"A sport that’s expensive, difficult to play and can take more than five hours has undoubtedly lost players because of the down economy," mused Vegas Inc. in 2011. "The younger generation isn’t playing golf at the rate or frequency of its predecessors, which has some folks predicting doom for golf’s long-term future in our fair city."
With 51 courses in the Las Vegas Valley, it’s a competitive marketplace. Courses in areas with limited land for development (like Chicago) tend to perform better. "Valuations for golf courses — and golf course debt — have been slow to recover even as most asset classes have recovered from the financial crisis," adds the New York Times. Nationally, 157 clubs closed in 2013, against 14 openings. "There’s probably five too many courses in town," Red Rock Country Club Regional General Manager Thom Blinkinsop told the Las Vegas Review-Journal. The Revere, Dragon Ridge, Southern Highlands, and Desert Rose courses could soon be on the block, according to R-J sources.
The Great Recession holds some blame for that. For instance, membership in the Las Vegas chapter of the NAIOP, the Commercial Real Estate Development Association, fell by 50 percent, leading to a halving of NAIOP’s golf outings. Even a lowering of association dues didn’t help. Also, many of those 50-plus courses were built in the early 21st century to boost the value of real estate developments – a trend that has sputtered out, leaving house owners with browning fairways in their back yards.
"Prior to 2000, the assumption was that boomers would behave the same as retirees in the 1950s through 1990s — people would retire and get a membership at a golf club," Deloitte Transaction & Business Analytics’ Douglas Main told the Times. One course exec blames an "erroneous report" that predicted an insufficiency of courses to satisfy a glut of Baby Boomers, setting off a fever of course construction.
Those high greens fees you cite are part of the problem, not the solution. A country club membership can cost $300 a month and a single round at Wynn Las Vegas’ golf course will set you back $500. Course maintenance is another big drain – literally. Those greens are gluttons for water – a million gallons a day -- they have to be seeded and bunkers have to be trimmed. Even if the H2O is treated sewage water, you could be looking at a bill for $1 million a year.
To curb those costs, some "roughs" are really rough: desert landscaping instead of grass. Still, mowing the greens and fairways can cost $500,000 a year. Plus, "The typical dynamic at a private club is that it’s not run with profit in mind but with the idea of making the place fabulous. We consistently see clubs that have no rhyme or reason on spending," said Concert Golf Chairman Peter Nanula, in a 2014 interview. The burden of business in Las Vegas has also fallen more upon locals. Just envision the difficulty a tourist would have getting his clubs through airline check-in.
Courses fought back by instituting special, discount rates for tourists, making the tradeoff of lower greens fees for heavier play. "Las Vegas isn’t getting any new population to support those rounds," said Colliers International consultant Keith Cubba, "so they have to come from somewhere else."
Not all courses could be saved. Some were so far in the red that they were foreclosed upon and shut down, though they reopened as the economy recovered. Four years ago, the profit margin on a golf course was 25 to 30 percent … if the developer wasn’t carrying any debt. Even the high-profile courses you would expect to be money-spinners, like Billy Walters’ Bali Hai Golf Club, have been operating in the red. (Walters tried to turn it into an industrial park, then thought better of it, though a sale is not out of the question.) Real estate developers also consider it more lucrative to convert golf-course land into residential property.
The most recent casualty is Silverstone Golf Club, which bit the dust on Sept. 1, quickly followed by Badlands Golf Club. Not even special $20 tee times could save Silverstone. Mismanagement may have been partly to blame. Despite being a Rye grass course that could be played in winter while other courses are overseeding, that did not drum up enough business to keep Silverstone from sinking. Wrote one reviewer on GolfAdvisor.com, "It was losing hundreds of thousands of dollars per year and the former owner could not sustain the losses any longer. It wasted an incredible amount of water as well. The golf course was sold for land value."
The Las Vegas Country Club, currently on the market, is expected to fetch $20 million – far better than many courses that have been flipped at a steep loss. One reason for the optimistic sale price is that the LV Country Club controls its own water rights. (Japanese investors are frontrunners to buy the iconic property.)
Courses are getting creative in how they shore up the bottom line, often with a little help from the beverage cart. In sweltering Las Vegas, a golfer can average an $8 drink tab per round. Said Sandy McLaughlin, assistant food and beverage manager at Angel Park Golf Course, "People expect it." One TPC course quenched thirsts to the tune of $3,000 in a single day recently. No surprise then, that the beverage cart can be the leading profit center on the greens. (Angel Park has six carts in service.) "We usually have one cart per 18 holes, but we have two when we’re at our busiest," said McLaughlin.
The drought in golf business may not be here to stay. Private equity funds and foreign investors are showing an appetite for American golf courses. "As capacity returns to a healthier level, things should only improve," said course operator ClubCorp. Holdings CEO Eric Affeldt -- provided the industry can ride out a couple more lean years.
