Survival Of The Fittest (5 Of 7 In A Series) – There’s A Debate: Is The Golf Industry Overbuilt? So Many Factors To Consider

By Steve Dowling

The golf industry is known to be performing poorly. “The fact is that golf appears to be at a point of being overbuilt,” said Jake Enebak, CEO, Tradition Golf, a respected Edina-based golf management company. “There was a big boom in golf course construction in the late 1900s and early 2000s and at the same time the amount of play has stayed about the same.”

The golf industry has been basically stagnant for the last decade. The following major factors serve as examples and evidence of that stagnation:
• Participation has declined from a peak of 30 million golfers in 2000 to just under 28 million
in 2010.
• As a percentage of total population, golf participation has also declined.
• For the first half of the decade, course openings continued to add to the potentially
over-built situation.

Some say it is all the fault of the economy. We don’t fully subscribe to that assessment. However, the economy, over the last 3-4 years has been a major contributor to golf’s decline. Consider the following:
• Stocks peak in 3rd Quarter of 2007 and start to tank signaling the start of Recession.
• Housing market collapses in tandem
• Huge net worth destruction on two fronts.
• Recessions always have a negative impact on both travel and recreation based on
discretionary spending
• Recession technically ends in 1st – 2nd quarter 2010
• The stock market has only recovered ½ of value lost in Recession
• Housing starts and sales of existing homes continue slow, meaning no recapture of home
equity values lost during recession.
• Consumer spending is showing signs of life, but will be conservative.

The economic influence, with its slow recovery combined with changing life/family styles and aging population, add conflicting forces to golfer participation while the increase in course construction has ground to a halt. In effect we believe the golf’s Demand vs. Supply scenario has leveled off and has turned the clock back about 30 years in regard to the average number of golfers per golf facility.

Players: Golf Participation
“Two things have driven the growth in the number of golfers over the past 55 years: ‘Population Growth’ and ‘Participation Rate’ growth” said Lisa Overom, Assistant Executive Director at the Minnesota Golf Association. The U.S. population nearly doubled between 1950 and 2010, growing by over almost 147 million people (from 153 to approximately 300 million). Since 1950, the number of American golfers has grown almost nine-fold, from 3.5 million to roughly 28 million today. During this same period, the percentage of Americans playing the game (Participation Rate) has also risen, from 3.5% to 11.6%. “This deeper penetration into the population means that the average American golfer today looks more like the average American – with more women, juniors, seniors and minorities playing than ever before”, Overom commented.

So, even if Participation Rates had not increased over time, the number of golfers would have increased simply due to the addition of people. Historically, population growth has been generally good for golf. Golf’s significant growth over the past 50-plus years was driven not only by population growth. Over this period the percentage of people who played golf more than tripled, taking it from being a sport played mostly by wealthy men to one enjoyed by a diverse cross-section of society. However, increases in Participation Rates have slowed over time. As we all know, the following trends materialized with the huge baby boomer population. “Boomers”:
• are working more.
• are raising families and paying bigger mortgages later in life.
• are enjoying a broader range of leisure activities.
• have diminished their participation in golf frequency.

Courses: Golf Facility Supply
Over the past 55 years, golf has switched from primarily a private club game to one that is widely available to all.

1950 – % of Total Courses by Type:
• Private – 62%
• Daily Fee – 23%
• Municipal – 15%

2010 – % of Total Courses by Type:
• Private – 27%
• Daily Fee – 58%
• Municipal – 15%

Prior to 1960, golf was mostly a private recreational activity restricted to America’s elite society. Largely as a result of the favorable economics of public courses, as well as the ability to cater to a greater number of middle income players who were coming into the game, public golf grew rapidly in the 1960s. At that time the industry was only building about 125 courses a year. A mid-1980’s calculation by the National Golf Foundation said if the number of golfers and rounds played continued to grow at historical rates of three to four percent, the industry would need to build 350 to 400 courses annually to accommodate those golfers and rounds in order to roughly maintain the then current ratio of supply to demand. A conclusion was drawn that America was facing the possible emergence of a “supply gap”. For some in the golf industry in the mid-1980’s, there was an industry cry to build “A Golf Course a Day”! The result was development of over 4,400 golf courses over the past 20 years (an average of 220 per year).

Over time, facility growth rates have varied by type of golf course (municipal, daily fee and private). Municipal courses, which have always represented a small percentage of the total, have grown at a slow, steady rate. The number of private clubs hasn’t changed materially in 30-40 years and, because many new clubs have been built during that time, it follows that a lot of clubs have converted to public or closed. Daily Fee courses, built mainly by entrepreneurs, represent by far the most growth over the period, and especially in the last 15-20 years. In recent years, the growth in total supply has slowed to net zero (and, in fact, was negative in 2006) – in other words, the number of openings and closings are close to cancelling each other out, resulting in a static number of total facilities. In total, over $20 billion has been invested over the past 20 years. But construction activity slowed dramatically beginning in 2001 as an overdue correction in the facility development market began to occur.

Supply And Demand
It’s interesting to note that the ratio of golfers to golf courses is approximately the same today as it was in 1986. There were about 1,790 golfers for every 18 holes of golf. Today that number is about 1,950.

As a result, we should expect to see gradually improving business conditions at golf courses. All ships should rise together on the in-coming tide, however some courses will do better than others, such as those who cater to older players and retirees. Baby boomers – Americans born between 1946 and 1964, constitute the largest population explosion in history. Boomers number about 78 million, the oldest of which turn 65 in 2011. The youngest boomers turn 47 in 2011. About nine million boomers are golfers and they are about to move into the higher play frequency and golf spending years. Golfers play more as they age mainly because they have more free time. Players in their 60s and 70s play twice as much as those in their 30s and 40s.

So, where are we today? The facts tell us that the sky is not falling, and that golf is, albeit disputably, not in decline. Golf course development has slowed, finally, to more rational levels. And the new supply that has been added will eventually be absorbed because rounds played are gradually recovering, and should continue to do so. The number of core golfers is again growing, albeit at a frustratingly slow pace. The interest in golf is high.

Despite the ongoing debate there is even a silver lining … golfers today have a broader choice of places to play than ever before. And, depending on when and where a golfer chooses to play, prices are often very reasonable because of the increased competition, and the adoption of yield management practices by more sophisticated course operators. So we have lots of golf course capacity, and lots of latent demand for golf.

Sources: Minnesota Golf Association; U.S. Census Bureau; National Golf Foundation.

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