GOLF'S CHALLENGES HAVE COUNTRY CLUBS IN THE ROUGH. HERE'S HOW COURSES ARE FARING IN THE PHOENIX AREA.

After decades of growth, the golf industry is stuck in the rough.

The number of golf courses and country clubs has declined steadily in the U.S. over the past decade or so, as have the number of people they employ. Much of the sector's troubles are rooted in sagging demand, a lucrative real estate market and competition from alternative golf-related businesses. For course managers, the times are tough no matter how you slice it.

The Business Journals analyzed federal employment data for 449 U.S. counties and found that the golf sector's challenges are national in scope, spanning from California to the Carolinas. Between 2005 and 2015 — the most-recent reporting years available — the number of golf courses and country clubs in those areas tumbled by 5 percent, falling to 6,242 from 6,541 a decade earlier. Over the same span, the number of people employed by courses and country clubs in those 449 counties fell by 3 percent to just over 226,377 workers.

The picture is a little more mixed in Maricopa County, which added a net 10 additional country clubs from 2005 to 2015. In 2015, there were 150 clubs dotting Arizona's most-populous county compared to 140 in 2005. While the number of clubs has climbed during the 10-year period, employment was down with 8,193 employees working at country clubs across Maricopa County in 2015 vs. 8,772 in 2005. Even with lower employment, payroll is higher at $199.27 million in 2015. That's more than $30 million higher from the 2005 payroll number of $162.6 million.

The backspin has shown no sign of abating. A report by the National Golf Foundation last year found that golf saw a 1.2 percent decline in participation in 2016, with 23.8 million players over the age of six playing at least once. That was down from 24.1 million the year before. NGF also reported the number of 18-hole-equivalent golf facilities in the United States dropped again in 2016, falling nationally by a net 171 facilities.

AVOIDING THE TRAPS

But not everyone is suffering. The Business Journals also reviewed tax data for 55 nonprofit country clubs with at least $10 million in annual revenue — ranking them among the wealthiest 1 percent of golf courses in America — and found that despite the industry's troubles, the rich are getting richer. In aggregate, the group's combined revenue was up 11 percent over their most recent three years of reporting. Membership dues were up 6 percent, while cash on hand had increased 14 percent.

The nation’s largest nonprofit club by revenue, the Boca West Country Club in Boca Raton, Florida, maintained steady growth through 2015, growing its top line 5 percent over a three-year span to $47.1 million, according to its latest-available tax filings. Boca West also reported a 2 percent increase in headcount during that same period, ending 2015 with 1,095 employees.

Locally, the Arizona Country Club also seems to be faring well. The Phoenix club saw revenue grow 53 percent over a three-year span to $14.44 million, according to the latest-available tax filings. It also has seen its headcount grow 4 percent in that span with 232 workers at the end of 2015.

Among the top 55 courses analyzed, all but nine reported revenue increases over the course of their three most-recently published tax filings years. All but 12 courses added employees during those same periods.

Jeff Woolsen, managing director of CBRE's golf and resort group in Carlsbad, California, said that with course participation slipping in recent years, the growth among wealthier clubs often is a zero sum game for the rest of the sector. “You’re not really creating new members. You’re stealing from other clubs.”

Among clubs that are growing, many have expanded membership through investments in new amenities such as recreational pools and exercise facilities. Woolsen cautioned that those efforts, which can require significant borrowing, can also force courses into a “death spiral” that makes them an easy target for a buyout. A primary stress for those clubs is often long term debt, which totaled around $491 million, or $9 million per club, among the 55 wealthiest courses analyzed by the Business Journals.

Combined with the industry’s demand challenges, the extra debt can prove unsustainable for some courses.

“We usually get a call from a club looking to sell when revenue drops below $3 million,” Woolsen said. "With fixed costs so high, it’s hard to make money if you’re below $3 million.”

A strong real estate market has also made it easier for golf property owners to explore exit strategies, which helps explain some of the recent declines in course numbers. As NGF President and CEO Joe Beditz put it, in some cases “the dirt is worth more than the grass.”

TEED UP FOR GROWTH

Stuart Lindsay, principal of Edgehill Golf Advisors in Milwaukee, Wisconsin, said one reason nonprofit clubs have avoided some of the challenges municipal and for-profit courses have faced is that member-owners are “playing with their own money.”

“Members are willing to pay a general manager to ensure the club is well managed,” Lindsay said.

Public courses with low greens fees and bare bones operations are particularly susceptible to the sector’s financial challenges. NGF reported last year that 69 percent of the courses that closed in 2016 were properties with greens fees below $40. By comparison, annual dues for member-owned clubs often range in the thousands, and some charge many multiples of those annual dues as initiation fees for new members.

Member buy-in also helps to stave off the growing competition from entertainment-oriented options such as Topgolf, a chain of establishments that combine a sports bar with a driving range. Topgolf and indoor golf simulators are especially popular among millennials, a group that has been slow to embrace green-grass golf. In fact, a Topgolf facility is being built in Glendale near the Westgate Entertainment District. It is the company's fourth location in Arizona.

NGF studies have found that while 6.2 million “young adults” – those aged 18 to 34 – represent golf’s biggest customer age segment, the participation rate among millennials is far below where the segment was in the 1990s, when roughly 9 million young adults were playing the game. 

Given that millennials account for about 25 percent of the U.S. population, Lindsay said, “golf is going to have a real problem if they don’t fix the attraction of new players to the sport.”

Original Post: https://www.bizjournals.com/phoenix/news/2018/04/16/golfs-challenges-have-country-clubs-in-the-rough.html

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