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Golf / Grahame L. Jones : Once a Losing Endeavor, Golf Courses Now Proving Profitable

May 24, 1987|GRAHAME L. JONES

Money and golf. The two are so inextricably entwined that it is difficult to tell where the sport ends and the business begins. Or vice versa.

Half a century ago, prize money on the PGA Tour barely surpassed $150,000. Today, the figure stands at an astonishing $30 million.

But it is not just purses that tell the story. The economics of golf long ago left behind the simple question of who has won how much.

Now, the talk around the tees has to do with sponsorships, profit margins, interest rates and the like. This is all the more true on courses constructed as part of a residential or commercial development.

Recently, Urban Land Magazine took a look at the economics of the game in relation to real estate and came up with some interesting statistics.

"Golf courses have traditionally been treated as 'loss leaders' by the real estate and resort industry," the magazine said. "They have been regarded as necessary but very costly amenities. Resort and community developers were satisfied with a break-even golf course operation if they generated real estate sales or higher room rates and occupancy."

Now, according to the article, more and more developers and their course operators are finding that golf courses, properly managed, can be paying propositions.

"A number of firms have recognized the profit potential from the business of good golf course management," Urban Land said.

Because supply still lags behind demand, because the number of golfers keeps increasing faster than the number of courses available, golfers are willing to pay more to play.

And pay they do.

"During the past three years, both greens and cart rental fees have escalated more rapidly than most other items in the national economy," Urban Land said.

"An important corollary trend is toward the mandatory use of golf carts. . . . Although the primary reason given for demanding the use of carts is to speed up play, economics are an extremely important part of this decision: Cart rentals are very profitable."

Of course, the faster players are made to play, the more players can be squeezed onto a course in a given time and the more money can be made.

"Many golf course managers," the magazine continued, "are initiating policies that not only encourage but actually enforce faster play."

But, as Tom Weiskopf points out in the current issue of Golf magazine, at the same time that the course operators are trying to speed play, developers have contributed to slowing it down by the very design of their courses.

"The old, traditional courses are no longer being built because the owner wants to string this thing out like a big figure eight and maximize the amount of land available for housing," Weiskopf said.

"But wasn't the first rule of golf that the next tee should be no farther than three steps from the last hole of play? That's gone today. Now it costs $9 million minimum to build a course, clubhouse and all the facilities."

And, as Weiskopf said, developers have to build enough homes into the course design to cover that cost.

It used to be that each hole on a golf course cost an average of $50,000 to $100,000 in construction costs and an additional $15,000 to $20,000 in annual maintenance costs. Today, those figures have skyrocketed to $223,000 to $275,000 for construction and $25,000 to $30,000 for maintenance, according to Urban Land.

Even so, by initiating the policies mentioned above, courses can be extremely profitable, as the magazine demonstrates.

"A resort golf course that achieves an average of 40,000 rounds of play per year and has an average fee of $35 (including cart) . . . produces gross revenue of $1.4 million."

But if carts are made mandatory and play is speeded to increase the number of rounds . . .

"At 50,000 rounds, the gross revenue increases to over $1.7 million. If the resort is able to charge up to $50 per round, as is the case at most Hawaiian resorts, the gross income can jump above $2 million. After deducting a generous $600,000 for maintenance and $200,000 to $300,000 for general and administrative expenses, a net of $500,000 to $1 million is achievable."

It was Sam Snead who once said that, "The name of the game is to get the ball in the hole and pick up the check."

These days, it seems, even the former ability is not necessary. A lot of money is being made from golf by those who never lift a club.

According to figures released by the National Golf Foundation, the number of active golfers in the United States rose by 15% last year to a total of 20.2 million.

In the past, the NGF said, the annual increase has usually been around 3%. It attributed the larger increase to the sport's higher profile, which it said was partly due to Jack Nicklaus' victory in the 1986 Masters.

Three out of four golfers in the United States (76.1%) are men, but women golfers showed a larger percentage increase last year, their ranks climbing by 38.9%.

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