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October 2019

Survival Tactics

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How Modern Practices And Managing Expectations Leads To Municipal Success 

By Steve Eubanks

It’s easy to be bleak. It’s even easier to jump to conclusions; to extrapolate the data in one or two markets and blanket an entire segment of the golf industry with a permanent layer of soot.

It’s easy to look at cities like Louisville, Kentucky, Stockton, California, and Indianapolis, and come to the conclusion that municipal golf is a hapless, helpless money pit – a business from which governments should extricate themselves as quickly as possible. City council members hear it all the time. Get out. Cut your losses. Sell the munis to strip-mall developers or turn them into public housing. Anything but golf.

For some context, Louisville loses money on seven of its 10 municipal golf courses with no turnaround in sight. According to the city’s parks and recreation director, Dana Kasler, Louisville lost $673,480 at the munis in 2018.

“We had revenue decreases exceeding 15 percent at five of our courses,” Kasler said. At the Bobby Nichols Golf Course in Louisville, for example, the city loses $13.80 for every round played. There is currently no plan in place to turn those losses around.

But the mayor of Indianapolis would dance down Capital Avenue to have those numbers. Rounds played in the Indy golf market have decreased by 21 percent in the last seven years. Golf revenues across the board have fallen almost 10 percent (more in the municipal sector). And net revenue from the 13 Indy Parks golf courses is only $471,000, with almost all of that coming from four courses. Unfortunately, 60 percent of that revenue goes to service debt on past capital improvements. Future capital needs are estimated at more than $27 million in the next 20 years, while projected demand for public golf is expected to plummet 20 percent by 2025 and 40 percent after 2035. 

Numbers like these are just as bleak in other areas. It’s enough to lead the casual observer to conclude that all munis are black holes.

But there are many munis proving that theory wrong. Look at San Antonio, with a thriving stable of eight municipal courses that are in good condition and thriving economically.

“We have been fortunate to be in a good scenario,” said Andrew Peterson, the CEO of Alamo City Golf Trail, a 501c3 that manages all the San Antonio golf properties. “You can have good people and a good plan but if the market conditions are not right, you don’t have a chance. So, a lot of it is location and a little of it has to do with luck.”

Even though Peterson took over the courses in 2007, the worst possible time to be in the golf business, the conditions in San Antonio were ripe for success. The market was far from oversaturated. And the demographics seemed perfect for a good operator to make a difference.

As Jim Keegan, one of the premier municipal golf consultants in the nation, said, “If the question is: can municipal golf courses be successful, the answer is a qualified yes. Within a major metropolitan area where demand exceeds supply, municipal golf courses can thrive. Think Bethpage, Brown Deer, Crandon Park or Torrey Pines.

“In the hinterlands, the type of golf course experience needs to match the attitudinal behavior and demographics of the residents. Demand for golf needs to be closely monitored. If the facility is an entry-level golf course that serves as the entry door to the game and is funded gently by the general fund, there is justification for that municipality to be in the golf business. But to attempt to compete against a daily fee course offering activities that compete against private enterprise, probably not.”
Knowing your course and your customer sounds easy. But far too many operators get it wrong.

“I would love to say that the answer to all municipal ills is a damn good operator, but that’s not the case,” said Del Ratcliffe, who manages the municipal courses for Mecklenburg County, North Carolina, which is Charlotte. “Every market is different. Sure, there are basic fundamentals. But the key is answering some simple questions: What is the demographic of the market that you’re serving? What are the current levels of service in that area? And do the (municipal) courses match up to the demand in that area?
“You have to match the product to the market that exists, not the one you hope exists; not the one you think might exist at some point in the future. You have to provide a product for the people who are there.”

Keegan has evaluated the best and worst municipal courses in the country. “Based on an analysis of 44 variables, the best 100 municipal courses all share these characteristics,” he said. “They are located in 16 states in 20 core-based statistical areas where demand vastly exceeds supply. They average 7,831 golfers per 18 holes within a 10-mile radius (of the golf course.) And the average spending on golf per 18 holes within that 10-mile radius is $9.4 million.

“Contrast that with the bottom 100 where supply vastly exceeds demand. They average only 488 golfers per 18 holes in a 10-mile radius. And, as logically follows, the average annual spending on golf in a 10-mile radius is also far lower: only $356,740.” 
Operators can’t change the neighborhood. You can’t magically change the demographics of a town. But you can match the product to the market you serve.

“You have to manage to a certain expectation,” Ratcliffe said. “Mecklenburg County has taken a business-centered approach to their golf courses. We are efficient with the money we spend and we work to make a profit. But there are instances where municipalities are not geared toward a profit philosophy. They’re in golf because they’ve always been in golf and they don’t approach it as a business. When that happens, you’re going to have problems.” 

That was the case with the San Antonio courses before Peterson came in. Rates were low because they were set by politicians and parks managers, not golf operators. Expenses were high because of a citywide pay scale. Once an independent operator broke that cycle, the entire golf dynamic changed. 

“Taking the bureaucracy out so that you run the operation without any government influence allows you to maneuver rates,” Peterson said. “We’re also able to staff in a way that pays people a working wage but not a city wage. We’re not subject to the city pay structures.

“It’s a lot easier for us to buy equipment and food and beverage, merchandise and fertilizer. We don’t have to go through the city procurement process, which makes it a lot easier for us to do those things. 

“Now, I’m not going to tell you that’s easy. There is no silver bullet. You have to roll up your sleeves, get to work and get everyone drinking the same water. You also have to have the right city leadership. In our situation we had golf courses that were losing between $750,000 and a $1.5 million a year. They were in deplorable shape, falling apart at the seams. For the city, knowing that they weren’t going to have to subsidize that anymore was pretty palatable.”

Peterson’s group eliminated more than a $2 million deficit while servicing debt and making more than $20 million in capital improvements in 12 years, all because he was free to run the business as a business. 

That doesn’t always work. If a course is in a poor neighborhood or an aging population has no interest in golf, turning a profit might never be an option. But there are other considerations. As Ratcliffe said, “Cities and counties are torn between the need to provide green space and open space and the costs of keeping and maintaining a golf course.”

The politics of losing money on a golf course might not be great, but the idea of selling the golf course to a condo developer could lead to riots at city hall.

Colleen Henry, who manages the 9-hole Rancho Del Pueblo Golf Course in San Jose, California, understands that dynamic. “At a recent council meeting, the parks department made a presentation where they said that the cost of keeping an area as green space was about $15,000 an acre,” Henry said. “And that’s just as a park or a nature walk or some other use. Soccer fields or some other things that were proposed are even more expensive. So, from the city’s perspective, it’s cheaper to have a 9-hole golf course operate at a loss than it is to convert it to something else.

“We are the best deal in town,” Henry said. “But we’re also not in the best area of town. So we’re fighting perception. When people get here they can’t believe how beautiful the facility is. The condition of our golf course is amazing. The greens crew has created a mini country club out here. And having that (oasis) in this part of town is worth it for the city, worth it for the community.

“The cost of doing something (else with the property) is more than the money you’re losing as a golf course. And now you’re providing an activity for seniors and other groups. People who can’t go to the skateboard park or whatever can still come out to the golf course. We’ve made the facility a community resource, not just a golf course. We have bingo nights and social gatherings. Across the street are a line of basketball courts, so we have those kids come over and get Gatorade after they play basketball. You don’t have to be a profit center. You just have to be an invaluable part of the community.” 

Some mayors and city councils buy into Henry’s vision of golf as a community resource, while others are more bottom-line oriented. Either way, the key to successful municipal management is transparency.

“The key to any successful partnership, whether it’s full management or a consulting arrangement, or something in between, is to be up front with the municipality about expectations, about the market, and about what the agreed-upon goals and objectives of the municipal golf courses are and should be,” said Alex Elmore, president of Billy Casper Golf, which manages 90 municipal golf facilities. 

“Many municipalities want to make sure that they remain beneath a certain price threshold because the objective is to keep golf affordable for the public. That’s a worthy goal and one a solid, professional management team can help (a municipality) achieve. But you have to be up front about what that means to the bottom line.

“Another worthy objective, and one of the overlooked benefits of a city or county golf course, is the entry point for starting the game. Where else can you bring a child who might have an interest in taking up golf, hand them a club and introduce them to the game? Municipal courses are the place where that happens every day.” 

Ratcliffe agreed. “Golf is a challenging sport,” he said. “It’s important to provide pathways for the beginners that are accessible and appropriate for their abilities. If you put a beginning skier on a double-black-diamond slope, you’re not going to convert that person into a skier. But that’s what we do with golf. Many of the bunny slopes in our business have been closed. They typically struggle more financially and they’re usually worth more if developed for other things rather than golf. That’s where a municipality has an opportunity to provide a service to their residents and to the game.” 

As lofty and inspiring as those goals may seem, most parks managers and city council members have trouble wrapping their heads around taxpayer subsidized golf. They don’t necessarily want their courses to make money, but they certainly don’t want them to lose it.

“That’s where you have to move on rate,” said Jim Hajek, general manager at Fossil Trace Golf Club in Golden, Colorado. “Having the city out of the business of pricing is a must. We dynamically price all the times. We get a lot of buddies who come out and make our facility a standard part of their trip to the area. We call them the ‘brosomes,’ a foursome of friends who are in town for whatever reason and want to play quality golf. We price the times accordingly for them. They want to play at a specific time on a specific day because they have other activities. So we charge a premium. And we get it. The old model of one rate on weekdays, another on weekend and a twilight discount – that’s a dinosaur way to doing things and a money loser. You price for demand. It’s the only way.”
Like Peterson, Hajek also had found that getting government out of management is also a must to achieve positive cash flow. 
 
“Our success stems from keeping the city at arm’s length,” Hajek said. “I’ve told all of our operators and those we are dealing with in the city that nothing good comes from the city being involved. We are experts in what we do and the experience we have created here is exceptional. There is nothing about this business that a city can do that we can’t do more efficiently.

“Any time the municipality has gotten involved, it has cost the operation money. They decided we shouldn’t sell cigars. That was a political decision. Okay, that cost us $20,000. But when we took all the municipal restrictions off the operations and simply ran it as a business, it was amazing what happened.” 
In many cases that is easier said than done. Getting a politician to cede control is like taking a pork chop away from a hungry dog.
“Some communities, quite frankly, aren’t ready,” Ratcliffe said. “They aren’t ready for the public-private partnership. At that point the question is, is losing money on a golf course worth the public benefit and the service that is provided to the community? If so, fine, continue to operate it as you always have. But if that model isn’t working, you have to eventually turn to the experts.” 

 The mechanics of the business don’t change at a muni. You have to control costs, especially labor, and maximize rates at every turn, putting enough cash aside for future capital improvements while matching the experience with the expectations. Historically, municipalities have done an abysmal job in one of those areas: price. 

“The vast majority of municipal golf courses offer rates far below the experience provided,” Keegan said. “The best illustration is season passes, which are offered by over 80 percent of municipal golf courses. They’re typically priced at 60 percent below their fair market value. That error is often compounded by municipalities issuing punch passes (pay for 10 rounds, play 12), loyalty cards (offering discounts of 10 percent to 40 percent depending upon the initial premium paid) and offering a plethora of rates based on the type of golfer (senior, regular, junior), time of the day, day of the week, time of the year.

“On an hourly basis, the opportunity to play 18 holes of golf may be the least expensive recreational sport in America, if measured in the cost per hour. 

“The median 18-hole fee with a cart in America is $48 or $12 per hour (that is high for most municipal courses). Have you been to a concert, professional sports event or even Top Golf recently? I paid over $100 per person per hour to attend a rock concert (Goo Goo Dolls and Train) and $80 per person per hour to attend the Colorado Rockies vs. the Baltimore Orioles. Even Top Golf with my grandkids averages over $30 per hour per person when food is included.

“Municipal golf course rates are like a buoy in the ocean. Rates in the industry are set by the bottom feeders. To enhance the financial performance of municipal golf courses, rates must go up.” 

Peterson couldn’t agree more. “We have been around for 12 years. Our rounds have increased about 5 percent since 2007. But our rate has increased drastically,” he said. “We’re doing a few more rounds but at a significantly higher rate.

“You have to be steadfast that you are raising rates for a reason, to provide a better product. And if you get these government officials who don’t have that relationship yet, you have to get them to understand that the rate increase will lead to better turf conditions, cleaner golf carts, better staff and a much better experience for everyone.

“Sure, there is some low-hanging fruit out there where you can trim fat. But you have to raise rates. That’s where so many municipalities get into trouble. They’re afraid to raise rates because of the constituency, even though they’re still going to be the cheapest golf in town. But you have to wear your big-boy pants. You have to do what needs to be done.”  
 
Steve Eubanks is an Atlanta-based freelance writer and New York Times bestselling author.

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