News for the Hospitality Executive |
by Darius Hatami
April 2013 The following is the first in a three part series that examines the state of the Golf industry today. This first article explores the history and brings readers an understanding of issues challenging the industry, providing some context for readers. The second article explores the impacts to Golf Facility Financials and Value, while the third article looks to the future of the industry, and the issues that will shape its health moving forward. Credit must be given to the large number of industry professionals at the show who were speakers, and whose thoughts, ideas and concerns I am liberally using. These insights are a direct result of their expertise and experience, and I would like to thank them for their input. The Golf Development Cycle Golf development has come full circle since from the beginning of golfs modern era, and it's insightful to understand the factors that led to the extensive growth in the game. The golf development cycle provides important context from which to look for clues to the future growth of the game. Looking back to understand the elements that contributed to the modern development era, a path for the industry to realize its full potential becomes clear. The early 1990's were the heyday for the golf industry, and the following were key facets of the industry at that time.
There are however a few similarities of note between the state of the industry in the early 1990's, before the boom in golf occurred, and today.
Trend Analysis and The Golf Development Cycle. During the 20th Century, there have been three primary golf course development cycles, the first occurring in the 1930’s, the second in the 1960’s and the third in 1990’s. Examining the change in golf holes over the past several decades, the thirty-year cycle is fairly clear. The characteristics of the latest cycle, in comparison to previous cycles, are described below.
Figure 1: Annual Net Change in Golf Holes
1961-2012 Source: HVS
Golf
Services & The National Golf Foundation
Golf Supply, Market Conditions and the Current Development Cycle The explosive growth of golf courses in the 1990’s and early 2000’s was due to a variety of different factors. While the edict of the National Golf Foundation to build a golf course a day to keep up with demand is often touted as the sole cause of the growth, it is our belief that the boom in development can be attributed to a variety of factors.
An examination of the number of golfers per course over this time period provides additional insights into the current state of the industry,
The extent of the loss of golf courses will help to determine the financial health of the remaining courses moving forward, but there are also “unintended” or other negative consequences arising from the reduction in supply. The largest concern is that the older, less expensive, and easier courses are the ones that are being removed from the market. These facilities are typically targets as they were built some time ago, and are not of the same standard as the new courses. They are now infill sites, and the land value is high, and a golf course may not be the highest and best use of the land, and they were typically built in a “core” layout, so they are readily developable. The loss of these entry level courses dictates that there are rising barriers to entry for new golfers, and more difficult to get golfers into the game. It follows that advances on the demand side of the game will be more difficult to achieve as these entry courses are removed and access to affordable and less difficult golf is lessened. There are, however, a number of initiatives that have been developed over the past several years to grow the game. While they have achieved some success, they have yet to right the ship, as the number of golfers is still in decline. What has become clear is that the core golfers are still solidly behind the game, and they will remain so in the near future. The fringe golfers have been much more difficult to keep involved and the new golfer harder to bring back. Solidifying the demand side is critical to the future of the game. The Paradigm Shift While the core golfers are rock steady, the occasional golfers drift in and out of the game. So why is it that occasional golfers churn every year? The usual culprits are the cost of the game, the time it takes to play, and access to playing partners. We believe that the heart of the matter is that events of the last decade have substantially changed people’s priorities and lifestyle desires. The events of September 11 were the first fulcrum for this change, and figuring out how to involve spouses, children and families in the experience became important. The global financial crisis put further constraints on the occasional golfers. So in order to grow the game the challenges of hurdles of entry needed to be rethought, and the focus of these efforts needed to look to a different type of clientele. While generating new golfers from the traditional demographic targets has had trouble succeeding, the ability to grow golfers in non-traditional ways was not something the industry had even tried. The result has been a need for a paradigm shift in the perspective of the traditional clientele for the golf industry. These newly confronted challenges provide difficulties to the traditional models, but also opportunity to bring more people into the game and a chance to redefine the game for future generations. These changes in perspective are taking place on two levels, with the first level occurring at the golf courses, with programs like Tee it Forward, and Golf 2020 as well as the advent of systems to learn the games such as SNAG Golf. These programs and systems are implementing change to the perspective and nature of golf’s clientele. The second level is the changing face of many private country clubs to become more inclusive of the family and to diversify the amenities and services, so that they can sell a lifestyle that can cater to a broader audience. Additional changes to the structure of private clubs have occurred with a movement towards intergenerational memberships, and the linking of the generations. These changes in perspective will undoubtedly have an impact on the growth and perception of the game and are integral to the health of the industry in the longer term. There are however additional changes in the way the industry thinks that need to occur in order to alter the financial prospects of the golf courses themselves. In the second part of this series, HVS will look at the financial implications to the individual golf course from the supply and demand characteristics of the market, the corresponding impact to golf course valuations, and the outlook for future golf course development. About the author: Darius Hatami is Managing Director of HVS Golf Services, based in Boulder, Colorado. Darius is a graduate of the University of Colorado and has been involved in various aspects of golf and community development for over 20 years. In 1995, Darius became part of the HVS family, and provided studies to hundreds of golf and resort community clients throughout the United States, Canada, Mexico, the Caribbean, Central America, Asia and Europe. His expertise encompasses valuation and feasibility studies as well as strategic, financial, residential economic planning, membership planning as well as integrating golf with residential and resort aspects of master planned communities. About HVS HVS is the world’s leading consulting and services organization focused on the hotel, restaurant, shared ownership, gaming, and leisure industries. Established in 1980, the company performs more than 2,000 assignments per year for virtually every major industry participant. HVS principals are regarded as the leading professionals in their respective regions of the globe. Through a worldwide network of 30 offices staffed by 400 seasoned industry professionals, HVS provides an unparalleled range of complementary services for the hospitality industry. For further information regarding our expertise and specifics about our services, please visit www.hvs.com. HVS Golf Services HVS Golf, Residential and Resort Community Consulting and Valuation Services, established in 2004 with headquarters in Boulder, CO, specializes in the market and financial analysis of golf, club, residential and resort communities. This division of HVS is charged with consulting and valuation services that evaluate the macro economic and financial environment surrounding the golf, real estate and resort development. Services include appraisal, valuation, feasibility, litigation support. For specific information on the division, please visit www.hvsgolf.com. |
Contact: Darius Hatami [email protected] Leora Lanz HVS Director of Marketing Tel: +1 (516) 248-8828 ext. 278 [email protected] |