Over the 50-plus years that I’ve been in the golf business, I don’t think I’ve ever heard so little talk about building a new golf course.
During the 1970s and ‘80s, it seemed as though a new one was popping up every few months. There was always the newest equity club, the most difficult pay-as-you play course ever built or the most elaborate and expensive layout this side of Dubai.
Now 25 years later, we have all heard that too many courses were built and most for far too much money. Also, I frequently hear the question, “How did this happen? Isn’t there some kind of formula? ‘
The answer is yes. There is a formula.
However, before one undertakes to study the formula, they have to decide if they are going to abide by it or can they afford to do otherwise?
Furthermore, the builder/owner has to know whether they are building the course to develop a business sustainable through golf or will they have other avenues of profit. My subject is a course designed and built to exist as a golf course only.
In making this presentation, I will take the liberty of rounding off, using generalities and applying averages, but the end result will be that there is a formula and here it is in a very rudimentary form. You can apply your own variables such as green fee rates, maintenance budget and mortgages.
In my experience, a simple, average golf course has an operating budget of about $750,000, which means it takes 15,000 rounds at $50 each to cover it.
The same 15,000 rounds will produce $150,000 in power cart revenue and a $25,000 profit on food and beverage or $925,000 in overall income.
According to several studies: Canada has the highest number of golfers per capita in the world at 20 per cent and the average Canadian golfer plays approximately 40 rounds per year., meaning it takes approximately 375 average players to produce 15,000 rounds.
Once again, in my experience, while we have the highest percentage of population playing, it requires a population of approximately 8000 to produce 375 average golfers. This is due to the fact that most studies define a golfer as one who plays once or twice per year.
Taking your operating expenses of $750,000, add $300,000 a year for your $3-million mortgage and you get $1,050,000 as the revenue required to operate your tightly-managed course.
With an average contribution of $50 a round, you require 21,000 rounds to cover costs before taxes, city water if required and unknown legal battles.
The question that surfaces is where should I build?
Let’s use a city of 80,000 population as an example. It requires 180 holes to serve the needs of the 8,000 average golfers. If there are more holes than that, there are already too many courses in your area. If there are fewer, there is a chance that some are profitable.
Using the map of the city, make three circles around each of existing (competitive) courses. Circle 1 represents a 15-minute drive to the course. Circle 2 is a 30-minute drive and circle 3 is one hour.
Very quickly, you will come to understand where, if at all, your course can fit within the current market. Once this has been determined you can look for available land, water and access.
Next, perform a demographic study to gain information regarding the community’s income, education, home ownership and disposable income.
Once you have done a comparison study of the current, competitive facilities, you are armed to consider whether the operation should be public or private, 18 holes or more, its retail price points and total investment required.
So, in a nutshell, you need three things – operational skills, a purchase price of about $3-million and revenue of about $1-million, then adjust accordingly. However, none of these numbers is easily attainable.
Building a course including land for $3-million is difficult. Getting $3-million for a mortgage is difficult. Managing the whole business on $750,000 is extremely difficult but producing 21,000 rounds is doable if you concern yourself with a quality demographic study.
Keep in mind there are plenty of obstacles and these numbers show no ROI.
As I explained in the beginning this only a rough scale, but it should serve to help guide you when you make adjustments for your particular project and it only takes a day or to collect and compare this information, which isn’t much when considering the investment.
The only major variables to be concerned with are ratio of courses to population in a market, the number of players you can attract in rounds played, pricing and, to a certain extent, costs.
The information is readily available and yet for some reason there is an overabundance of courses. Don’t accountants and business advisors have access to simple data? How did all of these courses get built?
“If you build it, they will come,” is only a line from a movie.