Best New Profitable courses???

[Mike_Young]

If we read Inc. Magazine or Fortune or some of the other business magazines, they rank their  "best" on growth and profits etc.
Profit seems to be one of the main ingredients in the longevity of any business.
Would it not be a good study to rate the best profitable courses.  Possibly breaking into 1. privately owned daily fees , 2. privately owned for profit private clubs and municipal courses.  Determination would be based on golf related income and expenses only.  Real Estate subsidizing or municipality subsidizing cannot be considered.  I think such a study would open a lot of eyes as to why we are where we are and where golf is going.  
What would be your choices or does anyone even have an idea??

[Joe Hancock]

Mike,

Due to recent muni/ affordabilty threads, I would be afraid what some of these guys would rate higher:

A golf course model that makes a fair profit for the operator while remaining affordable in its market

or

A golf course model that just breaks even so that it remains as low cost as possible.

And, the highest rated of all.....a golf course that loses money so it remains affordable, at least up to the point when it is sold for developement.

It's not acceptable for golf courses to be judged for its financial success, because the reason a golf course exists is much more noble than that.

Joe

[A_Clay_Man]

One thing is for sure, the California courses should weight the list.

While recent memories are too recent, so many days of beautiful weather should give the list a bias to older municipal course, whose costs are long sunk.

[Doug Wright]

Bandon/Pacific Dunes...

Best..
New...
Profitable...

[George Pazin]

Bandon/Pacific Dunes...

Best..
New...
Profitable...

  Great post.

-----

How does anyone propose to determine courses' profitability?

[A_Clay_Man]

Kingsbarns

[Mike_Young]

Doug and Adam,
I would think both of those would be good choices.

George Pazin,
I would determine profitability by whether or not income from green fees, membership dues, F&B amenity, and proshop sales covered the cost of maintenance, clubhouse, taxes&insurance and debt service.
I would think that course such as Pebble, Bandon and Kingsbarn would do well in the above scenario.  How bout some more.

[George Pazin]

Mike -

Your definition sounds fine, I just don't know how you'd find out that information for the vast majority of courses. That's what I was trying to say. I'm not trying to be rude, simply realistic.

[Mike_Young]

George,
I agree that it would be difficult to obtain the info but just to make a point we could guess just by knowing average green fee, maitenance level and initial cost(land and construction)  So say a muni or getting a $30 green fee and playing 40,000 rounds= $1.2 million
Say maintenance of $500,000, clubhouse admin expense etc= $125,000 and cost of $5million for course and land amortized...plus minus $500,000 per year ......would give a profit of $75,000
Now say CCFAD in major city average green fee of $60,000 playing $30,000 rounds.= $1.8 million
maintenance of $650,000
clubhouse expense etc $1million
taxes insurance  $150000
annual debt on $7.5 mill = $750000
LOSS  $750000
There are a lot of these around.....

[Joel_Stewart]

Pebble Beach is not new but has to be one of the most profitable courses in the world.  Even without greens fees, the pro shop is the size of a small department store and must generate enormous revenue.  Furthermore they are one of the few courses that cater to and can accomidate corporate customers.  Pinehurst, Doral are examples of others.

Hotels, food, drinks, carts, caddies, golf club rentals, clothing = a very profitable golf club.

[Mike_Young]

Joel,
I don't know about the Dorals, Pinehurst golf by itself...of course with the hotels etc yes...but I think one might be surprised there.  I don't know.
But I do agree Pebble is a big moneymaker.  
Mike

[Steve Lapper]

George,
I agree that it would be difficult to obtain the info but just to make a point we could guess just by knowing average green fee, maitenance level and initial cost(land and construction)  So say a muni or getting a $30 green fee and playing 40,000 rounds= $1.2 million
Say maintenance of $500,000, clubhouse admin expense etc= $125,000 and cost of $5million for course and land amortized...plus minus $500,000 per year ......would give a profit of $75,000
Now say CCFAD in major city average green fee of $60,000 playing $30,000 rounds.= $1.8 million
maintenance of $650,000
clubhouse expense etc $1million
taxes insurance  $150000
annual debt on $7.5 mill = $750000
LOSS  $750000
There are a lot of these around.....

Mike,

Your logic is flawed. If golf revenue is $1.8M and a clubhouse has expenses of $1M ..it damn well better be generating at least 1.70-1.80M per year in gross rev's off that facility. That is very normal for a CCFAD of that scale you describe. Your annual debt rate imply a 10% interest rate and that is at least 2 full points or more off the prevailing rate....all of this changes the equation to a positive.

   If the place is still losing $$ on that cash flow, then it is run like real crap and deserves to fail. Captialism 101

[Don_Mahaffey]

As someone who was GM/Supt at a CCFAD (sort of, we had non equity members also) in a highly competitive market I see a few problems with the numbers.

1. We were not even close to the highest revenue generator in our market and yet we did about 2.5M - 2.8M in gross revenues.

2. Even though it's well known that clubhouses are money losers, I've never seen clubhouse expenses higher then golf course expenses. I suppose they could be at a large F & B operation, but I still believe it would be rare. Of course a lot would have to do with how the accounting is done. At my course the golf side absorbed most administrative expenses. If you counted these expenses into the clubhouse then it's possible that the house numbers could be higher then golf.

3. I just can't fathom any properties being financed in the last few years without the owners committing a large equity position before gaining reasonable financing. Hard to believe that a $60 green fee course would carry that amount of debt. Any property earning less then 2M gross revenues with a debt service in excess of 7M should be out of business and the owners/bankers/investors forced to wear dunce caps in public for a year.

Now my rant.
It is my personal opinion that the #1 mistake owners make is borrowing and financing everything creating such a large nut that making money is far down the list to simply finding a way to survive. Case in point. A course I know fairly well was just purchased. Like many courses that have been sold in the last few years the business was struggling and quite a few maintenance items were deferred. Thus, the new owners do have some catching up to do. But, what did they decide to do? They just purchased 600K+ in new equipment. They now have a monthly nut in excess of 25K just for maintenance equipment. There is a lot of used equipment on the market right now that can be bought for 10% - 20% of the cost of new. Granted buying all old stuff would not be wise, but a mix of used and new would have been smart. No one just buys it anymore, everything is financed and that is a mistake. When did golf course equipment become throw away after 3 years? Yet you'll see a lot of courses leasing equipment and bringing in a new fleet every three years. A private club with plenty of money, OK. But a business trying to earn a profit, insane.  

I may be a dinosaur, but I believe more courses would prosper if they reverted to old business models and paid cash for things as cash flow allowed and did everything possible to keep their nut low. Take golf cars for example. There is such an unbelievable number of used carts available that they can practically be had for nothing. All these CCFAD think they need to change out their fleet every three years and thus there are literally thousands of good quality used carts available. If you were the owner of a daily fee why not go and pick through the best available, do a little reconditioning and add 15 a year, and pay cash for them, don’t lease. Yet, how often have you seen this done?

I could go on and on, but overbuilding is just one of the issues facing the golf industry.

[Mike_Young]

Steve,
With all due respect I think there are many cases where my logic is not flawed.
First I can show several cases I know where they built 30,000 sq. ft. clubhouses with $800,000 kitchens and total revenues for the project are approx. $2.5 million.  
I agree on the 10% figure.  I am just averaging and saying that whether one paid cash, borrowed or whatever 10% is a fair number.  Yes today it could be 8%  
Many of these places were built in the six and seven mill range.  
And I agree Bus 101 would say don't do these things but the last 15 years it has been done constantly.
Don,
I am speaking of the SE market and we have plenty of CCFADs that are around $2 to 2.5 million.  
As you are aware just a few years ago, a management company could come in and sayy they had $100 mill to buy golf courses.  Well, yes they did, in a way....they just took their Wall St Contacts and showed them paper where they could produce a 20% return.  Hell, we all got $100 million out there for golf if we can do that.  But it didn't work.  So the Reits and everybody else started bailing.  Clubhouses were showboats either for RE sales or to promote golf but they were drains on the golf and now we are stuck with them.  I know of several clubhouses in my area that exceed golf expenses.
I agree with you on equipment leasing etc but it is hard to get these owners to see it.
IMHO the large majority of profitable projects in the near future will have revenues of 1.5 million.  People wish to pay $30 to play and if you fill a course with 40,0000 rounds you have 1.2 million plus some Revenue from F&B and shop sales.  That is what it will take to make golf viable for most. IMO.
Mike

[Steve Lapper]

Mike,

    I agree with you that this kind of stuff is out there and remains mind-boggling. I only critiqued the math of that equation to point out how absurd the clubhouse asset performed.

    If, on the other hand, a $3.5 million clubhouse, with a $500k operating expense(ex. tax/insurance) can generate $1.4M a year in F&B, Retail, etc..then it is a reasonably well-performing asset that can effectively compliment a course that does $1.8M (30k X $60avg) and likely sustain a debt load of $8-9M serviced at 8%($640-720k per yr) and generate a very positive FCF and ROI/ROE.

    I'm commenting on this only because, at present, I am very involved with just such a plan and budget. SOme of my numbers look even better in certain areas, but we are acutely aware of just how critical it is to not "overbuild, over-borrow" and bury ourselves on opening day.

    I'm sure the SE market is also quite a different market for golf with land and weather variables vs. the metropolitan NE markets. I enjoy and respect your commentary.

Steve

[Mike_Young]

Steve,
I do understand your points and I certainly understand you critiquing my math.  It needed it.
I just have a hang-up with clubhouses.  I have seen them destroy too many good golf projects.  I have one course down here where we designed and built the course for 3.5 million and they spent 11 million on a clubhouse.  They even mention the chef in the yardage book.
IMHO most $30 green fees just need a ticket booth...nothing more.
However, if on the other hand a clubhouse is built and performs as you indicate....that can be good....I just don't see it much down here...
And likewise I appreciate and respect your comments.
Mike

[Jeff_Brauer]

Mike,

Nice topic.  I don't know what the most profitable new course is, but its not likely either a bargain course or well known courses suggested by some.  Key elements would be:

In an upscale demographic area

Close in, reducing travel

At a price point within the market that seems to give value.  Not the highest, not the lowest, but the nicest course for the  money.

Course Design, Maintenance and Service equal to higher priced courses.

It would be similar to my Ridgeview Ranch in the upscale Dallas suburb of Plano. This public course was developed when the city combined 105 acres of their land reserved for water tanks with surrounding development land and did a mid range public course within a development, having the developers pay for a lot of it, and reducing land cost debt.

The clubhouse is 5000 sf.  The course is attractive, yet moderately difficult and pretty traditional.  The whole thing cost $5.4 Mil to build in 1994.  Costs about a mil to run.  Revenues were over $3 Million a year last I checked.  Even after debt service, that is quite a haul.

Down the street there is a Palmer course in a real estate development that cost exactly double that, and prices reflect it.  

The real key to success is being in a great golf demographic area or an upscale suburb, and being the least expensive quality course on the block.  It should be set up for weekday business outings, since those are profitable and fill less busy times.

In DFW, courses with a fee under $45 do very well, easily able to draw 45-65K players (Ridgeview is at the upper end of this range, one of the busiest mid fee courses in DFW)  Courses in the $45-55 range have trouble drawing 40K players.  Upper end have trouble drawing 30K players, but do okay, on account of the higher fees.  Courses with fees of under $35 draw all the play they can handle, but probably aren't as profitable, since 60k players at $20 is equal to revenue of 30K players at $40 and less than half of the 60K players at Ridgview at $45 plus.

Giants Ridge is a similar example, although I am not sure it is the most profitable course. I sat in the restaurant one morning and someone who figured out who I was complimented me on the design of the course. But he continued to say he was a banker, and often brought his clients there instead of to Brainerd.  He goes on to say "I love this course, and with its $75 greens fee, I can house, feed and golf my clients for what it costs for golf only over in Brainerd."  

Just as good or better course/service/experience at less money is a good combination.  The dollar and providing value rules!

Mike, you probably have similar sucess stories around the Atlanta metro area, no?

[frank_D]

Determination would be based on golf related income and expenses only.  Real Estate subsidizing or municipality subsidizing cannot be considered.

brother Mike Young

why NOT include all ECONOMIC factors ?

ie i live in a golf course "community" where the course operations yield an annual loss (excess of expenses (due to conditioning of the course the membership wants) over revenues collected on a cash basis) - however- because of that course my residence VALUE has consistently risen far in excess annually than my pro-rata share of the loss of the course operations (not to mention the arbitrary on paper only gain in my pro-rata share of course ownership !)

now we can increase course revenues by allowing MORE "outsiders" or surcharge them or break even by cutting back on maintenance related to conditioning - arbitrarily an operating loss can become a break even or even a profit

but penny wise and pound foolish the residential real estate VALUE in the immediate area would possibly decrease ?

the only example i can give of a municipal decreasing the surrounding residential residences VALUE is saxon woods in scarsdale NY (and the average home price exceeds $3 million) but it's a county course and the local town residents can't do anything about it

just my two cents worth - but i think your only including a portion of the real question

[Tiger_Bernhardt]

Mike, great topic, I think it will be very hard to get apples and apples comparisons as we are seeing here. However, if one were to do bottom line net profits and access to such data were available it would be very enlightening indeed. There would probably be examples in the mix from high end resort to low end mom and pop with all sorts of daily fee and semi privates mixed in. Buying right along with good design or redo with solid managment and maintenance practices would be a common trait.

[George Pazin]

Now my rant.
It is my personal opinion that the #1 mistake owners make is borrowing and financing everything creating such a large nut that making money is far down the list to simply finding a way to survive. Case in point. A course I know fairly well was just purchased. Like many courses that have been sold in the last few years the business was struggling and quite a few maintenance items were deferred. Thus, the new owners do have some catching up to do. But, what did they decide to do? They just purchased 600K+ in new equipment. They now have a monthly nut in excess of 25K just for maintenance equipment. There is a lot of used equipment on the market right now that can be bought for 10% - 20% of the cost of new. Granted buying all old stuff would not be wise, but a mix of used and new would have been smart. No one just buys it anymore, everything is financed and that is a mistake. When did golf course equipment become throw away after 3 years? Yet you'll see a lot of courses leasing equipment and bringing in a new fleet every three years. A private club with plenty of money, OK. But a business trying to earn a profit, insane.  

I may be a dinosaur, but I believe more courses would prosper if they reverted to old business models and paid cash for things as cash flow allowed and did everything possible to keep their nut low. Take golf cars for example. There is such an unbelievable number of used carts available that they can practically be had for nothing. All these CCFAD think they need to change out their fleet every three years and thus there are literally thousands of good quality used carts available. If you were the owner of a daily fee why not go and pick through the best available, do a little reconditioning and add 15 a year, and pay cash for them, don’t lease. Yet, how often have you seen this done?

I could go on and on, but overbuilding is just one of the issues facing the golf industry.

This is a great rant and Don is certainly someone who knows the business well, from many different perspectives.

I'd be curious to know how many people get into the golf business without really knowing the business well. It strikes me as an industry that appeals more to dreamers, not necessarily folks who are well grounded in reality.

Re: used equipment, the hardest part about this is that you need quality experienced employees to utilize this. Much of business mentality today falls more along the lines of the philosophy espoused in The E Myth. For those not familiar with the book, the general theme is standardize practices so that any idiot can do it and then you needn't rely on indispensable hires. If you believe this, you're more likely to buy new because there are fewer problems. I personally don't think this is good business practice, but what do I know? My business has survived for 11 years, but I'm not exactly rolling in cash like my abandoned brethren in NYC.

One of the more obvious traits of most entrepreneurs is hardheadedness. Knowing what I know now, I would've raised more money when starting my business and hired the right people, rather than trying to do everything myself.

Maybe golf attracts too many people who haven't learned the right lessons in business and life.

P.S. The most profitable courses are probably older mom & pop operations where the land and course was paid for long ago - now they're just cash cows servicing a lower demographic than most of the courses discussed on this site. And their land is probably worth more than their golf course operation, as the suburbs grow ever outward.

[Mike_Young]

George,
I think you are right when it comes to the older Mom and Pops.  That is where the money is.
Frank D
IMHO opinion your golf is the classic example of golf being used to enhance Real Estate.  Nothing wrong with that but the golf operation is still losing....JMO   Now you mention your on-paper gain in course value.  Suppose the membership was to sell the course.  Do you think they would get your on-paper value since they have nothing to gain from your increased RE value.  Nope, they will look at the loss.
Jeff,
Yep, there are some exceptions.  I have one in Atlanta, Heritage, that wiill do $4 mill a year.  And it is located in the primo spot...
But I still think for most of golf we can base what we build on gus wishing to spend $30 and courses hoping to get 40,000 of these rounds.  Do you remember the old formula of $10 of greenfee for every million of cost??

[Jeff_Brauer]

Mike,

I remember the formula, but my courses never seemed to pencil out that way. For instance, I recall the Ridgeview proforma desribed above was thought to work at sub $30, and the market allowed it to exist at sub $50.  With $5.4 million total construction costs, it should be about $54 by that formula.

It can play 60K rounds.  DFW maintenance at $500K, debt at $450K (perhaps refied now for less) CH at about $400K.  Total ops cost of $1.35 Million.  Divide by even 45K rounds, and they only need $30 per player, perhaps $25 fees s plus $5 F and B to break even.  Cart revenue = profits at $270K!
Of course, that is only 5% of investment, which wasn't good enough for the private sector mgmt firms.  They needed 20% ROI, and do profit target was $1 million per year.  So, they needed $52 per golfer.  $37 average green fee, $10 cart, $5 f and b.  Still a good deal for all.