The Pellucid Perspective - March 2018 - 2

GOLF COURSE
OPERATIONS

More munis embrace golf "rationalization"
By Jim Koppenhaver

T

here's a continuing sea change in the industry from where
I sit as it relates to municipalities' perspectives on their
golf operations. Several years ago, most of our inquiries
from municipalities were asking us to assess their current operations and financials and recommend changes for cost reduction
and revenue enhancement resulting in at least breakeven results
within some reasonable future period of time (i.e. "how do I get
to breakeven in 3-5 years?). We were rarely invited to a 2nd discussion along that line of questioning because we weren't willing
to concede that their stated objective was attainable without at
least seeing the topline historical rounds/revenue figures, programming and budgets. I also believe the other key factor was
that they were generally able to get some other more willing consultant or trade association to assure them that there was some
magical future point where revenue and expenses would intersect
at breakeven.
Toward the end of '17 and continuing into Q1 of '18, the conversations we're increasingly engaging in have shifted to:
*
*

*

Can you project a reasonable range of money we're likely
to lose annually over the next five years?
Given that professional and reasoned estimate (and supporting facts/thinking), what should our golf portfolio
look like; do we repurpose some existing facilities and,
if so, which ones and what might viable alternatives be?
What levers do we have to improve the performance of
our rationalized portfolio of facilities rather than just
hoping for market-parity performance?

My interpretation of this increase in conversations involving
Pellucid is that it isn't a net increase in the number of these conversations within municipalities, but rather a "rotation to realism"
whereby the municipalities are finally facing up to the fact that
previous optimistic scenarios by various entities aren't going to
materialize. It's now time to get real, ask harder questions and
demand factual support for scenarios which promise improving
fortune.
In one recent example, the municipality had this harder line of
questioning delivered to its doorstep. After the state announced a
cut in historical subsidies in '18 and beyond due to state funding
shortfalls, the village needed to look for ~$150K annually to fill
the gap. Enter one of the Board members who recollected that
the municipal course over the past several years had been losing,
on average, $150K annually. It didn't take long to connect the
dots, go on record to the local news to posit the question and,
just like that, the conversation about abandoning golf, requiring it
break even or requiring it to be "privatized" was on. In retrospect,
it's also somewhat curious that it takes a six-figure state subsidy
reduction to make the golf operations stewards think more rigorously and personally about the mentality that losing $150K annually is OK, but that's a deeper and more nuanced discussion.

2 The Pellucid PersPecTive

In Pellucid's business, and I'm sure in a number of our readers'
businesses as well, that annual loss on a one-time basis would be
"match lost" (turn out lights).
In another example, we've done recent work for a mid-size
city municipality which controls 13 properties in their portfolio.
Pellucid got called in as part of a larger initiative to both rationalize the portfolio (us) as well as research and recommend redevelopment options and economics (our partners). One of the
things we noticed in the market analysis was that the neighborhoods and commercial activity around several of the facilities had
changed significantly over 20+ years since they had last seriously
analyzed the portfolio and real estate. Demographic shifts in
the local draw areas (which we defined as 25 minute drivetime)
were unfavorable to golf (even muni golf ) in income, ethnicity
and population growth with age as the only favoring factor. Our
client also shared the fact that the erosion of the manufacturing
facilities in these draw areas had also greatly diminished the bluecollar league play that used to be a significant rounds and revenue
contributor. (This element isn't captured in traditional draw area
demographic analyses because the golfers don't live there, they're
playing based on work proximity and then heading home to destinations beyond 25 minutes out).
While we've not yet completed the recommendation (and the
politics have to be factored in on the client side before those are
socialized to the general public and elected officials), the facts are
overwhelming that the city should be operating a much leaner
(and economically meaner) portfolio and the land being occupied
by the non-viable facilities likely has higher-and-better uses either being repurposed or sold and privately redeveloped.
In a 3rd recent example, it's been reported to us that the combined municipal portfolio (aggregating multiple cities, counties,
etc.) in another mid-size metro in the Great Lakes region is
losing 7 figures annually and basically being subsidized to that
tune with no major changes or dialogue happening within local government to challenge it, let alone eliciting some cry for
change. This summarization comes from a local veteran operator
of privately-owned facilities who's inventing new ways each year
to operate his for-profit courses at parity to his "subsidized" competitors. I can only assume in this situation that the municipal
stewards recognize the economics and have justified the current
investment level in golf versus the community interests/needs or
they haven't yet faced the inevitable financial reckoning which
won't meaningfully improve over time for their non-viable golf
properties. Until that "white flag moment," when someone writing the checks or apportioning the money says "enough," taxpayers will get the opportunity to throw good money after bad and
the local market will be forced to absorb the continued impact of
some amount of municipally-subsidized golf.
Just to show that I'm not going all doom-and-gloom on our
muni operators and their facilities, let me be clear. For those existing facilities that are either operating in the black or are within
March 2018



Table of Contents for the Digital Edition of The Pellucid Perspective - March 2018

TOC
More munis embrace golf “rationalization”
Unlikely owner rescues course from closure
Toptracer bringing revenue within range
Gleneagles operator turns course into life changer
February golf weather impact: Double-digit decline continues
hilly course operators not flying high
Slow play no cause for no play
The Pellucid Perspective - March 2018 - TOC
The Pellucid Perspective - March 2018 - More munis embrace golf “rationalization”
The Pellucid Perspective - March 2018 - 3
The Pellucid Perspective - March 2018 - 4
The Pellucid Perspective - March 2018 - Unlikely owner rescues course from closure
The Pellucid Perspective - March 2018 - Toptracer bringing revenue within range
The Pellucid Perspective - March 2018 - 7
The Pellucid Perspective - March 2018 - Gleneagles operator turns course into life changer
The Pellucid Perspective - March 2018 - 9
The Pellucid Perspective - March 2018 - 10
The Pellucid Perspective - March 2018 - February golf weather impact: Double-digit decline continues
The Pellucid Perspective - March 2018 - 12
The Pellucid Perspective - March 2018 - 13
The Pellucid Perspective - March 2018 - hilly course operators not flying high
The Pellucid Perspective - March 2018 - 15
The Pellucid Perspective - March 2018 - Slow play no cause for no play
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