The Pellucid Perspective - August 2013 - (Page 6)

TEE TIME MARKETING The true cost of barter By Stuart Lindsay L ast month we provided extensive coverage of the recent acquisition of FORE! Reservations by GolfNow and what that might mean for operators using third party tee time marketing services. As the founder of Edgehill Golf Advisors, I have been tracking technology use and options for golf courses since the 1989 introduction of electronic tee sheets and interactive phone systems. Barter is a frequently used form of payment for many third party tee time marketing companies, including and especially GolfNow. Regardless of whether one is for or against that form of compensation for tee times sold, it is imperative to understand the true cost of that arrangement to the course owner/operator, and whether or not barter works to his or her net benefit. Here are some basics to help us evaluate the cost of barter. First, we tie all the golf courses in the US to an appropriate weather region and use that to give us a Weather Adjusted Capacity number for the “average” golf course – the 10 Year Average for our average golf course is about 63,000 rounds per year. With slightly over 16,000 courses, there are about 1 billion rounds available for sale every year. In 2012, we sold about 495 million rounds for a utilization rate of about 50%. This creates estimates that an average golf course does about 31,000 rounds annually. The box of basic values on the accompanying/facing page is drawn from a wide variety of sources and is relatively consistent with data we assemble for our annual State of the Industry presentation. There is actually some very complex math that goes into the creation of these values; but we are simplifying them to illustrate how we analyze barter. We’ll let you decide whether we are tossing horseshoes or hand grenades. So how do we determine the cost of barter? Rounds played? Rounds available? How many of the barter rounds are redeemed and at what price? When we look at course specific data, we actually look at multiple methods of computing cost. Most courses have a specific SKU tied to barter redemption. GolfNow has publicly stated that they sell about 50% of the barter rounds they receive in trade. The courses we have analyzed using GolfNow have averaged over 60%, but we’ll use their 50% number in this example. Some other barter-based service providers have somewhat lower sales of their barter inventory; but some are higher, so we’ll go with 50%. Our data also suggests that the average discount on barter inventory is about 50%. Our “average” golf course has expenses per round played of $30.65 ($950,000/31,000). With the course giving up 1,000 rounds to barter and redemption of 50%, this establishes a cost of barter equal to 500 X $30.65 = $15,325. If we base the calculation on available rounds, we get a similar value - $950,000/63,000= $15.08. Since 1,000 of the available rounds are barter, the cost of barter is $15,080. For those of you who believe the barter rounds would go unused and have no value, we simply respond that GolfNow and other barter providers are able to sell about 50% of the barter inventory at prices about 50% below retail. If the greens fee/cart revenue at our average course is $41.94 ($1,300,000/31,000) and your barter partner sells 50% of their 1,000 rounds at 50% off, they are generating $10,464 from that inventory that you think has no value (500 X $20.97). This average range of $10,000 - $15,000 is consistent with our dissection of data from a variety of service providers at the individual course level when the courses ask us to estimate how much they are actually paying for bartered services. Of course, this also means that this revenue is now going to the barter partner and the golf course has to sell additional rounds to replace the revenue that is now flowing to their barter service provider. As I said in last month’s article, we have seen barter winners and losers when we do our analyses for our client courses. Part of what we do is look at service alternatives. Let’s look at a couple of examples. In the interest of transparency, both GolfSwitch and 1-2-1 Marketing are current or former sponsors of this publication. Their citations are not meant to imply that they are the only service providers available to operators, but merely the ones for whom we have the most pricing information. The basic internet reservation interface provided in the original GolfNow (Cypress) service platform for one barter time per day at a cost in the range above ($10,000 - $15,000) is available from GolfSwitch at a cash price of $249/month (about $3,000 per year). One large golf web hosting and email service provider using So how do we determine the cost of barter? Rounds played? Rounds available? How many of the barter rounds are redeemed and at what price? When we look at course specific data, we actually look at multiple methods of computing cost. Most courses have a specific SKU tied to barter redemption. 6 The Pellucid PersPecTive August 2013

Table of Contents for the Digital Edition of The Pellucid Perspective - August 2013

The Pellucid Perspective - August 2013
Contents
Say good-bye to Ladies Day?
2013 mid-year review: Anyone get the license place of that truck?
The true cost of barter
Snowboarding is to skiing as ??? is to golf
New private club buyer/investor emerges
Skybrook Golf Club, Charlotte Golf Links owe millions, placed in receivership
July golf weather impact: Finally, a weather-favorable month vs. ’12
Finding golfers no circus act in Sarasota
Random shots

The Pellucid Perspective - August 2013