Why are golf carts extremely profitable?

[David_Elvins]

There is a common argument made that one of the reasons for cart usage is that they are extremely profitable.

What makes them so profitable? 

In most mature markets the profit margin decreases with time as competition erodes profit margins. 

Are carts really profitable, or is it just an accounting issue (error)?

[Tom_Doak]

It's an accounting issue.

Many courses advertise, say, a $50 green fee ... and the $20 or $25 cart fee is not advertised, because they know most people are going to take a cart anyway.  It could just as easily be a $60 green fee and a $10 cart fee, but that only happens in places where golfers decide to walk instead of ride.  [This sort of pricing actually hurts courses that are walkable, because it seems that they charge a higher green fee than the courses where they know they're going to get your cart money.]

It is like if our airlines started claiming that baggage was profitable, now that they ding you big bucks for your checked baggage to make up for misleadingly low airfares.

[Mike McGuire]

Any time you can take a $5,000 item and rent it out for $40 a day ( or twice a day)  you are doing  ok.

[David_Elvins]

Any time you can take a $5,000 item and rent it out for $40 a day ( or twice a day)  you are doing  ok.

Wouldn't that depend on electricity costs, storage costs, maintenance costs, staff handling costs, maintenance and construction of cart paths, maintenance of cart damage on course, etc etc?

[Tom_Doak]

Any time you can take a $5,000 item and rent it out for $40 a day ( or twice a day)  you are doing  ok.

Wouldn't that depend on electricity costs, storage costs, maintenance costs, staff handling costs, maintenance and construction of cart paths, maintenance of cart damage on course, etc etc?

Yes, but some of those are hidden costs.  Nobody ever thinks about what the cart storage building cost once it's there.  And nobody ever charges any of the course maintenance off against the carts, even though they do cause wear and therefore increase maintenance costs.

But, it's still about the pricing.

[Sam Morrow]

When guys are in carts they can buy more booze.

[David_Elvins]

Thanks Tom,

Your airline baggage analogy is a good one. 

[Ben Jarvis]

If it wasn't for carts, less corporate/charity golf days would be held (at our club anyway).

[David_Elvins]

When guys are in carts they can buy more booze.

Not sure I agree with that.  I don't play a lot in carts but went on a recent trip, we took carts everyday.  By the third day we realised that carts made it a lot easier to bring our own booze.  

[Sam Morrow]

When guys are in carts they can buy more booze.

Not sure I agree with that.  I don't play a lot in carts but went on a recent trip, we took carts everyday.  By the third day we realised that carts made it a lot easier to bring our own booze.  

That too. Just go to the average course on a busy day and see the amount of yahoos buying beer by the case and throwing it in their cart.

[Keith OHalloran]

Carts may also open your course up to a different demographic. The older rich guy that is spending his retirement golfing may not choose to do it at a walking only facility.

[Bill_McBride]

There is a common argument made that one of the reasons for cart usage is that they are extremely profitable.

What makes them so profitable? 

In most mature markets the profit margin decreases with time as competition erodes profit margins. 

David, there is no competition because all sales take place on one course.  So there is no erosion of price once the price is set. 

[David Cronheim]

Any time you can take a $5,000 item and rent it out for $40 a day ( or twice a day)  you are doing  ok.

Mike, great point, but actually the margins are even better. I know from drafting a golf cart lease for a club that a leading cart manufacturer leased 3-year old carts at something like $65/month to clubs. The carts look brand new. At $27 pp/p18 it doesn't take much to turn a profit on the cart. Tom is right about the cost of the cart barn, but even depreciating that cost out, carts are hugely profitable. Toms analogy works only for public facilities. At private clubs, the choice is often between carts and caddies. On the whole, carts are hugely profitable to clubs.

[Rich Goodale]

Any time you can take a $5,000 item and rent it out for $40 a day ( or twice a day)  you are doing  ok.

Mike, great point, but actually the margins are even better. I know from drafting a golf cart lease for a club that a leading cart manufacturer leased 3-year old carts at something like $65/month to clubs. The carts look brand new. At $27 pp/p18 it doesn't take much to turn a profit on the cart. Tom is right about the cost of the cart barn, but even depreciating that cost out, carts are hugely profitable. Toms analogy works only for public facilities. At private clubs, the choice is often between carts and caddies. On the whole, carts are hugely profitable to clubs.

Game, Set and Match

[Matt Day]

As a local government we have to use activity based costing. On annual turnover of $500,000 + GST for a cart fleet of 78 there is a healthy return on investment.

That includes all costs include electricity use and building depreciation, the only thing not directly costed is turf repairs around some cart paths. Turf repairs wouldn't total more than $15 k per annum for both course

[Chris DeNigris]

Are toilets profitable for a hotel?

[Kris Shreiner]

Rich,

Not so fast. As I've said before, if you factor in ALL the costs...it isn't the motherlode that many purport. I also never saw a cart that could: eat something at the turn, fix a divot, shags balls at the edge of the range, pull bags, clean itself, buy equipment, play the game, read a green, rake bunkers, provide excercise or a host of other things.

Carts have their place in the game. They AIN"T an essential to a healthy game. Remember, half the reason many newer places need carts is because they are so stretched out or awkwardly routed over ground NOT best suited for that purpose (YEAH, I know..ghosts of Melvyn, forgive me) that walking is IMPRACTICAL! What kind of excess, waste and EXTRA maintenance/cost does that ever-expanding kind of golf REALLY add to running a facility? A BUNCH! Everything, logistically and resource wise, takes more effort. It's simple physics...NO OWNER, let alone the cart companies, will TOUCH that one. The reality is...cartball as the MAJOR form of golf is BAD for: the environment, human beings and the game in general.

Again, since when did the game owe an industry a profit center at the expense of common sense and a healthy planet. There can be NO economic sustainability WITHOUT environmental sustainability! We're in the global mess we are in because of same GREED mentality and STUPIDITY. Look to the marvelous utility of past greatness in course design...emulate that with fresh artistic fair having efficient agronomics...and you have the right balance for a healthy future of the game. Carts are part of the mix, particularly extending the ability of an aging or walking-challenged player to enjoy the game. But they should NEVER be held out as the main way to play. That is a mistake...unless the lure of MONEY is your primary  concern.

Cheers,
Kris

[Chris DeNigris]

How do public courses (and many privates) have regular outings without carts?

What about evening league play? Most of the publics around where I live (PA) seem to financially depend on both outings and league play and it seems that carts are just about essential for both.

[Rich Goodale]

Easy Kris!

I was just commenting on the subject, which related to economics, not to existential theories about what golf ought to be!

Golf carts ARE extremely profitable to the golf club owner (private or public), as David C. elegantly demonstrated.  Walking is better for most players (including me), but we are swimming (walking actually) against the tide.  As for caddies, look up the word "anachronism."  We're not in East Egg any more, Toto.....

Rich

[Tom_Doak]

Any time you can take a $5,000 item and rent it out for $40 a day ( or twice a day)  you are doing  ok.

Mike, great point, but actually the margins are even better. I know from drafting a golf cart lease for a club that a leading cart manufacturer leased 3-year old carts at something like $65/month to clubs. The carts look brand new. At $27 pp/p18 it doesn't take much to turn a profit on the cart. Tom is right about the cost of the cart barn, but even depreciating that cost out, carts are hugely profitable. Toms analogy works only for public facilities. At private clubs, the choice is often between carts and caddies. On the whole, carts are hugely profitable to clubs.

David [and Rich]:

The problem with this analogy is that it treats carts as if they are entirely an add-on.

In the real world, the total cost is what matters at the end of the day.  If you weren't charging $27 for the cart, you could charge more for the green fee ... and if you weren't discounting the green fee to make it sound better in advertising, you couldn't get $27 for the cart. 

Assigning the $27 to the cart makes the cart sound extremely profitable, and makes the golf course sound like it's losing money ... which it is under the logic of many operators.  But is that the real story?  I don't think it is.

[Brent Hutto]

Accounting fictions aside (and both golf courses and private clubs seem addicted to accounting fictions) the reason offering golf carts is "profitable" for a course or club is because it means people who want to ride in a cart will play your course. Only a miniscule portion of public or private courses can afford to simply turn away the 50, 60, 70, 80% of potential players who want to ride.

While Tom's point is well stated that the total cost of a round is all that really matters...what really, really matters is the bottom line of the operation with or without golf carts. Assuming one could actually ever find a "bottom line" among the bullshit that passes for bookkeeping most places it's gotta be better to have 2,000 rounds a month with 1,200 of them including a cart rental than to try and get by on the 800 walking rounds alone. Unless of course we're talking a very exclusive and financially secure club or a major destination resort like Bandon or Kohler.

[JESII]

Tom,

You may be right that business owners don't look at this stuff line itme by line item but I suspect that's a small minority of them.

Regarding the actual cart fee, I'm sure you agree that the all-in overhead for carts is a small fraction of that $27 number you're using...except at the highest end privates that have a ton but don't use them too much.

[Tom_Doak]

Accounting fictions aside (and both golf courses and private clubs seem addicted to accounting fictions) the reason offering golf carts is "profitable" for a course or club is because it means people who want to ride in a cart will play your course. Only a miniscule portion of public or private courses can afford to simply turn away the 50, 60, 70, 80% of potential players who want to ride.

While Tom's point is well stated that the total cost of a round is all that really matters...what really, really matters is the bottom line of the operation with or without golf carts. Assuming one could actually ever find a "bottom line" among the bullshit that passes for bookkeeping most places it's gotta be better to have 2,000 rounds a month with 1,200 of them including a cart rental than to try and get by on the 800 walking rounds alone. Unless of course we're talking a very exclusive and financially secure club or a major destination resort like Bandon or Kohler.

Brent:

That's true for many courses.  It doesn't matter at Bandon, because there are so many people that want to walk, they aren't giving up four green fees when they "turn away" the guys who didn't come because they wanted to ride.

[Tom_Doak]

Regarding the actual cart fee, I'm sure you agree that the all-in overhead for carts is a small fraction of that $27 number you're using...except at the highest end privates that have a ton but don't use them too much.

Jim:

No question there.  I'm just saying that the $27 per round number shouldn't be taken in isolation.  People wouldn't pay that kind of price if there was a real open market.

It's interesting to muse on just how this all came to be.  How it came to be, really, is that when carts were first introduced, the revenues didn't go to the club.  It was the golf professional at the private clubs who leased the carts and then rented them to the membership, and of course, the golf professional tried to maximize his own revenue rather than looking at the bigger bottom line.  Mike Souchak, who was the director of golf at Innisbrook, made a small fortune leasing golf carts for a 54-hole resort.  Eventually, the owners caught on.

[David Davis]

I always saw carts in the US as just a basic part of the speed everything up to get more turnover game. Since the average public course player is slow this certainly helps and serves a purpose.

Put them in carts, make them mandatory and we speed up play so we can funnel more rounds through the course.

It's similar to all these restaurants where they want to turn tables, get you in, get you out and off to the movies because instead of having one sitting per night they want to have as many as possible.

I agree with the arguments above but I think (unless I missed it) volume is a large part and I'll be most of the golfing public outside of GCA sees carts as a luxury, especially when equipped with a beer cooler, GPS, airconditioning, ball and club cleaner etc etc....