An overview of golf in the Gulf Cooperation Council (GCC)

GOLF ADVISORY PRACTICE IN EMA An overview of golf in the Gulf Cooperation Council (GCC) golfbenchmark.com Supported by

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An overview of golf in the Gulf Cooperation Council 3 Dear Reader, I am delighted to present our 2011 report on golf in the Gulf Cooperation Council (GCC). Having worked extensively in the region over the past decade, it is with great pleasure that we present this intriguing piece of research. The report provides an overview of the golf market in the GCC and its future prospects, supported by a survey of local golf course owners and operators about their operational performance. Andrea Sartori Partner, KPMG Advisory Ltd. Head of Golf Advisory Practice in Europe, Middle East and Africa E: info@golfbenchmark.com Our survey confirms that the GCC region still proves to be the highest performing region in all of Europe, the Middle East and Africa from a golf course revenue perspective. Local golf course operators have pointed out that demand for golf in the GCC continues to outstrip supply during the peak seasons and golf is starting to establish itself as a major pastime albeit mainly for the expatriate population. The key findings of this study include: GCC countries are still the highest performers in Europe, the Middle East and Africa in terms of average revenues achieved (over US$8.5 million) with, on average, over 30,000 rounds played at 18-hole golf courses. Prices in the region are among the highest in the world, with annual dues averaging US$ 6,400 and peak-season green fees averaging US$179. Only half of the total revenues are made up of membership and green fees while food and beverage facilities contribute significantly to the total golf course income. Staff costs account for more than 40% of the total operating costs, due to the high staffing levels of facilities with an average of 150-200 full-time employees. Only half of the participating golf courses reported a positive gross operating profit, recording an average GOP of US$2 million which equates to a 15% profit margin. With several developments currently in place and with programs being introduced to encourage participation in the game, the future of golf in the GCC still provides plenty of space for growth. I hope that this report will provide a wealth of valuable information to help support your business, and I would like to express my appreciation to all golf course owners and operators who have contributed to this research. If you would like to receive any clarification or discuss the survey results, please contact the Golf Benchmark team or myself. Yours sincerely, Andrea Sartori

4 Golf Benchmark The source of industry knowledge Overview of the GCC s golf market The Gulf Cooperation Council (GCC) incorporates Bahrain, Kuwait, Qatar, Saudi Arabia, Oman and the United Arab Emirates, and was formed in 1981 with the objective of establishing political and economic unity among these countries. With a total population of approximately 43 million and a GDP per annum estimated at just under US$1,000 billion, supported by some of the world s largest oil and gas reserves, many consider the GCC as one of the world s true emerging hotspots. The GCC economy in 2010 Key indicators Population (m) GDP at current market prices (US$ bn) Real GDP growth % Consumer price inflation % Bahrain 1.2 20.8 5.7 2.7 Kuwait 3.5 117.3 3.1 5.4 Oman 2.9 53.8 1.1 4.0 Qatar 1.7 126.5 12.9 6.4 Saudi Arabia 27.1 434.4 2.7 5.3 UAE 6.7 239.7 5.1 7.7 Total 43.1 992.5 - - Source: Economist Intelligence Unit & CIA World Factbook, April 2011 Golf in the GCC is still very much in its infancy. The game was traditionally played on sand-based courses, with Emirates Golf Club in Dubai opening the first grass course in 1987. Fuelled by a burgeoning economy, a growing number of expatriates working in the region and an increase in tourism, the rapid development of grass courses took off in the late eighties. Currently there are 29 grass golf courses in the GCC region. The Emirate of Dubai is home to 10 courses and, with Yas Links and Saadiyat Beach as recent additions, the United Arab Emirates now has 18 courses in total. Along with Kuwait, Oman has two courses, and Bahrain and Qatar currently have one each, with the remaining five found in Saudi Arabia. While the region no longer sees the booming construction rate of the early to mid 2000s, there still appears to be plenty of space for growth in the region. Only in the last three years five new courses have opened and one of the world s richest tournaments the European Tour s Dubai World Championship has been successfully hosted twice.

An overview of golf in the Gulf Cooperation Council 5 Developers especially have an appetite for high-quality facilities that incorporate residential and lifestyle real estate. Although several projects have been stalled or placed on hold and the residential product mix of some developments is still to be decided, there is no doubt that the golf courses in the region collectively provide a world-class golfing destination offering all year round playability. The economic downturn has presented the same challenges to the GCC golf industry that have been common across the globe over the past two to three years, with declining membership demand, consumer-driven pricing and an increased scrutiny of operational costs in an attempt to protect profit margins. However, people are continuing to enjoy playing golf and clubs are still offering an unrivalled level of service.

6 Golf Benchmark The source of industry knowledge Major golf facilities in the GCC members United Arab Emirates Course Name Year open Designer Type Emirates 1987 Karl Litten / Nick Faldo Semi-private Dubai Creek 1993 Thomas Bjorn Semi-private Jebel Ali 1998 Peter Harradine Public Abu Dhabi City 1998 Ian Scott-Taylor Semi-private Abu Dhabi National 2000 Peter Harradine Semi-private Saudi Arabia Course Name Year open Designer Type Dirab 1991 Hydroturf Semi-private Arizona 1994 Unknown Private Riyad Greens 2004 RDCC Semi-private Rolling Hills 2005 Unknown Private Kaust 2009 EGD Private The Montgomerie 2002 Colin Montgomerie Semi-private Arabian Ranches 2004 Ian Baker-Finch Semi-private Al Badia 2005 Robert Trent Jones Semi-private Ras Al Khaimah 2005 Hydroturf Semi-private Sharjah 2006 Peter Harradine Semi-private Al Hamra 2007 Peter Harradine Semi-private Kuwait Course Name Year open Designer Type Sahara 2005 Peter Harradine Semi-private Kuwait International 2010 James Ruelle Public Palm Sports 2007 Neil McTavish Semi-private The Els Club 2008 Ernie Els Semi-private Saadiyat Beach 2009 Gary Player Semi-private Jumeirah Golf Estates 2010 Greg Norman Semi-private Yas Links 2010 Kyle Phillips Semi-private Bahrain Course Name Year open Designer Type The Royal Golf Club 2010 Colin Montgomerie Semi-private Oman Course Name Year open Designer Type Muscat Hills 2010 Dave Thomas Semi-private Qatar Course Name Year open Designer Type Doha Golf Club 1997 Peter Harradine Semi-private Ghala Wentworth 2011 Kitco Semi-private Kuwait Bahrain Saudi Arabia Qatar UAE Oman

An overview of golf in the Gulf Cooperation Council 7 Professional tournaments The region s golf events have taken their place among the world s best with golf courses across the GCC showcasing the game s greatest players while raising global awareness of what the region offers. In 2010 the European Tour s Race to Dubai calendar concluded with the Dubai World Championship at Jumeirah Golf Estates. A fourth tournament in Bahrain has also been added to the desert swing schedule. HSBC sponsored the Abu Dhabi Golf Championship for the first time, increasing the prize fund to EUR 2m and bringing the four Major champions of 2010 to the event. Along with the continued success of the Dubai Desert Classic and the Commercial Bank Qatar Masters, several world-class pro-am and charity events have also taken place generating a high visibility and a global TV audience for the GCC. The prize money on offer to the world s best players in the GCC s events totalled EUR 12.55m an impressive EUR 2.5m average per tournament. The table below details the most recent European Tour events: Date Event Prize fund Champion Venue Promotor Dec 8 th 11 th Dubai World Championship 7.5m US$ Martin Kaymer Jumeirah Golf Estates, Dubai European Tour Jan 20 th 23 rd HSBC Abu Dhabi Golf Championship EUR 2.0m Martin Kaymer Abu Dhabi National ADTA & IMG Feb 10 th 13 th Omega Dubai Desert Classic EUR 1.8m Alvaro Quiros Emirates Golf Club, Dubai Golf in Dubai Feb 3 rd 6 th Commercial bank Qatar Masters EUR 1.8m Thomas Bjorn Doha Golf Club, Qatar QOC & QGA Jan 27 th 30 th Volvo Golf Champions EUR 1.7m Paul Casey Royal Golf Club, Bahrain IMG Source: The European Tour

8 Golf Benchmark The source of industry knowledge Demand characteristic Registered participation in the GCC has grown to well over 10,000 golfers over the years. With the inflow of an expatriate population, there has been an increasing demand for golf (especially from traditional golf markets such as the US, UK and South Africa) outpacing growth in supply, which has also been reflected in the pricing of clubs. Pricing Does your membership scheme require the payment of an initiation/joining fee? 22 45 More than 90% of the facilities in the GCC operate a semi-private business model, with most courses providing a membership option while also open for pay-and-play visitors. Almost 80% of courses with memberships request a joining fee 45% for all memberships and 33% for certain membership types. This joining fee typically ranges between US$2,000-5,000 1. Average membership fees (US$) 33 8,000 7,000 6,000 6,362 6,336 7,268 Annual subscription Initiation fee 5,000 4,538 Yes, for every type of membership Yes, but only for certain types of membership No 4,000 3,000 2,000 1,000 0 2,714 GCC 2,836 UAE Dubai Annual dues cost US$6,000-8,000 with only a couple of courses charging less than US$5,000 per year. While courses in the GCC region can be played year-round, the peak season lasts from October to May. The summer months are considered as off-season because of the heat and high humidity levels. Average green fees for 18 holes (US$) 250 200 150 179 185 199 Green fee peak-season Green fee off-season 100 91 91 94 50 0 GCC UAE Dubai 1 Some facilities may charge a simple administrative fee of just a few hundred dollars

An overview of golf in the Gulf Cooperation Council 9 Peak-season weekend green fees for 18 holes average around US$200 in Dubai and somewhat less in other parts of the region. In the low season, green fees are available for US$90-100. For nine-hole rounds prices are typically 40-50% lower. Price levels in the GCC region are among the highest in the world. Only courses in China and Japan, of our surveyed regions, charge higher fees. Published rack rates have remained relatively consistent throughout the GCC in recent years. However, it is important to highlight that the achieved green fee rate of most facilities across the region has begun to decline most noticeably in the UAE as discounting and packaging has become very popular. With the recent opening of several new courses, combined with the emigration of expatriate workers due to recessionary pressures, the marketplace has become more competitive and operators are more motivated to introduce aggressive sales and marketing campaigns. Membership While the semi-private membership model has previously proved very successful, several courses in the region have recently experienced a decline in membership numbers. With rounds played remaining relatively stable, increased supply and more competitive pricing seem to have swayed many golfers decision to choose the more flexible option of paying individual green fees rather than committing to annual fees at one specific club. In comparison to other surveyed regions, courses in the GCC region have a relatively low membership base. While in Northern Europe or South Africa, for example, facilities can boast an average of over 1,000 members, the average membership size of golf courses in the GCC is around 450-500 2. Average number of members at courses with the highest and lowest membership base 800 700 600 500 400 300 200 100 0 238 696 Bottom 50% Top 50% Average number of members 18-hole courses 600 500 467 456 400 300 200 100 0 Average GCC UAE 499 Dubai The economic downturn has certainly affected demand for golf in the region, with the UAE suffering more than most due to the increased number of competing courses springing up. In an attempt to maintain the previous year s membership levels, several clubs have waived initiation fees and removed waiting lists. Facilities with minimum competition in other GCC countries (ie. Qatar, Bahrain, etc) have reported a minor participation and revenue loss. Course operators have attributed this decline to demographic change along with recent concerns over regional political stability that remain prevalent. 2 Only one or two courses recorded 500-1,000 members in the GCC while some had a much lower base at 200-300 although all of the latter opened after 2005.

10 Golf Benchmark The source of industry knowledge Rounds played Average number of rounds played at courses with highest and lowest performance levels 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 22,421 Bottom 50% Top 50% 35 30 29 30 38,853 Average annual rounds played by members 34 According to our survey the average number of rounds played at 18-hole golf courses in the GCC region was approximately 30,000 in 2010, equating to an average of 80-90 per day. While many courses recorded a total of 30,000-40,000 rounds last year, some newer facilities experienced a lower demand with around 20,000 rounds. Member rounds account for about 45% of the total played throughout the region. According to our survey, about 15-20% is played by overseas visitors (mainly from the UK, Germany and Scandinavia) and some 30-40% by locals/expatriates who are not members of a club. Average number of rounds at 18-hole golf courses 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 30,600 31,600 38,000 55 45 GCC 56 44 UAE 55 45 Dubai Green fee rounds Member rounds 25 GCC UAE Dubai Members in the region have been relatively active playing about 30 rounds a year on average. Corporate rounds and those played by overseas visitors have declined at most courses; many facilities confirmed that the number of local rounds had stabilized and have continued to fill the tee-time sheets especially on weekends. There has been a noticeable shift in reservation trends as more groups are attracted to the bulk-buying opportunities the current market has to offer. Many operators have commented on how the collaboration between hotels, destination management companies and tour operators has resulted in more affordable and appealing packages for groups.

An overview of golf in the Gulf Cooperation Council 11 Revenues, costs and profitability This section provides information on the key operating indicators expressed in terms of revenues, operating costs and operating profitability. Revenues Typical revenue structure at golf courses in the GCC region 8 13 28 In 2010, the average revenues achieved at 18-hole golf courses in the GCC region totalled US$8.6 million. The range in revenue levels was extremely wide, from US$1 million to over US$20 million. However, it should be noted that the food and beverage revenues at some golf course facilities account for 40-50% of turnover, providing a significant income stream for the facility. In the typical revenue structure of a golf course in the GCC, membership income accounts for 28% of the total with a relatively small part (about a tenth) generated by joining fees. 32 Membership revenue Green fee revenue F&B revenues Pro-shop revenue Other revenues 19 About a fifth of the total revenues are achieved from green fees. We have calculated that, based on the total green fee income and the total green fee rounds played, the average net green fee achieved from a round of golf was around US$100. Operating costs The main components of operating costs are staff and maintenance that account for 42% and 21%, respectively. Courses generally have very high staff levels of 150-200 full-time employees, also owing to the extensive food and beverage facilities connected to the golf courses. Other costs include cost of sales, general admin, and sales and marketing expenses. Cost structure at 18-hole golf courses in the GCC region 37 42 Profitability In terms of profitability, only half of the participating golf courses in the GCC region reported a positive gross operating profit (GOP) in 2010 3. However, it should also be highlighted that generally the loss-making courses are the relatively new or reopened facilities. Profit-making courses achieved an average GOP of close to US$2 million that is equal to a 15% revenue/profit ratio. On the other hand, loss-making courses averaged a negative GOP of US$1.9 million. 21 Staff cost Maintenance cost Other cost Average gross operating profit and loss at 18-hole golf courses (US$ 000) Thousands 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0-2,000-4,000 12,765 Revenues 10,820 Costs Profits 6,507 4,601 1,945-1,905 Bottom 50% Top 50% 3 We considered as profitable those golf courses where total revenues exceeded gross operating costs, excluding financial charges, depreciation and taxation.

12 Golf Benchmark The source of industry knowledge To cover the relatively high operating costs of facilities in the region there is a clear necessity to maintain price and demand levels. Although there have been no course closures (due to poor financial performance), the increasing competition will certainly lead to questions being asked regarding the viability of future developments. Measures taken to offset the crisis As part of our research, we have also asked golf course operators about the measures they have taken to offset the negative effects of the economic downturn and to increase profitability. All respondents have taken operational cost-cutting measures, primarily through the reduction of staff costs. Some operators also commented on reducing operational and maintenance supplies. Many respondents had actively increased their marketing efforts by targeting specific international and local segments. This included a concentrated effort to combine and package green fees and club services with complementary products, such as hotels and inbound travel. The local market was targeted through media campaigns, website promotion and social-network platforms, with many operators realizing the value of this more recent form of communication. Efficient use of technology was also considered a major advantage in yield management with operators specifically looking to maximize their software and database capabilities to not only efficiently organize daily operations but also pinpoint key revenue opportunities and minimize attrition rates. Capital Expenditure Operators have continued to reinvest in capital replacement funds to maintain the five-star standard for which the region is renowned. Examples of this have been the integration of further holes and floodlights at facilities, course renovations, machinery replacement and the refurbishment of clubhouses. All are considered a real necessity as facilities strive to remain competitive and keep revenues at a sustainable level.

An overview of golf in the Gulf Cooperation Council 13 Looking to the future United Arab Emirates Course Name Year open Designer Bawabbat N/A Greg Norman Saadiyat Wetlands N/A Robert Trent Jones Meydan 2011 Peter Harradine Oman Course Name Year open Designer The Wave Muscat Qatar 2012 Greg Norman Course Name Year open Designer Education City 2013 N/A Lusail 2015 N/A In recent years the real estate boom has unquestionably been linked to the growth in expatriate population. The question now is whether without the same level of growth there would be a requirement for more courses, and especially those of the highest calibre. Many key industry personnel have realized the need to look more closely at the local markets and establish a more solid base of core players. Participation in the game is being driven by several initiatives generated by individual clubs with support from the national golf associations that focus on introducing youngsters to the game. It is commonly thought that if participation rates are to grow, accessible and affordable golf will need to be available for younger players, families and the local population. This would create the required product mix in the market for sustainable demand during the off-season and as further supply enters the market. For international visitors looking to take advantage of the 360 playable days per year, the UAE will provide the majority of supply for the short to mid term; however, its neighbours are actively working to increase their number of golf courses. Oman is aware of golf s benefits to its tourism plans and Qatar is also recognizing that further development will be required for the preparation and hosting of the FIFA World Cup in 2022. The adjacent table displays several new developments that are publicized throughout the region. Market optimism, tempered by concern about the current unrest in the Middle East, was expressed by all respondents and it is clear that the GCC golf industry is now entering a more mature stage. Methodological note and survey limitations The analysis presented in this report has been performed based on the responses of more than a dozen golf course operators participating in the Golf Benchmark Survey 2011 from the GCC region. Requested information mainly relates to the 2010 operating year. Due to the diversity of our survey sample in terms of size of golf course, our analysis is reflective of 18 holes. Financial data was submitted in the home currency of the respective countries and was converted into US$ at annual average exchange rates of 2010. Respondents were requested to present all pricing-related information and financial data inclusive of taxes.

14 Golf Benchmark The source of industry knowledge KPMG s Golf Advisory Practice in EMA continues to strive to add value to the golf industry. Through our thought leadership programs, KPMG undertakes various initiatives that can help those with a stake in the golf industry to make informed decisions. In 2006 KPMG launched the inaugural Golf Benchmark Survey, one of the largest ever golf research projects. The GBS is a market intelligence study designed to collect and share comparable golf industry benchmarks. The primary objective of the Golf Benchmark reports is to allow golf courses to compare their individual performance against high, average, and low performers in their geographic markets. Since its first launch, the survey has been extended to new regions including India, China, Japan, South America and the Caribbean in addition to several regional reports within Europe, Middle East and Africa (EMA). KPMG s Golf Advisory Practice in EMA has also published a number of additional market intelligence studies under the Golf Benchmark initiative, including the Golf Course Development Cost Survey in EMA, the Value of Golf to Europe, Middle East and Africa, and the Golf Travel Insights report. For more information on our thought leadership and to download all our reports free of charge please visit golfbenchmark.com. The Golf Business Community is an exclusive online platform for individuals within the golf industry who are interested in building and maintaining relationships, gathering the latest golf research and golf industry news, and staying in the loop. This is a virtual, interactive meeting place for the international golf business community. Complementing this website is a regular e-newsletter providing a steady flow of news/interviews, surveys, latest industry research, choice picks from quality golf business intelligence, and an opportunity to do online networking. For more information, we invite you to visit golfbusinesscommunity.com. The Golf Business Forum is a unique platform for professionals involved in the golf business industry to meet, learn, exchange ideas and do business at an exciting and memorable event. The Forum has quickly established itself as the foremost golf industry event in Europe, Middle East and Africa and brings together major stakeholders in the business of golf including: golf and real estate developers, investment groups, banks, equity funds, master planners, golf course architects, suppliers and operators. The event attracts participants from five continents, and is supported annually by many of the leading market players in the golf industry. For information on forthcoming events, visit golfbusinessforum.com.

For further information please contact the Golf Benchmark Team: KPMG s Golf Advisory Practice in EMA H-1139 Budapest Váci út 99 Hungary T: +36 1 887 7100 E: info@golfbenchmark.com The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International Cooperative ( KPMG International ). 2011 KPMG Tanácsadó Kft., a Hungarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. Printed in Hungary.