The Pellucid Perspective - July 2019 - 7

need of correction in the next group of facilities. For the five that
are already underway (Orlando, Raleigh, Richmond, West Palm
Beach, New Orleans) that will likely be a challenge to change
their arc but for the 5 additional sites that are in planning and
going forward (Manhattan, Chicago, Houston, Newport Beach
& Portland), he ought to be able to bring those in line with his
vision of slimmer and faster with better initial traffic and average
spends. Along those lines, Mr. May is also placing a big bet on
a smaller footprint format that would open up more US markets (100+ in their investor presentation, 72 bays vs. 90+ in current model) at a lower investment cost/exposure. TopGolf has
done some smart things lately to also address the challenges of
the initial capital outlay constraint. A key "pivot" for them occurred back in '10-'15 as they engineered a new financial model
enabled by relationships with one or more REIT providers where
they slough off the land/property ownership to the investment
group in exchange for long-term rental agreements (can you
say "American Golf and David Price?"). This magically frees up
short-term cash to go build more facilities (hence the acceleration
increase in new facilities post vs. pre-'2010). In addition, TopGolf is taking the "downsizing" concept one step further in their
efforts to extend their experience and technology outside the big
box format with TopGolf Lounge (private clubs and stand-alone
outlets) as well as TopTracer Range (67 US locations according
to their website). I think this is a smart move and the more likely

www.PellucidCorp.com

long-term future of golfertainment. It's also the more advantageous for the industry in that things like TopTracer Range bring
non-golfers closer to the green grass experience and give the staff
of individual facilities the ability to control their own destiny in
trying to convert "participants" to "players."
Back to the tale-of-the-tape and Drive Shack's initial Orlando
financial challenges. As reported in Mr. Daniel's article, the Q1
metrics on traffic, revenue and costs are mixed and won't get them
to glory anytime in the near future. On the revenue line, expectations were $16-$20M quarterly for the ramp-up. Q1 of '19
was ~$8M, basically flat to Q2 '18 (oops). Traffic went up from
160K visitors to 200K visitors (the good news) but, given the flat
revenue result, that means Spend per Visitor declined from $44
in Q2 '18 to $40 Q1 '19. This likely either means the additional
traffic was heavily incented or potentially that the golf to F&B
mix shifted (i.e. fewer golfers imbibing as heavily or fewer F&B
guests partaking of golf etc.). Due to the capital-intensive nature
of putting the big box formats in the ground (real estate, build
and reasonable maintenance), traffic and ticket size are the key
leverage points to ongoing profitability. TopGolf continues to
contend, but won't release any numbers, that they've solved the
puzzle of escaping the economic gravity of the big upfront expense. Looking at the visitor numbers, for '18 they were showing
roughly 13M visitors across 38 US locations which would peg
the annual count at ~325,000 each. Interestingly, that was the

The Pellucid PersPecTive

https://www.ezlinksgolf.com/request-demo?utm_source=pellucid&utm_medium=partner&utm_campaign=2019marchpellucid https://www.ezlinksgolf.com/ http://www.PellucidcorP.com

The Pellucid Perspective - July 2019

Table of Contents for the Digital Edition of The Pellucid Perspective - July 2019