CHAPTER THREE SOURCES OF GOLF COURSE INFORMATION, STATISTICS & PERFORMANCE DATA

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1 CHAPTER THREE SOURCES OF GOLF COURSE INFORMATION, STATISTICS & PERFORMANCE DATA The production of a solid and credible golf course appraisal requires extensive use of appropriate golf course and demographic data. Such information, combined with acute analysis, is imperative when addressing primary valuation issues. In a period of economic distress and uncertainty, it is important that the appraiser recognizes traditional methodologies employed in the measurement of supply, demand, participation, pricing, and absorption may no longer be the only applicable components of appraisal assignments. This is especially true regarding assignments that relate to financing and credit issues for lenders and tax appeal appraisals. This new paradigm also presents challenges when addressing the issue of emerging buyer requirements in a very difficult economic climate. Development and analyses of meaningful demographic information has always been a key requirement for golf course appraisal assignments. However, in a period of severe financial distress, the analyst must extend the normal parameters of research and analysis. Although a wide body of information exists, the appraiser will quickly realize that data relating exclusively to golf course trends, operations and sales transactions is not extensive in most instances. Consequently, a wide net must be cast to locate and identify helpful sources of such information that addresses the difficulties uncovering such data with respect to current golf course valuation issues. In this chapter, we have attempted to point the reader not only to traditional providers of industry information, but to a wider spectrum of sources that may be easily overlooked. Practically all of these additional sources are accessible on the Internet, many of which are private firms that provide research and analysis to industry issues. The organizations discussed in the following narrative represent the primary resources for golf information but there are others that may be discovered through diligent research. National Golf Foundation Founded in 1936, the National Golf Foundation (NGF) is the undisputed leader in the research and publication of golf knowledge and the U.S. golf economy. NGF is an objective and independent information resource dedicated to supporting the people, companies, golf facilities and associations that earn their living in the golf business. The organization delivers market intelligence, insights and trends to fulfill its mission. It is comprised of a membership that includes 4,000 member courses, clubs, associations, media and a myriad golf-related businesses that rely on NGF research and resources to support their decision making. NGF is organized into two separate entities. The National Golf Foundation is a not-for-profit trade association whose work in golf market research and industry databases is funded through member contributions. National Golf Foundation Consulting (NGFC) is a wholly-owned, forprofit subsidiary of NGF that applies its assets and capabilities on behalf of individual clients,

2 including golf courses, financial entities and others. NGFC is frequently retained for feasibility studies, operational analyses, and other similar assignments by its clients. The core of NGF s knowledge of the supply side of the golf business are its definitive databases of U.S. golf facilities, participants, practice ranges, companies and industry professionals. It is widely considered to represent the most comprehensive, accurate and up-to-date data in the industry and are systematically verified and maintained by a team of professionals at their Jupiter, FL offices. Some of the areas monitored are: golf course openings/closures; sale transactions; courses under construction; and golf retail data. Changes in these databases are analyzed to project trends and to identify areas requiring further investigation. Some of the data published by NGF is provided free to the industry while most is available to members who pay modest annual fees. Below, we have listed a sample of NGF data publications, most of which are highly beneficial to the golf course analyst. Golf Facilities in the U.S. Includes information on the number of courses by type and size, regional and state location. Golf Participation in the U.S. Provides golf profiles, including number of players by gender, age, income and education. A rounds played profile shows average and total rounds by demographic segment. Operating and Financial Performance Profiles 2010 Published periodically, this report profiles golf facility revenues, expenses, and other benchmarks to allow comparability with other similar facilities. It represents responses from hole courses, including public and private facilities in Frostbelt and Sunbelt regions. Rounds Played Report In conjunction with Golf Datatech, the PGA, and the National Golf Course Owners Association, monthly reports based on information provided by 4,000 golf facilities, comparing 2009 figures with The Future of Private Golf Clubs in America Reports on declining memberships, reduced utilization, and club closures. Based on a survey of hundreds of private clubs to determine the scope and seriousness of the problems facing the private golf club industry. The Golf Business During Recessions Reviews how the golf industry fared during recessions in the 1970 s, 1980 s, and 1990 s, to determine how the industry may perform during current economic conditions. The Future of Public Golf in America An analysis of the financial health of public courses, based on a survey of 1,100 facilities. Addresses past, present and potential future for public golf supply and demand. In addition to the publications cited above, NGF provides considerable additional data relating to such topics as: clubhouses; golf cars; practice ranges; short courses; minority participation; golf employee compensation; junior golf; golf business and course directories. A visit to NGF s website provides a full view of their publications and services. Operating and Performance Data

3 NGF has researched and published Operations Profile Reports for the past 25 years, with the goal of providing benchmarks so operators can compare financial performance of their operations versus those of similar facilities. In the Spring of 2010, NGF mailed surveys to the nation s 16,000 golf facilities. We followed up with reminders and operators had the opportunity to fill out the survey on paper or online. We collected responses from a total of 1,076 facilities. The responses were from facilities of all types and sizes, from nine holes to over 36 holes, this report reflects data from 18-hole facilities only. Operating characteristics vary greatly from one facility to another depending on a variety of factors. In order to portray this diversity, and to provide operators with the most comparable data possible, we have segmented this report into eight sections, taking into account type (public or private), region of the country (Sunbelt or Frostbelt) and total revenues. The categories are as follows: PUBLIC COURSES 1. Sunbelt, total revenues under $1 mm 2. Sunbelt, total revenues $1 - $2 mm 3. Sunbelt, total revenues $2 mm or more 4. Frostbelt, total revenues <$800, Frostbelt, total revenues $800,000 - $1.3 mm 6. Frostbelt, total revenues $1.3 mm+ PRIVATE CLUBS 7. Total revenues $1.0 - $3.0 mm 8. Total revenues $3 mm or more Definition of Terms Used by NGF: Public Includes both daily fee and municipal facilities. Golf Revenue (Public) Green fee and golf car revenue All Other Golf Revenue (Public) Includes driving range, instruction, etc. Annual Dues (Private) Excludes initiation fees Private Does not include semi-private clubs which NGF considers public. All Other Golf Revenue (Private) Includes guest fees, golf car fees, instruction, etc. Food & Beverage Revenue Includes banquets Total Maintenance Costs Includes maintenance, payroll and benefits, equipment leases and/or equipment depreciation. All Other Operating Expenses Includes all other expenses (administrative, cost of goods sold, etc.), except maintenance costs. Capital Expenditures Includes investments in physical plant such as course, clubhouse and grounds, but excludes capital equipment.

4 SUMMARY OF OPERATING PERFORMANCE DATA For ease of use, the eight categories have been summarized in three tabulations, Public Sunbelt, Public Frostbelt and Private Clubs on the following pages. NGF notes respondent s provided data for two years, 2008 and Statistics for individual line items (e.g., total revenues) are same store, meaning that data in both 2008 and 2009 are from the same responding facilities. However, statistics for two different line items may not be from the exact same set of responding facilities due to surveys with an occasional missing response. So, for example, total revenues minus total expenses may not equal the operating income. The authors tweaked this data slightly, as in past publications to provide mathematical consistency, and to provide net operating income data by number and percentage. An example of how this data can be utilized by the analyst or appraiser, along with other information not summarized from the NGF report follows. ANALYSIS OF PUBLIC SUNBELT PERFORMANCE PROFILES In all categories of revenues, Total Operating Revenue declined from 2008 to 2009 (See Table 3.1). In 2010 it rose slightly. For the smaller public Sunbelt golf courses with revenues under $2,000,000, green fee and golf car rental provided about 60% of total revenue. For the larger operations, with revenues over $2,000,000, (which averaged $3,663,700 in 2008), green fee and golf car rental account for about 10% less of total revenue, indicating that they are more complex and diversified operations able to derive more revenue from the other departments. Profitability in all categories has drastically declined during the past decade. For example, in 2001, Public Sunbelt courses in all categories had profitability ratios of 21% to 26%, but for 2008 and 2009, for all categories, the average was only 8%, with the smaller operations doing poorly as compared to those with total revenues of over $2,000,000 (over twice as much profitability).

5 TABLE 3.1 PUBLIC SUNBELT ($000) Total Revenues Under $1,000,000 Total Revenues $1,000,000 - $2,000,000 Total Revenues $2,000,000 or More Green Fee & Golf Car Rental $ $ $ 1,028.8 $ $ 1,936.7 $ 1,741.7 Other Golf Revenue Food & Beverage Revenue Merchandise Revenue All Other Revenue Total Operating Revenue $ $ $ 1,607.1 $ 1,483.0 $ 3,663.7 $ 3,331.7 Expenses Maintenance $ $ $ $ $ 1,343.8 $ 1,274.8 All Other Expenses , ,641.8 Total Expenses $ $ $ 1,486.7 $ 1,375.7 $ 3,113.9 $ 2,916.0 Net Operating Income NOI % Revenue 4.1% 1.5% 7.5% 7.2% 15.0% 12.5% Revenue Per Round Golf* $ $ $ $ $ $ Food & Beverage Merchandise & Other Total $ $ $ $ $ $ Expense Per Round Maintenance $ $ $ $ $ $ All Other Expenses Total Expenses $ $ $ $ $ $ Source: NGF *Green fee, car rental and other golf revenue Total rounds can be estimated by dividing total operating revenue by total revenue per round, indicating that the category of under $1,000,000 has total rounds in the range of 24,000 to 25,000, the category of total revenue of $1,000,000 to $2,000,000 has total rounds in the range of 35,000 to 36,000 and the category of total revenues of $2,000,000 or more has total rounds in the range of 38,000 to 39,000 per year. Every course is unique in terms of its financial performance on a per-round basis. The appraiser must not only analyze the subject property, but also compare it to published data and other properties of a similar nature to understand and explain the estimates derived from the facility being appraised. Total Revenues of less than $1.0mm 18-hole regulation courses typically have revenues in the range of $750,000 to $800,000. They have limited potential for profitability in today s market. They are usually found in rural areas where a round with car rental is in the range of $20 to $30 depending on the day of the week. These courses usually have no more than a snack bar.

6 Merchandising revenue is limited because of the small size of the pro shop. The fixed nature of maintenance expenses takes up as much as 60%, and this factor combined with ordinary operating expenses including cost of goods sold, results in net operating income that rarely exceeds 5% of total operating revenue. Many of these courses are small family businesses. The owner s discretionary income may be substantially higher than what is indicated on paper. As an example, take the situation where a typical course sells for $750,000. One can pose the question of justification for such a price when net operating income can be so low. In such a situation, the owner may be taking a small salary, which when added to the allowance for depreciation and other expense items such as travel, the cashflow might be as high as $50,000. In this context a 6 or 7% return for owning and running a business is the life ambition of many golfers. Capital expenditures for modest golf courses are limited due to the low profit margin. Nevertheless, to maintain appropriate level of quality and condition, an amount of at least 5% of revenue needs to be set aside or periodically borrowed to do course improvements. These costs put a squeeze on net operating income, but there can be a favorable offset through enhancement of the property. Total Revenues of $1.0mm to $2.0mm When a golf course operation is in this revenue category, it has become a serious business with the need of more sophisticated management control and systems. Such a course will have substantial income from food and beverage sales, reflected in a larger clubhouse size, a name presence in the local golf market, a high level of maintenance (this cost factor, percentage-wise, drops down substantially to 40-45% of revenue range), and greatly increased profitability, typically in the range of 7.5% to 15%, but more recently at the low end of this range. Courses in this category are more likely to be found in smaller metropolitan areas, and make use of budgets, monthly financial statements and professional consultants. Total Revenues of $2.0 mm or More Golf courses that fall into this category are well known facilities with a high range of annual rounds (say, 30,000 to 50,000 depending on how the product is priced rather than number of playing days) and located in or around major metropolitan areas. These are highly rated properties that can range from efficient municipal designs that emphasize quantity versus quality, serving as many golfers as possible, or private daily fee operations of championship quality that rank high on a golfer s must play list. Quality should be consistently emphasized. Annual maintenance cost is $1,000,000 and up (but, at an annual percentage of revenue of under 40%), a typical round is priced at over $50, but can be as much as $90 on certain special days or weekends. With annual revenues of say $3,500,000 and profitability of at least 15%, net operating income can exceed $500,000. These are golf courses that probably cost much more than $10 mm but have suffered reduced circumstances even though they are known as prestigious properties with long established reputations, large clubhouses with major food and beverage operations including banquets and

7 other public events, and pro shops that can sell as much as $1,000 of merchandise each playing day. These golf courses, to maintain their status and rating, need to spend or set aside several hundreds of thousands of dollars each year for capital expenditures. ANALYSIS OF PUBLIC FROSTBELT PERFORMANCE PROFILES In all categories of revenues, total operating revenue declined in but only to a small degree; in 2010, it rose slightly. For the smaller public Frostbelt golf courses with revenues under $1,300,000, green fee and golf car rental provided about 70% of total revenue. For the larger operations, with revenues over $1,300,000 (which averaged $1,941,700 in 2008), green fee and golf car rental account for about 6% less of total revenue, indicating a larger and more diverse food, beverage and merchandise sales. Table 3.2 PUBLIC FROSTBELT ($000) Total Revenues Under $800,000 Total Revenues $800,000 - $1,300,000 Total Revenues $1,300,000 or More Green Fee & Golf Car Rental $353.0 $357.5 $658.2 $651.2 $1,140.0 $1,087.2 Other Golf Revenue Food & Beverage Revenue Merchandise Revenue All Other Revenue Total Operating Revenue $572.6 $568.1 $1,057.9 $1,039.0 $1,941.7 $1,880.6 Expenses Maintenance $319.0 $308.7 $500.7 $486.6 $773.3 $746.3 All Other Expenses Total Expenses $553.6 $535.9 $956.8 $929.4 $1,697.0 $1,619.3 Net Operating Income NOI % Revenue 3.3% 5.7% 9.6% 10.5% 12.6% 13.9% Revenue Per Round Golf* $20.66 $20.74 $28.82 $28.68 $44.01 $42.47 Food & Beverage Merchandise & Other Total $29.72 $29.30 $41.94 $41.26 $68.27 $66.66 Expense Per Round Maintenance $16.55 $15.92 $19.85 $19.32 $27.18 $26.46 All Other Expenses Total Expenses $28.72 $27.64 $34.94 $36.90 $59.65 $57.41 Source: NGF *Green fee, car rental and other golf revenue

8 Profitability in all categories has drastically declined in the past decade. For example, in 2001 public Frostbelt courses in all categories had profitability of about 25%, but for 2008 and 2009 for all categories, the average was over 9%, with the small operations doing poorly as compared to those with total revenues of over $1,300,000 (2.5 to 3.8 times as much profitability as compared to the lowest category). Total rounds can be estimated by dividing total operating revenue by total revenue per round, indicating that the category under $800,000 has total rounds in the range of 19,500, the category of total revenue of $800,000 to $1,300,000 has total rounds of about 25,000, and the category of total revenues of $1,300,000 or more has total rounds of about 28,500 per year. No matter which category of revenue, the average net operating income (capitalized at 10%) falls well short of supporting new construction, as the highest revenue category in 2008 and 2009 indicate an appraised value by income capitalization of about $2,500,000. There would have to be other reasons (e.g., amenitizing a golf course community, public benefit through subsidy) to develop a public golf course in the Frostbelt unless it was able to perform in an upper quartile. ANALYSIS OF PRIVATE CLUB PERFORMANCE PROFILES Private clubs are less profitable than municipal courses and daily fee courses. They are managed for the benefit of the members and not for their profitability as an investment. However, a positive operating margin is needed to meet the club s debt service and reserve requirements. Average operating margins for private clubs in the categories of total revenues of $1mm - $3mm and $3mm or more are shown in Table 3.3.

9 Table 3.3 PRIVATE CLUBS Total Revenues $1 - $3 million Total Revenues $3 million or more Annual Dues $988.1 $958.3 $2,637.2 $2,647.2 All other Golf Revenue Food & Beverage Revenue , ,353.7 Merchandise Revenue Total Operating Revenue $2,153.1 $2,015.7 $5,079.0 $4,929.5 Expenses Maintenance $877.6 $799.2 $1,772.9 $1,710.4 All other Expenses 1, ,202.6 $3,193.5 $3,049.6 Total Expenses $2,206.7 $2,001.8 $4,966.4 $4,760.0 Net Operating Income -$53.6 $13.9 $112.6 $169.5 Revenue per Round Golf* $87.65 $86.13 $ $ Food & Beverage Merchandise Total $ $ $ $ Expense per Round Maintenance $54.45 $50.86 $86.90 $85.41 All Other Total Expenses $ $ $ $ Source: NGF Private clubs typically generate far more revenue per round in all department categories as compared to public courses. It is the nature of a private club, appealing to the higher echelons of demographics, to provide more services and more costly facilities and charge what is necessary to keep the books balanced, while maintaining a high level of maintenance and membership services. A comparison of the lowest revenue category for a private club with the highest revenue category for public Sunbelt clubs indicates total revenue per round at about 45% higher. For the highest category of private club total revenue the difference is over 160%. Total rounds played at private clubs tend to be low for a variety of reasons including members who do not, or rarely play golf, and an atmosphere of relaxation and social interaction resulting in slow play. In Table 3.3, the category of total revenues of $1mm - $3mm indicated average annual rounds of about 16,000 and for the category of total revenues of $3mm or more, the average was about 20,000 rounds per year.

10 There is a broad range of private clubs in the U.S. ranging at the low end from mid-market golf communities to older, highly prestigious country clubs that used to have waiting lists and very high membership fees (note that many country clubs in the category have lost memberships in recent years due to the recession and negative outlook for the economy and are now pursuing strategies to woo new members as discussed in Chapter 2). PGA Representing over 27,000 golf professionals (men and women), the Professional Golfer s Association of America, or PGA was founded in The organization is comprised of 41 PGA Sections (regional organizations) throughout the U.S. and members are recognized experts in growing, teaching and managing the game of golf. The preponderance of its efforts and success have resulted from its premier spectator events, educating and training programs. Members are primarily club professionals who work at individual golf courses, and should not be confused with the PGA Tour, an organization of playing professionals formed by the PGA in While the PGA is fundamentally a professional service organization in the golf industry (probably the most visible and publically recognized golf organization), its primary contribution to the larger body of golf data is its PGA PerformanceTrak report. This monthly publication is compiled from information provided by about 2,600 participating courses and is the largest single-source of rounds played data in the industry. It is developed in conjunction with the National Golf Course Owners Association, Golf Datatech and other industry contributors. The report provides monthly and YTD data for rounds played nationally as well as revenue data for golf fees, merchandise, food and beverage and total revenue. It also can provide comparative reports for revenue per round with segmentation by facility size in state and local markets. There is no cost to PGA and NGCOA members. PGA PerformanceTrak provides immediate up-to-date information regarding golf rounds and selected financial data that may be helpful to the analyst. The chart below represents a sample format for the PerformanceTrak report, published in December of 2010 and compiling information for the entire year. Figures include data from private, semi-private and municipal facilities and are shown in Table 3.4 below.

11 Table 3.4 PerformanceTrak At-a-Glance December, YTD December 2011 Highlights December 2010 December 2009 % Change Sample Size Average Rds Played-Aug % 2,501 Average Days Open % 2,501 YTD 2011 Highlights Average Rds Played-YTD 24,257 24, % 2,526 Average Days Open - YTD % 2,526 December 2011 Median Gross Revenue P/Facility Median Golf Fee Revenue - December $23,795 $23, % 988 Median Merchandise Revenue - $8,788 $8, % 880 December Median F&B Revenue - December $27,792 $25, % 601 Median Total Revenue - December $107,265 $102, % 718 YTD December 2010 Median Revenue P/Facility Median Golf Fee Revenue YTD $768,163 $793, % 1,000 Median Merchandise Revenue YTD $134,533 $133, % 912 Median F&B Revenue YTD $457,857 $444, % 653 Median Total Revenue YTD $1,865,477 $1,862, % 769 NGCOA NGCOA, or the National Golf Course Owners Association was founded in 1979 in response to a number of common problems facing the public golf course owners in the U.S. Golf course owners at that time faced numerous challenges but there were few forums in place to provide discussion of important issues. Since that time, the NGCOA has grown dramatically and has established chapters in all important golf regions in the U.S. In 2011, their primary focus is on three areas: Property Tax Relief Major attention on revision of state property tax laws and efforts to educate assessors on the complexities of golf course valuation. Water Supply Acute shortages in many areas have resulted in reduced allocations for golf courses. The group s efforts highlight the need to present a sound scientific case its water use is clean and efficient and lobby for golf as an industry with a $76 billion annual economic benefit. Increasing Golf Course Revenue In a stagnant economy, owners face the challenge of increasing rounds and revenue by operating smarter and more efficiently. Special attention is given to pricing practices and generating revenue from non-golf segments of their business. Some of their research is available without charge but most can only be obtained through NGCOA membership.

12 GOLF 20/20 Managed by the World Golf Foundation, Golf 20/20: Vision for the Future, is a collaborative effort of golf associations, manufacturers, course owners/operators and the media, focused on the game and its future. A key portion of its mission is to regularly gather and analyze information on rounds played and economic impact surveys that measure golf s contribution to the national, state and local economy. Golf 20/20 published its first national report in 2002 which demonstrated that golf in 2000 was a $62 billion industry, bigger than the motion picture and recording industries combined. A follow-up report in 2007 showed that golf had grown to become a $76 billion industry. It is likely to be a lower figure now. Their research partner is SRI International who assisted in development of a template that enables individual states to affordably quantify golf s impact on their economy. Over 20 states have utilized this template to date. It is also available for smaller constituencies such as counties and metropolitan area. A brief summation of a 2010 study of golf s economic impact on the State of Missouri is provided below. The chart shows the direct impact of golf through its associated relationships, induced economic impact, total jobs and wage income. The total direct impact was $888.6 million and total output was $1,687.6 billion. Industry Segment Golf s Impact on Missouri s Economy 2010 Direct ($millions) Total Output ($ millions) Total Jobs Total Wage Income ($millions) Golf Facility Operations $613.8 $1, ,095 $358.0 Course Capital Investments $44.3 $ $3.5 Golf-Related Supplies $21.7 $ $12.3 Tournaments & $5.8 $ $3.8 Associations Real Estate $45.6 $ $15.2 Hospitality/Tourism $157.4 $ ,717 $92.3 TOTAL $888.6 $1, ,865 $485.1 The appraiser can refer to the Golf 20/20 website to view the latest reports developed by this group as well as any additional research and golf information. Additional information may be found on the SRI International website. (USGA)

13 The USGA, or United States Golf Association is the governing body of golf in the U.S. and is represented nationally through its affiliated golf associations at various state and regional levels. Together with the Royal & Ancient Golf Club of St. Andrews (Scotland), the USGA produces and interprets the Rules of Golf, provides a national handicap system for golfers, conducts 13 national golf championships, is a leader in turfgrass research, and oversees golf equipment testing for conformity with regulations. This organization does not typically produce operational and other hard data for the golf industry but has considerable information regarding turfgrass and environmental issues as they relate to golf courses. Much of this is accomplished through their USGA Green Section, which directs its turfgrass research and provides consulting services by staff agronomists to member clubs. Additional information can often be found by contacting one of the associated local golf associations, especially for location and general data for specific area golf courses. (ASGCA) The American Society of Golf Course Architects is the primary association of golf course architects in the world and most full-time course designers are members of the group. Formed in 1947, the ASGCA supports the design of golf courses that are technically, strategically and aesthetically excellent and meet the economic, environmental and other needs of golf course owners, developers and communities. While the organization does not regularly provide surveys or other research information to the industry, they do publish a series of insightful books that may be downloaded free on their website. Various titles include: Value of the Golf Course Talking Points The Golf Course Developer Process: Questions & Answers Master Planning for Golf Courses The Golf Course Remodeling Process They also sell a number of other publications, many of which will be helpful to the analyst for a given design-related issue. PKF PKF North America is an association of certified public accountants, tax and management consultants with independent member firms in more than 300 cities worldwide. They have published Clubs in Town & Country for al most 60 years. In the 2011 North American Edition they state for the last several (years) we have commented on the problems that clubs are having because of the recession, but it started long before From , the number of member-owned clubs dropped by 6%, and since then, the number has dropped another 10%. From the excesses of the earlier part of the decade to the pullback during the recession, clubs have experienced a wide range of issues, but none more important that the club s relevancy. The data provided in the publication for private country clubs is extensive. PKF also separates their reporting on a geographic basis to the West, Central and East in the USA and Canada. The following is the list of the table of contents of the 2011 North American Edition.

14 Table 1 20-Year Trend of Income and Expenses... page 4 Illustration Income and Operating Cost per Member... page 5 Table 2 Results of Operations by Geographic Divisions and Size Classifications... page 6 Table 3 Restaurant Operations by Geographic Divisions and Size Classifications... page 7 Table 4 Annual Operating Cost per Member by Geographic Divisions and Size Classifications... page 8 Illustration The 2010 Country Club Income and Where it Went... page 9 Table 5 Membership Data and Payroll Statistics by Geographic Divisions and Size Classifications... page 10 Table 6 Golf Course Expenses by Geographic Divisions and Size Classifications... page 11 Illustration The Rise in Golf Course Maintenance Costs Yearly Average Cost per Hole... page 12 Clubs in Town & Country presents their statistics on a per member basis and ratio basis for revenue, departmental expense and unapportioned expense categories and golf course expenses on the basis of average per hole. The amount of data in the publication is too extensive to be fully summarized here, but Table 3.5 shows the average revenue, cost and expenses per member for the period October 31, 2009 through September 30, The information is much more detailed than that shown in Table 3.3. The NOI line (available for debt service, capital improvements, etc.) with a percentage of total revenue of 5.5.% compares fairly closely to the same percentage (net operating income) ratio of 3.4% for the revenue category of $3mm or more.

15 Table 3.5 ALL COUNTRY CLUBS AVERAGE REVENUE, COSTS, EXPENSES PER MEMBER Revenue % Dues $6, Food 2, Beverage Golf 1, Other Sports All Other Income Total Revenue $11, Cost of Goods/Services Sold* % Golf $2, Food & Beverage 3, All Other Categories 1, Sub-Total $6, Cost and Expenses Clubroom $835 Administrative and General 1,820 Heat, Light and Power 309 Repair and Maintenance 217 Sport Activities 308 Other Operating Expenses 456 Real Estate Tax & Insurance 468 Sub-Total $4, Available for Debt Service, Capital Improvements, etc. $ Source: PKF ; *Percentage are shown by department, not as part of total revenue RMA The Risk Management Association annually publishes the Financial Ratio Benchmarks for hundreds of businesses. Golf courses and country club financial data for is presented on pages Virtually all of the information is for the purpose of balance sheet and income statement analysis with the following ratios: Current, Quick, Sales/Receivables, Sales/Working Capital, EBIT/Interest, Fixed/Worth, Debt/Worth, Percentage Profit Before Taxes/Intangible Net Worth (typically known as Return on Equity), Percent Profit Before Taxes/Total Assets (typically known as Return on Investment), Sales/Net Fixed Assets, Sales/Total Assets, Percentage Depreciation/Sales, and Percentage Officers, Directors, Owners Compensation/Sales. Operating performance data is limited to percentages of operating expenses, operating profit, all other expenses and profit before taxes. Revenue categories are up

16 to $1mm, $1mm - $3mm, $3mm - $5mm, $5mm $10mm, $10mm - $25mm and $25mm and over. Golf course appraisers would be interested in the operating expense ratios, operating profit ratios, return on equity and return on investment data. Quoting from Page 12, each ratio has three points, or cut-off values, that divide an array of values into four equal-sized groups called quartiles the quartiles include the upper quartile, upper-middle quartile, lower-middle quartile an the lower quartile. The upper quartile is the cut-off value where one-quarter of the array s values fall between it and the strongest ratio. The median is the mid-point that is, the middle cut-off value where half the array falls above it and half below it. The lower quartile is the point where one-quarter of the array falls between it and the weakest ratio. A total of 892 golf courses and country clubs represent the sample. Interestingly, the average for the entire sample showed only a 0.2% operating profit with the six revenue categories ranging from -2.1% to a positive 3.6%. Looking at the quartiles, only the upper quartile showed profitability (e.g., return on total assets before taxes), and that range was only from 1.3% to 4.0%, with an average of 2.0%. The return on equity was more positive ranging from 2.0% to 20.1%, with the average of 4.5%. The RMA data is of limited use in the typical appraisal assignment. It would be more useful to a financial analyst. The overall conclusion from this data is that most golf courses and country clubs for the most part are not profitable development projects or investments at this time. BRG The Business Reference Guide is written and compiled by Tom West. It s described as The Essential Guide to Pricing Businesses and Franchises. In other words, it provides rules of thumb for appraising intangible assets and entire enterprises, in this case golf courses, private and public. The current edition on pages indicates that private golf courses typically sell for 2.5 to 5 times SDE (Seller s Discretionary Earnings) 1 plus inventory, and public golf courses sell for 8 to 11 times net income (typically 9 to 10), or 4 times golf related revenue ( green fees, golf cars, driving range does not include pro shop or food and beverage ). The publication also includes information on pricing tips, benchmark data, market segment, product and services, industry costs, expenses as a percentage of annual sales, industry trend, seller financing and resources. There is also a rule of thumb for price of a golf shop business at 30% of annual sales plus inventory, and a golf car business (sales and service) at 25% to 30% of annual sales plus inventory. 1 Seller Discretionary Earnings are defined as earnings before income taxes, non-recurring income and expenses, non-operating income and expenses, depreciation (and other noncash charges), interest expense, and the owner s total compensation.

17 Other Golf Industry Organizations In addition to the above, there are additional industry groups that are well established and often provide information that is helpful to the appraiser. Such groups perform limited research in their discipline that is available only through membership or direct purchase. The Golf Course Superintendents Association of America (GCSAA) This is the professional association for the persons who manage and maintain the game s most valuable resource the golf course. Since 1926, the association has provided education, information and representation to its members. National Club Association (NCA) The NCA is a private club advocacy group that actively lobbies the U.S. Congress on behalf of the industry. Formed in 1961, their main activities revolve around the business, taxes, legal and legislative interests of private clubs, as well as ongoing education needs. Club Managers Association of America (CMAA) A professional association for managers of membership clubs, the CMAA has about 7,000 members who oversee more than 3,000 country, golf, city, athletic, town and military clubs. It will occasionally publish research or compiled data relating to its industry segment. Private Providers of Golf Information There are many groups that provide some measure of golf research throughout the nation, but some are more experienced and deeply involved than others. Examples of such groups are listed below. Golf Datatech This company was established in 1995 to address the need for accurate and timely information on the retail sales, inventory, pricing and distribution of golf products through on and off golf course venues. By 1998, the firm added research into consumer attitude and usage studies. Most of its research may be purchased online. Pellucid Corp With a database of over 16,500 golf facilities, much of Pellucid s research and studies are made in collaborative efforts with other golf organizations such as the National Golf Foundation. It s primary efforts are directed at national weather conditions (number of playable days), factual information for each course in its database, pricing issues, annual rounds analyses, and golf operational structure. The firm also publishes subjective analyses of the state of the industry on an annual basis and a new monthly on-line golf business magazine, The Pellucid Perspective. Most of Pellucid s information is provided by paid subscription. Golf Inc. This is another on-line golf business magazine, generally published two times per month and is part of the Crittenden family of real estate publications and services. Golf Inc. reports mostly on trends and development activities in the golf industry, but it s most valuable service for the golf course appraiser may be its regular reporting of golf course sales in the U.S.

18 Information provided is often limited but the creative and curious analyst can follow-up with additional research to obtain helpful data for sales comparison purposes. Golf Inc. is also the sponsor of periodic golf seminars in various parts of the U.S., usually featuring an array of experts who cover a broad spectrum of golf information and concerns. Information is also provided by numerous other organizations, particularly by large consulting firms that relates to real estate issues as well as specific areas within the golf industry. Examples of such groups include: the Urban Land Institute; Marcus & Millichap; The McMahan Group; SRI International; KPMG Consulting; and numerous local and regional groups that may not have national recognition. A listing of the entities described in this chapter, along with an address and telephone number is on the following page.

19 Partial List of Golf Information Resources Business Reference Guide Club Managers Association of America 1733 King St, Alexandria, VA Telephone: Golf Course Builders Association of America 727 O St, Lincoln, NE Telephone: Golf Course Superintendents Association of America 1421 Research Park Dr, Lawrence, KS Telephone: Golf Datatech 204 S Rose Avenue, Kissimmee, FL Telephone: Golf Range Association of America P.O. Box 240, Georgetown, CT Telephone: National Club Association th St NW, Suite 450, Washington DC, Telephone: National Golf Course Owners Association 291 Seven Farms Rd, 2 nd Floor, Charleston, SC Telephone: National Golf Foundation 1150 U.S. Highway One, Suite 401, Jupiter, FL Telephone: Pellucid Corp 680 Mayfair Lane, Buffalo Grove, IL Telephone PGA of America 100 Avenue of the Champions, Palm Beach Gardens, FL Telephone: PKF North America Eaton Place, Suite 440, Fairfax, VA Telephone: (703) RMA The Risk Management Association 1801 Market St., Suite 300, Philadelphia, PA United States Golf Association P.O. Box 706, Far Hills NJ Telephone: Urban Land Institute 1025 Thomas Jefferson St NW, Suite 500 West, Washington DC Telephone: World Golf Foundation 1 World Golf Place, St. Augustine, FL Telephone: