Rounds vs. Revenues

[Tom_Doak]

The Deal discussion has gone on an interesting tangent that I'd like to explore further, because I think it's at the root of the problems we're having in the golf business.

About 25 years ago, a sea change happened in the golf business -- people started thinking about golf courses as businesses that should maximize revenue and "profits"    Before that time, it was the goal of courses to provide recreation to the greatest number of people.  Then, someone rationalized:

"Hey, we could charge twice as much for visitor fees, only have half the number of visitors to generate the same revenue, and the course would be less crowded and would probably be in better shape."

But it was never that simple.  When you're charging $150 green fees, people expect more ... so the revenue indeed stayed the same with less traffic, but the expectations and the costs went up significantly over a few years.  And that's how golf courses are less profitable than before, even though the green fees are higher.


Is it possible we could reverse this trend?  Could someone express an interest in getting MORE PEOPLE TO PLAY MORE ROUNDS, instead of pretending they are a business major adept at "maximizing revenues" ?  We all lament that the game is stagnating because people don't have time to play, but isn't the truth that we have successfully driven them away, by charging too much?

[Bill_McBride]

The Deal discussion has gone on an interesting tangent that I'd like to explore further, because I think it's at the root of the problems we're having in the golf business.

About 25 years ago, a sea change happened in the golf business -- people started thinking about golf courses as businesses that should maximize revenue and "profits"    Before that time, it was the goal of courses to provide recreation to the greatest number of people.  Then, someone rationalized:

"Hey, we could charge twice as much for visitor fees, only have half the number of visitors to generate the same revenue, and the course would be less crowded and would probably be in better shape."

But it was never that simple.  When you're charging $150 green fees, people expect more ... so the revenue indeed stayed the same with less traffic, but the expectations and the costs went up significantly over a few years.  And that's how golf courses are less profitable than before, even though the green fees are higher.


Is it possible we could reverse this trend?  Could someone express an interest in getting MORE PEOPLE TO PLAY MORE ROUNDS, instead of pretending they are a business major adept at "maximizing revenues" ?  We all lament that the game is stagnating because people don't have time to play, but isn't the truth that we have successfully driven them away, by charging too much?

We just reduced our guest fees, not sure yet what the impact will be on the bottom line.

[Tom_Doak]

Bill:

Lots of courses are reducing guest fees, out of desperation.  But in most cases that's also a business decision -- a realization that the business is failing -- and not necessarily a decision to get more people out there and promote the game.

The business guys should focus on getting costs down.

[Bill_McBride]

Bill:

Lots of courses are reducing guest fees, out of desperation.  But in most cases that's also a business decision -- a realization that the business is failing -- and not necessarily a decision to get more people out there and promote the game.

The business guys should focus on getting costs down.

Not desperation, we had just set our guest fees too high after opening the new course.  With a new pro there has been some review of revenues, and we felt the guest fee was causing members to avoid brining guests.   Our costs have been in line for some time.

[Jerry Kluger]

Tom:

Private clubs in my area are dropping their guest fees as they realize that cart fees, drinks in the bar, etc. are incidental items which can turn out to be more income to the club than the fees.

A club I am familiar with cut their guest fees in half and eliminated their one day member-guest events.  They felt that there wasn't enough participation in the member-guest events and the reduced guest fees maximize use of the course during the week plus the benefit of additional revenue.

The upscale public courses have begun to drop their prices but the ones owned by the county have not but I don't know if this has resulted in any change in numbers of rounds.

[Michael Mimran]

The more people you get in the door the more merchandise/food & bev.  A half empty golf course = a half empty restaurant where margins are pretty high.  

[Tom_Doak]

During the boom, one rationalization for high guest fees was that the member's average round might also cost $200 or more, when you divided dues by the number of times they actually played -- so guests should pay at least that much.  But that makes a lot less sense at a club where the membership isn't full, and where costs might be one of the reasons why.

[Jason Topp]

I'm not sure whether or not it would be good for the game but I have often wondered why municipal and county golf courses are not thought of as parks rather than businesses.  Parks are not expected to make money and their value is measured by what they add to the community rather than based on whether they make money.  Every decent city has parks, thus the benefits of their existence must be significant.

If golf courses were thought of as parks, I could see a number of priorities that would change:

1.  The exersize benefit of golf would be more important - arguably eliminating carts
2.  Usage, rather than pure revenue could be the measure of success
3.  They would be judged on how they benefit the community as a whole, rather than on a business basis.

There are of course drawbacks to such an approach:

1.  Governments would be unlikely to fund money losing ventures
2.  It would create an unfair competitive situation with privately owned courses.

[jeffwarne]

As long as we continue to fawn over "firm and fast" where it doesn't naturally occor(not as simple as turning off water)
fast greens( over 10)
cool bunkers that need hand raking and hand work to trim surrounds
widened fairways and short grass as hazards

Costs aren't going down
without making compromises in daily condition, concessions, or cuts elsewhere
some of the above are doable but again it talkes an imaginative dedicated Super and educated clientele
and as Pcraig states, I could certainly do away with the hover factor


Golden age courses were bastardized in the depression for a reason
cycles tend to repeat

[PCCraig]

Private clubs in my area are dropping their guest fees as they realize that cart fees, drinks in the bar, etc. are incidental items which can turn out to be more income to the club than the fees.

My place has a deal where they "waive" the guest fees up to three guests if you have dinner and drinks at the club afterward and spend at least a certain amount. I haven't been there long enough to take advantage but apparently it's popular in the middle of the season.

That being said I don't mind "higher" guest fees as to make sure the first tee isn't so busy that it's difficult to get a time. There are prominent clubs here in the area that are slam packed most afternoons in the summer with guest play (member + 3 guests). That defeats the purpose of joining a club, IMO. But I suppose these clubs can't turn away the huge amounts of revenue the fees bring in from members who are just expenseing the fees back to their respective companies. Of course the opposite side of the spectrum is TCC in Brookline where they openly discourage guest play by limited how many guests a member can bring outside of designated "guest" days complete with a shotgun start. But I suppose that's a throwback as business golf has become such a large part of the golf culture here in the States.

I agree with Tom Doak though regarding expenses. I like "low-key" set-ups where there aren't guys hovering all over you from the moment you get out of your car, to the locker room, then to the range. Bodies add significant expense to operations of a course, and I'd rather have them out working on the course than wiping down my already clean clubs.

[Jud_T]

I think economic reality is simply setting in.  Only the highest rated courses or high-end destination resorts can get away with high fees now.  Very few guys are willing to pay $100 to play golf these days on a mediocre upscale track IMO.  You might be willing to pay up for a special trip like Bandon or the chance to play a big name private club, but not many guys will pay more than $50-75 week in and week out in most markets.  Perhaps the silver lining of the deep recession is a reality check for golf and ends up bring more folks back in the long run with more reasonable maintenance, amenities and pricing.

[Bruce Katona]

Guys: From a busiess model, the course is sitting there costing the same whether all tee sloys are booked or empty.  There is little added cost to have a foursome go out and play. That revenue drops to the bottom line.

Merchandise margins are very slim - a good portion of sales come from the purchase of balls, gloves, etc - not big ticket tiems.

Total F&B margins are 10% if done properly.  Beverage margins are much higher than food, as a keg of beer is a fixed price and you get about 200 8 oz glasses from a keg.  One bartender can keep a large group fully hydrated, but it takes several staff to feed and serve the same number.

[PCCraig]

I'm not sure whether or not it would be good for the game but I have often wondered why municipal and county golf courses are not thought of as parks rather than businesses.  Parks are not expected to make money and their value is measured by what they add to the community rather than based on whether they make money.  Every decent city has parks, thus the benefits of their existence must be significant.

If golf courses were thought of as parks, I could see a number of priorities that would change:

1.  The exersize benefit of golf would be more important - arguably eliminating carts
2.  Usage, rather than pure revenue could be the measure of success
3.  They would be judged on how they benefit the community as a whole, rather than on a business basis.

There are of course drawbacks to such an approach:

1.  Governments would be unlikely to fund money losing ventures
2.  It would create an unfair competitive situation with privately owned courses.

Jason,

I worked at a park district golf course in high school and I can assure you they think of the course as a park and believe usage (40k+ rounds) is the primary metric showing satisfaction with conditions and price. However, the golf course is one of the few facilities in the system that actually makes a profit, but very little of the profit goes back into the course itself, but to fund other facilities in the system. Unfortunately that leads to a sub par condition as the course gets more usage but with less upkeep.

[jeffwarne]

Private clubs in my area are dropping their guest fees as they realize that cart fees, drinks in the bar, etc. are incidental items which can turn out to be more income to the club than the fees.

My place has a deal where they "waive" the guest fees up to three guests if you have dinner and drinks at the club afterward and spend at least a certain amount. I haven't been there long enough to take advantage but apparently it's popular in the middle of the season.

That being said I don't mind "higher" guest fees as to make sure the first tee isn't so busy that it's difficult to get a time. There are prominent clubs here in the area that are slam packed most afternoons in the summer with guest play (member + 3 guests). That defeats the purpose of joining a club, IMO. But I suppose these clubs can't turn away the huge amounts of revenue the fees bring in from members who are just expenseing the fees back to their respective companies. Of course the opposite side of the spectrum is TCC in Brookline where they openly discourage guest play by limited how many guests a member can bring outside of designated "guest" days complete with a shotgun start. But I suppose that's a throwback as business golf has become such a large part of the golf culture here in the States.

I agree with Tom Doak though regarding expenses. I like "low-key" set-ups where there aren't guys hovering all over you from the moment you get out of your car, to the locker room, then to the range. Bodies add significant expense to operations of a course, and I'd rather have them out working on the course than wiping down my already clean clubs.

Pcraig,
I wonder about the sustainability of a model where green fees are free and they charge for food.
Have to maintain a full staff for both.
Are they coming for dinner or golf?
If golf close the restaurant.
If restaurant close the golf course

[Randy Thompson]

The market also went through a change over the years, the big fish were at the top and there were a lot of success stories of landing some big fish near the surface. IMO there are currently few remaining big fish swimming near the surface. The masses of remaining fish are down deeper, maybe in the middle or at the bottom and that needs to be the future targeted market to have a chance. So any business plan needs to account for that and cost must be controlled at all levels. I am not saying there are no big fish left, just the masses are down deeper.

[BCrosby]

Declining guest fees is an interesting example of deflationary economics at work. Reducing nominal prices only helps if there is also a reduction in costs.

As Tom notes (in essence), if those costs are "sticky", it can become a death spiral.

Bob

[PCCraig]

Private clubs in my area are dropping their guest fees as they realize that cart fees, drinks in the bar, etc. are incidental items which can turn out to be more income to the club than the fees.

My place has a deal where they "waive" the guest fees up to three guests if you have dinner and drinks at the club afterward and spend at least a certain amount. I haven't been there long enough to take advantage but apparently it's popular in the middle of the season.

That being said I don't mind "higher" guest fees as to make sure the first tee isn't so busy that it's difficult to get a time. There are prominent clubs here in the area that are slam packed most afternoons in the summer with guest play (member + 3 guests). That defeats the purpose of joining a club, IMO. But I suppose these clubs can't turn away the huge amounts of revenue the fees bring in from members who are just expenseing the fees back to their respective companies. Of course the opposite side of the spectrum is TCC in Brookline where they openly discourage guest play by limited how many guests a member can bring outside of designated "guest" days complete with a shotgun start. But I suppose that's a throwback as business golf has become such a large part of the golf culture here in the States.

I agree with Tom Doak though regarding expenses. I like "low-key" set-ups where there aren't guys hovering all over you from the moment you get out of your car, to the locker room, then to the range. Bodies add significant expense to operations of a course, and I'd rather have them out working on the course than wiping down my already clean clubs.

Pcraig,
I wonder about the sustainability of a model where green fees are free and they charge for food.
Have to maintain a full staff for both.
Are they coming for dinner or golf?
If golf close the restaurant.
If restaurant close the golf course

 

Let's just say I didn't join for the food. But I've been told I'm a bit of a "food snob."

[Brent Hutto]

I'm not business person but it seems to me there are possibly different markets (i.e. different potential customer bases) for $150 rounds of golf versus $50 rounds of golf versus $300 rounds of golf. Tom seems to be proposing the idea that everything about a course and/or a club will eventually evolve to meet the expectations of the market that it serves. I'd speculate that possibly an entire industry can evolve to better serve one market than another.

If you're a course in the UK charging 80 quid for a day ticket you'll get visitors who are looking for an 80-quid day of golf. It may take decades but eventually you either get very good at providing an 80-quid experience or you miss out on a great opportunity to do so. Surely something has to change if you make a long-term switch to offering a 150-quid day of golf. You'll appeal to a different (probably more limited) pool of visitors and their expectations will not necessarily be the same. If you succeed in that market for a few years you will not be the same club or course that you were in the 80-quid days.

The problem is, it may not be a symmetrical process. Figuring out ways to add extra perceived value to your course now that you've doubled the price is pretty easy. There's more money coming in (per round at least and in the short run probably overall) and it's easy to find ways to buy some perceived "upgrades" with some of that money. Possibly the reverse path is not as easy or painless. If you did want to go back to being, say, a 100-quid club you're not adding "upgrades" you're taking away (at least to perceptions) things that you were offering up until very recently. Hard for that not to be seen by members and guests as "cutting corners" even if it mostly entails going back to the way things were a decade earlier.

Golf courses or the industry in large would not be the first species to succeed in evolving in one direction only to find there is no achievable path in the opposite direction. Extinction and replacement by some other species is the usual outcome. Some times there is literally nothing that can be done when an environmental change requires an evolutionary path that is biologically (or culturally) impossible.

My hope would be that whatever replaces Golf As We Know It a few decades hence will be an entity that keeps the golf courses intact and lets me come hit balls around on them on a regular basis. Or maybe my theory is hogwash and the clubs and courses will slowly evolve back to 70's and 80's pricing+expectation levels. That seems rather optimistic though.

[SL_Solow]

Its really not the business model, its the underlying assumptions.  I am not much of an economist but at least part of the answer lies in elasticity of demand.  At some point, the guest price becomes too high and rounds are reduced to such an extent that the increased revenue per round does not offset the lost revenue caused by decreased play. Using Tom's example, if doubling the fees causes the rounds to be reduced by more than 50%,there is an immediate loss in revenue.  If you couple that with an increased maintenance budget, the lines cross even sooner.  But based on my experience with private clubs, the desire for immaculate conditioning is not generated by a desire to draw guests, rather it is the members'desire to provide themselves with an experience that rivals the best clubs in their area.  "Keeping up with the Jones'" is a real factor.  It may increase when clubs are competing for a diminishing pool of members.

I also agree that, at least for most private clubs, the margins on the ancillary sales, particularly food and beverage, are so thin that they do not drive these decisions with the possible exception of the bar.

Part of the decision making process reflects a portion of Pat's post.  While members want to bring guests, they also want to be able to play the course at convenient times.  Hence restrictions on when guests are welcome and, in some clubs, fees that are high enough to compensate for any inconvenience to other members.

[Jud_T]

Brent,

Good point, but the question is are there too many 150 quid clubs relative to 80 quid clubs vis-a-vis their respective demand.

Shel,

Point taken.  Problem is the maintenance arms race leads to a bit of a circle jerk game of musical chairs, where some clubs end up without a seat at the table and fold up shop.  Thus you end up with fewer really good, really well conditioned clubs serving the same or smaller population of golfers.

[Greg Tallman]

Why not offer a different product on different days? Seems a bit radical but I think in this day ad age you need to hit as many people as possible.

2 days a week you charge X at 10 minute tee times and provide a moderate level of service. We'll Call these Status Quo Days

2 days a week you charge .5X at 8 minute tee times and limited service, check in, grab your clubs and go. Plan your service and maintenance scheduling around this. No clean up cuts on the greens, fairways not cut on these days, cups not moved from previous day... etc. We'll call this GCA Day.  

2 days a week you charge 2X at 12 or 15 minute tee times and have your full staff on duty, soup to nuts. We'll call these CCFAD Days

Sundays afternoons woudl have some form of church realted promotion. This has been successful for a few I know of.  

Is it dangerous trying to be all things to all people? Is that a rhetorical question?

If/when I am fortunate enough to have my own facility I woudl try this out in some form. No matter what they pay from .5X to 2X everyone is making thier own choice and getting something of value to them. The interesting study would be how many .5X customers try out the 2X days on ocassion and viuce versa. Best guess is the Status Quo days would go by the wayside rather quickly... which creates some issue with the concept!

[Michael Whitaker]

Tom - the guest fee situation at Deal is a large part of what prompted my comments on the other thread. When I joined Deal four years ago I could take three guests on a fourball day at £22 each. It "grew" to £25 per guest, then this year the fees were increased as follows: First guest £30, Second guest £40, Third guest £50. So, what originally cost me £66 now costs £120... an 82% increase in four years. One of the major benefits of being a member at a UK club is being able to take guests at a significantly favorable rate. I'll bet total guest fee revenue will be down this year, not up as they expect. If that is true do you think the guest fees will be lowered? Nope. They'll raise the subs.

[Sean_A]

The US and GB&I comparison in this thread is chalk and cheese.  Generally speaking, UK clubs charge a fair rate for guests - fair being a rate that a member wouldn't be embarrassed to see a mate charged.  If keeping the tee relatively open is important clubs will limit how many times a guest may play in a year and reserve the tee exclusively for members at certain times. Of course, we can't compare visitors fees because generally speaking the concept doesn't exist in the US.  What tends to happen is US clubs will charge guest rates on a similar scale to what UK clubs charge visitors.  

What we are seeing with golf is hyper-inflation and it has been going on for a few decades.  I wonder if UK clubs haven't cottoned onto the prices US clubs charge guests and reason that the rates should be similar for visitors?  Honestly, I can't see the trend of rising green fees leading to higher costs to feed higher higher expectations as the sole explanation for the hyper-inflation we have seen in GB&I.  I think part of the deal is nothing more than testing the market and another part is keeping up with the Jones'.  

The good news is that for some clubs they realize that the extra conditioning they thought was paramount is now being focused on proper f&f conditioning.  For a huge number of the clubs which appeal to over-seas visitors this will actually be cheaper way to maintain courses.  Maybe this trend will trickle down.  In my experience of clubs in the Midlands, conditions are no better now than when I moved here almost 15 years ago.  In the case of my old club, they are worse and yet the subs have more than doubled!

What I do know is golf will have harder times ahead because there will be fewer hard core golfers among our children.  Clubs will have to find a to become more appealing and one big part of that puzzle is to eat less of golfers' disposable income.  

Ciao      

[Mark Pearce]

Tom - the guest fee situation at Deal is a large part of what prompted my comments on the other thread. When I joined Deal four years ago I could take three guests on a fourball day at £22 each. It "grew" to £25 per guest, then this year the fees were increased as follows: First guest £30, Second guest £40, Third guest £50. So, what originally cost me £66 now costs £120... an 82% increase in four years. One of the major benefits of being a member at a UK club is being able to take guests at a significantly favorable rate. I'll bet total guest fee revenue will be down this year, not up as they expect. If that is true do you think the guest fees will be lowered? Nope. They'll raise the subs.

Wow.  I believe HCEG also has incremental charges for additional guests but those numbers are very high for UK guest fees.  Even £22 strikes me as on the high side for a UK guest fee but £50?  That's more than the visitor fee at Silloth.

[Michael Whitaker]

I'm not business person but it seems to me there are possibly different markets (i.e. different potential customer bases) for $150 rounds of golf versus $50 rounds of golf versus $300 rounds of golf. Tom seems to be proposing the idea that everything about a course and/or a club will eventually evolve to meet the expectations of the market that it serves. I'd speculate that possibly an entire industry can evolve to better serve one market than another.

If you're a course in the UK charging 80 quid for a day ticket you'll get visitors who are looking for an 80-quid day of golf. It may take decades but eventually you either get very good at providing an 80-quid experience or you miss out on a great opportunity to do so. Surely something has to change if you make a long-term switch to offering a 150-quid day of golf. You'll appeal to a different (probably more limited) pool of visitors and their expectations will not necessarily be the same. If you succeed in that market for a few years you will not be the same club or course that you were in the 80-quid days.

The problem is, it may not be a symmetrical process. Figuring out ways to add extra perceived value to your course now that you've doubled the price is pretty easy. There's more money coming in (per round at least and in the short run probably overall) and it's easy to find ways to buy some perceived "upgrades" with some of that money. Possibly the reverse path is not as easy or painless. If you did want to go back to being, say, a 100-quid club you're not adding "upgrades" you're taking away (at least to perceptions) things that you were offering up until very recently. Hard for that not to be seen by members and guests as "cutting corners" even if it mostly entails going back to the way things were a decade earlier.

Golf courses or the industry in large would not be the first species to succeed in evolving in one direction only to find there is no achievable path in the opposite direction. Extinction and replacement by some other species is the usual outcome. Some times there is literally nothing that can be done when an environmental change requires an evolutionary path that is biologically (or culturally) impossible.

My hope would be that whatever replaces Golf As We Know It a few decades hence will be an entity that keeps the golf courses intact and lets me come hit balls around on them on a regular basis. Or maybe my theory is hogwash and the clubs and courses will slowly evolve back to 70's and 80's pricing+expectation levels. That seems rather optimistic though.

Let's face it, there are courses (public and private) that can command a premium price. On the public side Pebble Beach and the Open rota courses are good examples. The problem is that the "lesser" courses use these top tier courses to determine the rates they should charge. They rationalize that if Pebble can charge $500 or $600 then we MUST be worth $300, and so on. So, they dig themselves into a hole and can't find a way out unless they lower their rates... which no one wants to do. It is a classic Catch 22.

The rankings don't help much either... courses like Royal Cinque Ports see other courses near them on the rankings charging higher visitor fees and assume they can get the same (or higher) fees. But, as Brent said, each course has its own perceived "value" in the marketplace... and PERCEPTION IS REALITY. Until you change the perception you cannot get the marketplace to accept a different value.