Following on the heels of our State of the Industry outlook of a short period of rounds stabilization (basically following weather), there remain a minority of US courses which aren’t financially viable at the status quo but have resisted going under as they seek either a buyer or a great year to save them. The $64,000 question is, “What happens to this group of courses in ’17 as the golf economy crabs sideways, monetary policy shifts toward higher interest rates and all that’s left in expense reduction is essential services?”
In this issue I’ll take a look at potential outcomes for these underperforming courses as the immovable object (lack of rounds/revenue improvement) meets the irresistible force (paying the bills and covering debt):
• How do you determine if underperformance is operational-based or market-based? You can fix or potentially sell against operational deficiencies but market-based maladies provide little relief or options (outside an emotional or uninformed (or both) buyer)
• Operational self-preservation – This would involve significant reductions in expenses which would impact conditions and customer experience and riding the rounds/revenue decline downward hoping that a 20-30% budget reduction only produces a 10-15% reduction in rounds/revenue (existing examples in Canada as well as US Consumer Products, Fast Food and Alcoholic Beverages industries)
• Resign yourself to the firesale transaction – My impression is that this hasn’t been more prevalent because the banks/lenders have had the benefit of near 0% money vs. running a golf course. When the cost of money rises to something above 0%, their interest in flexible financing will change and “extending the bet” as an option will diminish significantly
• Walk away/foreclosure – Absent even a firesale buyer (yes, some market situations or course locations are this dire), much like homeowners in the housing market meltdown post-’08, there will be some number of owners who will have no viable option but to walk away and/or some lenders will make the tough call to not extend their bet
The impact on the golf industry as a whole in the above will likely be minimal and long-term beneficial. At the market level and for some number of owner/operator/lender entities however, there will be pain and “someone has to pay” for the intersection of too much, wrong type, wrong location supply and a return to more normal US monetary policy. I wish I could tell you in advance where that was going to be and who’s likely to be on the short-end of that stick but my crystal ball isn’t that clear. There are measures and tools that would help us better predict it than today and those would help both buyers and sellers make more-informed decisions but, absent any meaningful progress there in ’17, we’re pretty much all on our own to figure this out.
For our subscribers, read on for my take on the supporting fact and color commentary. For our Executive Summary recipients, you can get the rest of the story one of three ways (all can be previewed and purchased at Pellucid’s website (www.pellucidcorp.com):
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