[Mike_Young]

Mike,

I was once a PGA Member but no longer so my comments aren't to defend or grind an axe.

Let me throw a different perspective on this.  Someone brought up the auto industry and the parallel between the unions and the professional organizations.  To me, this gentleman sounds like the upper management of the auto manufacturers that also should shoulder responsibility for their company's problems.

On one hand, he discusses the impressive operating margins their properties achieved in the past, which in turn made him more money.  Contrast the current market where he blames higher salaries, tighter competition and higher dollar maintenance practices all providing a higher quality product that now customers demand.  Then he comments how he's worried about growing the game of golf?

Is he stating he wishes to grow the game to make more money to better fit his business model or grow the game for the betterment of golf's future?

Ken

Ken,
I think the whole problem began in the PGA when many members defaulted into the position of club professional when they went from professional golfer to golf professional and most members did not know the difference.....
I see so many young goof balls that think they can play and sit a local bars telling the young ladies they are golf pros..when they really just are a clerk at the local golf course and play in the monthly pga monday outing and shoot 80.    
The guys that actually worked their way nto the club professional business by working in the right venues are now the exception......and all of this allowed the CMAA to take over

[Mike_Young]

Mike, you raise another question; what is the licensing standard on Dentists in Georgia? (like I with two missing teeth should talk...hee haw  )

They must take a test.....of course next door in alabama it is not a problem because there just isn't much need....and they just can't make a living......
 

[Ken Fry]

Ken,
I think the whole problem began in the PGA when many members defaulted into the position of club professional when they went from professional golfer to golf professional and most members did not know the difference.....
I see so many young goof balls that think they can play and sit a local bars telling the young ladies they are golf pros..when they really just are a clerk at the local golf course and play in the monthly pga monday outing and shoot 80.    
The guys that actually worked their way nto the club professional business by working in the right venues are now the exception......and all of this allowed the CMAA to take over

Mike,

I agree there is history to support this thinking.  To combat the problem, the PGA has done what many of the professional organizations have also done by demanding more diversified education so their members can run entire facilities, not only their "specialized" areas.

Unfortunately that has lead to many clubs and organizations having one person do the jobs two or more people use to do.  Cost savings to the club, heavy demands on that individual.  This is one end of the spectrum.  Like many large organizations, you have your quality people and those that don't quite measure up.

Which end of the spectrum of individuals will be left in the business if course operations continues on its current path?

Ken

[Mike_Young]

Which end of the spectrum of individuals will be left in the business if course operations continues on its current path?

Ken

The performers.....whether affiliated with an association or not

[Lou_Duran]

Jeff Silverstein has/had a large presence in the Dallas market.  I've heard that he has family connections to substantial Wall Street money and that he is/was a PGA professional.  I know couple of guys who've worked with Silverstein closely and think very highly of him.  His courses in north Texas were of the low-second and third tier variety, the kind that required innovative marketing and aggressive management.  I am told that he is knowledgeable of gca, construction, renovation, maintenance, club operations, business, finance, etc.  I would consider his comments seriously.  When he talks about operating margins and return on investment he does so with extensive experience.  Without good economic fundamentals no enterprise can survive over the long run.  Golf is no exception.     

     

[Steve Lang]

  Definitely need more $30,000 a year shirt folders in the pro shop

[Peter Pallotta]

Mr. Silverstein says: "Back in the late '70s and early '80s...our average operating margin at a public golf course was north of 42 percent....We're now in the low 30s."

What were public courses like in the late 70s? What's there "more of" now than then?

Does it have a little/lot to do with land pirces going up?

I don't know financing or business - are operating margins in the lows 30s somehow 'unsustainable'?

Thanks
Peter

[Lou_Duran]

Kavanaugh is to blame for downsizing the pro shop by linking the YouTube shirt folding technique.

But Steve, if your point of view is that companies and businesses are a legal creation chartered by government to provide employment in a broad "general welfare" sort of way, it is perfectly reasonable to believe that more shirtfolders at $30,000 per annum each are a good thing, and even better at $60,000.

[Michael Powers]

He speaks as if he is the Chairman of a large golf management company.....wait a minute....he is the Chairman of a large golf management company.  Thank heaven the PGA, USGA, and GCSAA still maintain a level of influence in the industry.  Bottom- line, cut throat management companies are not the answer.

[Jeff_Brauer]

Except for Raven at South Mountain and Arizona National(formerly Raven at Sabino Springs) the courses under this company's management are low profile, at least to me:

www.irigolfgroup.com

Yeah, there is a lot to be said for not being in the celebrity end of the golf biz. The non celebrity course owners can probably make a lot more money.

Lou Duran sums up Jeff pretty well. I have worked for Jeff and he is an astute business mind.  I recall his dissertation on why clubhouses lose money, for instance.  And why banquet businesses lose even more money.  And lots of other lessons.

What he says basically makes sense.  Just as few buy merchandise at pro shops anymore, I think a lot of lessons now go to GolfSmith, etc.  I have nothing against PGA pros, but as the job in the pro shop changes, there will be pressures on them to change or be phased out.  

Certainly management companies have squeezed their incomes already.  In the good old days (for pros) they had no responsibility for potential losses from operations, but raked the money off the cart sales and merchandise.  Now, management companies like IRI and others realize that there cannot be a guy sitting in the shop who is well paid if he is not contributing to the bottom line of the whole facility.

[Michael Powers]

Also, I would very seriously doubt that Mr. Silverman or any other management company is paying $85,000 a year to any of their head pros.  Not even close.  They are lucky to make maybe half of that while sharpening pencils and squeezing every buffalo nickel until it shits for the blood suckers.

[Greg Murphy]

Golf is a form of outdoor recreation. Food and beverage and pro shop operations are niceties that may enhance the experience of the recreational pastime. But they are completely non-essential niceties. They do not support golf nearly as much as golf supports them. That these non-essential niceties are becoming non-viable is not their fault. It just IS. New models are needed so golf doesn't get dragged down by the non-essential niceties that feed off of it.

[Jason Topp]

Mike Young,

While I understand his points, member owned clubs present a different model because they have a different goal, and it's not margins of profitability.

I agree and disagree with this point. A member owned club needs to deliver value for the dollar.  The definition of value may vary somewhat from a for profit entity but I doubt it varies much.

[Sean_A]

Let me get this straight.  The guy is complaining about an operating margin in the 20s% range?  I can understand he is upset that he his company is not performing as well as it did in the past, but with a margin in the 20s he shouldn't need to press any panic buttons - unless of course he has some over-sized debt on the books.  That said, surely public facilities can cut costs at a greater rate than their reduced green fees.  However, part of the problem of cutting costs is that it must not be done so it is noticeable to the customer or you are forced to share some of the cost reduction savings with the customer.  This suggests to me two things.  The real fat has to go and that tends to be on the service side of facilities and/or maintenance regimes have to be altered.  However, if its a maintenance crunch it requires a bit of marketing savy (which costs money!) because if folks just suddenly find "their" in less than ideal conditions for any length of time many will kick on.  So the marketing aspect has to alter the perception of what ideal conditions are. 

I think an important point to remember is that offering value is not about being the cheapest.  Value is about making the customer feel his money is well spent.   

Ciao

[Rich Goodale]

Sean

High operating margins are necessary for a "business" such as golf course ownership which has high capital costs.  It's the same as owning and letting out a flat.  If you're a landlord, your "operating margin" should be very high if you want to get an appropriately risk-rated return on your capital.  Part of the golf industry's problerms is that (like real estate "investors" in the current bubble) they assumed that they could make up chronic operating losses (after capital cost were accounted for) by selling the property at some time in the future to a greater fool.  Siverstein understands this fallacy and seems to have found a niche where he can make real money rather than rely on elusive (and often illusory) capital gains.  To do so, you need a tight control of costs.  that's all he's saying.

BTW--have we got to the need for GCA's yet......?

[Jeff_Brauer]

Sean,

I agree with your last statement.  As to your speculation above it, Jeff Silverstein has both fat cutting and marketing saavy to go with his high operations ratio desires.  He truly runs it like a business and not a country club.  There will always be some debate about "what golfers notice" because we are all different.  I think it starts with green complexes, fw then tees.  Bunkers are edging in there, mostly on the high end.

Many of Jeff's courses run on the lowest end of the maintenance spectrum, like $300K when he feels that his local customers really just want low price. Of course, his feelings are really borne out by raising greens fees a buck and finding play drop.  He does have some mid and high level courses (or used to)

I mentioned some of the lessons he taught me and gave examples on the micro level of clubhouses, banquets, etc.  He also gave me some great lessons on the macro economics of golf.  I designed two courses for him in 2000 when people were already questioning if we needed to build so many.  He explained that Wall Street had found golf, highly funded a few REITs and that they were on a mission to spend the money they had buying golf courses, so they were overpaying.  How did he know?  Well, he wanted to expand his portfolio (in management theory its just as easy to manage 7-8 golf courses in an area as 1, so he wanted to minimize his overhead) and found that he could build them cheaper than he could buy thme.

BTW, as it relates to gca and this site, while I envy those few gca's who can pursue top end projects that are "design first" as you can tell, my design philosphy has been formed quite a bit buy guys like Colbert and Silverstein who are trying to provide some semblance of decent golf at reasonable prices.  And, the concessions they make to do that are "concessions" that I make to help them do that.

In the next post, I will tell you how Jeff Silverstein caused my divorce!

[Jeff_Brauer]

Okay, not so juicy as that, but an incident involving him solidified in my mind that it was time to end my marriage.  Here's the tragic comedy of just how:

My son showed promise as a junior golfer and it was time to move up to AJGA from local tournaments, but its hard to crack the merit based system.  One night at dinner my wife says "You're in the golf biz, pull some strings!'

Next day, I call Jeff, who I know sponsors 3 AJGA events across the country, including the next one in Dallas.  He's not in, but calls back a day later and graciously and enthusiastly extends my son a sponsors exemption.

I call home from whatever airport I was in with the good news and my wife says "Call him back and tell him Andrew doesn't want to play, he prefers local tournaments." I protest that it would be embarssassing to call back one of the most powerful men in golf and say I was "just kidding" when I asked a huge favor.  She calls back 5-6 times rehashing the demands until I get on the plane. I get home and argument continues for a few more days until she browbeats me into calling Jeff back and rescinding my request.  Again, he is gracious and offers some advice on a junior golf career based on his experience as a golf dad.

Again, I call the wife to say the deed is done and she tells me to call him right back and say that Andrew really does want to play!  I do, embarrassed at having drug him into this, and once again he is gracious and offers more advice for myself, my son and my wife to enjoy the junior golf ride, as it will be over all too soon. 

We did, but that incident drove home to me that I did not have a good woman at home to help cause my success!  We had problems before - I always said my wife would rather be right than married and spent a fair amount of time doing crazy things for no reason I could see other than she wanted to see if she could make me do them.  It took a few years to finalize but having my wife embarrass me in front of clients was my last straw.

[Adam Clayman]

This goes to the core of what golf should and should not be. Golf is exceptional in that those who seek an ROI have choosen the wrong vehicle. The ROI in golf is not measured in dollars its meassured in criteria more important.

[Jeff_Brauer]

Adam,

In some ways I agree. Golf has historcially been an average business at best. Like JP Morgan, who knew to get out of the stock market when his shoe shine boy started giving him stock tips, I figured we had a market bubble when golf mags were running stock quotes on major golf companies. 

Golf has never been that kind of business, but when Wall Street got involved, privately held upscale public courses were sold to investors as being capable of providing 15-25% return.  (Basically, no one would invest without the promise of about doubling the overall return (historic and then current) return of the stock market.

Even discounting that macro economic picture of the times, for most courses, its a real struggle to make ends meet.  Most can, with enough cuts in budget and providing the construction debt is off the books, via course age/time, a city or developer paying it off outside basic operations cost.  There is a business side to golf which rears its ugly head because almost no one will subsidize it forever.  The comments Silverstein makes largely refer to that, even though he does seek a high return.

Jeff loves golf, but has no real emotional connection to any course he owns.  If the right offer comes along to sell, he will sell and get his money out.  We designed two courses for him that he sold before opening when market conditions changed a bit and those REITS came calling with attractive offers. In some cases, he has sold a course for twice what he paid for it, and then bought it back for half of what he sold it for a few years later. 

He is ultra shrewd and trying to merge his love of golf with his love of business.  Not, as Seinfeld would say, that there is anything wrong with that.  What Mike Young is saying is that even if you don't care for his operations, he will probably have a long term impact on improving golf as viable business as others adopt certain parts of his model in their unique operations.

[Bruce Katona]

Jeff Silverstein looks at the golf business model in a manner similar to our group....at its simplest a golf operation should be:

18 holes of a fun golfing experience at a reasonable cost

Small pro shop/locker room  to collect fees with mininaml staff

BBQ grill at the turn for quick hot meals at a reasonable price
"player assistants" (volunteers who are pais little but play golf for free) to control pace of play and act as the starter.

A facility fairly easy to find and get to located within 30 miles of a reasonably populated area - this will generate approximately 30,000 rounds/year; in areas where the golf season is not 12 months; as this will cover the cost of operations - any round above 30,000 begins to generate profit ( for areas not in the Sun Belt/South where the metrics are different dure to a 12 month season...12 month golf season clubs need closer to 40,000 rounds to cover the additional added expense of really operating the addional 3 months/year to break even operationally.

Someone opined earlier that a 50% operating margin was generous....an example follows:

$2,000,000 in gross sales
$1,000,000 in operating expenses (course maintenance, salaries, etc.)
$300,000 fixed costs - equipment leases, property taxes , water    purchases, office equipment leases, etc.

$700,000 in NOI/EBIT

$600,000 - Debt Service ( on $6.0 million of debt to build/acquire a facilitty)

$100,000 Net Annual Income on an investment of minimally $8.0 million (see above debt of $6.0 million + $2.0 million in equity as banks will only let you borrow 70% cost of a project maximum) is a 5% annual retun on your $2.0 million equity investment.


Looking at the above example, now you can undersatnd why acquiring existing facilities at a discount;  which  are failing operationally; makes economic sense.  Reduce the $8.0 million outlay by 25%-50% and a $100,000 return on an equity investment of $500,000-$1,000,000 gives you an annual return of 10%-20%, which is respectable.

[John Kavanaugh]

If any of you know Gordon Wagner who is with IRI we went to high school together.  Be sure and ask him about my AMC Pacer.  If he calls me Sunny please don't ask why.

[Jeff_Brauer]

JK,

I know Gordon and he called just the other day to touch base.

Bruce,

Your numbers are about right on. Here is a guy trying to provide golf for the little guy for a reasonable price.  No one likes the compromises that have to be made to do that but what else is new?  We all have champagne tastes for a beer budget.

BTW, acquiring a "used course" can be like buying a used car - you buy the other guys problems.  The trick is to know if there is a fundamental reason the course is playing only 20K rounds and not 30 that can be fixed with better operations and not a lot of capital improvements.  Of course, as a gca, I prefer them to buy courses that need a lot of capital improvements.  But, when Jeff buys a course, he doesn't typically do a lot of cosmetic upgrades and rebuilding.  There are cases where rebuilding a course can improve the ROI, but its not always the case.

[Sean_A]

Sean

High operating margins are necessary for a "business" such as golf course ownership which has high capital costs.  It's the same as owning and letting out a flat.  If you're a landlord, your "operating margin" should be very high if you want to get an appropriately risk-rated return on your capital.  Part of the golf industry's problerms is that (like real estate "investors" in the current bubble) they assumed that they could make up chronic operating losses (after capital cost were accounted for) by selling the property at some time in the future to a greater fool.  Siverstein understands this fallacy and seems to have found a niche where he can make real money rather than rely on elusive (and often illusory) capital gains.  To do so, you need a tight control of costs.  that's all he's saying.

BTW--have we got to the need for GCA's yet......?

JPP

Isn't this what I said earlier - "with a margin in the 20s he shouldn't need to press any panic buttons - unless of course he has some over-sized debt on the books"?  Borrowing the money always runs a risk with the troubling loan funding.  Granted, one can't know that this sort of climate will hit, but if there were good times, some percentage of that profit should have been socked away as trying to operate a golf course for profit is surely a long term investment.  Lord knows I would never in a million years dream tying to run a course.  I struggled to operate a manufacturing outfit with necessarily very high operating expenses and a debt service.  20% margin would have been a dream come true and indeed my dream did come true...for a few years.  I saw the writing on the wall and didn't fancy reinvesting to compete in an ever increasing vicious car manufacturing environment so I took the money and ran.  Call me a coward, but I had enough of cut throat business becasue at the end of the day all we were doing was cutting our own throats to help keep the likes of Ford, Jag, Nissan, Volvo rolling along - No Thanks.

Ciao

[Rich Goodale]

Sean

See Bruce Katona's informed post above.  Even if one has no debt (i.e. buys the facility for cash), there is still a cost of the equity capital , which cost is higher (given the higher risk) than that for debt capital.  The relevant numbers are the low asset turnover (cost of facility/revenues) which is available to a typical golf course property.  With such a low turnover ratio (revenue/assets), you MUST have high margins, as ROI=income/revenues*revenues/assets.  Simplistic, but true.

rfg

[TEPaul]

Richard The Magnificent:

What the hell is this new name of yours? Are you trying to hide from me again??

[Tags:]

Tags:

[Tags:]

Tags:

Call to undefined function theme_linktree()