The Pellucid Perspective - October 2020 - 10

ACCOUNTING 101

Cost Accounting 101
Are We Selling Golf Below Cost?
By Stuart Lindsay

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Will this surge in interest continue?
Will increased demand mean more pricing power?
Will "pre-payment" procedures stick and reduce
prime-time no shows?

Then there are the questions of "access" that we noted in the
companion article where politicians reacted to citizen complaints and changed procedures. Will other municipalities be
forced to change policies by angry constituents who can't get
on their courses? How should "privately owned" public courses
choose to take advantage of some of these disaffected municipal
golfers needing other places to play?
While we are happy to see this surge in demand; we need
to talk about the 55% of courses that are "not profitable" (24%
breakeven and 31% losing money). This means the majority
of golf courses are selling their inventory "at or below cost".
As pricing strategies rise to the top of the discussion heap; it
might be time for a refresher course in "cost accounting" and
how you can calculate what it costs for you to produce a round
of golf.
On the surface, calculating production costs should be easy.
Take all your expenses and divide them by your "capacity". Important Note - Expenses need to include Interest, Amortization and/or appropriate asset depreciation schedules. You can
also use "rounds played" instead of "capacity"; but both metrics
are not as easy as that. Many of you have had to change tee

10 THE PELLUCID PERSPECTIVE

PHOTO BY PIERRE CRONJE / UNSPLASH

olf Course Industry Magazine published "State of the
Industry" reports in 2014, 2015 and 2016 based on survey results from Superintendents across the US. I don't
know why 2016 is the most current available report; but I suspect, like many other research initiatives in the golf industry,
lack of participation stands in the way of getting good data in
the hands of industry decision makers. That may be another
story for another day; but the 2016 edition states that 45% of
golf courses were "profitable" - an improvement from 39% in
2015 and 36% in 2014.
We don't know what happened in 2017 - 2019 other than
the Pellucid metrics in our own State of the Industry reports
that showed the industry basically "holding its own" with minor improvements in rate and weather adjusted rounds performance. As we watch demand for golf post impressive gains in
2020; we hope the news will be positive on multiple fronts -
rounds demand, participation and course utilization. There are
revenue challenges and some increased costs associated with
facility hygiene as well.
As we hear various industry people comment on our pandemically induced increases; the subject of "pricing" is a major
topic of discussion.
sheet intervals by mandate (or choice); so if you pull "capacity"
from your tee sheet platform, your comparison of 2020 to 2019
will be skewed. If, for example, you have gotten a 6% bump in
rounds played (the national average so far in 2020); your cost
of production will also be skewed. And then, of course, you
need to factor in any weather variables. While many pundits
have credited "good weather" as a contributing factor in 2020;
nationally, weather in terms of Golf Playable Hours has been
basically neutral.
Using our Pellucid/Edgehill Cognilogic platform, we have a
weather adjusted capacity number for every golf course in the
US. Since we use a standard methodology; it adjusts for both
weather variables any interval changes on a "neutral basis". Here
is an example:
Metric
Weather-adjusted
Capacity (Ann. Rds)
Expenses
Cost-per-Round

2019

2020

49,721

50,394

$1,470,000

$1,514,000

$29.56

$30.04

In this case, Expenses have gone up 3% and the weather
was +1.4%. The only problem for this course is that they have a
"resident" greens fee structure that generates only $24 per available round (RevPAR). Their "non-resident" structure generates
about $48 per available round. They are fine as long as they
OCTOBER 2020



The Pellucid Perspective - October 2020

Table of Contents for the Digital Edition of The Pellucid Perspective - October 2020

TOC
Pandemic creates an unusual, upward pricing dilemma
How high is up? Based on current information, no one really knows
Are we currently selling golf below cost (yes); why?
September GPH slight down, current dynamics will absorb that
Aug Utilization again up double-digits, weather not a factor in current surge!
Pittsburgh #24 in new ranking, aided by better-than-average supply-demand balance
16 Activities; Transacts & For Sales comprise bulk of activity
The Pellucid Perspective - October 2020 - TOC
The Pellucid Perspective - October 2020 - Pandemic creates an unusual, upward pricing dilemma
The Pellucid Perspective - October 2020 - 3
The Pellucid Perspective - October 2020 - 4
The Pellucid Perspective - October 2020 - 5
The Pellucid Perspective - October 2020 - How high is up? Based on current information, no one really knows
The Pellucid Perspective - October 2020 - 7
The Pellucid Perspective - October 2020 - 8
The Pellucid Perspective - October 2020 - 9
The Pellucid Perspective - October 2020 - Are we currently selling golf below cost (yes); why?
The Pellucid Perspective - October 2020 - 11
The Pellucid Perspective - October 2020 - September GPH slight down, current dynamics will absorb that
The Pellucid Perspective - October 2020 - 13
The Pellucid Perspective - October 2020 - Aug Utilization again up double-digits, weather not a factor in current surge!
The Pellucid Perspective - October 2020 - 15
The Pellucid Perspective - October 2020 - Pittsburgh #24 in new ranking, aided by better-than-average supply-demand balance
The Pellucid Perspective - October 2020 - 17
The Pellucid Perspective - October 2020 - 16 Activities; Transacts & For Sales comprise bulk of activity
The Pellucid Perspective - October 2020 - 19
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