Feature. Raising the Bar Multi-course Management Companies Are Here by Maurice Cutler

Transcription

1 Feature Raising the Bar Multi-course Management Companies Are Here by Maurice Cutler Drive for about 45 minutes north of Toronto City Hall, up above Highway 401, and the land turns from urban sprawl to rolling farmland, horse farms, luxury housing subdivisions and upscale golf clubs. Just beyond the sleepy crossroads village of Snowball, you'll notice a northern version of the Tara mansion from Gone With the Wind. This imposing building with four pillars, is the corporate headquarters of ClubLink Corporation. And behind it, about the distance of a long par four, is the jewel in its crown, the King Valley Golf Club. It's from here that ClubLink is launching a revolution in the way the golf industry operates in Canada: the traditional family-owned golf course business is being bought up, spruced up and managed and operated as part of a chain. The trend began in the United States and now seems likely to change the face of golf in this country in the new millenium. Economies of scale and modern management methods are being introduced to the Canadian golf industry for the first time. The multi-course ambitions of ClubLink and a number of other operators have raised images of Wal-Mart and "big box" retailers and their sometimes-devastating impact on smaller Canadian retailers. The stand-alone "mom and pop" golf course will probably continue to be the norm in Canadian golf. But many individual golf course owners will have to confront stiffer competition for "rounds" as a result of the entry into their market of corporations like ClubLink, Intrawest Corporation, Burrard International, Golf North and Granite Golf, among others. If your course is poorly managed, has weak marketing or lacks sufficient capital to bring the property up to reasonable standards, and is in an area where ClubLink has other properties, you may be a primary target. ClubLink's first purchases were private membership golf clubs, especially those which had failed in the early '90s. The strategy now seems to involve picking up daily green fee operations as well. ClubLink's network now includes a sizeable number of daily play courses among its 25 courses, private and public, which encircle Toronto and Ottawa. However, it's most ambitious purchase to date is the acquisition announced in October of the Royal Canadian Golf Association's prestigious Glen Abbey golf club, home of the Canadian Open championship. Three recently-acquired properties in the Ottawa area give ClubLink a significant presence there and represent the corporation's first move outside of southern Ontario. The Niagara

2 peninsula, London and the Kitchener-Guelph regions are potential next moves for ClubLink in Ontario. And soon the whole country may be in its sights. For some golf course owners, this trend will present a selling opportunity as the consolidators look for new properties to add to their collections. Multi-course operations are an integral part of ClubLink's marketing strategy. Members by the hundreds have been joining up, lured in large part by the prospect of being able to play at a variety of golf courses instead of just one. Members have priority privileges at their own clubs and access to all ClubLink properties including public play courses. Memberships are also transportable and transferable. This points up a central fact of life for ClubLink: it needs a critical mass of golf courses in particular locations to provide the luxury of choice that attracts a growing number of members of its individual clubs. In 1998 it nearly doubled the number of courses it owns and operates from 13 to 25. A sharper management style and lower overheads through group purchasing and central administration has produced what so far has been a winning formula. ClubLink is also targeting the corporate and fund-raising event market to provide revenues in quiet times at its private clubs. The big question facing ClubLink and other consolidators is whether they will be able to achieve that level of performance as they move from fire-sale acquisitions to a golf course seller's market and in a period of economic uncertainty. And will public golfers be receptive to paying more to play, than under previous ownership? King Valley is where the ClubLink concept really took off. Purchased at a distress price, reputed to be a third of its $30 million construction cost, the course has become one of the most highly regarded in the country. It is surrounded by a cluster of ClubLink properties, Emerald Hills, Cherry Downs, DiamondBack, Aurora, Gormley Green, Bolton, Rolling Hills, and Canterbury Common. The first three, like King Valley, are private membership facilities with initiation fees ranging from $22,500 to $60,000 and are available to members from all of ClubLink's private clubs. The other five are daily fee courses. A little further afield, in the western part of the Toronto region are private clubs Greystone and Heron Point and daily fee courses Georgetown and Blue Springs which like Bolton and Aurora will soon be converted into private facilities. ClubLink has also announced that it will expand in the Muskoka and Georgian Bay regions of central Ontario by buying and developing golf-related destination resort properties. This builds on the success of its Lake Joseph Club in the Muskoka region. The golf course there was named best new course in Canada by Golf Digest and Score magazines recently. ClubLink has also acquired 800 acres of prime recreational real estate adjacent to the Grandview Inn in nearby Huntsville. ClubLink will perform "supervisory

3 management" of the existing golf course there and pursue further golf course developments in the area in conjunction with the Bruce Evans course construction firm. ClubLink's real estate holdings on lands adjoining its golf courses will help fund future golf course purchases or construction. And rising in the farming community south of Milton, west of Toronto is a massive 45-hole project, RattleSnake Point which is ClubLink's major entry into the field of golf course development. When it opens in the summer of 1999, the two 18-hole golf courses expect business of 30,000 rounds each. The nine-hole academy course will be an excellent learning venue for beginning golfers and juniors. Membership sales passed 600 by mid-summer this year. ClubLink also has a significant interest in GolfSouth, a U.S. multi-course operator that has some 25 golf courses or new developments under management in the mid-atlantic and southeastern U.S. If it were to exercise its option to take a controlling interest in GolfSouth, ClubLink would become one of the top five golf course owner-operators in North America. This year marked a significant shift in ClubLink's acquisition strategy. Fuelled by a healthy infusion of investors' money, the Toronto Stock Exchange-listed corporation moved into the daily fee business in a big way with the purchase of the equivalent of 10, 18-hole courses. ClubLink is targeting golfers who are in transition from public to private golf. Presumably a good number of these people will stay on as members when the club goes private. "Daily fee golf courses comprise approximately 70 per cent of all golf courses in Canada," ClubLink founder, President and CEO Bruce Simmonds says. "ClubLink has been implementing various improvements to these courses since their acquisition in...course conditioning and presentation, together with greater focus on improving the pace of play." This has all been accompanied by an increase in the price of golf at these courses. Simmonds said he was not worried about losing business after raising green fees. He believes that the segment of the golfing public that is predominantly price sensitive is not substantial. He cited studies which showed that golfers' criteria for choosing one golf course over another were: condition of the golf course, pace of play, location and price, in that order. "Most public players would gladly pay extra to have a four-hour round rather than a six and seven-hour round," he said. He argues that if higher green fees are accompanied by an increase in value like faster playing time, golfers will not object. However, Simmonds emphasized that ClubLink's "core business" is and always will be the private golf club. "We've been quite successful in building that business and in proving out our formula by building a portfolio of high quality golf courses," he told Golf Business Canada. "We're in the process of completing building our tenth course at

4 Rattlesnake Point. We really believe that in any market where there is a strong corporate presence and a decent economic environment that (the private club) is the highest and best use for an upscale 18-hole golf course." The ClubLink CEO says the daily fee business is "a natural extension of that business. Obviously if you want to be a factor in the golf business you can't ignore the daily fee business. It's a pretty natural extension of what our origins were." As to where ClubLink will go next, Simmonds says he would like to expand the company's private and daily fee operations to other business centers in Ontario like London and Niagara. "We have also expanded into the Muskoka resort area which is a logical destination golf region with strong connections with our core market in Toronto," he says. He said ClubLink is "not in a big rush" to move outside of Ontario, but that the company is open to taking the concept and expanding to other parts of Canada where there is a strong corporate community, such as Vancouver and Calgary. "We think there's still enough growth opportunity for us in Ontario and that's where we are focussed right now." "We don't foresee any significant expansion over the next six months, beyond Ontario. What's more likely is continued growth, continued acquisitions and development in Ontario because we think the economy is so good here. This is where our strength is and we want to continue to build on that strength. Also, from a management point of view it's much easier to manage when it's closer to home." Simmonds, a 46-year-old accountant, got into golf course ownership in 1989 when his family bought the Cherry Downs course in the Pickering area as a real estate investment from the proceeds of a successful venture by the family electronics business. Unfortunately it was in the midst of the early '90's recession. Golf in those days was a money-losing business proposition. "By the time our second season was finished in 1991, we had lost half a million dollars just on the golf course," he said. Simmonds' business experience which included successful turnaround situations was brought to bear on the problem. After analyzing the situation his horizons broadened beyond Cherry Downs. "I realized fairly quickly that there was a broader opportunity in the golf business in Metro Toronto because there were a number of other similar situations: great golf courses that were built by some type of adhoc group that didn't really have a proper business plan, that were not adequately financed and had no marketing plan. They were designed as highend golf courses but had stalled out at between 100 and 125 members and were opening themselves up to the public just to generate cash flow. This did nothing to sell memberships and created a vicious circle. As a result of this analysis, I came up with what became the ClubLink concept. We had some credibility in public financial markets, so we were able to raise a fair amount of capital to start the company along with $15 million of our money. We started with $60 million which enabled us to buy King Valley, Heron

5 Point and Emerald Hills to put together with Cherry Downs, thereby launching the ClubLink concept. It's been very successful and we've fine-tuned it that it just gets better every year in terms of the financial performance of the properties that we own and in terms of the market's acceptance of the concept." Simmonds explained what he has learned about running a golf course and what makes ClubLink so different. "Running a golf business shouldn't be much different than running any business, especially any other service business. If you provide a good quality product that people want to buy and you back it up with good service, good course conditions, a good place of play and an efficient food and beverage operation, you are going to have a competitive advantage that is going to get you through the down times." "One of the things that helped us is that we are a unique concept and we really don't have any competition as an enterprise. There's nobody that has the same kind of product offering that we have. There are individual course competitors, of course, but nobody competes with us on a broad basis. I think that gives us an edge. Every private club we've bought, we reduced the number of rounds in our first year of operation. We took it back to a base starting point and rebuilt it on a proper basis as opposed to having to squeeze every last dollar out of it. We're more interested in maintaining the quality level of the product in terms of pace of play and course conditions. We have a targeted rounds capacity that we budget for on each course and it reflects a combination of factors. At King Valley, for example, we'll manage that to around 25,000 or 26,000 rounds even though we know we can do 29,000. We range all the way up to 38,000 or 39,000 rounds at Blue Springs this year. Lake Joseph is obviously less because of climatic differences. We've also found there climatic differences in the Ottawa market, where they have relatively higher amounts of rain and a slower starting season". Simmonds says he is not as concerned about economic swings as he used to be. "In terms of rounds played, golf is becoming more recession-proof especially if you factor in the demographics. Even in a recession, as people get older they're probably playing more golf. If we have the same kind of downturn that we had in the last recession at the start of the 90's, you probably would see some shift from the higher-end golf, more expensive golf to a more affordable product," he observed.. "In the last recession, what most people lost sight of is that the biggest problem was oversupply, combined with the obvious downturn in demand. But it was oversupply that was much more the cause of the problem, together with a very fragmented market that reacted in all kinds of different ways to the downturn. That created a spiral effect. Now fortunately we provide some leadership in the Toronto market. We've got some very good, sophisticated competitors like Angus Glen, Glen Abbey, Lionhead that understand the value of their product and how to charge for it and don't go off and do things on a shorterm basis. We have a tendency to charge more and reduce the rounds played, because we think there are people in this

6 type of market who will pay for that kind of better golf experience and better pace of play. We may apply different marketing techniques to daily green fee business, but the principles we use in terms of more sophisticated marketing are something that the normal single course either can't do or afford. We obviously want to create loyalty, we want to stimulate utilization. In both daily fee and the private side, we target the corporate community that wants to use the club for corporate entertaining. We've proved that there's a market for filling in what are typically the slow times, Mondays, Tuesdays and Thursdays with corporate play and tournament play. Members who might otherwise be turned off by that idea, have the option of playing at any of the other ClubLink courses.those outside events occupy 14 per cent of our golf-round capacity, but they generate 25 per cent of our revenue," Simmonds says. Last year there were 450 of that type of event at the six Toronto area courses that it used at that time. Simmonds emphasized the potential for future growth when he said several ClubLink clubs do about twice the annual revenue that a comparable private club does. Simmonds also rejected charges that ClubLink's approach was helping price golf out of the recreational market "It depends what you consider your competition to be," he said, citing baseball, hockey and theatre tickets. "If you look at the price of those things, golf looks awful cheap. It's such a proven means of quality corporate entertainment that I don't think there's any big resistance to increasing price levels. Especially if you deliver as you increase the price. One of the things we've been focussed on is to continuing to deliver value as we raise prices, to give something back." As to ClubLink's competitive impact, Simmonds says "any independent golf course operator should be delighted to see us enter their area for two reasons. One, we obviously do provide an exit strategy for them if that's what they are looking for. The other thing is we have raised the level of pricing. We have been the price leader since the first season we started. We have raised the level of pricing in this market and made it easier for other people to compete with us instead of harder. So they should welcome us. We are setting new standards from a course conditioning and service standpoint. If they continue, as some owners do, to treat their customers as if they are doing them a favor, then we might be a threat to them. But if they are delivering a good quality product, we make it easier for them to get a better price for it." Simmonds emphasized the importance of good staff, given ClubLink's more centralized management format. ClubLink management and greens staff have responsibilities over a number of golf courses. Purchasing, pro shop retail and the food and beverage operation are also centrally controlled. Administrative staff at the golf courses have been replaced by a sophisticated computer information system which gives corporate headquarters a clear picture of what's happening throughout the club network. While that approach may be not as "hands-on" as the individual owner-operator in terms of a management presence, Simmonds said it has worked out "extremely well for us because we work very hard at

7 training our people. Typically they are young and enthusiastic and interested in building their careers, so they are highly motivated. ClubLink has been very carefully to encourage family participation at its properties. Some people have the impression that we are strictly corporate, corporate, corporate," Simmonds said. "We recognize that most of the corporate people we are targeting have families and we're interested in getting their family into the game. So we don't see the two as mutually exclusive at all." A year ago, Simmonds said that by the turn of the century he would like ClubLink to have about 30 properties. By mid-1998 he was already close to that number. However the late summer economic downturn may slow things down. Other Players In addition to ClubLink, another corporation which now owns a number of golf courses across the country is Intrawest which operates year-round mountain resort destinations. Unlike ClubLink, however, Intrawest's principal involvement with golf is incidental to its overall concept of providing leisure opportunities of all kinds at its resorts which include Panorama Mountain in British Columbia and Mont Tremblant in Quebec. Michael Davis, Intrawest's vice-president Marketing and Strategic Partnerships explained this distinction when he spoke with Golf Business Canada. Davis, who coordinates mountain resort golf operations, said Intrawest bought mountain resorts "for their year-round potential, part of which was the golf component which came with them. Golf is obviously growing in importance for us," he said. "Intrawest is currently examining how golf will fit into its organizational structure because golf for us is not just stand-alone facilities. It's always an important part of our resorts. We use golf as a major summer attraction to be a catalyst for the rest of our resort business wherever we are located. That's why we have a golf course under construction at Panorama in British Columbia, called Grey Wolf and we have another under development at Mammoth Mountain in northern California." Intrawest's recent acquisition of the Raven Golf group in the U.S., has introduced it to stand-alone, one-off golf operations. Davis said he did not foresee at this time Intrawest having a separate golf entity in Canada. "This will be a little bit clearer by the end of the summer. But I don't envisage that we would have a golf management company. That's not characteristic of how we've run our business." Davis said that other golf operators should not be concerned about Intrawest's golf course activities. 'I don't think that there's anything to fear with respect to Intrawest coming into any market. We have demonstrated that we can enhance the market for golf in those areas where we have resorts. We have not attempted to do anything besides what we've done for instance at Mont Tremblant in Quebec's Laurentien Mountains. Intrawest has built up the profile of that entire area which is good for golf overall in the Laurentiens. In the west, we're going to

8 add a fabulous golf course at Grey Wolf in the Kootenays," he added. "That's going to add immeasurably to that whole area around Fairmont Hot Springs and it's going to help everybody there." Intrawest, he said, would continue to both build new courses and acquire existing courses which fit in with its resort business. "We're certainly intending to make a move in the area of establishing golf school/academies," Davis said, citing the example of Mont Tremblant in Quebec. Intrawest, he said, has not considered the ClubLink style of reciprocal playing privileges. "We have a concept of that type in the snowsliding business. A season's pass in one area has certain privileges and benefits in other ski areas. It's certainly possible in golf. But we are relatively new to this. Another potential big player in multi-course ownership in Canada is the Granite Golf Group, a U.S.-based company, founded in 1995 by Toronto investor Elliot Lewis. Lewis acts as Chairman and C.E.O. of Granite which leases or manages 28 golf course properties in the United States and should be in the Canadian market by the end of the year. Lewis, who is an avid golfer, says he always had the idea of consolidating the operations of several golf courses. A deal to purchase a golf course in Nova Scotia fell through, but Lewis and his associates took their business plan for multi-course ownership to an investment firm in Dallas, Texas. From that firm, Lewis hired away the key people who were working on his proposal and set up business in Phoenix, Arizona. "We currently have four bids outstanding to buy properties in Canada," Lewis told Golf Business Canada. "We decided about a year ago we really wanted to enter the Canadian market, but we got so busy south of the border we had to put it on hold up here. We are going to attempt to be a player in this country," he said. "We want to be sure that when we enter the Canadian market we have the right courses and that they are profitable." He emphasized the need to have a "cluster" of courses in order to benefit from consolidated operations. He said there might be situations where Granite wanted to buy the best golf course available that wasn't in a cluster. "Therefore we would work on making that a cluster," he said. "So if I wanted to buy a golf course in Vancouver, I would make sure that I could buy two or three others. Our company follows the model of the hotel chains that do not own any of the hotels but operate them on 20 and 40 year leases. We believe that under-achieving golf courses present an opportunity for another source of profitability. In such cases, Granite plans to directly acquire the property." Of the prospective Canadian properties, one would be an acquisition. "The others

9 are performing quite well so we would lease them from the start." Granite, Lewis says, operates for the most part at the mid-range of the scale, although he says it has excellent courses in its $35 to $85 green fee range that are comparable to courses that charge $150 a round in other markets. Granite also operates several high-end private facilities. "We call it 'distinguished yet affordable golf'." he says. "The mid-range means that we have a much larger clientele to target. At almost every golf course we look at, we know there are several areas we are confident we can improve. Probably the most notable improvement is in the area of service. We have a very high-level training program for all of our employees. At a public or semiprivate club, our goal is to make each player feel like he's a member for a day. They feel comfortable and want to come back because they're getting service and value. For the most part, a lot of the single course operators can't even afford to train their staff in that type of program." The second area of operations that Granite targets is purchasing, using economies of scale from operating several properties. It includes everything from golf cars to maintenance equipment and shirts to golf balls. One of the major areas for change with the introduction of management companies is in the role of the golf professional, he said. "Because the return on investment is impacted by the high cost of acquiring golf courses today, we have to make sure that our expenses and our revenues are at their maximum efficiencies," he said. "This means that it is hard to justify the expense of a golf professional who lacks sales, marketing, accounting and membership skills". At the public and semiprivate facilities operated by Granite, training programs are designed to develop these skills, Lewis said. From time to time, Granite will introduce experienced marketing people to assist the golf professional in areas of purchasing, marketing and merchandising. "You can see a dramatic change when we apply these skills in the pro shop. Instead of the industry average of $2 per person per round sales in golf pro shops, Granite is looking for up to $16," he said. British Columbia is another region where multi-course operations and golf course management companies are operating. The same kind of situation which prevailed in Eastern Canada also occurred in the west in the late '80's when an under-supply of golf courses turned into an over-supply by the early '90's. The Burrard Group, led by Caleb Chan is the principal golf course consolidator. It owns and operates Mayfair Lakes, Nicklaus North, Arbutus Ridge, Gallagher's Ridge, Quail Ridge and Olympic View, all in B.C.. Other organizations are being set up to provide management consulting services and later on to actually manage golf courses. Premier Golf Management, for example, is a partnership formed by two British Columbia golf professionals Barry McWha and Cec Ferguson who have been in the golf business for 30 and 20 years respectively.

10 Both men have managed golf clubs and have served as head professionals and general managers. This follows the trend in the U.S. where golf professionals have formed management companies and have become more active in an ownership role. Their first venture in 1997 was to broker the purchase of Glengarry Golf Links on Vancouver Island out of receivership. The course, at Quallicum Beach is McWha's present headquarters and Premier manages it for the owners who live in Alberta. At Glengarry, he said, the ownership "could not make a go of it." Premier will not be acquiring the course but will be putting together the deal to have it purchased. As part of the company's plans to diversify beyond golf course management into special events, Premier also has contracts with the British Columbia PGA to produce the BCPGA Trade Show and the Vancouver Golf Expo. They also produce golf tournaments including charity events. "Our model for Glengarry will involve the head professional becoming the senior manager on site. If you look at the successful golf club operations in B.C., it's a former golf professional who is directing the activity. There is no question that the traditional golf course employment structure where the pro had concessions and carts has changed and will continue to change. Smart golf pros have recognized that and are changing with it." Over the next five years McWha says Premier hopes to acquire four or five more golf club management contracts. They will do this by initially acting as consultants and then becoming managers of the clubs. He said that ownership situations have not been ruled out McWha also sees potential in the change of generations when founders have to deal with the question of who will take over the golf course when they are gone. "A lot of golf courses have been started by or acquired by families and generally speaking, those people have been nearer to the end than the beginning of their business careers. We see opportunities in those golf courses that got started because someone had an idea or a dream and the money to get started, but didn't have the experience or skills to make it continue to be successful. Because the trend originally began in the U.S. and has matured over the past two decades, it is interesting to look at the situation there. Mike Hughes, Executive Director of NGCOA in the U.S. told Golf Business that the trend towards consolidation and multi-course operations continues at about the same pace there. The reasons for the trend still exist, he said. "One: it is a more efficient way to operate if done properly and two: there is a lot of money available for investment in golf which is perceived to be a hot business. A very significant constraint however is the escalated price of golf courses," Hughes said. " Because prices for existing golf courses are quite high by historical standards many experienced operators are waiting. In general, Hughes said, "it has had a positive effect. I think good competition has made everyone better. Also the people who have sold have gotten great prices."

11 Like Johnston, Hughes says "the smaller operators can and do compete successfully. They can do so because they are closer to the customer and should have a better handle on what their customers want and need from a golf experience. " This is not like competing against Walmart because in the golf industry, the product and the experience are not commodities. "Obviously, competing against a multi-course operation that has reciprocal privileges is a challenge. But it is not insurmountable," Hughes said. "An individual owner can provide incentives to the customer to play at the one course more often. Additionally, a number of individual owners can band together to offer a similar benefit."