The Pellucid Perspective - September 2016 - 15

price of golf isn't necessarily revealed by a balanced distribution (i.e. Value golf could run the range of $35-$70 depending on the local cost-of-living variances). During the "go-go" years of supply development (1990-2000), St. Louis was at the vanguard of the nation's "build a course a day" craze, increasing supply at an annual rate of ~5% (wow, no that's not a typo and compared to the (unreasonable) US average of >2%). In tandem to this, annual population growth was minimal (<1% vs. the national average of ~1%). Using our pre-2000 calculation for supply dilution/absorption (supply change vs. population change), we estimate that the market was at ~43% dilution at the turn of the century vs. the 1990 benchmark (vs. the US average of 11% "overhang"). Since 2000, the annual rate of supply growth has throttled back significantly (<0.5%) while the population growth rate hasn't changed materially. A better available metric however for supply dilution/absorption in the post-2000 period (because we have semi-accurate facility-reported rounds figures at state and market level) is comparing supply growth to the changes in rounds demand. Since 2000, the market has experienced a slight decline in the annual rounds demand rate (~1% similar to the national average of -1% annually) which yields increased supply dilution of ~16% during the '00-'13 period. Combining the '90-'00 decade dilution rate and the '00-'13 period results, the average facility in the market is ~59% worse off than they were at the '90 benchmark (considerably higher than the national supply dilution of 27% for that same '90-'13 period). So, relative to the national picture and other markets we've studied in the Top 25, St. Louis and its operators are fighting an oversupply situation that's roughly twice the magnitude as the (challenging) national average figure (ouch!). The average facility has throughput of 21K rds/yr, considerably below the national average before factoring in climate and daylight influences. The more accurate measure is the market's 38% Utilization Rate which substantially trails the Top 25 US Golf Markets' average (56%). This means that, after factoring in a significantly shorter-than-average season, the market's average golf "factory" runs at lower throughput vs. its Top 25 US Golf Markets peer group. On the annual Golf Fees Revenue productivity side, the market generates roughly $0.6M per public regulation-length EHE which significantly trails the Top 25 Markets average (so they're getting a combination of lower throughput and lower rate). As we move down the waterfall of health metrics, the combination of the lower Utilization and Revenue per EHE combines to produce a lower Revenue per Available Round (RevpAR) result, $11, than the Top 25 Markets benchmark. As a final measure for the Top 25, the Golf Fee Profit-per-Available Round estimate (designed to equalize the equation when comparing high cost-of-living markets to more reasonable ones) is $2, which is well below the national average of $9, so the market also potentially has higher expenses than average to achieve those results. For more detail on what this means and how it's calculated, see Jim's article in the October '14 Perspective edition (or send us an email at jimk@pellucidcorp.com and we'll fill in the blanks). In summary, on the positive side of the ledger the market has strengths in the golfer base relative to supply and a healthy www.PellucidCorp.com concentration of that supply right down the middle of the price range (vs. the premium "glut" we see at the national level and in other major markets still). On the negative (opportunities?) side of the ledger they've got tremendous supply overhang, mirror the national average annual rounds demand decline and lack pricing power it would appear. While we'd like to say that "growing the game" is the path to winning here, more likely winning the shareof-golfer battle is the more appropriate short-term game in town. Some local operators like Walters Golf Management appear to have figured out how to either win or survive in this market (with the above macro market numbers, surviving = winning here), whether or not that can be attributed to their dynamic pricing approach can be debated, so there are benchmarks out there that it can be done. That said, one would need a high appetite for risk, unshakable confidence in one's operational prowess and a little bit of luck to parachute into the St. Louis market as a new entity and succeed via a dramatic turnaround. On the other hand, everything depends on the "buy" metrics and if you could swoop in and get something "on the cheap" (in today's world that's likely <$.25 on the dollar, however one wants to define "the dollar"), there's likely a play because you'd be playing off a completely different P&L than the legacy operators. In summary, it's not a market for the faint of heart. n "Clear Solutions to Golf 's Business Issues" 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 The Pellucid PersPecTive 15 http://www.pellucidcorp.com http://www.PellucidcorP.com

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