Two experts give their views on the current state of the U.S. golf industry.
by Stephen Johnston and Daniel Miller

Editor’s Note: After 13 years of providing consulting services to more than 1,700 clients in the golf industry, KPMG’s Golf Industry Practice was recently purchased by its existing managers and renamed Global Golf Advisors. Included in the purchase was the transfer of all clients and projects of the practice, and all staff both in Canada and the United States. Former KPMG Golf leader Stephen Johnston is a principal with Global Golf Advisors and Daniel Miller is an associate with the firm.

In the first five years of the 21st century, the golf industry has gone through some dramatic peaks and valleys. The changing demographics and culture of the population, the proliferation of new golf courses, the downturn in the economy and less leisure time to devote to spending the day at the golf course have all had an affect on the golf industry. However, many in the industry were ill prepared for these challenges and have been left scrambling to recover.

We have interviewed regional leaders in the golf industry in order to take count of what issues, challenges and opportunities exist in their markets. In our discussion with the various industry representatives, we wanted to probe some of the issues that all golf course operators face on a daily basis (weather, pricing, competition, rounds, new golf courses in the area and what the future holds for golf in their region) to examine how they are dealing with these issues.

Here are some of the major points that came out of our conversations with various golf industry representatives.

Rounds
Weather is the major factor that causes rounds played to be above or below expected levels. In areas where golf is a seven-month activity (April-October) good weather is vital for a successful season. The Northern states are dependent on weather because the golf season is so short. One bad week of rain or cold during the summer could cause rounds played to be below optimal levels.

Several of the areas reporting that rounds were increasing in 2005 experienced good weather. Due to the fact that weather fluctuates so much, it is difficult to compare rounds played on a year-to-year basis. Many we spoke to do not compare rounds played on a year-to-year basis to determine if rounds have increased or decreased from the previous year, but rather operators said they are using a rolling seven-year average of rounds played to determine if rounds are up or down from the previous season.

From many of our discussions with golf operators it appears that the demand for golf has stabilized. Many have acknowledged that few new golfers are entering the sport. Several factors are keeping people from taking up the game of golf or coming back to the game of golf, and this has caused rounds played to decrease. Golfers are not playing the game at the same rate as they did five years ago.

According to one respondent, “There are more activities that are competing with golf, and people cannot afford to spend a day at the golf course when they have kids and a family.”

Pricing
Pricing fluctuations varied from region to region. Due to increased competition in the past couple of years, many golf courses have had to keep their rates the same, in the face of rising costs.

As one operator stated, “Our revenues are in 2001 dollars and our costs are in 2005 dollars, and this does not add up.”

Many courses were not able to raise their rates. However, it appears that the market has stabilized, and operators are slowly starting to increase their rates without getting much resistance from golfers. Increases and decreases in pricing are specific to each area. In some areas the price for golf continues to decrease, and discounting among golf courses continues to be prevalent.

Though discounting wars benefit only the consumer, they still exist in some markets. Most golf operators agree that discounting is bad for the industry, but it is necessary, especially when your competitors are doing it.

Some operators said they have to discount in order to keep cash flow at an appropriate level or to keep the course busy. But the main reason operators said they discount is because the competition is discounting.

However, a few operators put a different spin on why they do not discount. Many owners said that they have determined a value for a round of golf at their golf course. They will not let the price go beyond that value and would rather the time go unsold than discount it. They said as soon as you start discounting your times, you are setting a value for a round of golf. And once a golfer pays a reduced rate for golf, a precedent has been set for the price the golfer is willing to pay. At that point, the difficult part will be trying to get that golfer to pay a higher rate the next time.

New Course Construction
A majority of the new courses being built are being constructed in conjunction with real estate developments. Real estate developers are building golf courses as part of housing developments to help sell homes.

The problem with this is that the real estate developers do not care that there is already an oversupply of golf courses. The developers are in the business of selling homes, and if the value of a home increases when a golf course is part of the development, the home builders will continue to build golf courses as part of the developments.

While new golf courses continue to be built, many of the golf course operators and executives we spoke to said they are seeing an increase in the number of courses that are being plowed under. In some cases the courses being plowed under are only a few years old. Golf course owners who are selling their land believe their land has more value as real estate.

Future of the Game
The discussions revealed that various golf industry representatives believe there is a positive feeling toward the future of the golf industry. Many believe the industry has hit the bottom and has stabilized.

Operators have to take stock of their operations and make appropriate changes in order to succeed. One of the major issues regarding the future of the game involved the beginning of the retirement for baby boomers.

In the next five years, the baby boomer generation will start to retire. These individuals will represent a major opportunity for the industry. These individuals will be retired and will be looking for activities to fill their time. Baby boomers for the most part will be on a fixed income. Offering them appropriate value for money will help golf courses build a loyal customer base.

Our Views
Here is what we believe is happening in the golf industry in the United States:

· Rounds played are increasing, but only by a few percentage points on an annual basis. Everyone is in agreement that weather has the greatest impact on rounds played. Some operators believe it is impossible to compare rounds on a year-to-year basis due to the fact that the weather is different every year. We believe that rounds played can be compared from year to year. Operators need to look at the historical weather averages to determine if the weather during the current year is better or worse than what has happened in the past. A statistic that more golf courses need to begin using is net rate per round (average green fee rate plus annual dues, if applicable, divided by total 18-hole rounds played). Operators should compare the net rate per round from year to year, as it all but eliminates the impact that weather may have on rounds played.

· Prices for daily-fee golf rounds are starting to increase slowly. For several years golf course operators were forced to keep their prices flat due to competition. However, daily-fee courses have begun to increase prices with little opposition from golfers. Where we are seeing a decrease in price is in the low and middle market private golf clubs. Many of these clubs are struggling to fill membership, which has forced them to reduce initiation fees and annual dues in order to maintain adequate membership levels.

· New golf courses are still being built, but not at the same pace that happened from 1996 to 2002, when on average 400 to 500 new golf courses were built every year in North America. The number of new golf courses being built on an annual basis has been decreasing over the past few years. Many of the industry leaders we spoke to said many of the new golf courses are being built in conjunction with real estate developments. While this is still happening, our research indicates that golf courses are no longer the main amenity that homebuyers look for when purchasing a home. Homebuyers now value water and lakes as well as green spaces (parks, walking trails etc.) as amenities to a housing development.

· The baby boomer generation poses an opportunity for the golf industry. Golf course operators must be aware of the services these golfers require. In many cases, these golfers will be on a fixed income and golf courses need to ensure the value offered is appropriate. Additionally, because these golfers will be retired or working reduced hours, they will want to play golf during non prime time hours. Golf courses have become accustomed to discounting or having the non prime times go unsold. The potential exists for fixed income baby boomers to fill these times and help the golf course remain busy seven days a week.

What Can We Do Better?

· The golf industry needs to focus on attracting families to the golf course at non-peak times. Golf course operators understand that they are not just competing with the golf course down the road, but are also competing with football practice, soccer games and Little League. Golf courses must market and target directly to families. In many cases these families are beginners and are new to the game of golf. Courses need to target this market by doing things such as: offering family clinics, setting up the golf course to make it playable for families (shortening holes), offering appropriate family rates, setting aside times for families to play (so that they do not feel pressure from a foursome that is playing behind them). The industry needs to be open to accommodating this market and can’t just pay it lip service. If family programs are offered at a golf course, the golf course needs to be receptive when mom, dad and kids walk through the doors.

· You don’t learn how to ski on double black diamonds, so why should you learn how to golf on a 7,000-yard course? The golf industry needs to build and properly maintain more nine-hole courses, par 3 courses, executive courses and learning centers. These facilities should be the first place a beginner goes to learn how to golf. When someone wants to build a new golf course their first thought is not to build a nine-hole learning center, but rather to build a 7,500-yard monster, high-end daily-fee course because these courses have the potential to make more money and have a higher value than a short course. If the golf industry believes that juniors and women hold the greatest potential to increasing demand and increasing rounds played, then why are we not building courses for these golfers?

· The national programs that exist (Play Golf Summit, Play Golf America, Golf 20/20) all look great on paper, but what type of impact are they having on the industry? Is a national strategy the best idea for growing the game and targeting new golfers? The focus should be both national and local, because local groups have a better understanding of the problems affecting their markets. Operators understand their market better than most and need to offer appropriate programs in order to ensure that their golf course is successful.

The future of golf appears bright, but that doesn’t mean that golfers are going to start beating a path to your golf course. Golf courses need to offer golfers appropriate “value for money” and ensure that the condition of their course matches the price they charge. The economy appears to be improving which bodes well for the industry, coupled with the retirement of the baby boomer generation. Golf course owners and operators should be optimistic and encouraged about what the future holds.