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February 2023

What an economist says Walt Disney and Andrew Carnegie can teach you about weathering a stormy economy

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By Doug McPherson
 
It was a little odd – talking to an economist about the impact of the current U.S. economy on the business of golf – and not long into the conversation he mentioned Walt Disney.
 
This wasn’t some quack – it was John Silvia, an investment professional with over 30 years of experience as chief economist at Wells Fargo, the U.S. Senate Banking Committee and a private investment management company. Today he heads up his own firm, Dynamic Economic Strategy, in southwest Florida. And he’s also delivering the economic keynote to the Golf Business Conference attendees this January.

When Silvia talks about today’s economy, there’s no sugar coating. He says he believes 2023 may be the toughest of the next five years for course owners.

So what’s the biggest economic challenge in 2023 for course owners and operators? “On the demand side, it’s the combination of lower real income growth and the diminished outlook with the rate of inflation eating into real income, which has been down over the last several months. Consumer sentiment is also down.”

On the supply side, Silvia confirms that the cost of labor is much higher, along with food and beverage costs. “We’re also seeing building materials and other similar items suffering significant inflation,” Silvia says. “If a course is remodeling, that will be a much more expensive undertaking. And overall, there are probably going to be significant challenges.

“The overall sentiment is that this will be a challenging year for courses as it will be for anyone who’s working in the entertainment industry.”

But then Silvia expands his thoughts on that same entertainment industry with a mention of Disney. “The Great Depression was a gift for Disney,” he says. “He produced movies.” 

Indeed, he did. In 1928 Disney premiered "Steamboat Willie," the cartoon that introduced Mickey Mouse to folks starved for something fun – a mouse that buoyed Americans through bleak times and kept Disney's business afloat.

“You have to remember that even during slow economic times, people have a strong preference for leisure,” Silvia says. “You have to realize there’s a willingness of people to spend money on golf and recreation – the decline of people spending on leisure is nearly nonexistent. People are saying, ‘Let’s go to the golf course.’ We know people would rather play golf or do some kind of leisure activity instead of buy a new fridge. Consumers are more interested in paying money for experiences versus paying money for goods.”

To help people feel good about spending money to play golf, Silvia says course owners and operators need to constantly think of ways to add perceived value for coming to their course.

“You want to add value without adding significant costs. You’ve got to show people there is value in your course, that their membership or course fees are worth it.

“Give them free coffee and doughnuts, hold happy hours, create a ladies’ luncheon, host Friday night socials. It’s about creating a sense of value with what goes on at your course.”

In essence, you need to discover your own Mickey Mouse.

Silvia then adds a comment about famed industrialist and philanthropist Andrew Carnegie.
 
“He figured out that during difficult times what he needed to do more than anything else was to keep his steel mill running,” Silvia says. “He stayed focused on that one key goal and that’s what I think course owners need to do – they need to focus on keeping their course running – to keep people playing golf.”

More good news: Silvia doesn’t expect a recession in 2023, but if one does emerge, he says it won’t be long or very deep. “I know many people are forecasting a recession, but household incomes are okay, businesses are investing and the government is spending money – all good signs.” 

To end, a quote from Disney seems appropriate:
“Mickey Mouse popped out of my mind onto a drawing pad 20 years ago on a train ride from Manhattan to Hollywood at a time when … disaster seemed right around the corner.”

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