What happens to Bandon, etc when discretionary spending falls?

[Kalen Braley]

Lou,


Some price elasticity?  Rack rate is near $300 in peak season and only $100 in winter season.


 I'm not near as traveled as you and many others in this group, but i'm not aware of anywhere with that much elasticity in terms of raw dollars, even if other courses have a higher percentage difference....

[Lou_Duran]

Kalen,

In peak season- I am told the resort is nearly fully booked several months in advance- what would happen if the "rack rate" would go up to $350 or $400?   Would it lose rounds sold?    Would revenues at the higher rate be more or less than at the lower rate?  In the winter, if prices were halved, how many more rounds would be sold?  By now, my bet is that Kemper has a good handle on the market and prices to maximize the owner's objectives (which may be different than squeezing every dollar in profits each year).  My guess is that Bandon faces more price elasticity than Pebble Beach, but less during peak season because its uniqueness than many other resorts.

 

[Jeff Schley]

Lou,


Some price elasticity?  Rack rate is near $300 in peak season and only $100 in winter season.


 I'm not near as traveled as you and many others in this group, but i'm not aware of anywhere with that much elasticity in terms of raw dollars, even if other courses have a higher percentage difference....

Desert courses...... pick one.... PGA West for example or TPC Scottsdale peak season winter rates vs. hotter than hell summer rates where the spread is $200 or more perhaps.

[Jim Nugent]

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. 

Jeff, if green fees are the only source of revenue from the guests, I agree with you.  But my guess is they are not the only source.  The golfers who play those courses pay to stay in the hotels.  They eat and drink onsite.  They buy golf supplies.  They probably use other services as well, many of which they must pay for. 

So the analysis has to include the total profit, on average, of each golfer.  It may turn out that even with a lower green fee, the extra volume (of more golfers) more than makes up the lost revenue. 

You were giving us a simplistic model, so probably you consider these other factors as well. 

[Jeff Schley]

Tom,

You are correct the infrastructure sharing is also a very lucrative synergy.  One aspect working against strictly looking at greens fees is the food and beverage expected per golfer.  Knowing Bandon is in the middle of nowhere and you want to get the rooms sold and F/B sold you can also use the discounted packages to entice golfers for you know if you can offer 5 rounds for 200 each = 1k revenue for golf they are going to spend 3 nights and maybe $75 each player per night on F/B.  When you own everything, you have vertical integration and thus more profit margin.

Mergers and acquisitions are all about synergies, read the quotes for the rationale and they are correct. potentially the syneries are huge with large corporations that have a large acquisition.  However, the execution of the synergies aren't easy and many times fail to realize their estimated profit due to synergies. In adding another course it is much more simplistic and I think we will see more and more of this for it is more financially feasible.

Another example is major league baseball teams sharing spring training facilities.  They are in Arizona and Florida, with several teams sharing the actual facilities to practice and play.  Synergies. 

With being vertically integrated there is risk however in taking on the entire operation.  If the grass dies or you have a natural disaster that ruins your courses at Bandon, then you have to take on the losses from the hotel and food and beverage in addition to the lost revenue of the golf course.  So it isn't all sunshine and rainbows with assurances, but you manage those risks with insurance, etc.

[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. 

Jeff, if green fees are the only source of revenue from the guests, I agree with you.  But my guess is they are not the only source.  The golfers who play those courses pay to stay in the hotels.  They eat and drink onsite.  They buy golf supplies.  They probably use other services as well, many of which they must pay for. 

So the analysis has to include the total profit, on average, of each golfer.  It may turn out that even with a lower green fee, the extra volume (of more golfers) more than makes up the lost revenue. 

You were giving us a simplistic model, so probably you consider these other factors as well.

Jim you are exactly correct and I was typing my expansion on your exact points while you posted.  This is just like discounting baseball game tickets knowing you are going to pay for parking, F/B, clothing etc.  Or free admission to children to get the parents somewhere for amusement parks, nowing you are going to spend a fortune for F/B (Disney).

[Michael Wolf]

I wrote the OP with cannablization in mind. Not necessarily between courses at the same facility as much as between the growing number of facilities.


My example would be if there are 500 golfers who live in Chicago and who are huge Bandon (or Streamsong or wherever) fans who make 1 buddies trip a year - Does Sand Valley coming on line mean they will now make 2 trips a year? Or still 1 trip but rotating a different location every year. Or 1 trip to each new resort until they've played them all, and then  returning each year only to the one they like best - in other words "picking a winner".


Or do the contributors to this post think there has been enough growth in Bandon type travel to sustain all of the new options?


Michael Wolf

[Kalen Braley]

Michael,


I don't doubt there is a certain amount of cannibalization at play, but if I had to guess it'll be out-weighed by new Regional customers who perhaps can't/won't travel to Bandon or Novia Scotia or Streamsong, but can buddy up and take a 4-6 hour car ride to Sand Valley and eliminate the vast majority of the travel costs...

[Tom_Doak]

if there are 500 golfers who live in Chicago and who are huge Bandon (or Streamsong or wherever) fans who make 1 buddies trip a year - Does Sand Valley coming on line mean they will now make 2 trips a year? Or still 1 trip but rotating a different location every year. Or 1 trip to each new resort until they've played them all, and then  returning each year only to the one they like best - in other words "picking a winner".


Or do the contributors to this post think there has been enough growth in Bandon type travel to sustain all of the new options?

Well those golfers are unlikely to make more trips per year than they do now, unless their economic circumstances change.  They might go to Sand Valley instead of Bandon this year.  But America is a very big golf market, and Bandon is well known enough now that it's a bucket-list destination for millions of golfers.  So I don't think they'll suffer very much by "losing" five thousand Midwesterner rounds to Sand Valley [especially when the money is going into the same guy's other pocket].


Does that mean there is an unlimited market for these types of places?  Absolutely not.  Every one of them has its niche:  Streamsong is the winter destination, Cabot is for Canadians and east-coasters, Sand Valley for the Midwest.  And then they all skim some of the cream from the bucket-list crowd.


I do think, in America, that these new facilities are drawing younger golfers away from joining clubs.  It's easier to justify two or three buddies' weekends a year to your spouse, than to join a club and play every Saturday.  So there is room for this segment of the business to grow.




The more interesting study is Australia.  It's a much smaller market than America, and more price-sensitive, too.  Cape Wickham is essentially trying to attract the guys who go to Barnbougle, but those guys aren't going to make more golf trips per year, or stay longer.  And there's no guarantee that there will be a lot more golfers who start making the trip:  the only "tell" is how many golfers has Barnbougle had to turn away in peak season because they didn't have room for them, and only Barnbougle knows that.  I think Cape Wickham has an uphill battle, because it's harder to get there - especially from Sydney, as everyone there has pointed out to me on my two recent trips there.  But that doesn't mean Barnbougle won't have softer revenues due to the competition.

[Sean_A]

These destination resorts are extensions of the country club for a day model (which has been around since at least the 90s) in that both chip away at potential private club members. 

I am amazed and somewhat confounded that all these expensive resorts seemingly continue to thrive...I guess so is the author of the thread.  The same thing is true in GB&I...prices keep going up with no end in sight.  The new resorts serve to give ammunition to privates that price hikes are fine...people will pay.  I don't know where the line is between green fee hikes making up for less customers, but I am convinced there will continue to be a shrinking base of customers for big splash courses because traditionally a very high percentage of customers were private club members.  With memberships shrinking, I don't see the group of guys who are willing to pay £1000-1500 for a long weekend of golf increasing enough to make up for loss of private club members over the long run.  As I say, I don't know what the break point is, but we shall see it first with resorts.  Of course, some resorts are likely kept afloat at a loss by deep pockets...

Ciao 

[Terry Lavin]

The top end resorts will be just fine, thank you. As for private clubs on the edges, they’ll fade away. Rent, don’t buy is a great phrase in this regard.

[Jerry Kluger]

I don't know that I would agree with your premise as to who is going to these destinations.  Certainly more than half of the golf population, if not considerably more, play golf at a public course whether it be a municipal course or a privately owned course.  I would venture to say that they are not going to go to these upscale golf destinations and spend nearly $1000 a day to play golf plus transportation.  They are going to Myrtle Beach or perhaps the RTJ Trail where they can have fun and not feel guilty about how much they are spending. The guys that go to places like Bandon are members of clubs who take a golf trip most years.  Pebble Beach is unique because it is a bucket list kind of place.  There are other expensive places like Kohler or Doral but the guy who plays public golf isn't making regular trips to places like that.   

[Michael Wolf]

I would describe myself as pleasantly surprised at the rapid growth of the GCA focused resort model, not confounded. It would go against my conservative nature to build one, but I'm sure glad others have.

[David_Tepper]

What no one has mentioned yet is whether the Keiser sand-based, links or links-like golf destinations have cut into U.S. golfers traveling to GB&I for their links golf vacations. I know guys on the west coast who used to travel to GB&I every year or every other year. Now they are going to Bandon every year and only going to GB&I every 4th or 5th year. As Sean A. has mentioned, the way green fees at the top courses have gone up so much over the last 5-10 years, a golf trip to GB&I is not nearly the value that it used to be.

On the other hand, I am guessing there are some golfers who travel to Bandon or Streamsong to get their first taste of links-like golf and wind up enjoying it so much they decide to travel to GB&I for the first time to sample the "real thing."   

[Brad Engel]

if there are 500 golfers who live in Chicago and who are huge Bandon (or Streamsong or wherever) fans who make 1 buddies trip a year - Does Sand Valley coming on line mean they will now make 2 trips a year? Or still 1 trip but rotating a different location every year. Or 1 trip to each new resort until they've played them all, and then  returning each year only to the one they like best - in other words "picking a winner".


Or do the contributors to this post think there has been enough growth in Bandon type travel to sustain all of the new options?

Well those golfers are unlikely to make more trips per year than they do now, unless their economic circumstances change.  They might go to Sand Valley instead of Bandon this year.  But America is a very big golf market, and Bandon is well known enough now that it's a bucket-list destination for millions of golfers.  So I don't think they'll suffer very much by "losing" five thousand Midwesterner rounds to Sand Valley [especially when the money is going into the same guy's other pocket].


Does that mean there is an unlimited market for these types of places?  Absolutely not.  Every one of them has its niche:  Streamsong is the winter destination, Cabot is for Canadians and east-coasters, Sand Valley for the Midwest.  And then they all skim some of the cream from the bucket-list crowd.


I do think, in America, that these new facilities are drawing younger golfers away from joining clubs.  It's easier to justify two or three buddies' weekends a year to your spouse, than to join a club and play every Saturday.  So there is room for this segment of the business to grow.




The more interesting study is Australia.  It's a much smaller market than America, and more price-sensitive, too.  Cape Wickham is essentially trying to attract the guys who go to Barnbougle, but those guys aren't going to make more golf trips per year, or stay longer.  And there's no guarantee that there will be a lot more golfers who start making the trip:  the only "tell" is how many golfers has Barnbougle had to turn away in peak season because they didn't have room for them, and only Barnbougle knows that.  I think Cape Wickham has an uphill battle, because it's harder to get there - especially from Sydney, as everyone there has pointed out to me on my two recent trips there.  But that doesn't mean Barnbougle won't have softer revenues due to the competition.

Tom, the point you raise that places like Bandon/Streamsong/Sand Valley/etc. pull away younger potential club members is exactly what happened with me. I joined a mid-tier club in Cincinnati right out of college and after a few years realized that while I enjoyed the club and the course, I wasn't getting to play enough with career and young family demands, so my personal "value equation" was out of whack. Given that many in my generation also tend to "over-index" on wanting to see and experience more of the world (myself included) it just made sense that I would go the route of focusing on taking some cool trips and making great memories instead of being a club member.

[Mike Sweeney]

Given that many in my generation also tend to "over-index" on wanting to see and experience more of the world (myself included) it just made sense that I would go the route of focusing on taking some cool trips and making great memories instead of being a club member.

To extend that point, this is why I have been a "15 Round Member" of Yale for years. It strikes a nice balance of club experience without the burden of "I have to use my club".


I did a bunch of "National Memberships" back in the day, but the feeling of sameness crept in. Now there are so many options out there for travel destinations so those memberships got dropped.

[Dan Gallaway]

A friend said that Bandon Dunes is losing money and the only reason its still open is that the owner is rich and loves the place.  I disagreed, but only have anecdotal evidence to counter his claim.  I searched for any articles, but only found ones that details the financial impact on the surround area (very positive!).  Does anyone have anything more concrete to support one side or the other regarding the resort itself?  Thanks

[Edward Glidewell]

A friend said that Bandon Dunes is losing money and the only reason its still open is that the owner is rich and loves the place.  I disagreed, but only have anecdotal evidence to counter his claim.  I searched for any articles, but only found ones that details the financial impact on the surround area (very positive!).  Does anyone have anything more concrete to support one side or the other regarding the resort itself?  Thanks

I don't have any special information about this, but I find it hard to believe they would have spent even more money building the new Sheep Ranch course if they were actually doing poorly.

[Garland Bayley]

A friend said that Bandon Dunes is losing money and the only reason its still open is that the owner is rich and loves the place.  I disagreed, but only have anecdotal evidence to counter his claim.  I searched for any articles, but only found ones that details the financial impact on the surround area (very positive!).  Does anyone have anything more concrete to support one side or the other regarding the resort itself?  Thanks

Call Bandon and do a trial request for tee times. If they are hard to get, Bandon is doing well.

[Tim Martin]

Although Bandon, Streamsong, Sand Valley, Kohler, Cabot etc. get lumped together Bandon is the only one that provides a 12 month season. I will concede that you can play at Streamsong and/or Doral in the Summer but it’s not for me. I know devotees that only go to Bandon between Thanksgiving and March 1st and consistently have a great time. Everything is cheaper and less crowded and although the weather can turn you have a pretty good shot of getting most of the rounds in. In this vein it reminds me of Pinehurst/Southern Pines in the Winter which for me it as good as gets most days between 50 and 70.

[Tom_Doak]

A friend said that Bandon Dunes is losing money and the only reason its still open is that the owner is rich and loves the place.

Not even the most creative of Hollywood accountants could come up with a way to make it look like Bandon Dunes is losing money.


If it was, what does your friend think funded the owner's investment in more courses there, and in multiple other locations around the world?


Your question seems like a disingenuous way to get some numbers about the place, so I won't provide any, but let's just say your friend must not be very good at math.

[Dan Gallaway]

I meant to add in that I DON'T want specific numbers, just wondered if there were articles or other that supported my belief that Bandon was doing well.  Pressed send to quick and then back to work.

[Dan Gallaway]

I meant to add in that I DON'T want specific numbers, just wondered if there were articles or other that supported my belief that Bandon was doing well.  Looking for enough info/support to win the debate, I’m obstinate that way.  I pressed send too quick and then went back to work.


His claim stemmed from the developer of a resort town on the Washington coast not wanting to build a course because ALL courses, including Bandon, were losing money.  I countered that I didn't know the numbers, but that Bandon was doing just fine.

[Anthony Butler]

Perhaps a better and more immediate question to ask is what happens to Bandon and other resorts when all discretionary travel ceases... The Global HR Leader at my company (a very large global consultancy) just put out a directive that all non-essential travel is cancelled for the time being while they see how this COVID-19 virus spreads and what exposure it presents - both financially and healthwise. So if the contract doesn't mandate you have to be at the client site for us to get paid, you're staying home.

I think a golf buddies trip to Bandon, Streamsong etc would fit into that categorization. Besides which, the wife doesn't want you home once you've touched everything on the plane and at the airport... even though the risk profile is not substantially different than going into the office for the day.

[Terry Lavin]

Bandon will endure. Great business model. Great owner.