What happens to Bandon, etc when discretionary spending falls?

[Michael Wolf]

The birth and expansion of the Bandon Dunes business model over the past 2 decades ago has been a revelation for folks that love golf of a certain type in North America. The idea of getting a group of friends together and traveling hundreds or even thousands of miles to play multiple rounds on strategically interesting, publicly accessible, walkable golf courses has changed the way many of us think about golf. But is the growth of this business model sustainable?


Bandon now has 5 courses with talk of a 6th coming. A 3rd course has just opened at Streamsong. Sand Valley will follow with their 2nd and 3rd shortly. Cabot is growing. Pinehurst seems to be starting to change with the times.


My question is can all of these resorts, and Pebble, and Kohler, and etc., all survive if and when discretionary spending declines? It's been 10 years since the U.S. has seen a dip in the economy. Most of these destination courses have come on line since then. Most have not operated in an environment of 10% interest rates. The new developments are built in remote enough spots that just cutting prices by 10 or 20% doesn't seem like it will be enough to attract marginal customers (maybe Streamsong is an exception) Too much of the cost of playing these resorts is out of the hands of the resort themselves - travel costs, time away from work, etc. In the case of Sand Valley, Cabot and Streamsong there is almost nothing that can be done about the length of the revenue season. And it seems like dropping greens fees to compete with a Myrtle Beach or RTJ Trail is a losing proposition.


Is it possible to ratchet down operating costs enough at a Bandon or Streamsong if play drops 25 or even 50%? I'd assume you could mothball a Bandon housing option or floor of Streamsong's lodge. Same with the restaurants. And staff would similarly be affected. But is it possible to drop the costs of maintaining the courses. Could you rotate maintenance to "skip" a course every 3rd day?


Or do we see a condensing of the resort options? Which one is the most vulnerable?


Sorry if I'm seeing the glass half empty lately.

[John Kavanaugh]

Golfers who can afford these trips don't stop spending just cause the poor get poorer.

[PCCraig]

Well, didn't Old Macdonald open in the last recession (2010 or so?).


I think these "top" resorts tend to survive fine, as they will always draw from folks who are recession-proof, to a point. But they probably have some lean years, though.


Like anything, it all depends on your cost basis. Remote resorts like Bandon or Sand Valley probably fare a bit better as land costs probably are lower as are construction costs (building on sand). But all those hotel rooms and clubhouses are expensive and need occupancy to turn a profit, obviously.


A place like Doral would be the place you would worry about, where someone purchases from another owner, spends a huge $ to renovate, and has a defined proforma to hit.


Country clubs, with declines in membership #'s and CCFAD publics probably suffer the worst in a recession.

[Tom_Doak]

Revenues at Bandon were definitely down substantially during 2008-09 while we were building Old Macdonald.  We might have stopped Old Macdonald at the halfway point, if Mr. Keiser were not an optimist at heart [and if he wasn't already solidly in the black on the whole place from inception].


Maintenance costs can be cut back to some degree, but not by a huge % if you want to keep your standard high.  Of course, every other course in America will be under the same pressures, so maybe bigger cuts would be feasible.


Any recession puts pressure on small businesses, and the pressure comes down first on those that are financed by debt.

[Garland Bayley]

When Bandon was to open, they decided they could get by at a $35 green fee. When they got so much interest after promotion, they raised the green fee to $100 before even opening. Discretionary spending would have to tank depression style probably before they would not be able to operate.

During the recession, they did not raise fees. Now that the economy is back, they are back to raising fees. So it would seem that the economy has some effect on their operations.

[Kalen Braley]

I'm guessing regional play could keep that place going as well.  When rates are down in the winter, i heard a lot of the regional locals flood the place on a whim when the forecast don't look bad...


And by now, that place has gotta be well in the black to survive a few bad years of the next downturn, which will happen....

[Joe_Tucholski]

Golfers who can afford these trips don't stop spending just cause the poor get poorer.

Wonderful.  This is exactly my thoughts.


In the last decade or so more courses have been closing than opening.  Those that are closing are typically lower end, lower cost courses.  Those that are opening tend to be higher end, more expensive courses. I don't see that trend changing regardless of what the economy does.

[Ronald Montesano]

I believe that there are two types of golfers who visit these destination resorts. The first are the recession-proof, as acknowledged earlier in the thread, who have gobs of money and will continue to spend it on trips to these destinations. The second are the ones who organize a once-in-a-lifetime trip to the destination, and only plan on visiting it one time. These later folks will be replaced by the next ones and the next next ones, on into the future.


Interestingly, these later golfers, once bitten by the travel bug, make plans for another destination resort within 2-3 years. Often, they travel with the same group of golfers. If they don't, there is always someone who heard of the original/most recent junket, and wants in.


This is rudimentary, but gets my thoughts across.

[John Kavanaugh]

I've got quite a few rich asshole friends yet I have only played at destination resorts with people I have met from this site. What does that say...nothing that hasn't been said about me before.

[Tom_Doak]

Question for Michael Wolf:


What business are you in?


What happens to it when discretionary spending falls?


Certainly, every place in golf will be affected if / when the economy has another big dip.  Bandon and Streamsong might be more vulnerable than some other courses ... or they might be less vulnerable, for that matter.  But the same is true for many, many other sectors of the economy.  Why make it sound like good golf is doomed?

[Michael Wolf]

Tom,


I'm a bean counter who would have told Mike Keiser he was insane to build in Oregon.



Certainly not trying to make it read as if I believe good golf is doomed. Golf in America is obviously much better off thanks to risk takers such as Dick Youngscap. But I am cynical that the recent rapid expansion of the specific Bandon business model is sustainable for all of these places (or at least all of the investors!). Besides discretionary spending, I'd think travel time will eventually create a top end for the market.


It will be interesting in coming years/decades how the customers of these new resorts make their spending choices - will they play them all once and then only return to their favorite every year? Will saving the travel day on both ends of the trip be the priority in which resort they visit? Will they make their decisions based on what they've read on a rankings website or The Confidential Guide? Are the quality of the courses 90% of their spending decision? 50%?


This is probably a topic for another day, but I'd think more women playing golf, and especially walking golf, could be an important factor in the continued expansion of Bandon-type resorts. I offer that as someone who just booked a 3 day 6 round trip for myself and my Better Half to Bandon in August.


As always, appreciate all of the responses to my newbie posts.

[Ian Mackenzie]

Golfers who can afford these trips don't stop spending just cause the poor get poorer.

Wonderful.  This is exactly my thoughts.


In the last decade or so more courses have been closing than opening.  Those that are closing are typically lower end, lower cost courses.  Those that are opening tend to be higher end, more expensive courses. I don't see that trend changing regardless of what the economy does.

This type of class bifurcation is a global trend and certainly not limited to golf.


In the end, it may lead to societal disruption once the downtrodden - who are also part of the most armed nation in history - realize that they have no logical recourse but to rise up....;-)


It's not IF, but WHEN....
I wont see it, but my kids may.

[Michael Wolf]

In the end, it may lead to societal disruption once the downtrodden - who are also part of the most armed nation in history - realize that they have no logical recourse but to rise up....;-)


It's not IF, but WHEN....
I wont see it, but my kids may.



Wow, that went dark quick. When the revolution comes, Crystal Downs will be my first choice to hide out. Ample supplies of  fresh water,  whitefish and cherries nearby, and a clubhouse excellently positioned to sniper the approaching hordes from.

[Jon Wiggett]

Golfers who can afford these trips don't stop spending just cause the poor get poorer.

Wonderful.  This is exactly my thoughts.

Mine too.

[Mark Fedeli]

It's important to remember we are talking about a much different golfer than what largely existed pre-recession, and assumptions of what would happen in another recession need to be adjusted to accommodate that. It wasn't that long ago that I had to explain to nearly every golfer I met what Bandon was, and that there's something like it opening in Florida, and that Nebraska actually isn't all flat corn fields, and that there's this place called Nova Scotia that's only an hour flight from NYC.


It's much harder now to find serious golfers who don't know these places exist and who wouldn't want to visit them at least as much as Pebble, Doral, etc.

[Peter Pallotta]

I won't worry until we get the "Soylent Green Golf & Country Club".  ('Come join us - the food is delicious, and we always welcome new members').

And remember: if it really gets bad, you can all come and hang out with the high-handicappers at my local public. The revolutionaries will never find you there...

[Jerry Kluger]

An earlier post noted that Bandon had expected to open with green fees of $35 and I have to believe that there was a business plan which made it economically sensible to build and open the course with fees that low.  Today, each foursome on each course for at least half of the year generates $1000 in green fees and an equal amount in lodging plus food and beverage.  It does seem unlikely that any downturn in the economy will be a real threat to the financial health of Bandon. 

[Jeff Shelman]

I, like others here, think that places like Bandon, Streamsong, Kohler, Sand Valley, et al, will be fine.


They are places that aside from seasonal prices, are pretty much full retail price locations. They might have to get into a little discounting if the economy goes south, but the combination of part of their customer base being recession-proof and the quality of golf, they will weather better than most.


My question is more around what happens to the lower tiers of resorts? I think that's where the impact will really be felt.

[James Brown]

Really good, well-run golf destinations will always do better than courses more at the margins. My sense from my travels is the courses that will suffer the most in a downturn are the $250 green fee places that are in places like Orlando, Las Vegas, and other places where it’s not really about the golf, but about having the Ritz-Carletonesque brand and great conditioning on an otherwise average track. 

[Tom_Doak]

the courses that will suffer the most in a downturn are the $250 green fee places that are in places like Orlando, Las Vegas, and other places where it’s not really about the golf, but about having the Ritz-Carletonesque brand and great conditioning on an otherwise average track.

This rings true to me.  When the SHTF you are either competing on quality or competing on price, and these places will really suffer if forced to compete on price (unless someone recapitalizes them at 10 cents on the dollar).  Plus they have the double whammy of just having the tax write off for golf as entertainment removed.  I'd guess the Ritz Carlton had far more of that sort of business than Bandon does.

[Jeff Schley]

For those numbers guys out there this will make sense.  Building another course at a resort is more cost efficient than a stand alone, for you are sharing resources for it's operations once built.

So the capital investment to build the course is certainly sizeable and needs to be recouped. One has to run the numbers of expected rounds using a standard distribution for estimated rounds within a 90-95% confidence interval. They could use their own courses to get a benchmark.  I'm sure they have data on what the pricing tolerance is of the public and assign price points that utilize the course to generate the greatest profit.

Contrary to what many may think you don't just want to fill up 100% of your tee times.  You want to maximize your profit and they aren't the same.  For an easy example, let's say you have 200 possible rounds per day to sell maximum and you charge $200 bucks and sell 80% for $32,000 in revenue.  You could price them at $150 and sell 100% for $30,000 in revenue.  Which would you rather have?  Of course you would like to generate $2,000 in more revenue.  Let's take it a step further and say let's price it at $300 and only sell 60%, well that generates $36,000 in revenue.

This is a simplistic pricing model and it works when the variable cost is fixed. 

The real value in adding additional courses is the sharing of services (proshop, driving range, restaurant, GM, maintenance crew and equipment, etc.).  They have to hire additional maintenance staff and maybe some more equipment, but other than that adding an additional course presents many synergies that wouldn't exist with a new stand alone course. 

So I would argue that resorts that share resources are better positioned than those who aren't for they can absorb the revenue variance better and produce higher in good times.  This is after they recoup their capital investment of course, which is the biggest hurdle, especially if it was financed.

[Tom_Doak]

Jeff:


It's not just sharing of services, but sharing of infrastructure.  When you build 18 holes you've gotta build a clubhouse and an entrance road and a maintenance building, and bring in power and water.  When you build another 18 holes you may not have to do any of those things again.


These are the major projects we've built in the U.S. since the recession:  notice a pattern?


Old Macdonald
Streamsong
Dismal River
Medinah (r.)
Forest Dunes
Stoatin Brae


The one I've got in planning in California would be the first U.S. project that's a new, 18-hole, stand-alone course.


Meanwhile, the three projects we've done overseas were all new 18's.

[Michael Wolf]

to the architects and builders:


Beyond the obvious concern of making sure you get paid for your work, does your overall sense of how a project will succeed in the long term play much of a factor in deciding which projects to take on? [/size]Does it matter if you think the owners model is a bad idea if the owner has deep enough pockets and is determined to proceed?
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I'm sure it has to hurt to see a project fail that you've put sweat and blood into, even if you came out ok financially.


Thanks,


Michael Wolf

[Tom_Doak]

to the architects and builders:


Beyond the obvious concern of making sure you get paid for your work, does your overall sense of how a project will succeed in the long term play much of a factor in deciding which projects to take on? Does it matter if you think the owners model is a bad idea if the owner has deep enough pockets and is determined to proceed?



I'm sure it has to hurt to see a project fail that you've put sweat and blood into, even if you came out ok financially.

Michael:


Our big project in China took almost three years of Eric Iverson's attention and effort, nine or ten overseas trips from me, and a lot of time from several young associates who gained valuable experience.  We weren't quite paid in full -- it was China after all -- but can't complain on that front as the project kept us going during a lean period, and overall we made more there than for any course we've built.  And then, it never opened, because of the national government's decision to crack down on new golf course construction.


So, pluses and minuses there.  My wife is an art major and has told me innumerable times that "art is in the creation," so I try to enjoy the creation and know better than to think I can control what happens after.  But, I think she would be the first to say that I shouldn't take another job that takes such a toll on me physically, if I think it could wind up for naught at the end. 


The decision to take on a new project always comes down to whether it's of interest professionally and artistically, and [if you are a small operation like me] to how many other commitments you have at the time.  When things are slow, jobs look better even with their uncertainties.  I've always had just enough financial independence to be able to turn down jobs when I felt overwhelmed, or didn't like some aspect of them.  But my associates have a different standard than I do, and that is a tough balancing act.

[Lou_Duran]

Jeff- good presentation, essentially leveraging fixed costs.  Pricing gets a bit tricky, and maybe more so in thinner markets.  Bandon is a very unique place, but I would bet some price elasticity is involved there as well, and likely quite a bit for repeat business.

Another consideration in adding a course is the number of rounds that will be cannibalized from those already there.  It would be interesting to see the seasonal mix data for Bandon.  And, if hospitality is already running at capacity during peak season, additional infrastructure costs have to be factored in.  How about staffing costs in an area that is probably already stretched thin?

My crystal ball says that 10 years out, fees at Bandon Dunes will average below current rates after adjusting for inflation.  Mr. Keiser's low-cost basis does allow for a lot of room for error.  I wonder how much thought his group puts into the effect of one of his new resorts on the others.  They are geographically dispersed, but I suspect they all draw from the same limited client base.  Must be a lot of fun to analyze and plan these things.