The Pellucid Perspective - April 2024 - 4

MUNICIPAL GOLF
*
Municipalities have been willing, over the past 5-7 yrs
(even pre-COVID), to hang on to and infuse cash in
non-profitable golf operations. They do this because the
elected leaders feel an obligation to provide recreation
options (i.e. golf, tennis, swimming, now pickleball etc.)
as well as not wanting to take heat from the local golfer
base over an unpopular decision (i.e. even discuss closing
a money-losing golf operation)
* Many municipalities want to protect greenspace as a
high priority. Golf courses fulfill this objective and
strategy and if they close a course they now have a
battle on their hands of what to do with the land, who
benefits, could/should it be developed etc. Having some
potentially negative financial liability weighed against
those options and decisions usually represents the pathof-least-resistance
*
In addition to the above factors which protect and
preserve existing municipal supply, some number of
municipalities over the past 5 years have been " net
acquirers " of golf courses rescuing failing for profits
from the plow. As we've noted monthly in Comings
& Goings, these generally take on two forms. One is
the municipality comes in with a reasonable investment
and has some synergies and a strategy to operationally
and financially stabilize a failing For-profit entity. The
second form is the municipality coming in and making
above-market bids for failing For-profit operations to
protect the greenspace from development. This is where
the existing zoning for the failing operation comes into
play, if the for-profit entity has wide zoning latitude,
municipalities are willing to pay a premium (significant
in a number of cases, in my professional opinion) for the
golf course.
The initial two arguments above are why municipal supply
isn't contracting at a similar rate as For-profit supply while the
third argument is the primary causal factor behind why the quantity
of municipal supply is actually going up both in the absolute
and compared to the longer-term trend of supply contraction in
the industry as a whole pre-COVID. It's not that municipalities
have necessarily figured out a superior business model or the optimal
consumer price/value point, it's that the governing bodies
are, in the most recent cycle, anti-contraction and pro-protection
of greenspace.
I'm not saying either position is bad (well, as a
taxpayer, I'm not wild about the " let's significantly overpay to protect
against an unknown municipal development future), but let's
just call it what it is which is " defensive growth " in the face of a
contracting macro environment.
On the second point of " all is well " , that being municipal golf
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4 The Pellucid PersPecTive
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April 2024
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The Pellucid Perspective - April 2024

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