The Local Knowlege

Golf & Business

Has golf's demise been greatly exaggerated?

By Mike Stachura

Have you heard the rumor about the golf industry dying? The one that’s been all over the news, on social media and, yes, even on your premium cable channels? 

Yes, it’s been a rough week for the golf business. But do the headlines tell the whole story? 

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The bad-news cycle started last week with the announcement by Dick’s Sporting Goods that it was essentially firing its 478 PGA professionals. While no detailed explanation was provided, the company’s dismal first-quarter earnings report (a $34 million loss) cited declining golf sales as a major contributing factor. As DKS chairman and CEO Ed Stack said in May, “We really don't know where the bottom is in golf. ... The industry has a real issue.”

So when the leading off-course retailer of golf equipment, a publicly traded company, essentially projects a lack of faith in the golf business, it was only natural for the story to take on a globalized life of its own. ESPN, The Wall Street Journal, Forbes and the television networks all jumped on the opportunity to write golf’s death sentence.  

It didn’t help that the bad business news came the same week that HBO’s "Real Sports" attacked golf’s perceived decline by opening a feature with a walk through an overgrown, shut-down golf course by host and golfer Bryant Gumbel. Former TaylorMade CEO Mark King, current president of Adidas North America, offered little encouragement for the state of the game when he said, “Every leading macro indicator we’ve been using for the last 20 years is saying that less people are playing, and they’re playing less frequently.” That was followed by Gumbel offering this gem: “Even as the economy recovers, golf remains in a nosedive.”


The consensus has been consistent, as Lauren Lyster of Yahoo! Finance put it on ABC News: “We haven’t seen signs of a turnaround; if anything, we’ve seen signs of continued decline and continued struggle.”

But maybe the experts of doom haven’t been looking hard enough. The problem is, the signs the naysayers, the analysts and even the business leaders keep citing don’t tell the whole story.

Contrary to popular belief, there are positive stories in equipment sales, rounds played, and even employment opportunities. The professional game might be on better financial footing than any other individual sport, and maybe most important, the game’s leaders have embraced the idea of growing the game in its most important way: young people. The story of golf in July 2014 certainly is not candy canes and rainbows, but those clouds might not be as dark as others have been so quick to point out. 

Has 2014 been a down year for equipment sales and rounds played? Certainly. Is there an oversupply of golf courses (fueled by unsustainable real-estate projections) and golf-equipment inventory (driven by overzealous manufacturers who were primed by unrealistic sales forecasts from certain large-scale retailers)? Unquestionably. But that’s a relative and limited point of view. First, let's remember this: There were about 5 million golfers in 1960. While U.S. population has increased only some 75 percent since then, the number of golfers has more than quintupled to around 25 million. 

Recent data from golf-retail research firm Golf Datatech show that the sale of hard goods (clubs, balls, bags, shoes and gloves) through the first six months of the year are higher than or equal to 12 of the previous 17 years. Is the trend line down from the somewhat freakish highs of 2006-'08? Yes. But there are unquestionable categories of enthusiasm this year. Iron sales, the largest purchase a golfer makes, have been up this year. The wedge market, thought to be dead after the USGA rolled back groove performance, has been consistently up this year. Even the footwear market has been an important, steady source of revenue. Callaway Golf just announced its second-quarter earnings and noted its sales for the first half of 2014 were up 9 percent, with growth in all categories, including woods (up 8 percent), irons (up 14 percent), putters (up 9 percent) and golf balls (up 7 percent).

There have been arguments that television ratings for golf are down in 2014 (and indeed the majors have been off), but according to the PGA Tour, the number of unique viewers this year is consistent, and sponsorship interest across all tours has risen to unprecedented levels. Golf Channel set a ratings record for the month of April this year.

“The professional game is stronger than it’s ever been, with record years for not just us but the LPGA, too,” said PGA Tour commissioner Tim Finchem. “There are a lot of bright signs, and you have to keep everything in balance.”

Balance might seem a hard thing to develop when nearly 2 percent of the PGA of America’s membership is fired in one afternoon by Dick’s Sporting Goods. But beyond those headlines of doom and gloom is the positive progress report from GolfTEC, the golf-instruction franchises that utilize a patented motion-capture analysis technology to teach more lessons than any single entity in golf. It’s in the middle of a record-setting year for its 190 facilities nationwide in terms of revenues, lessons and number of locations, and according to co-founder and CEO Joe Assell, it will be hiring an additional 100 PGA professionals over the next six months. Its business has doubled in the past five years. 

“While others reference macro trends and complain about long-term declines, we focus on growing our business one golfer at a time,” Assell said. “The success of GolfTEC is built on making better golfers. When people shoot lower scores they play more often and enjoy the game more. Golf needs this now, because it’s the fuel that will help our industry grow across the board.”

On the front lines, the news of rounds played can be viewed in two ways. Certainly, the sheer numbers of rounds are down and weather has been a large factor. This June was one of the six wettest Junes in the United States in the past 120 years. But a look inside those down numbers shows an increase in golf being played when the weather cooperates. The average rounds-per-day-open through June 2014 was up 2.7 percent compared to 2013. Twenty-one states reported rounds played were up in June. 

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The sale of hard goods in golf, while down this year, is still up from a decade ago.

Joe Munsch, president and CEO of Texas-based golf-course management firm Eagle Golf, thinks the sky-is-falling reports have been overstated. He cites a National Golf Foundation report that suggests in addition to the 25 million golfers in the U.S., there are 27 million others interested in playing golf. 

“To me, that sounds like there is more opportunity to grow the game than there is a threat that the sport is losing favor,” he said. “We have to find a way to introduce new players to the game in a way that starts off fun, doesn’t take six hours, and does not intimidate the beginners.”

Maybe out of desperation, but in a systematic effort, the game is doing just that, arguably more so than at any time in its history. There have been documented success stories with alternative golf forms like larger holes and the soccer-golf hybrid FootGolf, as well as the enthusiasm behind the TopGolf driving-range craze. Even the once-staid USGA has embraced the nine-hole round as a solution for the over-scheduled, lapsed golfer. 

The PGA of America-sponsored Get Golf Ready program, which offers five lessons to adults for about $100, has been a continued proven driver of interest, says Ted Bishop, president of the PGA of America. At the junior level, Bishop also points to the growth in participation in just one year of the Drive, Chip and Putt Competition. In its first year, qualifying events were offered in just 14 states, but its second season shows the program is in all 50 states. The PGA Junior League, which is a team-based Little League-like approach to junior golf, is in just its third year and involves more than 7,000 facilities and more than 20,000 youngsters, double what it was a year ago. Bishop estimates in the next five years, the PGA Junior League could involve 50,000 players, up from zero just two years ago. 

“This is a real barometer of the future of the game,” said Bishop, who also coaches a team at Legends Golf Club in Indiana, where he is the general manager. “The interaction between kids has been so impressive to me, and that clearly has led to increased interest. Then, you add in that the parents of these kids, who are themselves not golfers, are developing an interest in the game because of their kids’ interest."

Bishop makes an even more salient point about the economy of golf. Rather than the perception that the game is too expensive, he notes that 80 percent of the rounds played are at public golf courses where the average green fee for 18 holes is $28.

“These parents are the millennials, the people you’re talking about trying to get into the game,” Bishop said. “When you’re looking at your recreational budget and what you can do together as a family, I think more people are going to say, ‘Golf is something we can do.’ ”

Bishop and other leaders believe young people are not only the catalysts for golf’s future, but the strongest elements of golf’s present. Finchem points to The First Tee reaching a record 3.5 million youngsters in the last year. That’s a powerful number when you realize that a traditional, outdoor, analog game like golf is somehow energizing a nation that is eschewing physical education, battling a growing childhood-obesity problem and fighting a culture that sees kids spending nearly eight hours a day in front of screens. 

Golf’s youth numbers are even more encouraging when a study from U.S. News & World Report showed that youth participation in football, baseball, basketball and soccer is on the decline. 

In his 20 years at the helm of the PGA Tour, Finchem has seen the professional game through incredible growth and challenging economic times. He cautions about focusing an assessment of the game’s strength on “a pinpoint piece of data.” He talks a more positive game than the stories of last week might have you believing. 

“I think we have to work harder in today’s world to get people to try the game and get into the game, and we have to do some things that we really haven’t done in the past to help with that,” he said. “Really, it comes back to the youth, reaching out to youth. You can’t expect youth to come to the game, you have to bring the game to young people. We’re dealing with it -- we’ve got to get better at it -- but I see a lot of bright spots. I’m very bullish on the future of the game both here in the United States and globally, where it’s growing quite nicely. And with golf going in the Olympics, that’s going to be accelerated.”

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Golf & Business

What they said, what they meant: Royal & Ancient voting-statement edition

By Geoff Shackelford

loop-royal-and-ancient-clubhouse-518.jpgThe Royal & Ancient Golf Club of St. Andrews issued a statement late Friday afternoon, in tribute to its infamous, late Friday acknowledgement of making design changes to the Old Course in 2012. This time, the issue was the vote on admitting members to the club, which is legally separated from the R&A, governors of golf's rules outside of North America.

Here was the statement:

"A postal ballot among members of the Club on a motion to admit women as members will be conducted prior to the announcement of the result on 18 September 2014. This replaces the vote that was previously scheduled to take place at the Club's Business Meeting on that day. By taking this decision all members can take part in this historic vote."

Our finely tuned What They Said What They Meant algorithm can handle anything, including the most tightly worded statements:

"A ballot is to be sent by mail because many of members of the Club still do not use email. The motion to admit women as members, a portion of the population we still rather unbelievably do not allow in our club. The vote will be announced on Sept. 18, 2014. Not coincidentally, that is the day Scotland votes on its independence, ensuring this embarrassing situation is tucked deep into the Empire's newspapers the next day. This postal ballot replaces the potentially disastrous vote that was previously scheduled to take place at the Club's Business Meeting on Sept. 18 and which might have only been attended by those still hoping for a big, all-things 19th century comeback. By taking this decision to all members, including those preferring the 20th century and even the handful who have faith in this new 21st century, all members can take part in this embarrassingly historic vote."

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Golf & Business

Baby, You're a Rich Man: What Winning Another Major Means for Rory's Finances

By Peter Finch

What does a golfer get for winning a major championship, beyond the prize money?

Even more money.

Rory McIlroy’s win at Hoylake earned him nearly £1 million, or $1.7 million. But paydays like those pale next to what he makes off the course. His contract with Nike is worth an estimated $10 million to $12 million a year. And that’s just one in a package of endorsements that placed him at No. 5 on Golf Digest’s most recent ranking of the game’s 50 biggest earners.

You can safely assume McIlroy will be even higher on our list next time. While Nike declines to comment on specifics of its endorsement deals, it’s common for golfers to have incentive clauses that reward them with bonuses for wins and major championships. 

loop mcilroy.jpg"Almost all contracts have bonuses tied to winning, and to winning majors," agent Mac Barnhardt of Crown Sports LLC told Golf Digest’s Ron Sirak earlier this year. "And the bonus for winning a major is two to four times higher than for a regular win. So we're talking bonuses from $100,000 to $500,000 per contract."

Sirak continued: “According to one agent who spoke on the condition of anonymity, [Justin] Rose's $1.2 million TaylorMade deal doubled in value after his Open victory. The same agent says [Phil] Mickelson got a $1 million bonus from Callaway for winning the British Open. A second agent says Rose and Masters winner Adam Scott will earn an extra $3 million to $5 million annually for winning a major."

McIlroy’s other sponsors include Bose speakers, the Spanish bank Santander and Omega watches.

On top of all that, McIlroy’s appearance fees are likely to climb too. At the moment, he collects $1 million per appearance in South Korea and China, according to the Irish Times. He is said to have asked for $2 million to appear in the Australian Open two years ago -- an amount equal to Tiger Woods’ fee -- but was turned down, Australian Golf Digest reported. Next time he asks for $2 million, he might well get it.



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Golf & Business

What they said, what they meant: Peter Dawson's R&A press conference edition

By Geoff Shackelford

loop-peter-dawson-what-he-said-518.jpgHOYLAKE, England -- The transcript did not tell the full story from the annual R&A pre-tournament press conference Wednesday at Royal Liverpool. Particularly when the topic pivoted to the R&A's pending television renewal with the BBC, a story downplayed by most of the local media except for the Daily Mail.

This is what R&A Chief Executive Peter Dawson said when asked about a possible change from 59-year-partner BBC, whose contract runs out in 2016, to Rupert Murdoch's Sky Sports.

"Well, we have had an extremely long relationship with the BBC and a very happy one. I think it's now 59 years since the Open Championship was first televised in 1955 on the BBC. Our current contract runs through the 2016 Open. And what will happen thereafter remains to be seen. Being a rights holder we obviously have to balance that long-term relationship and the high viewership of the BBC against commercial considerations. The value of golf rights has accelerated dramatically, particularly in the United States just in the last 12 months. And that's perhaps a bigger item in the equation than it might otherwise have been, that's for sure. But it's massively premature to speculate on what might occur." 

Here's where you picture our exclusive algorithm translating that statement…and the result:

"Well, we have had an extremely long relationship with the BBC and a very happy one, except on occasion when Peter Alliss has taken a jab at us. I'm going to say I think it's now 59 years since the Open Championship was first televised in 1955 on the BBC even though I know full well how bloody long it's been. Our current contract runs through the 2016 Open. And what will happen thereafter remains to be seen, though I have a pretty good idea we're going to cash in, baby! Being a rights holder we obviously have to balance that long-term relationship and the high viewership of the BBC against commercial considerations. For at least a good hour or two. The value of golf rights has accelerated dramatically, particularly in the United States just in the last 12 months where our friends at the USGA have ensured we can suitably cash in, too! And that's perhaps a bigger item in the equation than it might otherwise have been, that's for sure, I mean, who'd a thunk Rupert Murdoch would pay that much cash for golf! Still it's massively premature to speculate on what might occur, at least publicly, but you can bet we're already counting the massive infusion of money that'll start coming in around 2017 when Sky takes over!"

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Golf & Business

Billy Walters, course owner and professional gambler, rolls the dice with an auction on his sprawling SoCal home


Billy Walters is about to make a multimillion-dollar bet involving his home in Rancho Santa Fe, Calif.

In case the name doesn’t sound familiar, Walters is the professional gambler and Las Vegas golf course owner who was linked to Phil Mickelson and billionaire investor Carl Icahn in that insider-trading probe earlier this year. All three have denied any wrongdoing.

On Aug. 15, Walters is auctioning his 21,000-square-foot home at 5425 Los Mirlitos in Rancho Santa Fe, an exclusive area north of San Diego. The place sits on nine acres and comes complete with a Dave Pelz-designed short-game practice area. 


Spanish Mediterranean Estate — from Concierge Auctions

What makes it a gamble: Walters has agreed to sell his place to the highest bidder, “without reserve.” In other words, there’s no bottom price. He listed it earlier with a traditional real estate firm for $20 million. If the highest bid on Aug. 15 is, say, a tenth of that, the buyer gets it for $2 million. 

“I’m not concerned that’s going to happen,” says Walters, who teamed with Fredrik Jacobson to win the AT&T Pebble Beach Pro-Am in 2008. “I paid $8.5 million for it three and a half years ago, right in the crunch of the recession. My wife, Susan, and I spent a little over $7 million in hard costs completely renovating it, with her doing all the work. This is probably the nicest house in the whole San Diego area.”

New York-based Concierge Auctions will handle the sale. Its president, Laura Brady, assures a crazy low-ball bid won’t win. She expects there’ll be five to 10 serious, qualified bidders who will pay a fair price for the house. The firm is on track to sell about 70 homes at auction this year, most of them “no reserve” deals like this one.

Interested bidders need to be pre-qualified and will have to deposit $500,000 with Concierge Auctions by 5 p.m. on Aug. 13, says Brady. 

The Mirlitos place -- less than a mile from a Mickelson home, incidentally -- is one of two Walters owns in the area. The other is an 11,000-square-foot home right on the water in Carlsbad. Walters tried to sell it three years ago for $29 million but took it off the market. He and Susan have decided to live there and sell the Rancho Santa Fe property, he says.

"We've lost money on every home we've bought and sold here," Walters told the Wall Street Journal in 2012. "It's not what I do for a living. If it was, I'd be in trouble."

Is that still true? I ask.

“I sold one in Los Cabos, at El Dorado,” says Walters, whose Vegas courses include Bali Hai, Royal Links and Desert Pines.  “I made a little money. But other than that, it’s still 100 percent true.”

Here’s a guy who claims he’s never had a losing year as a professional gambler. How can he be such a consistent money-loser on real estate? “My wife spends too much money on these things,” Walters explains. “We’re not doing it with return-on-investment as our motivation. She wants to furnish them in the best way possible. You can furnish a home for $50 a square foot or $110 a foot, and she’s going high end. When you buy from us, you’ll get the best furnishings you can buy. But that’s why we haven’t made money.”

And what of the insider trading probe? Anything new to report? “I have no comment on that,” says Walters. “No comment.”


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Golf & Business

Course owners are feeling more optimistic (and that could be bad news for public golfers)

By Peter Finch

Are public-course golfers about to get hit with higher green fees? That’s one conclusion you could reach from Marcus & Millichap’s Golf Investor Sentiment Survey 2014.

Loop-Demby.jpgThe real estate firm’s National Golf & Resort Property Group recently queried “owners, managers, prospective buyers, appraisers, lenders and other consultants” to create a Golf Investment Index. (Use this link to see a report summarizing its findings.)

The Golf Investment Index is a scale that aims to track industry members’ confidence. A score of 0.0 would be “a dead economy” while 100.0 would represent “a perfect golf investment economy,” explains Raymond Demby, head of research and analysis at the firm. A score of 50.0 would mean the industry is evenly divided between optimists and pessimists.

The index now stands at 63.2.  “People are as positive today as they were negative a few years ago,” says Demby. Though the firm wasn’t producing its index back then, “I would guess it was more like 35 or 40 in 2011.”

Demby shared with me the detailed survey responses, and that’s where you can see the public-course pricing movement. Nearly half of all owners and managers told Marcus & Millichap  they’re either “extremely likely” or “somewhat likely” to increase fees over the next 12 months.Owners have had to hold their green fees and cart fees, or even cut them, for the last few years. Now that they’re feeling more confident, rising prices probably shouldn’t come as much of a surprise.  

“Golfers shouldn't panic,” Demby says. “Most increases will likely be small and gradual. An increase in the effective rate charged may come from clubs offering fewer discounted rates, smaller differences between peak and off-peak tee times, etc.”



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Golf & Business

India's prime minister thinks country's bureaucrats play too much golf

By Luke Kerr-Dineen

It's often said a president or prime minister's term in office is defined by its first 100 days. If that's the case, India's Narendra Modi, the country's new leader, could be aligning himself with a decidedly anti-golf crowd (or a pro-work crowd, if that's what you'd prefer).

A story in Friday's edition of the Washington Post describes how Modi is trying to shake-up India's bureaucracy and its "out-to-lunch" mentality. Modi reportedly distributed his cell-phone number to some officials in an attempt to instill a new mindset, and there are rumors circulating of a secret list that tracks how often civil servants frequent golf courses during work hours. 

According to the article:

"The new government is sending a message to the senior bureaucracy, which is: You can’t switch off," said T.S.R. Subramanian, a former cabinet secretary, the highest-level civil servant post in India.

The impact of the rumored list has already been felt at the historic Delhi Golf Club, where about 200 bureaucrats used to tee off on cooler afternoons amid Mughal-era tombs as peacocks strolled. Many have now canceled their memberships, according to one executive board member, and a few die-hards switched their tee times to 5:30 a.m. so they can still make it to work on time.

Making it harder to play golf during work hours? Sounds like a tyrant to us.

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Golf & Business

How one company values its golf sponsorships (Hint: It's not all about performance)

By Peter Finch

Later this month Cristie Kerr will represent the United States, along with Stacy Lewis, Lexi Thompson and Paula Creamer, in the inaugural LPGA International Crown. They’ll compete against teams from seven other countries. If all goes as planned, it will be a thrilling and emotionally draining experience. 

From where Marty Dauer sits, it also should be a great opportunity for brand exposure. He’s the chief marketing and communications officer at Duff & Phelps, a New York-based corporate finance adviser. Duff & Phelps sponsors Kerr as well as Ricky Barnes on the PGA Tour.

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I recently talked with Dauer about Duff & Phelps’ involvement in golf, a program it launched not long after he joined the company in 2008. 

Some marketers throw huge sums at top-ranked male golfers in hopes of massive TV time for their logos. (I wrote about that subject in this column, which includes a description of how much sponsors pay depending on where the logo is located on a golfer’s body.) But Duff & Phelps takes a slightly different approach. Sure, it likes the media exposure -- but it’s really looking for a payoff at “small-scale, high-end events” with Kerr or Barnes and 40 to 50 clients. 

The industry term for these events is “activation.” It’s one thing for your clients and prospects to see your logo on a telecast or in a news report. The connection grows far tighter when they can interact one-on-one with a professional golfer sporting that logo, says Dauer, adding, “Most sponsorship is useless without some measure of activation.”
 
Because Duff & Phelps is in the valuation business, it makes sense that Dauer would track its investment in golf carefully. The company holds four to six golf events a year, and everyone who attends one gets entered into a customer relationship management system, as does every Duff & Phelps managing director who invites a client or prospect. Using this data, Dauer says he’s identified nearly $5 million in new revenue that came from people who attended golf events. The company has spent $2.1 million on its golf program -- which includes sponsoring Kerr and Barnes and client events -- since 2009.

Dauer also subscribes to a service that measures every minute Duff & Phelps’ logo appears in the media and assigns it a dollar amount. “We’ve been recovering two or three times our investment in media value alone,” he says. 

Barnes’ play hasn’t been drawing much media attention lately, but Kerr has had a good year, with eight top-10 finishes. Naturally Dauer’s hoping she’ll do well at the Ricoh Women’s British Open and again in Maryland for the LPGA International Crown. 

Just as long as she conserves a little energy for the Monday after. Duff & Phelps has a client event in New Jersey that day and it’s counting on her to turn on the charm.

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Golf & Business

Young golfers to face off in Ryder Cup-style city vs. city challenge

By Stephen Hennessey

blog-bostongc-rydercup.jpg

For those who have dreamed of making a crucial shot under pressure in the Ryder Cup, now’s your chance to get a taste of what that's like.

Young golfers of varying handicaps in Boston and New York City will face off in the first-ever Young Adult City Championship. Qualifying will take place at four sites -- including Boston Golf Club in Hingham, Mass., No. 74 on Golf Digest’s list of America's 100 Greatest Courses -- from July 14 through Aug. 17. 

Any level of player can represent their city in the event. The top four players in each scoring range -- 70s, 80s, 90s and 100s -- will make the 16-person team for the championship Sept. 13. The Ryder Cup style event is being put together by two apps, GolfMatch and NextGenGolf, targeting millennial golfers (18-34).

"Boston and New York are two cities with an age-old rivalry when it comes to sports,” said GolfMatch CEO Peter Kratsios. “And we wanted to show millennial golfers that the golfing community in their respective areas is way stronger than they may have previously thought, as well as help these individuals network beyond their current group of friends.”

The goal, too, is to encourage participation across all skill levels, Kratsios said. The Boston G.C. qualifier will fill up with better players first, but anybody can join the guest list. Prices for all four qualifiers range from $80 to $200. Prizes from Cleveland, Srixon, State Traditions and Maide Golf will be up for grabs, as well as city pride.

For more: golfmatchapp.events.html.

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Golf & Business

An app that lets you say so long to the single (golf) life

By Stephen Hennessey

You're looking to play a round but don't like getting paired with strangers at the course. Why not pick your partners beforehand? That's the concept behind GolfMatch, an app that allows users to find like-minded golfers in their area.

After you create a profile indicating your handicap, preferred tees and other golf vitals, the app's algorithm suggests golfers and courses to play. You can create a match or join one that has already been created.

loop-golfmatch-app-432.jpgTwo 25-year-old co-founders, Peter Kratsios, a collegiate golfer, and Julio Rivera, who had been working on a similar concept, created the app this year. "It's like standing on the first tee, and picking which guys look the most fun to play with," Kratsios said. "At the end of the day, we want to create a better golfing experience."

And who knows? Maybe you'll find someone to hang out with off the course.

The app is free for download. For more info: golfmatchapp.com.

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July 28, 2014

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