Questions for the Golf, Inc. Virtual Conference: My thoughts regarding the COVID Economy’s impact on the golf industry.

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I was honored to be asked by Steve Ekovich of Marcus & Millichap to participate in the Opening Session of the Golf, Inc.’s Virtual Conference on April 26 along with Steve Skinner, Kemper Sports; Tom Bennison, Club Corp; and Jerry Hinckley, Leisure Financial Group.

Here are the questions we were asked to address.

  1. How have covid affected rounds?

The facts are well established.  Rounds were up 13.9% last year, resulting in 50 million more rounds played over 2019.  Interestingly, that wasn’t the biggest one-year increase reported. When Tiger Woods won the Masters in 1997, rounds increased by 67 million in the following year.

The surge is continuing.  Through the first quarter of 2021, rounds were up 45.3% in March over 2020 and are up 24.3% year to date over last year, according to Golf Datatech.

Those increases are likely to be ongoing in the short term.  In the spring of 2020, 50% of the golf courses were closed.  Two percent of the golf courses remained closed in June.  Therefore, I think that there is optimism that 2021 has the potential for a record year.

Will the industry experience over 500 million rounds in 2021?  Very likely would be my guess.

However, if we look at worldwide, challenges still exist. First, it should be noted that rounds in Hawaii in 2020 were down 32.7% due to quarantine, and testing is remains required. Traveling to Hawaii is still a hassle despite over 200 million shots having been distributed as of last week, according to the NY Times.  Fifty percent of Americans have gotten at least one shot.

There is a wildcard.  The Province of Ontario closed golf courses through late May, notwithstanding the Bridges at Tillsonburg flaunting the government order this past weekend. There is a growing concern in some states, for example, Michigan, that COVID is spiking, and there is a possibility of lock-down forthcoming.

In speaking recently with Gordon Dalgleish, founder of Perry Golf Tours, they don’t expect England, Scotland, and Wales to open their courses to International visitors until the 3rd quarter or early 4th quarter.  Ireland would be expected to follow by 4 to 6 weeks.

While bookings for 2022 are really strong from US travelers seeking to play internationally, Gordon doesn’t believe the volume of international travel will have a significant impact on rounds within the United States.

  1. How has Covid affected F&B?

Our focus tends to be the daily fee and municipal golf courses.  Food and beverage tend to be a loss leader.

COVID-19 has had a positive impact on F&B.  Management was able to curtail their variable expenses of wait staff and hostess.  Staffing those positions with reliable individuals is always a hassle.  Many general managers commented how they enjoyed having that problem eliminated.  Also, they were able to reduce their menus to a few select items, thereby reducing food spoilage.

Here in Colorado, during April, the Governor changed our COVID-19 status to blue, which means the restaurant can resume total capacity.  While I think we can anticipate masks will be required for the next 12 months, I anticipate that a full resumption of F&B for municipal and daily fee courses will be constrained in 2021.  I don’t expect to see a buffet for a tournament or outing anytime soon.

  1. How did PPP funds help golf course owners?

It was a windfall. We are aware of two municipal golf course operators that received over $800,000 in PPP funding.  We know of another high-end daily fee golf course, due to PPP funding, generated an EBITDA of 38%.

Surprisingly, I didn’t hear of many golf courses that took advantage of up to $500,000 in SBA funding at 3.75% interest with a loan maturity of up to 30 years.  One daily fee golf course owner indicated they took the funding to protect the uncertainty of the Pandemic, invested the funds in the stock market, and profited handsomely.

  1. How have you worked around Covid protocols to keep your F&B going?

What we found amazing was the resourcefulness of golf course owners and managers.

Plexiglass partitions, outdoor bubbles, spacing of tables, 6’ feet spacing signing at the F&B order window, and coasters that indicated on one side that the table and chair had been sanitized with the flip side of the coaster that the tables required to be re-sanitized upon the guests departing are all example of ingenuity.

We also noted many food items were pre-packaged, i.e., burritos and sandwiches in plastic wrappers and apples in cellophane.

  1. What does fall 2021 and beyond look like for F&B and Banquets?  

What the Pandemic has demonstrated is the need for human beings to connect socially.  We are all exhausted and tired of the dictated isolation.

Our clients are seeing record bookings, particularly for the second half of the year.

  1. How much residual income/rounds/membership will we retain from the Covid spike when we go back to work?

The various management companies and daily fee course operators we spoke with indicated that they set their 2021 revenue forecasts based on a 10% increase from 2019.  They all viewed 2020 as an outlier.

Today, it appears that those forecasts were very conservative.

Based on the continuing demand, we advised clients to eliminate spring rates.  The bears are coming out of winter hibernation and isolation from the Pandemic.   While there was the anticipated complaining from the senior citizens, what is occurring is very interesting.  Golf course owners in the competitive set have noted the pricing change and are starting to adjust their rates upwards.

One golf course manager stated in Michigan stated, for every person that complained, there is are two more golfers willing to pay the summer rates now.

I believe that that golf courses uniformly underprice the value of golf experience.  Many budget to EBITDA and fail to consider the capital reserve required to ensure the golf course is self-sustaining without debt.  I know of a few that determine their rates after calculating their fixed and variable costs, the capital reserves required, and the desired profit margin and the divide by a forecast of rounds to derive a targeted REVPAR.

  1. How have Covid Affected Memberships? (Obtaining new members, dues, and usage)

Daily fee and municipal golf courses that offered an annual pass underperformed the market.

We recently undertook deep dive for a new client whose annual passes holders generated 16% of the revenue but whose pass holders consumed 31% of the rounds.  Golf courses that offered loyalty programs based on dollars spent thrived.  Troon Golf and Ratcliff Golf Services in North Carolina have implemented loyalty models that have proven very successful.

While I am sympathetic to the golf course owner who claims they need the pre-season sales of memberships to cover cash flow during the winter, I believe that is a flawed solution masking an underlying problem of insufficient initial capitalization.

There is always a loser with an annual pass.  The golf course experiences golfers playing an excess number of rounds lowering the per round fee to less than $15 or the golfer who purchases the pass and doesn’t use it.  Smart operators like Rock Lucas at Charwood have eliminated their annual pass program to great success.  Forecasting the correct “break-point” on season passes, while mathematically possible, always creates a loser.

Daily fee and municipal golf courses, especially based on the demand of the Pandemic, would be advised to curtail these programs.

  1. What lessons has your company learned from the Covid economy experience overall?

There is a growing movement amongst firms that lease municipal golf courses to default on the rental payments due to the government due to “force majeure.”  Many cities restricted hours of operation, tee time intervals, specified single rider carts, restricted range slots, prohibited outings, and tournaments, etc.

The lease contracts that golf course managers entered into were predicted in a normal business environment.

I think municipalities will just forego the payments due or amend the contracts to an adjusted rental rate.  Governments have far greater issues today than collecting $50,000 – $200,000 from golf course operators if for no other reason than finding a replacement firm would be tedious and time-consuming.

Governments will view the write-offs as the “cost” of creating a safe environment for their citizens during the Pandemic.

  1. How did Covid affect your acquisition/financing strategy last year, and how will it affect this year?

In 2019, 246 golf courses closed.  In 2020 from the surge in revenue, marginal golf courses could hang on for another year.  Only 169 golf courses closed in 2020.  However, it was the 15th consecutive year more courses closed than opened.

  1. How has Covid affected the way you plan moving forward 12 months?

The economy is clearly opening up.  Baseball, basketball, and NHL hockey have now permitting fans to attend.  Movie theaters are opening.  Restaurants are returning to full capacity.

I think that this is a great opportunity to recalibrate upwards what golf courses charge for green fees, particularly for junior golfers.

Golf may be the least expensive junior sport in the country.  If a child wants to join a swim team, play organized baseball, football, basketball, or hockey; parents can easily spend several thousand dollars.  If you are a high school hockey on a team that travels, the fees approach $20,000 per year, hoping the child gets a college scholarship.

Considering that golf courses are operating at near capacity with full fee-paying customers, I wouldn’t be discounting for tee-time access to the course.  If a State Golf Association wanted to access a golf course for one of their events, I would recommend that they be charged the rack rate.

The argument of discounting golf for the “good of the game” doesn’t resonate with me.  A golf course is a business – not a non-profit charity.

  1. For our golf economy, when will things be normal again? ( Give me your best guess quarter or month)

While “never” seems like a trite answer that can easily be challenged.  I see wearing a mask for the foreseeable future; I don’t anticipate restaurants offering buffets anytime soon, airlines to start serving hot meals with your selection of wine, or the ice cream carts, which may, unfortunately, be gone forever on International flights.

Hans Rosling,  A Swedish Pulitzer Prize Winner, wrote a book titled, Factfulness.  In the book written in 2018, he cites five global risks that could alter the way we live:  global Pandemic, financial collapse, world war, climate change, and extreme poverty.

We are now experiencing one of those five.

  1. What does our national economy look like in the next 12 months?

My answer to this question, seating high up in the cheap sites of the end zone, is comparable to asking me what play an NFL quarterback should call.

The full impact of the stimulus is unknown.  We see interest rates rising, preferred stocks and bond prices falling, and the US currency weakening, I think we are going to see volatility in the market and the rotation within the 13 primary sectors.  With China and England issuing a bitcoin form of currency, many economists believe are suggesting the Europe and Asia may have stronger economies over the next 12 – 24 months.

  1. How did Covid affect technology?

 The rapid deployment by Club Caddie, Club Prophet, ForeUp, Lightspeed, and Gallus of mobile application with online booking, check-in, and payments is to be celebrated.  During April and May last year, Lightspeed installed over 100 check-in kiosks at their client courses though the application had been developed years earlier with little interest.  Club Prophet experienced the same surge in demand last year for its previously developed mobile application software.  

  1. How did Covid affect golf aggregators like Golf Now, Tee off and Tee times USA?

ForeUp and Lightspeed have already created integrations to the forthcoming PGA Tee Time Network.  Club Prophet is not creating an interface as they have no requests from their 1,500 clients for the optional booking platform.

The amalgamation of Club Prophet, Gallus and One-to-One Marketing woulwith make for a formidable firm for golf course owners seeking a low costs but robust software platform.  Club Caddie, a Jonas subsidiary, also has a growing abundance of valuable applications for the golf course owner.

There is a growing sentiment that with demand so high, providing bartered tee times is working against their interest of the golf course owner and some courses are looking to opt-out of their contracts with software providers, i.e., Golf Now.  It should be highlighted that GolfNow, in moving their management team to Connecticut, is perceived to have lost momentum in part from that and from reaching a saturation point for their software.   The loss of Jeff Foster, Jim Kass, and Mike Hendrix will impede their short-term growth.

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