Golf Industry's Big Short

[Mike_Young]

Interesting question...The Pellucid report today asked the following and wrote the following:

Golf Industry's Big Short:
How Will it Play Out?

"Call me a sucker for Michael Lewis' take on the financial markets, baseball etc. but after seeing the movie "The Big Short" and reading the book, the characters who are trying to fight their way through the never-ending haze of confusion and misdirection in each story just resonate with me and remind me of the 15 years now I've spent in the golf industry trying to figure out, "What the hell is really going on at the most basic and fundamental level?"

Fortunately for those of us trying to make our living in this industry, there isn't any "big short" of the magnitude of the housing market mortgage loans manipulation between '05 and '08 portrayed in the book and movie, but we continue to be in desperate need of simple, clear thinking on the path forward for the industry in the face of declining participation and rounds that are simply following weather patterns against the backdrop of latent oversupply that's being absorbed at a glacial pace.

As I complete my 13th year of chronicling the information fundamentals of the golf industry (that's ~227 newsletters at an average of 7 pages each or over 1,500 pages of the written word trying to figure out this puzzle and enlighten subscribers/readers), we certainly have more information than we did back in 2002 but the "industry narrative" remains remarkably the same.  In this issue I'll draw some parallels to themes from The Big Short and outline how we might find our way out of this maze quicker and with better clarity by learning from the financial markets' mistakes:

There is a finite level of demand for golf, building real estate around golf supply doesn't increase that finite level of demand
There is a segmentation of that demand across accessibility (private vs. public), value points (Public Premium, Value and Price) and experience types (Regulation vs. Learning & Practice) which needs to be heeded
Losing low-involvement golfers today masks the eventual rounds demand day of reckoning as our core golfers "age out" of the system and when it will take multiple new or existing golfers to replace their rounds contribution

[Greg Tallman]

The golf version might be a bit boring. I doubt the AHA moment would involve multiple hookers joining numerous nice clubs because THEY were being solicited. 

[Mike_Young]

The golf version might be a bit boring. I doubt the AHA moment would involve multiple hookers joining numerous nice clubs because THEY were being solicited.

You never know....

[BCowan]

Losing low-involvement golfers today masks the eventual rounds demand day of reckoning as our core golfers "age out" of the system and when it will take multiple new or existing golfers to replace their rounds contribution

Instead are Core Golfers leaving the game due to low-involvement types frustrating them?  Are Yo Yo's making core golfers find another hobby? 

[Mike_Young]

No Ben, I don't think so.

But when that active golfer eventually leaves the game and the low involvement golfer has to take up the slack it will take several.  If a club is now around the average age of 59-61 and is not attracting 30 year old golfers there will be a huge problem in 10-15 years. 

[Joe Sponcia]

Mike,


When was the last time the game attracted a large swath of 30 year olds?  The 'Tiger' boom?  I am 43 and was knee deep in the game at the time, not having taken up the game until I was 21 (1993).  By 97', I recall a bunch of backwards-hat-wearing beer chuggers with metallic thingies on their belts with abhorrent etiquette, swinging for the fences it seemed on nearly every shot.  I know new golf courses builds exploded during this time, but I swear after a couple of years, the kids left.


I may be on Pluto here, but at least in the club world, memberships for under 35's are incredibly expensive.  I remember when I first joined a club it was largely based on cost-per-round, not the things I look for today.  I am assuming, since you write a newsletter, you own or manage a private club?  With golfnow, nice publics that used to be $50 are now half that at selected times.  Clubs want to attract the elusive family of 4, 35-40 years old, but a guy working with two kids can't get his cost-per-rounds at a decent price because he simply doesn't have the time to play 4 days per week.  So should his membership be severely discounted to say $200 vs. a resident/full adult @ $500, so he gets used to paying dues?  That seems to be the answer in my neck of the woods on a micro level, but as it relates to the larger issue, I'm shocked by the courses that seem to hang on? 


As you pointed out, supply greatly exceeds demand.  I have talked to those that 'manage' that through weekly memberships, restricted play at certain times (ala gyms) based on their price point...but attracting younger folks to the game still seems to be an issue?  I can't tell you the number of club newsletter I read where the Tennis pro has programs and instruction galore (often a full page), but the golf pro has virtually nothing at 3-4x the price? 


Maybe you can shine more light on your own experiences?  I think the topic is an important one.   

[Carl Rogers]

Who is the average golfer?? I am at a loss to define that person.  Help!

[Mike_Young]

Joe,
To clarify, I did not write the topic...I posted it from Pellucid newsletter I receive each month...

All I can say is that estimates are golf will stop falling when we reach the 20 million participation rate.  If we don't have the 30 year olds getting into the game it will eventually become smaller and smaller....for a club to have an average age of 60 and try to lower it to 50 is a huge if not impossible undertaking.

[BCowan]

Well Mike I kinda fit in the category of potential member in their mid 30's.  I'm a hard core golfer, hard core traditionalist yet anti-establishment at the same time  .  If I were a member of a club, I wouldn't want to lower the standards of a club by taking in backward hat wearing un-tucked shirt wearing idiots.  I agree that once a club reaches an average age of 61, It might be near the end.  I don't see any clubs trying to attract the Individual golfer, just the family.  It would be nice to scale back other operations and salaries and focus on GOLF.  I think you might have more younger prospects.  However the older hard core golfers have money and Golf is turning them away.  My parents as an example of core golfers just sent in a year of absence to their club after being there 40 years.   Both the club i grew up at and the quasi-private one I play at now both have lots of youth playing and practicing.  It spontaneously happens, golf is desired by a niche amount of kids and adults.  The guy who's kids and wife don't play golf, he is the one who gets overlooked.  He does do cost per round analysis now and can't justify it with saving for overpriced tuition and nice family vacations.  He may only play 20 rounds, but would probably join for half the dues of the family that uses the facilities all the time.  He probably isn't in that category of having to play Sat and Sun from first time-10AM, which everyone assumes and fusses over.  What advising companies preach scaling back?  You can't be progressive and scale back at the same time     *** There's no Money in scaling Back***

[Joe Sponcia]

Ben how is golf turning 'them' away? 

[BCowan]

Joe,
 
Trying to define ''them''

   Your Mid 30's guy has a mortgage and college loans and if his family doesn't play Golf he doesn't want to pay $400-$500 a month dues, more today can't justify it.  Plus the Country Club with white tablecloths, fine dinning, and fu fu food are more of a turn off with 30 year olds.  Unfortunately these lads don't understand the customs of having a beer and burger after a round is an unwritten rule, their wives wear the pants.  This is a reality and forcing someone to eat somewhere they don't want to doesn't bring in new blood.   

   Then your possible 50 year old potential member loves golf, respects the ethos, has watched caddie shack in the movie theater (jealous), has 2 kids in college, and a wife or ex-wife.  He would love to play golf and have that fellowship or a nice golf course to sneak in 9.  He can't justify the $500 a month being the only golfer.  He's torn between just going on buddy trips with friends or playing in beer leagues so he's not considered the ''Country Cluber'' to his friends.  He would most likely join as an individual member fee even if he knows he can only play 20 rounds, they are quality rounds. 

  Growing staff of door greeters and Managers that don't wear multiple hats but grow the budget through job specialization and fancy titles are too prevalent IMO and diverting money spent on drainage, bunker Maint, tree maint and other course maint items. 

   As for people who have been long time members of clubs, they have just heard the sales pitch too often and have watched sheep herded too many times.  When you do surveys and bunker renovations show up #1 year in year out and you spend money on other items you get camels with broken backs.

   I'm lucky to play a place that does 30,000 rounds a year with 750 individual members and a waiting list.  They also don't have a kitchen that serves food, just a turn shack.  Thankfully they turned down the option to build a big clubhouse to host the Buick Classic PGA stop which could have ruined the culture. 

[Charlie_Bell]

If Mr. Trump is elected President, America will become great again, and golf will return to its rightful place as the ultimate in aspirational recreation.  It'll be yuuuuuge, I tellya, yuuuge.

[John Kirk]

Comparing golf's current economics with the "Big Short" housing bubble, fueled by a demand in mortgage-backed securities, is not a very good comparison.

The people invest a certain amount of discretionary money in golf, and it appears that amount has been gradually decreasing.  I don't expect a catastrophic event, but rather a gradual contraction of the game's importance, and the number of playing fields. 

[Doug Siebert]

The problem with attracting the 30 year olds to clubs is that few have the disposable income for it. Look at the pay TV industry, they are very concerned about the aging of their subscriber base, since the millennials are not subscribing to traditional cable/satellite packages like their parents did. They've done surveys and while some of it is "don't have time for TV" or whatever, most of it is that they consider it too expensive.

They have expenses their parents never did at their age - such as much higher student loan debt, as well as internet and cellular service. If they think having ESPN costs too much, what hope does a club have of convincing them to join?

Sure, they can offer discounts, but what are the 50 year olds going to think about 30 year olds paying half what they do? If the deal expires once they reach 40 and a group of 40 year olds approach the club president and say "we would like to remain members, but not at the higher rate" do they extend it until they are 45? That lower rate for younger members may become the permanent new rate of the club, and they won't survive once enough older members paying more have died off (or quit because they felt they were unfairly subsidizing younger members)

[Mike_Young]

Comparing golf's current economics with the "Big Short" housing bubble, fueled by a demand in mortgage-backed securities, is not a very good comparison.

The people invest a certain amount of discretionary money in golf, and it appears that amount has been gradually decreasing.  I don't expect a catastrophic event, but rather a gradual contraction of the game's importance, and the number of playing fields.

John,
I think in someways it is very similar when you look at the gmaes played in purchasing these large groups of companies by some of the larger management companies with Wall St money.  Lot of paper games played....and some of these equipment manufacturers who could almost stop production for  a year and have product ot sell....there's some stuff out there....

[archie_struthers]

It's a tough slog selling memberships but we have had some success by having a bunch of disparate Groups that play regularly . Our members know there is a game that doesn't require them to organize , just call an hour before and show up .  It has bred some good competition and some growth .


We have a fairly low annual dues ( under 5k yearly) with weekly memberships that are discounted. Our golf course is good and mood is low key and fun not snooty .  Our location is really exceptional which might be the biggest reason for success. 


But it's hard work and often a tricky read , gotta stay focused .

[BCowan]

The problem with attracting the 30 year olds to clubs is that few have the disposable income for it. Look at the pay TV industry, they are very concerned about the aging of their subscriber base, since the millennials are not subscribing to traditional cable/satellite packages like their parents did. They've done surveys and while some of it is "don't have time for TV" or whatever, most of it is that they consider it too expensive.

They have expenses their parents never did at their age - such as much higher student loan debt, as well as internet and cellular service. If they think having ESPN costs too much, what hope does a club have of convincing them to join?

Sure, they can offer discounts, but what are the 50 year olds going to think about 30 year olds paying half what they do? If the deal expires once they reach 40 and a group of 40 year olds approach the club president and say "we would like to remain members, but not at the higher rate" do they extend it until they are 45? That lower rate for younger members may become the permanent new rate of the club, and they won't survive once enough older members paying more have died off (or quit because they felt they were unfairly subsidizing younger members)

    I have friends that have their memberships in their wives names due to her being younger, when their dues double they are gone.  Their wives have no interest in using the club's facilities.  Hence I said the Individual membership model. Why should a guy who's wife doesn't play golf pay the same as a guy's who's wife is an avid golfer playing 50 rounds a year?  Individual memberships at $250 and family at $500.  Family membership wife gets to vote and single gets to vote.  NO progressive age structure membership with voting rights which 99% of clubs have.  Younger members would like a vote.  The more TRUE individual memberships offered the larger the pool of potential members.  The days of people who don't even play golf subsidizing it by joining just to join are gone. 

Mike,

   I think there are a lot of parallels with Golf and the Big Short.  Housing prices are going up due to Fed action and causing people's discretionary money to be diverted to mortgage payments.  I'm glad that the movie mentioned Greenspan and Fannie Mae a few times, but overall it was to dis Capitalism wrongfully. 

[Tom_Doak]

Comparing golf's current economics with the "Big Short" housing bubble, fueled by a demand in mortgage-backed securities, is not a very good comparison.

The people invest a certain amount of discretionary money in golf, and it appears that amount has been gradually decreasing.  I don't expect a catastrophic event, but rather a gradual contraction of the game's importance, and the number of playing fields.

John,
I think in someways it is very similar when you look at the gmaes played in purchasing these large groups of companies by some of the larger management companies with Wall St money.  Lot of paper games played....and some of these equipment manufacturers who could almost stop production for  a year and have product ot sell....there's some stuff out there....

Mike:


There are a lot of golf companies in trouble.  But, it won't be like the housing bubble unless people start borrowing money so they can join a club, and I don't think there are many banks lending for that right now ...

[Tom_Doak]

Sure, they can offer discounts, but what are the 50 year olds going to think about 30 year olds paying half what they do? If the deal expires once they reach 40 and a group of 40 year olds approach the club president and say "we would like to remain members, but not at the higher rate" do they extend it until they are 45? That lower rate for younger members may become the permanent new rate of the club, and they won't survive once enough older members paying more have died off (or quit because they felt they were unfairly subsidizing younger members)

Doug:


The truth is that the people those clubs are trying to attract have less time to play than the older members, and can't justify the same price.  You either give them a discount, or they don't join and your club dies off.


When they get to 40, there will be fewer older members who are taking advantage of the current system, so the price will stay down and the solution will be to have more members per club. 


U.S. private clubs charge higher dues than anywhere else in the world, because they have fewer members per club.  That was true even when clubs were full at 300 or 350 members:  it's impossible to make the numbers work with 180 or 200 members, as many clubs are trying to do now.  We're going to have to become more like Australian or U.K. clubs, with larger memberships and smaller dues that correspond to the number of rounds people actually have time to play.


All that means there are too many private golf clubs in the U.S. now, and probably still too many golf courses in general.

[Jeff_Brauer]

Mike,

I think we had our mini version of it.  I recall golf architects and builders enthusiastically saying "college golf courses are the next big market."  Then it was China, but before it was real estate.  Now, I guess its conversions to fun, 9 hole courses for the Millennials.

As if us needing to build more courses would actually drive demand, a la the NGF mantra of the mid 80's when you and I first went into biz for ourselves.  Lack of courses is holding back demand, yeah, that's the ticket!

[Mike_Young]

All that means there are too many private golf clubs in the U.S. now, and probably still too many golf courses in general.

Tom,

that's about as simple as you can put it but the industry will not accept that and continues to come up with growth concepts and other ideas but in the end we just have to wait for population to catch up.  We don't want to hear it but we all know that is the problem.  And the housing issue was the same way.  People knew there would be a day of reckoning but would not acknowledge.

[Tim Gavrich]

Private golf clubs are always going to have an uphill battle trying to attract guys who are already married with kids (e.g. guys in their 30s to early 40s) for lots of reasons that have been mentioned in this and other threads.


In order to preserve themselves long-term, I think private clubs should court more aggressively people who are my age (26) and even slightly younger, in order to get that membership to become part of their lives before all the financial trappings of marriage and children enter the picture in earnest. But in the research I've done, clubs expect a 25 year old to be able to afford the same amount of dues as a 39 year old or even a 49 year old in some cases, which makes little sense to me.


The problem, of course, is that in order to get a substantial group of <30 year olds to join, the dues would have to be priced so aggressively that the >65 year old members would probably cry "socialism!" and bolt, which of course forsakes the forest for the trees.


Have private clubs ever had a membership drive aimed at younger folks where only after a certain number (say, 4-8) agreed to become members that their membership was granted? That might mobilize a particular prospective member to work on his golf buddies to join as well.


The hope would be that those new guys would form their own nucleus within the club, eventually recruit other new members and ultimately end up never wanting to leave the club and, once they get married and have kids, working hard to justify the gradually increasing dues as they get older and more established in their careers.

[Mike Hendren]

My favorite story from the housing bubble:
 
http://piggington.com/strawberry_picker_buys_720_000_house_on_15_000_yr_income
 
The only thing the two bubbles (arguably there is no golf bubble - only a mature and functionally obsolete industry) have in common is this:  Neither home ownership nor golf is the American Dream.  I, for one, believe the Millenials deserve credit for figuring that out.
 
I read the Housing Bubble Blog daily for a couple of years during the debacle.  Unbelievable.
 
Mike

[JESII]

I think a similarity between the two is the belief and action based on one truly flawed assumption each;


Housing prices will always go up and,


We need one new course a day to keep up with demand.

[Kalen Braley]

I think a lot of the comments about millenials are right on the money.

Not only do most of them have zero financial wherewithal to join a club, and likely never will, I doubt many have interest even if they could.

This young generation is very anti-establishment, justifiably so, because the establishment has left them on the outside looking in. Saddled with massive college loans which is further compounded by low paying jobs waiting for them when they graduate, their current future is so bleak that they can't even see themselves being home-owners much less owning a golf membership.

The privates are going to have to figure out something quick....