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By David Gould
Navigating the golf industry’s road map as 2017 approaches
If journalism is the first draft of history, end-of-year wrap-up articles like this one might be the second draft—or perhaps version 1.5.
For anyone looking back at events that commenced on January 1 and unfurled through the spring, summer and fall of 2016, the trick is to recognize occurrences that made a splash at the time and carry longer-term implications as well. The even slyer trick is to recognize events or trends that didn’t get much attention at the time but could indeed become influential long-term.
Of course, when a given year supplies either a wholesale crisis or some immense triumph for the industry being examined, it’s simpler to shine your light and declare what’s significant. This year has featured neither a high peak nor a plunging valley for people in the golf business; rather, we’re seemingly part of a long, sluggish, slow-growth economy that people may eventually accept as plain old reality here in the 21st century. Within that general drift, the factors and events that lead to incremental change—or perhaps just alter the mood of the marketplace—are what you look for.
40 Hours Means More Than It Used To
Time-and-a-half for “overtime.” Over decades, this was a standard pay benefit for American workers who weren’t legitimately part of management. Interestingly, public debate about our economy has long been peppered with references to the “fading middle class,” but a statistic that strongly underscores that notion only came to broad awareness during the U.S. Department of Labor’s lengthy 2016 campaign to change the overtime pay rules.
The stat in question: From 1975 through 2015, the portion of workers in the United States eligible for overtime dropped from 62 percent to a sliver of the workforce—just 7 percent. Employees who ought to have been in line for time-and-a-half kept finding their way into the “exempt” (from overtime) category, partly due to normal wage inflation that wasn’t adjusted for and partly by carrying a “manager” job title while receiving notably low per-hour compensation. Currently, someone drawing an annual salary of $23,816, or $455 a week, is exempt. After December 1, the employer will need to basically double that salary money, to $47,476 a year (equal to $913 a week), if they still want the employee to stay on “straight pay” in hour 41 and beyond.
In golf, workers such as golf professionals and instructors (with W-2 employee status) generally weren’t pleased by the government’s efforts on their behalf. The instructors, compensated on a salary-plus-lesson-revenue basis, have spoken up to say they’d prefer to avoid having employers experience sticker-shock on their salaries. The likely result would be a much bigger cut of lesson revenues for the club, in order to offset the necessary salary bump, followed perhaps by a mid-year re-adjustment of that percentage.
The response of the NGCOA and PGA and their members is just one of several possible examples of the law of unintended consequences hitting golf operations in 2017 from this DOL initiative. Experts on wage and hour law are commenting a bit more emphatically about the specter of class-action lawsuits aimed at recovering underpaid wages. Meanwhile, human resources departments are concerned about accurately recording all the time worked by employees who are moving from exempt to non-exempt. This requires a system that includes developing and training all hourly workers on time tracking, including work that might be performed outside normal business hours and offsite. Navigating the new environment is certain to be a challenge in the year ahead.
Wage Growth To Continue? The DOL’s New OT Rule Might Indeed Help
It’s been a tricky year for capturing macro data on the economy and interpreting it accurately. Revisions to quarterly data such as gross domestic product (GDP) are common enough, but in 2016 they were unusually plentiful and fairly dramatic. Forecasters at J.P. Morgan Chase were forced to upgrade their projections for third-quarter growth to 3 percent from 2 percent as a result of revised data from the U.S. Commerce Department. Other influential sources echoed that 3 percent projection, which, if realized, would represent the fastest growth rate since the third quarter of 2014. Once they got their bearings, economists couldn’t help sounding positive.
“Growth is a lot stronger than it looks,” said Scott Brown, chief economist at Raymond James & Associates, as he evaluated first-half data. “We’re still seeing a pretty strong jobs market, we expect wage growth to pick up, and gasoline prices are relatively low. That’s all a pretty good backdrop.” Taken in a broader context, robust activity in the third quarter would only allow 2016 to keep pace with the droning march of lackluster growth that has marked the seven-plus years of post-recession recovery.
What if wage growth—aided by the new overtime rule—really did show a spike upward in 2017? It would almost automatically lead to higher inflation, and in turn trigger some interest-rate hikes by the Federal Reserve. But it would surely create something of a sweet spot for businesses that usually prosper when the average person has more money to spend and a sense that they’re being cut in on whatever prosperity the economy can manage. If that sounds like your customer, you might find yourself feeling positive about 2017.
Unforeseen Hardship: Having To Wait Four Years For More Olympic Golf!
When something works for the National Football League—“Monday Night Football” or pond-hopping to Europe for regular-season games—the league simply doubles down until full saturation levels are reached. Golf—at least as a spectator sport—can’t order up more Olympic competition for itself, though it certainly would wish to.
In something of a surprise, the problem of superstar no-shows and other bad press in the Rio run-up failed to keep the golf in Brazil from garnering an enormous TV audience. That included a vote of confidence in the game’s appeal to young people, as the rating book showed that adults ages 18 to 49 made up 30 percent of viewers. This added up to a younger viewership than for any regular-season PGA Tour event’s final round over the past four years.
Looking at the complete audience, the final round of the four-day event—which was won by Justin Rose, with Henrik Stenson finishing second—produced the second-highest overnight TV rating for any 90 minutes of golf programming in all of 2016 other than the final round of the Masters. More than one commentator paid Olympic golf the tribute of being a “very good TV product,” so we’ve got that going for us.
There was also solid praise for the golf course designed by Gil Hanse, with consultation from Amy Alcott. U.S. course architects don’t sign their names to many a new 18 these days, so the rooting interest among cognoscenti in having qualified commentators offer up kudos was palpable. If it was largely symbolic that the TV audience was large and excited and the against-all-odds story of the course-building came to a dramatic and happy ending, so be it—golf is in need of powerfully positive symbolism, especially on the global stage.
Drought Spreads East—New Science Addresses the Water Question Long-Term
In the very first week of the year, a 6,000-word, heavily-footnoted research paper was published by a consortium led by the American Society of Agronomy. The paper was titled “Documenting Trends in Water Use and Conservation Practices on U.S. Golf Courses,” and had shared authorship that included San Diego-based PACE Turfgrass, a membership-based research and information service for the turfgrass industry, along with the GCSAA and the National Golf Foundation. The report found that U.S. golf courses used 22 percent less water in 2013 than they had in 2005—a major improvement in just eight years.
“Factors contributing to this decrease include voluntary reductions in number of irrigated acres, reductions in number of golf facilities and water conservation practices,” the paper read. “Golf courses used 1.44 percent of all water used for irrigation in the U.S. in 2013,” it also stated. It’s hard to be as scientific when it comes to public attitudes about golf and its water usage, but on the anecdotal level, the industry seems to be faring well enough.
You would be hard-pressed to find a more left-wing publication than San Francisco-based Mother Jones, so a wisp of pride could be felt by the golf industry when the magazine’s exposé article on water use in California said there was “good news” represented by the fact that “the golf industry is coming around; more and more courses are using recycled water, leaving zones off the fairway unwatered, and taking advantage of drought-tolerant landscape rebates.”
Looking ahead to 2017, climatologists are expecting “weak La Niña conditions” to prevail in the U.S., which for the West would seem preferable to the El Niño conditions of this past year. According to the California Department of Water Resources (DWR), of the 18 La Niña winters since 1950-1951, above-average precipitation was recorded in 11 of them for the Northern Sierra and in eight of those winters for the Central and Southern Sierra—a region whose snowpack is described by the DWR as “the state’s largest reservoir” flowing each spring into a series of above ground storage reservoirs that supply a vast swath of the state. As for coastal and inland Southern California, La Niña winters aren’t kind—nearly all of those 18 since 1950-1951 have provided below-average precipitation to the lower part of the state.
Golf as Entertainment Is Still Spelled T-O-P-G-O-L-F
The industry year-in-review is a staple story for any serious-minded trade publication, and in this industry, you can expect there to be coverage of Topgolf and its growth trajectory in all such articles for the foreseeable future. The company got rolling in 2016 with a mid-January grand opening of its Virginia Beach, Virginia, center, which brought its total number of locations to 24. By mid-June, the sports-and-entertainment juggernaut was cutting a ribbon in the Portland, Oregon, suburb of Hillsboro to bring it to 27 operating units.
And when your footprint for each unit is north of 50,000 square feet, scaling up toward 30-plus U.S. locations (which is Topgolf’s target for calendar year 2016) means you’ll need to start climbing out of the Sunbelt toward metro markets where golf is hardly a year-round activity. With two centers about to open in New Jersey, one in Virginia and a couple in the Washington, D.C., suburbs, the company has shown it can handle the revenue falloff during winter months that a Northern-tier presence will naturally generate.
News of a different nature about Topgolf broke in late February, when it was announced that Callaway Golf had agreed to sell about one-tenth of its Topgolf equity, which would drop Callaway from an 18.5 percent to a 14.6 percent stake in its fast-growing affiliate. The decision to invest originally in the British-born Topgolf has proven prescient for Callaway, which was said to have earned a 306-percent gain on the shares that it sold back. The shares Callaway held onto were said to be worth close to $200 million—at a time when growth in the clubs-and-balls business was nonexistent to negative, and cash for investing to grow market share was and is a significant asset.
Is Topgolf a full-blooded and card-carrying citizen of the golf industry? The only reason for skepticism on that point would be some vast, unbridgeable chasm between golf with “Bay Hosts” serving drinks and food and golf out on the green grass. Also in 2016, Topgolf has shown more of a proclivity toward developing its patrons into golfers. For proof, witness the expansion of Topgolf U, its golf-instruction amenity, which “helps students develop and practice the fundamentals of the golf swing in a high-energy environment that’s constantly being updated and upgraded so no two lessons are ever the same,” as an online description of Topgolf U describes it.
David Gould is a Massachusetts-based freelance writer and frequent contributor to Golf Business.