[Peter Wagner]

About a month ago I started to see the other side of this economic downturn - the opportunity side.  I have formed a little group and I've started looking at some distressed golf clubs.  Each of these clubs is different but so far they all are alike in that they are the centerpiece to a half sold real estate development.  Some of these developers are in a tough spot, no sales revenue, golf club losing tons of money, and banks applying pressure.  They can't close the course as it will hurt any possible home sales.  Unfortunately, they're really stuck and they have to live with the members and home owner drama.  Ouch.

While this is very painful for the developer and the current members who stand to be wiped out, there is some potential positive news for the game of golf as we move forward:

1.) The chance to get rid of this outdated 80% equity and 4 to 1 sales ratio business model.  This has been the default business model in American clubs and it just doesn't work.  The old model doesn't work in a good economy and it sure doesn't work now.
2.) Clubs being sold at super low prices will allow for much lower price points for customers in the future. 
3.) Perhaps a move to open up some clubs and move a little bit away from the snootiness that has crept into our sport.
4.) A chance to financially stabilize one course at a time and build in a secure the future for that club (and to a small degree our sport).

There have been many discussions on CGA about golf pricing itself out of business... the current financial chaos may give us a chance to reverse that trend.

My little group is hard at work building plans and looking at clubs but we haven't pulled the trigger yet.  If we move forward we will probably try to get 7 to 10 clubs in a loose geographic area so that we can spread some common expenses across a broader base.  We're looking for roadblocks but so far we haven't seen any.  An interesting process and at the very least I'm using some brain cells that I thought were long gone.

- Peter

[PCCraig]

What part of the country are you looking in?

[David Stamm]

Very intersting, Peter. As with real estate in general, location is very key, as you know. In addition, the quality of the course itself and evaluating whether a potential member can be happy playing most of their golf there is also key in my mind. I know for myself, I have resisted joining anywhere near my home because I'm not willing to settle for someplace that under normal circumstances I would not seek out to play anyway.

[JMEvensky]

Assuming the decision is numbers-driven,how much will the design of the golf courses matter?

Do you believe that memberships can be sold on the basis of course architecture?

[Jim_Kennedy]

Peter,
Nice to hear that someone has some fortitude.

I think we'll see point #3 start to happen this year, but I don't have much faith in the lasting effect of point #2. It may occur for a while, but as soon as the economy turns north, green fees/memberships will follow.

  



 

[Brent Hutto]

1.) The chance to get rid of this outdated 80% equity and 4 to 1 sales ratio business model.  This has been the default business model in American clubs and it just doesn't work.  The old model doesn't work in a good economy and it sure doesn't work now.

Can anyone translate that into terms a poor engineer who never took a B-school course might understand?

[Mike Hendren]

My thoughts as a commercial real estate lender:

It's the third owner that makes money on a golf course.

Never try to catch a falling knife - wait until it hits the ground and then pick it up.

You can't pay too much for real estate - but you CAN buy it too soon.

Debt is an unforgiving and inflexible master.

Never trust a feasibility study  -  not a single deal has ever been deemed non-feasible.

Good luck.

Mike

[henrye]

Great advise Michael.  I was just thinking I hope Peter isn't getting all his financial info from a motivated lender.

[Dean Stokes]

As for point #2. This will be great as golf has become so expensive in the US. In fact far too expensive to be able to join a decent club.

As for point #3. Golf was way more 'snooty' twenty five years ago when "I was a lad". I was hoping for cheaper golf (point 2) with a return to snootyness/playing by the rules/etiquette.

I do hope you can accomplish both Peter while making some money for your little group.

[Peter Wagner]

Pat,
We haven't locked into a particular area yet.  I started looking in the South West since I live in the greater Los Angeles area but it could be anywhere.  Once we zero in on one or two prime candidates we will start to define an area around that as a base.


David,
Yep, just because you can get one cheap doesn't mean you should.  The good news (or bad news as viewed from the other side) is there are many to pick from so we are hopeful that we can get courses with many good attributes.  Population, demographics, course design, clubhouse, club history and potential are all important points to consider.

I'm looking at one right now that is fairly new, well known archie, 4.5 star maintenance, nice layout but the location isn't ideal, not terrible just not ideal.

[RJ_Daley]

Peter, I am sure you have thouroughly reviewed all the google and other financial news material available for the journey of David Price of American Golf and then National Golf Properties REIT, and then Goldman Sachs.  Maybe you even know him...  It sounds like what you are contemplating is something like how they got going at AG, and probably in the same area of the country.  

I don't doubt that there will be opportunity to buy some courses after their initial over leveraged and over built and conceived original plans become wasted assets and the market adjusts down to write off and discount all the fat that was built into original business plans.  It is clear Peter, that you are one of the really enthusiastic and passionate people involved with a high end club, with a very healthy curiosity and interest to learn all you can.  So, you got that going for you!    Good Luck.

PS: Mikey H as ususal, has some good old fashion advise.  

[Lester George]

Peter,

Whatever you decide on, I'm sure it has needs.  Keep me in mind.

Lester

[Peter Wagner]

Assuming the decision is numbers-driven,how much will the design of the golf courses matter?

Do you believe that memberships can be sold on the basis of course architecture?

JM,

In the context of this business opportunity, design matters a lot because:
1.) it gives the owner flexibility down the road,
2.) it might give you a competitive advantage in the local market,
3.) you might be able to draw from a larger audience as a destination course.

Those are just the first thoughts to come to mind.

On the other hand, look at Balboa Park Muni in Encino, California.  A nothing track but surrounded by about 6 million people means that every tee time is booked 7 days a week.  That would be tough to pass on if it were available (** which it is not **).

Good design is very important.

[Mike_Young]

Peter,
IMO.....if you go to the foreclosure sale and there are  several of the seasoned golf owners or management companies there and you win the bid....run....

[Mike Nuzzo]

I don't know if there are potential positives, maybe more like less negatives.

A course that overspent for the last few years on maintenance and the clubhouse still has way less cash than it could if it was operating lean.

i.e. The courses are still sicker for having survived, not stronger.

Mike Young has some good advice... you won't be the only one bidding.

Cheers


P.S. Good luck.

[Peter Wagner]

Peter, I am sure you have thouroughly reviewed all the google and other financial news material available for the journey of David Price of American Golf and then National Golf Properties REIT, and then Goldman Sachs.  Maybe you even know him...  It sounds like what you are contemplating is something like how they got going at AG, and probably in the same area of the country.  

I don't doubt that there will be opportunity to buy some courses after their initial over leveraged and over built and conceived original plans become wasted assets and the market adjusts down to write off and discount all the fat that was built into original business plans.  It is clear Peter, that you are one of the really enthusiastic and passionate people involved with a high end club, with a very healthy curiosity and interest to learn all you can.  So, you got that going for you!    Good Luck.

PS: Mikey H as ususal, has some good old fashion advise.  

Hi RJ,
Sure I know David Price, we've been friends for about 8 years.  Nice guy and a huge college basketball fan.  I haven't spoken with him about this latest hair-brained scheme and he'd probably laugh at me for thinking about it.  AG started on the right track and then they made some mistakes I think.  David and I dream but we do it at very different levels!


Mike H,
Good thoughts, thank you.  Three of the clubs we looked at were 2nd owner making us potentially the 3rd.  Maybe a good sign.

Also, this would be done without lender money.  We are using private money in the form of limited partners and this so far has been the easiest part.

Mike Young,
Excellent point.  I'd run like crazy.

[Anthony Gray]

   My club's secound owner is in bankruptcy. There are plenty of lots for sale. The course is a Jay Morrish design. The next exit a new VW plant is being built.

  The course could use a charismatic leader. It has great potential.

  Anthony



   

[Peter Wagner]

I don't know if there are potential positives, maybe more like less negatives.

A course that overspent for the last few years on maintenance and the clubhouse still has way less cash than it could if it was operating lean.

i.e. The courses are still sicker for having survived, not stronger.

Mike Young has some good advice... you won't be the only one bidding.

Cheers


P.S. Good luck.

Mike,
In normal times I would agree with you but things are really weird at the moment.  I talked with a developer last friday that spent probably 20M on the clubhouse and course but is losing 1.6M per year and getting pressed by the bank.  I asked him what his sell price was, "I'll give you the keys right now for nothing".  Zero investment but losing 1.6M per year and all members wiped out through BK.  His biggest concern is keeping the course open for play so he can sell homes.

That club would be in a much healthier position post BK.  Our tentative plan is to convert this one from a full service CC to a golf only GC with a well maintained course.

[Mike Hendren]

Shivas, for years drive-in movie theaters and driving ranges were excellent land banks.  One's dead, the other dying.  

In the current economy, movie theaters are getting hammered by Netflix's digital downloads for $8.95/mo. - cheapter than a single ticket at the old cinema.

Just keep rounding up you billings in 15 minutes increments and you'll be fine.

Mike

[Peter Wagner]

I've been thinking about buying a driving range.  Instinctively, I like the odds better.   Does anybody know what happens to driving range revenue during downswings in the economy?  I could see them being like movie theatres and actually doing well.  Thoughts?

Shivas,
I like driving ranges a lot but they have one very big flaw: cash.  It's all cash and that makes employee theft a major issue.  Maybe a close relative to help run it?

[Bill_McBride]

I've been thinking about buying a driving range.  Instinctively, I like the odds better.   Does anybody know what happens to driving range revenue during downswings in the economy?  I could see them being like movie theatres and actually doing well.  Thoughts?

Shivas,
I like driving ranges a lot but they have one very big flaw: cash.  It's all cash and that makes employee theft a major issue.  Maybe a close relative to help run it?

Old joke.  How do you know when your employees at your restaurant (or I guess driving range) are stealing?

They've punched in!    Budda bing budda boom.

[Kalen Braley]

It seems like a couple of well placed cameras would fix the cash issue...

[David Stamm]

Good point.  So don't take cash.  Eveybody's got plastic anyway.  Hasn't anybody invented a ball dispenser that works on a credit card swipe like a gas pump?  If not, somebody should.

Every practice center here in my neck of the woods takes plastic.

[Jed Peters]

Peter,

Check your email.

Jed

[David Stamm]

Good point.  So don't take cash.  Eveybody's got plastic anyway.  Hasn't anybody invented a ball dispenser that works on a credit card swipe like a gas pump?  If not, somebody should.

Every practice center here in my neck of the woods takes plastic.

You mean "DRIVING RANGE"?   

Seriously, is it an automated machine, ie, no human needed?

If you go into the shop at the DRIVING RANGE  , you can purchase a card (with a credit/debit card) with a certain amount of credit to load up on it ($50, $75,$100) and then you can take that card to the machine on the RANGE and take out how ever much you want in balls in $5 increments. So you do have someone that has to sell you the card, but after that, it's automated.

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