The Pellucid Perspective - July 2020 - 9

This brings me to my final point which is I've repeatedly said
that the operations side of the industry benefits more, as a whole,
from "plows vs. hand-offs". I know that's not to the benefit of
a number of industry sectors (i.e. golf maintenance equipment,
golf carts, architects etc.) and I apologize (being sincere, not sarcastic here). There are two quantitative support points for my
assertion:
1.

Transactions don't alleviate or address the supply-demand imbalance situation that persists from the early
2000s as a result of NGF's build-a-course-a-day epiphany that the industry (too heartily) embraced. Absent
any significant increase in demand (either more golfers
or existing golfers playing at higher frequency), we're
spreading the current need for golf too thinly across too
many operators
At current market conditions and valuations, transactions apply further downward pressure on rates, costs and
profitability. My classic example is 2 courses in a market,
one that's a $7M initial invest competing with one that
was a $5M invest. The $5M operator is actually making
a "living profit" while the $7M facility is underwater. The
$7M facility likely has already resorted to discounting to
drive demand (cannibalize since there's no incremental
golfers or demand) which has both squeezed his profit-

ability as well as forced the $5M operator to react competitively (squeezing his profitability but less). The $7M
course now transacts for $3M, not unreasonable given
today's valuations and lack of buyers. The new owner of
Facility B (erstwhile $7M-man) now has potentially a
slightly-superior product and a cost basis of $3M. This
creates a new headache for previously-successful $5Mman and threatens his existence. Either $5M-man fends
off this new threat and is weakened or he succumbs or we
have a double-failure in the market. See how this doesn't
really have any good outcome?
All that said, I can't wave a magic wand over the industry and
tell people not to transact nor can I do anything to accelerate the
reduction in supply vs. the market's current "kick-the-can down
the road" direction. I've long thought that our supply reduction
rate would have to jump to 2-3%/yr as far back as the mid-2010s
but I've been proven wrong (repeatedly) as it continues to plod
along in the 0.5-1.0% annual range. COVID will definitely
change the calculus but we probably won't see the size or shape of
that supply reaction until Q4 of this year. It'll likely happen earlier but, like most other things in information in general and golf
information in specific, it'll take at least a couple of months for us
to hunt it down, compile and analyze it. When we do, you'll hear
about it and our take on the picture here first, stay tuned.
n

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The Pellucid Perspective - July 2020

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