%

4,463,000

18.3%

0.0

24,358,000

100.0%

29,471,000

100.0%

27,956,000

100.0%

24,406,000

100.0%

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The Pellucid PersPecTive

GOLF PARTICIPATION

When we see golf demand track with weather, we need to start asking ourselves if we are heading toward a new equilibrium where price doesn’t matter and golfers are playing as much as they can or want.

to over 50% in 2012. As our numbers suggest, the remaining golfer base is increasing frequency, but that is a mixed blessing. In this era of time compressed schedules, for the habitual golfer a Saturday that is rained out is not replaced by an additional hall pass on another day due to soccer games, prearranged play dates, shared household responsibilities or, heaven forbid, work. Even though soccer games and play dates should go away with age, people are working longer and I see more grandparents at soccer games than ever before. All of this is making golf more weather dependent than ever. This heavy concentration in older participation also has another risk. One of my friends once said “About the only thing good about getting old is that I’m finally getting as much sex as I want.” When we see golf demand track with weather, we need to start asking ourselves if we are heading toward a new

equilibrium where price doesn’t matter and golfers are playing as much as they can or want. When we work with our own clients, we emphasize a variety of promotions to multiple and specific segments of their customer base – not just price based, but maximizing good weather forecasts, no-fault rain checks, clinics and bundled F&B. The one common theme is consistent communication aimed at making their existing customers want to play their course more often. The other key is that our communications emphasize positives such as valuable customer recognition, course conditioning improvements and successful “fun” days. It takes some work and some clients do a better job of customer identification than others; but all of our clients are beating the weather in 2013. As Pavlov proved with his dogs, positive reinforcements are much more effective in the development of better behavioral habits. n

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8 The Pellucid PersPecTive

October 2013

GOVERNMENTAL AFFAIRS

Golf needs a voice in the regulatory process SCGA finds the right man, and the right results By Jim Dunlap

he golf industry has typically beamed with pride when the country’s chief executive admits to a liking for golf and is actually seen playing from time to time, but when it comes to other branches of government at all levels, the industry (like the U.S. today) has generally been a day late and a dollar short. The Southern California Golf Association is doing something about it, and found the right man for the job. Craig Kessler had been active in governmental affairs for many years before combining that background with his longtime love of golf to become the executive director of the Public Links Golf Association of Southern California. During his tenure in that role, Kessler represented the PLGA’s approximately 20,000 members, composed primarily of municipal courses in the Los Angeles area and their customers. Serving on numerous governmental, regional and community committees, he played a key role in helping to avert new water restrictions by L.A.’s Department of Water and Power which would have severely hampered local superintendents in their efforts to get sufficient water to keep turf alive. When the PLGA merged with the Southern California Golf Association (SCGA) in 2011, Kessler became that group’s Director of Governmental Affairs and gained a much louder voice with the combined SCGA membership of 160,000 members and 1,300 clubs. “We’ve been engaged in discussions about water and other similar issues for nearly 10 years prior to the merger, but most of us are not wired for political discussion and those kinds of things,” said SCGA Executive Director Kevin Heaney. “Craig did very well with Public Links in those areas, so we carved out that role for him. He has gone far beyond my expectations already. He’s gotten into offices and negotiated deals that nobody in our association would have been able to accomplish.” Earlier, Kessler and other industry lobbyists were successful in fending off (at least temporarily) a requirement that golf courses charge sales and service taxes on greens fees, private club fees and other transactions in California’s latest attempt to raise the state’s tax revenues. Most recently, Kessler spearheaded a push to have an “Alternative Means of Compliance” adjunct to upcoming water use reduction regulations by the city of San Diego and the city’s Public Utilities agency. The success of that effort will not only help San Diego’s golf courses avoid drastic water cutbacks, but also demonstrates the value of Kessler’s ability to avoid the them against us mentality that has destroyed other attempts by golf stakeholders to reach a mutually tolerable conclusion with various regulatory agencies and legislators.

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“You have to meet government halfway,” Kessler said. “The Katrina legislation [denying relief to specific forms of business which not only included massage parlors and strip clubs, but also golf courses and clubs] should have been a warning to the industry. Our goal should be to help legislators make laws that are as amenable to golf industry success as possible. We need to let [legislators] know we’re in the room, and that we’re involved, and we love ‘em.” “Craig is very good at understanding where to take a position to hopefully change something, and he’s also very good at anticipating what’s coming our way and preparing us ahead of time,” Heaney said. “You need someone who can see all the bills that are coming through the legislature so we can be sure that we’re ready.” Arthur Little, a successful businessman, philanthropist and former golf course owner, agrees that having someone in a role similar to Kessler’s is critical. As the owner of Province Lakes Golf Course in Maine for a number of years, Little and several other area course owners formed a coalition to lobby on behalf of theirs and other courses with the state government in Augusta, Maine. The ownership group eventually grew to nearly 50, and they employed Pete Webber, the executive director of Golf Maine, to be their eyes, ears and occasional mouth in Augusta. With Webber’s help, the owners eventually negotiated some changes in proposed water regulatory language that proved crucial to many courses. “You have to put a face to yourself, whether you’re talking about legislation or regulation,” Little said. “Once they know you and that you are involved and informed, people will call you while they’re thinking of what legislation they will propose.” “Golf is way behind in recognizing what other industries realize - that their fate is tied up in legislations, politics and the media,” Kessler said. “Advocacy is absolutely central in a democratic society. If you don’t have someone focused 365 days a year with their eye on the ball, things get lost until it’s too late.” While it may not be feasible for every local or regional golf association to employ someone like Kessler on a full-time basis, Heaney and Kessler both recommend that they do whatever possible to secure some sort of representation with the legislators and regulators who hold a good part of their constituencies’ fate in their hands. “On the other hand,” Heaney said, “the one downside to that is that it’s hard to find someone like Craig. All I know is that we’re glad to have him.” n The Pellucid PersPecTive

INDUSTRY SCORECARD

September golf weather impact: Positive month caps positive Q3

eptember finished the Q3 trifecta of positive (but not spectacular) weather as Golf Playable Hours (GPH) came in at +2% vs. Year Ago (YA) at the national level. For the Year-to-Period (YtD), the GPH comparative measure continued to improve but remains in negative territory at -7%. Interestingly, the YtD regional breadth ratio deteriorated slightly, registering at

September YtD 2013

YtD

Month Capacity Rds, % Change vs. YA

+2%

YtD Capacity Rds, % Chng vs. YA

–7%

YtD Up/Down Breadth Ratio # of Regions Up # of Regions Down

1:5 6 30

YtD % Utilization Rate (Aug ’13)

52%

YtD % Utilization Rate Pt. Chng vs. YA (Aug ’13)

+1%

10 The Pellucid PersPecTive

1:5 with 6 regions having favorable weather against 30 regions with unfavorable weather (9 regions are in the neutral zone of +/- 2%). Looking at YtD weather impact performance by dayof-week, the unfavorable weather continues to be slightly more concentrated in weekdays vs. weekends (unfortunately the best comparative weather day this season has been Mondays, go figure). For the full-year forecast, our August update suggests we’ve made up as much ground as we’re going to for the year. The values for the above two metrics, the GPH results by day-of-the-week, the monthly timeseries for the entire year as well as market-level Utilization Rates are available to Pellucid Publications Members via the Client Login section at the Pellucid website (go to www. pellucidcorp.com for information or to subscribe). Looking back on August rounds played as reported by Golf Datatech to calculate the facility % Utilization Rate (UR), rounds demand (+3%) slightly outpaced the positive weather performance (+2%), resulting in a UR level for the month of 52%, which is 1 point better than the benchmark 2012 year-end value. For the YtD period, the measure remained slightly up with a rounds decline rate (-6%) slightly beating the weather decline rate (-8%) producing a UR of 52% or up 1 point vs. 2012 year-end. Jim Koppenhaver comments, “A couple of encouraging things are happening here in analyzing the September and Q3 weather figures and the August rounds response. On the weather front, we needed a positive quarter for the health of the average operaOctober 2013

tor after a brutal 1st half, both in the absolute (vs. the long-term averages) and relative to a very strong 2012. This also provided credence to the Pellucid 2013 annual forecast of Golf Playable Hours back in January at the PGA Show, when we indicated that weather would not be down double-digits by year end. During the first half of the year when we were registering 10%+ declines in GPH, several people were questioning the mathematical possibility of seeing a meaningful recovery in the 2nd half, but these results suggest that our storyline for the year may still be on the money. The other encouraging sign is that rounds have responded with positive year-on-year increases in the 3rd quarter behind the slightly better weather. It would have been a major red flag had we come out of the 1st half with declining rounds demand we perceived to be weather-driven and then not posted some increases behind the inevitably better weather in July, August and September. This lends more credence to Stuart Lindsay’s continued assertion that, “Golf is more weather-elastic than price-elastic.” n

All Facility Total Revenue-Rounds-Rate August 2013 Curr Month

Curr YtD

8% ___________________________________________ 6% 6% ___________________________________________ 5%

4% 4% ___________________________________________ 2% 2% ___________________________________________

n Fac Total Rev 0% ___________________________________________ n Rounds –1% –2% ___________________________________________

–4%

n Rate (Total Rev/Rd) ___________________________________________

–6% ___________________________________________ –6% ___________________________________________ –8%

Source: PGA Performance Trak

p Looking at facility Total Revenue, Rounds and Rate as reported by PerformanceTrak, August was up in Total Revenue vs. year ago driven by increases in both rounds and rate. For the Year-to-Date (YtD) period, Total Revenue improved slightly, now registering -1% driven by a 6% decline in rounds mitigated by a 5% increase in rate. Through eight months at the national level, according to PerformanceTrak, the average facility operator continues to find a way to fight the rounds demand headwind, offsetting it with stronger pricing (which could be higher base rates, shallower discounting or a more favorable mix of demand to higher-priced day and week parts) to produce similar revenue to 2012. This continues to fly in the face of the industry anecdotal evidence but is consistent with the results being registered by Pellucid marketing services clients, albeit behind consistent and disciplined marketing, which isn’t the hallmark of the general industry. www.PellucidCorp.com

Facility Total Revenue by Department August 2013 Total Revenue

10% 8% 6% 4% 2% 0% –2% –4% –6%

Golf Fee Revenue

Merch. Revenue

F&B Revenue

___________________________________________ 9% 9% ___________________________________________ 6% 6% ___________________________________________ ___________________________________________ 2% ___________________________________________ 1% ___________________________________________ –1% n Curr Month ___________________________________________ n Curr YtD ___________________________________________ –4% ___________________________________________ Source: PGA Performance Trak

p Looking at Total Revenue by major departments, August Total Revenue was positive, driven by gains in Merchandising and F&B compared to Year Ago (YA). The Year-to-Date (YtD) figure for Total Revenue improved slightly but remains in negative territory at -1%, driven primarily by the 4% decline in Golf Fee (GF) Revenue. Given that GF Revenue contributes over 50% of the average facility revenue, we’re still waiting for and needing its recovery to drive any meaningful improvement in Total Revenue.

Rounds by Facility Type August 2013 YtD All Fac. Types

Private

Daily Fee

Mun/ Mil/Univ

Resort

0% ___________________________________________ –1% ___________________________________________ –1%

–2% ___________________________________________ –3% ___________________________________________ –4% ___________________________________________ –5% ___________________________________________ –5%

–6% ___________________________________________ –6% –6% –7% ___________________________________________ –7%

n YtD Rds –8% ___________________________________________

Source: PGA Performance Trak

p Looking at Rounds by Facility type for the August Year to Date (YtD) period, we see all facility types participating in the downside. It’s a horse race to determine which segment will be the “biggest loser,” with the Muni/Mil/Univ, Daily Fee and Private segments continuing to run neck-and-neck. Given that Muni/ Mil/Univ and Daily fee are responsible for over 60% of both supply and rounds at the national level, the Private rounds decline is of little consequence in driving the All Facilities number. Of interest, however, is the dichotomy that continues in the Private segment rounds reporting between the NGF/Golf Datatech figures which show a decline of 10% vs. PerformanceTrak showing a decline half that rate at -5%? The Pellucid Perspective

INDUSTRY SCORECARD

Golf Equipment Dollars/Units/Avg Price: On Course July 2013 YtD Woods

Irons

Wedges

Putters

Bags

Balls

Shoes

Gloves

10% ________________________________________________________________________________________________ n YtD $$s

n YtD Units

n YtD Avg Pr

5% 4% 5% ________________________________________________________________________________________________ 3% 3% 3% 1%

0% 0% ________________________________________________________________________________________________ –2% –2% –2% –3% –5% ________________________________________________________________________________________________ –4% –5% –7% –7% –8% –10% ________________________________________________________________________________________________ –11%

–12% –13% –13% –15% ________________________________________________________________________________________________ –14% –16%

–20% ________________________________________________________________________________________________ Source: Golf Datatech

p Looking at equipment for the July Year to Date (YtD) period for the On Course channel, the comparable Dollar Sales and Units continued showing broad decline vs. 2012. The outlier is Shoes, which continues to post gains in Dollar Sales vs. last year at +3%, and Balls which struggles to remain in positive territory at +1%. In Clubs, all segments are now showing declines YtD in Dollar sales of 7% or more, being led by Putters, Wedges and Woods in that order. If one looks at the chart from the perspective of Durables (left side bars through Bags) vs. Consumables (right side bars starting with Balls), the Consumables are holding their own despite the fact that they’re most often correlated to rounds demand health (and hence, weather variation). On that topic, the Balls Units sales percent decline of only -2% is relatively strong performance in the face of an 8% decline in rounds looking back at the July YtD period results. Dollar Sales gains in Shoes were driven by gains exclusively in Avg. Price. On the losers’ side, all of the down segments in Dollar Sales are being driven heavily by Units declines (most likely influenced by the impact of weather on rounds which reduce foot traffic through the pro shops). Overall, the channel exhibits a slow downward drift trend from -2% in Q1 to - 5%+ through July.

Golf Equipment Dollars/Units/Avg Price: Off Course July 2013 YtD Woods

10% 8% 6% 4% 2% 0% –2% –4% –6% –8% –10% –12%

Irons

Wedges

Putters

Bags

Balls

Shoes

Gloves

________________________________________________________________________________________________ 9% n YtD $$s ________________________________________________________________________________________________ 7% 7% n YtD Units ________________________________________________________________________________________________ 5% 5% 4% n YtD Avg Pr 4% ________________________________________________________________________________________________ 3% 2% ________________________________________________________________________________________________ 1% 1% 0% ________________________________________________________________________________________________ –1% ________________________________________________________________________________________________ –2% –2% –3% ________________________________________________________________________________________________ –4% –4% –4% ________________________________________________________________________________________________ –5% –6% –6% ________________________________________________________________________________________________ –8% ________________________________________________________________________________________________ –10% ________________________________________________________________________________________________ Source: Golf Datatech

p Looking at equipment for the July Year to Date (YtD) period for the Off Course channel, we continue to see a variation vs. the On Course results pattern with Shoes showing similar but stronger gains (+9%) but with unique strength in Irons (+7%) and Bags (+4%). Similar to the On Course pattern, Woods and Putters show meaningful declines in Dollar Sales. The key Balls category is gamely struggling with Dollar Sales of -4%, again a respectable showing in the face of incredibly unfavorable rounds played trends through July (-8%). Dollar Sales gains in Shoes and Irons were comprised of a rough balance between Units and Avg. Price while gains in Bags were driven exclusively by Avg. Price gains. On the losers’ side, Woods and Putters losses were driven by combined weakness in Units and Avg. Price while the key Balls segment’s decline in Dollar Sales was driven exclusively by a Units deficiency (again, not surprising and likely due to less foot traffic as a result of unfavorable weather). The “slightly slipping” July showing for the Off Course channel maintains the slight YtD deficit (<5%) compared to 2012 based on Pellucid calculations off the Golf Datatech figures.

12 The Pellucid PersPecTive

October 2013

MARKET FOCUS

Established SF courses leap-frog larger markets San Francisco, CA Core Business Statistical Area (CBSA)

ontinuing our sequential series of profiling the healthiest Top 25 US Golf Markets as quantified and ranked by Pellucid using a 10-measure composite scoring system (things like population size/growth, golfer base, rounds generation, supply/demand balance, utilization and RevpAR), this month we highlight the 6th healthiest golf market in the country, San Francisco. Where else but San Francisco could you have a serious legal debate over closing a municipal facility that’s making money because it’s perceived to be doing some harm to the habitat of a red-legged frog and a state indigenous garter snake? Making things even more interesting, the contested land apparently wasn’t even hospitable for said frogs until the golf course was built, so the story is destined to be the stuff of “urban legend” or, put another way, “Man bites frog.” But we digress… By rounds demand (our selection criteria for market inclusion in the Top 25 list), San Francisco ranks number 19 of US markets with facility-reported annual demand of just under 3.5M rounds (constrained somewhat by the landlocked nature of the market and the prohibitive cost of land). Looking at the golf consumer base, we see that San Francisco is home to an abundant local golfer base of 0.4M golfers. (This is only local, resident population, doesn’t count all the tourists who pass through and plunk down their money to play Harding Park and other destination tracks). That golfer base is served by a relatively sparse 82 18-hole equivalent (EHE) facilities, producing a stellar ratio of 4.6K golfers per EHE which is nearly 3x the national average. The supply mix vs. the national distribution across Pellucid’s five access/value/usage segments shows a clear bias to the Private segment at 39% of holes vs. the 27% national average. Interestingly, there’s also a slight skew to affordable, entry-level golf evidenced by the 100+ indices for Public-Value and Learning & Practice facilities. The balance of Value-added golf supply (Private & Public Premium) vs. Value golf (Public Value, Price and Learning & Practice) is 54%/46%, which is slightly higher than the national average of a 50%/50% split. Within Public-Regulation golf, the distribution between Premium/ Value/Price is 27%/36%/36%, which represents a strong bias to Price, compared to the national distribution of 34%/42%/24%. (One has to consider that our price segments are market-specific so “Price” in San Francisco in the absolute range stretches all the way up to $59). During the “go-go” years of supply development (19902000), San Francisco never fully caught the build-a-coursea-day wave (in most part due to the inhibiting factor of land www.PellucidCorp.com

Private

PublicPremium

PublicValue

PublicPrice

Learning & Practice

San Francisco, CA CBSA

Golfer Base – Est. # of Golfers (Ks) – # of 18 Hole Equivalent Facilities – Golfers per 18-Hole Equiv. Supply Mix – Private – Pub-Prem – Pub-Val – Pub-Price – Learn & Prac

Tot US

Index vs. US

379.2 24,400 82 14,675 4,624 1,663

278

39% 15% 20% 20% 7%

27% 23% 28% 16% 6%

144 65 71 125 117

9% –15%

3% –15%

267 100

–24%

–19%

129

37.5

26.7

140

54% $2,110

44% $836

123 252

$22

$11

200

Supply/Demand Balance – ’00-’11 Cume Supply Growth/Decline – ’00-’11 Cume Rds Demand Growth/ Decline – ’00-’11 Cume Mkt Supply Dilution (-)/Absorption (+) Level* – Avg Ann Rds Velocity (ks per 18-hole Equiv.) Rounds & GF Revenue Health – % Utilization Rate – Avg. Ann. Rev. per Public Regulation EHE ($Ks) – Revenue per Available Round (RevpAR)

Future Facility

* Period % Chng in Rds vs. Period % Chng in Supply + Inverse index, lower is better

Above average level vs. US (Index >105) Average level vs. US (Index 95-104) Below average level vs. US (Index <95)

The Pellucid PersPecTive

MARKET FOCUS

Like some number of US golf markets, San Francisco’s basic fundamentals (the consumer base, the utilization rate, the relative affordability, etc.) look pretty strong and encouraging in the long-run. availability and cost), adding supply at a moderate Compound Annual Growth Rate (CAGR) of <1.5%. Mitigating that moderate annual increase in supply was countering annual population growth of just over 1% (just above the national average), meaning the market entered the 21st century with below average supply “overhang” (-3% cumulatively vs. 10% nationally). Since 2000, the rate of supply growth has moderated to just under 1% annually, assuming a continuing bet on population growth. In the post-2000 period however, we track supply dilution by comparing supply change to change in rounds demand, which shows a slightly different picture. Since 2000, demand has shown annual decline of just above 1% (marginally higher than the national trend), translating to 11% cumulatively which, combined with the continued supply growth, results in cume supply dilution of -24% (slightly above the national average). Putting together 1990-2000 and 2000-2011 periods and measurement approaches, the average facility in San Francisco has suffered a 27% reduction in revenue, driven by some combination of rounds or rate decay when compared to the 1990 base-

WHERE DO OVER 250 INDUSTRYLEADING COMPANIES GET UNBIASED, FACT-BASED INFORMATION & INSIGHT?

Visit our website and register for more information and free sample reports at www.pellucidcorp.com. Or, contact Jim Koppenhaver to discuss your unique needs at jimk@pellucidcorp.com or 847.808.7651

14 The Pellucid PersPecTive

line (chosen semi-arbitrarily by Pellucid as a period of economic health for the majority of US golf facilities). This is comparable to the national average over that same period of-29%. The average facility has throughput of roughly 38K rds/yr, well above the national average before factoring in climate and daylight influences. The more accurate measure is the market’s 54% utilization rate, which is favorable (+10 pts) to the national average. This means that, after factoring out the weather impact of a 12 month season, the market’s average golf “factory” runs at higher throughput efficiency vs. the average US course. On the revenue productivity side, the market generates roughly $2.1M per public regulation length EHE, which is significantly higher (2.5x) than the Top 25 Markets average. (What’s not factored in is the expense side of the equation including likely above average real estate elements as well as much higher labor cost than the national average). After factoring that for weather influence, the market’s Greens Fee Revenue per Available Round (RevpAR = Greens Fee Revenue/Available (Capacity) Rounds) registers at $22, well exceeding the Top 25 Markets’ average of $11, which contributes strongly to its 6th most healthy Pellucid ranking. Like some number of US golf markets, San Francisco’s basic fundamentals (the consumer base, the utilization rate, the relative affordability, etc.) look pretty strong and encouraging in the long-run. Unfortunately, most operators don’t have the financial strength and independence to play the slow-dime vs. fast-nickel game, and the current supply dilution “overhang” is a potentially fatal short-term challenge to their survival. The biggest challenge we’ve seen in this market is the number of daytrip, drive-to courses that were built over the last decade to coax San Franciscans out into the beauty of some of the more remote locations to play 18 or 36 over one or two days. These facilities continue to be challenged, whereas the more central, older facilities with good locations are seeing continuing good traction as consumers continue the trend of “staycations” and watching pennies by staying and recreating closer to home. We anticipate seeing some number of the drive-to offerings built in the early 2000s either transacting or shuttering due to the changing consumer economic model. That said, we have a number of Pellucid marketing services client facilities in this market which are surviving and gaining traction through strategic, consistent and disciplined customer outreach efforts. As we’ve said numerous times before, and it applies particularly well to this market, the 5-year game is going to be about winning the battle for shareof-golfer. Just to make it more complicated and interesting, in San Francisco the average operator also has to keep an eye out for the environmentalists on their flank as well as the state government, which occasionally also makes noises about putting n their hand deeper into the golf facility operator’s pocket. October 2013

HEARD ON THE STREET

ClubCorp IPO shares priced lower than expected at opening, rise 10% in debut ClubCorp IPO shares priced lower than expected at opening, rise 10% in debut

http://www.clubandresortbusiness.com/2013/09/23/clubcorp-shares-rise-10-market-debut/ Wisconsin course’s 9-11 promotion generates threats after social media exposure

: http://www.clubandresortbusiness.com/2013/09/11/golf-course-faces-backlash-911-promotion/ Billy Casper Golf acquires Women on Course networking organization

? http://www.clubandresortbusiness.com/2013/09/19/billy-casper-golf-acquires-women-course/ Spokane Valley 9-hole course sells for $1.1 Million, may or may not remain a golf course

http://www.spokesman.com/stories/2013/oct/04/golf-course-spokane-valley-sells-11-million/ National Park Service-run golf courses closed by government shutdown

http://www.clubandresortbusiness.com/2013/10/03/government-shutdown-extends-golf-courses/ Member buys Tennessee’s Colonial CC while club’s membership recapitalizes

http://www.clubandresortbusiness.com/2013/09/19/members-approve-colonial-cc-sale/ Owners put Port Huron, MI course up for sale at auction

http://www.clubandresortbusiness.com/2013/09/11/owners-put-black-river-gcc-auction/ School purchases Annapolis 9-hole course for athletic fields

http://www.clubandresortbusiness.com/2013/09/26/annapolis-md-gc-close-purchase/ Largo, Fla. course plans inaugural FootGolf weekend event

http://www.clubandresortbusiness.com/2013/10/02/largo-fla-gc-plans-inaugural-footgolf-weekend/ FarmLinks course to hold special pace-of-play experimental promotion for 3.5 hour rounds

http://www.clubandresortbusiness.com/2013/10/04/farmlinks-gc-plans-pace-play-experiment/ Coatesville, Pa. club hoping to buy out owner and retain control of club

http://www.clubandresortbusiness.com/2013/10/01/coatesville-pa-country-club-listed-sheriffs-sale/ Independence GC, home to Virginia State Golf Association, reportedly being sold

http://www.clubandresortbusiness.com/2013/09/26/independence-gc-sold/

Gary Player-designed course opens at Cliffs development in South Carolina

http://www.clubandresortbusiness.com/2013/09/24/new-cliffs-mountain-park-course-open-september-27/ Once-popular Montgomery, Ala. club closes its doors

http://www.clubandresortbusiness.com/2013/09/20/bonnie-crest-cc-close-september-26/ Utah city course pays off revenue bond, holds driving range target practice on “mortgage”

http://www.clubandresortbusiness.com/2013/09/30/lakeside-gc-holds-mortgage-burning-party/ Mississippi National course litigation resolved, new operator for course sought

http://www.clubandresortbusiness.com/2013/09/13/mississippi-national-golf-links-legal-dispute-settled/ Virginia course owner hoping marina deal with forestall foreclosure sale of course

http://www.clubandresortbusiness.com/2013/09/10/rivers-bend-gc-files-bankruptcy/ www.PellucidCorp.com

The Pellucid PersPecTive

THE LAST WORD

The show must go on

ith many of us receiving early, early, early bird notices that registration is now open for next year’s round of golf industry conferences in Orlando (PGA Merchandise Show, Golf Industry Show and CMAA Global Conference), and having just returned from the Crittenden Golf Conference in Phoenix last week, the topic of golf conferences was on my mind. It appears that those gatherings, having weathered the last five years of golf industry gloom and doom, are alive and well and hoping for, if not a return to the glory days of packed houses, at least a renewed interest in networking and showing the corporate wares. A number of our readers are aware that I used to play a role in the Crittenden/ Golf Inc. Conferences during my years with Golf Inc. magazine. Attending the last two in Dallas last year and Phoenix this year as a member of the media was a unique perspective (no pun intended) and a chance to truly see the experience from an attendee point of view. When I returned from Phoenix, one of my colleagues at Pellucid Corp. wondered if people were still attending the annual Crittenden get—together, and if so, why? My answer was yes, people still go, albeit not in the same number of general attendees or exhibitors as a few years back, but there is still a good representation of many of the industry’s movers and shakers and subject matter experts. As to why people attend, the primary reasons are still pretty much what they always were — the chance to network with fellow industry stakeholders in person and perhaps cut or cement a new deal or two, and for the paying attendees (speakers get in free), the chance to perhaps learn a few tricks they can put to use at their course back home. Exhibitors show up knowing that virtually every sales prospect they know is attending the show will at least pass by or linger in the vicinity of their booths during the various breaks between sessions or the nightly cocktail receptions in the exhibit area, unlike the PGA, Golf Industry Show or CMAA with their much larger exhibit venues and attendance.

16 The Pellucid PersPecTive

As is typically the case, this year’s opening keynote on The State of the Golf Industry, featuring OB Sports COO Phil Green as moderator and including Century Golf Partners CEO Jim Hinckley, KemperSports EVP Jim Stegall and CNL Financial Group SVP Gary Rosmarin as speakers, dropped no bombshells. They did present, for those who were blissfully unaware of them, the somewhat depressing state of the industry’s rounds, revenue and participation demographics, interwoven with a few optimistic notes, mostly along the lines of golf has survived another economic attack and will persevere, as long as we make it fun and run our businesses like businesses. Several sessions addressed one of our favorite topics here at Pellucid — third party tee time marketers. With folks like Kurt Albertson of EZLinks, Scott Merchant of Golf Pipeline and Brett Darrow of Quick 18 on various panels, there were numerous veiled references to “the elephant in the room” or “the largest tee time aggregator,” mentioning no name, of course. Finally Sunrise Golf CEO Mark Tansey, moderating a panel ominously entitled “The Biggest Mistakes Top Operators are Making,” halted the bush— beating, saying “Folks, it’s OK to say the name — it’s GolfNow,” to the amusement of the audience. In another session, Steven Ekovich, Managing Director of the National Golf & Resort Properties Group, probably the most prolific of the golf course sales brokerage firms, raised more than a few eyebrows (and blood pressures) when he made the statement “Golf devalues real estate.” Hands quickly went up in the audience at such blasphemy, and it was clarified in the ensuing discussion that what Ekovich really meant was that zoning and environmental restrictions permitting, land could typically be put to a more lucrative use than erecting a golf course on it, such as residential or commercial development. Once that was clarified, and the point was made that once built, golf courses tend to accelerate the value of the neighboring real estate,

the villagers put down their torches and Ekovich escaped unscathed. While chance meetings at the PGA, Golf Industry Show or CMAA Conference on the floor or in the bar at the Peabody or the Rosen can lead to impromptu business discussions, it’s more likely at a smaller show like the Crittenden event. Last week, one of Ekovich’s fellow speakers on the Golf Course Finance panel was Ray Munoz, who has assembled most of his former executive team members at Textron Financial in his new Leisure Financial Group. After Munoz touched on some of the emerging alternative ways to finance golf course deals, he and Peter Nanula, the Chairman of Concert Golf Partners and one of the industry’s most active recent course buyers, were seen heading off together to talk a little business. As for the exhibitors, there are a certain core group of repeat exhibitors at that particular show, although like any show, there are other one—hit wonders who exhibit once, run the cost—benefit analysis afterward and decide to spend their marketing dollars elsewhere. The reason for the repeaters was probably summed up by one long—time exhibitor, who told me, “Every year I think about whether I should come back or not, but the bottom line is that I almost always get some worthwhile leads. This year, I’ve already talked with one company that looks like they’re going to turn into some business for us, so I’m glad we came.” All in all, while the PGA’s Fall event in Las Vegas has become a shell of its former self, and largely serves the apparel side of the business, the industry’s major shows seem to be holding their own. This year, the Orange County Convention Center will be the center of the golf industry for nearly 3 weeks, as the PGA Merchandise Show, Golf Industry Show and CMAA come and go one after the other. Depending upon how many attendees are able to wheedle free or reduced greens fees from their Orlando compatriots, it should be a banner start to the year for Orlando area courses. —Jim Dunlap

October 2013