The Pellucid Perspective - November 2015 - (Page 17)

THE LAST WORD Singing the blues in Memphis W e recently heard from (blatant plug to follow) a long-time Pellucid follower in the Memphis market. He was bemoaning the fact that in his region, a disturbing number of struggling courses, rather than closing their doors and finding a way to repurpose their acreage, had sold for pennies on the dollar to new ownership. In several cases, the new owners then proceeded to pour significant money into the properties, lowered greens fees and membership fees and attempted to undercut local competitors, including our correspondent. He was wondering (a.) what is making buyers think they can squeeze profits out of stagnating turnip when others were failing, and (b.) with courses in the U.S. closing at a rate of approximately 10-1 compared to new course openings, and a slowly declining U.S. participation market, when could current owners like himself anticipate a point of equilibrium in golf supply and demand? There are a number of answers to the first of those questions, none particularly flattering to those buyers, especially those from outside the golf industry. Ego and a sense that having succeeded in their primary business, surely they can successfully run a golf course is certainly one. Another is the declining prices of golf courses, which at least at first glance would seem to leave some financial room for upgrades without having to maintain or increase rates to pay for them. The glaring example of what our correspondent was talking about is none other than Justin Timberlake, who bought the Big Creek course that he'd played for years with his dad for cheap and proceeded to pour an amount conservatively reported at $16M into the renamed Mirimichi Golf Club. Timberlake, an avid golfer who hosts a PGA Tour event and has played in dozens of the Tour's Pro-Ams, garnered plenty of positive ink for his attempt to turn Mirimichi into a model of environmental sensitivity and sustainability. Local comwww.PellucidCorp.com petitors, including our correspondent who lost 10 percent of his members the year that Mirimichi reopened with its $16M worth of upgrades and pricing as low or lower than other, older clubs in the market said, "It's impossible for us to compete when people are putting in tens of millions of improvements and charging the same price we are." The irony, at least in the case of Timberlake and Mirimichi, is that they couldn't compete either, even with the new look and Timberlake's cash and cachet. A year ago, Timberlake, after enduring annual losses in the seven-figure range, sold the course to a Memphis businessman for a mere $500,000. That may have been selling it for a song, but it was more like a dirge. Especially for our faithful correspondent and other Memphis area operators who still have Mirimichi to deal with. Another reason why so many courses transact and remain players in the golf marketplace, aside from the fact that in some cases covenants and restrictions on courses prohibit their redevelopment for commercial or residential projects, is that many of the buyers swooping in to pick up courses at below market prices actually have some reason to believe they can turn the properties around. Smart buyers like Peter Nanula of Concert Golf Partners, Escalante Golf, ClubCorp and others can offer not only years of golf industry experience but buying power, liquidity and reciprocal play opportunities. All those make it even more difficult for one-off or small portfolio owners trying to compete. And not all celebrities are naive enough to assume that their name will carve out a profit in the highly competitive golf industry. One, who happens to owe his fortune to his success on the links and at the endorsement bargaining table, is Phil Mickelson. Lefty, along with his former coach, current agent, business partner and long time friend Steve Loy, is becoming a player in the course ownership game as well. And, as the story earlier in this issue on the demise of the Spokane Country Club details, Mickelson and his group like to stack the course buying deck with more than his name. Having already purchased a number of courses in the Arizona market, Mickelson and partners made offers on a pair of private clubs in the last year or so, the Fairbanks Ranch club in Mickelson's long-time backyard of Rancho Santa Fe, CA and the Spokane club. In both cases, they had one contingency on their offer which would have provided some protection against future developments. They insisted that the Fairbanks Ranch club renegotiate and extend its land lease with the city of San Diego before a deal could be finalized, which the club turned out to be unwilling to do. In the case of Spokane, they not only submitted the low bid, which was reportedly favored by the members anyway because their club would remain private, but they required a commitment that a minimum of 250 members pony up a $2,000 upfront fee and promise to pay $475 a month in dues for the first three years. The club, which was down to less than 250 members due primarily to debts incurred via a losing gender discrimination suit, was unable to make the commitment, so exit Mickelson and company. Now that's hedging your bets. The answer to our correspondent's second question isn't likely to brighten his day either. Our publisher and Pellucid Corp. founder Jim Koppenhaver informs me that based on Pellucid's current tabulations, the industry is currently working off its course supply glut via course closures vs. openings at a rate of approximately 0.5 percent per year. At that rate, it will take approximately 15 years before the demand and supply curves intersect in a hopefully happier place for America's course owners and operators. Fortunately our correspondent does not rely on us for a steady stream of good news - just news that he can use to deal with what is, rather than what the industry would like it to be. -Jim Dunlap The Pellucid PersPecTive 17 http://www.PellucidcorP.com

Table of Contents for the Digital Edition of The Pellucid Perspective - November 2015

TOC
Payment processing again – Have you inserted your chip card?
Members lose club over gender discrimination suit
NGF Suggests that 30M Golfers Was “A Bubble”
IBM buys parent of The Weather Channel: Why you should pay attention
Beverage cart really a goose laying golden eggs?
October golf weather impact: Neutral nationally, tough for Texas
Boston needs some ‘deflation’ in supply
Singing the blues in Memphis

The Pellucid Perspective - November 2015