How to Avoid Golf Club Closure – Turn Around

The other day, a friend sent me an article entitled?“Best US Golf Courses to close in 2024”. While generally the past few years (since COVID) have seen fewer golf course closures than before, the fact is that they still occur despite the present surge in golf participation. Our firm was privileged to provide valuation, consulting and litigation support services for three of those mentioned in the article and it dawned on me that many closures have been or are preventable.

In our consulting practice it’s not unusual to be called too late to avoid either closure, forced sale or bankruptcy. Turning around a golf course or club is like turning around a big ship. It takes time. It’s critical for any course/club that anticipates potential trouble on the horizon (two to five years) to seek independent, professional advice and counsel in developing a strategic and tactical plan for long-term success. A turn around is a long term process with few “quick fixes.” Pilots are taught to “stay ahead of the airplane.” If one knows there’s a storm ahead, it’s much easier—and less impactful to avoid it than go through it. A failure to plan is a plan for failure.

In one recent case we were engaged by the community HOA seeking an appraisal for the (investor-owned) golf course that had already been closed. The HOA, seeking to preserve real estate values hoped to acquire the course but to no avail. In another instance, the first position lienholder on a private club (of which he was a member) reached out to us first to do an appraisal and later as a broker to see if we could find someone to buy the note. The club ceased operations during this process and was purchased (by a still unidentified party) at foreclosure auction. It is unclear whether the club will reopen and welcome back the members, be repositioned in the market or planned for alternative development.

Another daily-fee course we had listed some years ago had been closed and creditors repossessed much of the equipment. In that case, despite the beginning of the growing season, the bank declined a deal that would have left them with a small loss in favor of putting the course up for auction where it sold for less than half the deal we had secured. The HOA declined to purchase the course, seemingly blind to the impact on the values of their homes.

Golf course and club closures can and do happen—even in the COVID era golf surge. With so many clubs investing heavily in facility enhancements and often incurring substantial debt, many large golf course management firms and investors are positioning themselves to acquire these clubs at distress prices and revitalize them when that debt becomes unmanageable. The fact is that in many cases, these closures and distress sales don’t have to happen.

After more than 3,500 assignments in 46 U.S. states and beyond over 40-plus years, it is abundantly clear to me that most golf facilities that fail are the result of poor planning, management or in the case of member-owned clubs, leadership that fails to look ahead. Just like any other business, clubs needs professional help. If one never visits the dentist, their teeth are likely to decay. Golf courses are no different and especially at member-owned clubs, the emotional and often politically charged environment suggests outside help can be most valuable by bringing objectivity to the process.

The two most fundamental errors I observe are a lack of understanding of the competitive market, leading to incorrect market positioning and inappropriate (either too much or too little) investment in capital improvements. These are typically resulting from leadership and management issues that can range from instability and personal agendas to decisions based on emotions and “politics” rather than objective analysis and forward thinking.

Market Positioning

Golf markets, like politics are usually (but not always) local. In many instances, everybody wants to target the same market segment. As I shared in?“Market Positioning & Strategy”?just a few weeks back there are at least 12 different market segments in which any golf course can position. The key is finding the right niche with opportunity that fits one’s specific facility characteristics and market demographics. To understand the market dynamics a thorough study and analysis is required to find the right “fit.” Analyzing the subject course, its strengths, weaknesses, opportunities and threats, along with market depth and demographics will help unearth the answers needed to make the right positioning decisions.

Facilities Analysis

Golf courses and clubs come in all shapes and sizes. Not only are there distinctions between the various types of golf operations, but considerable differences between facilities in each of the market segments. Along with the different types of golf course operations (private, daily-fee, etc.) there is a need to design courses to match their intended use. All golf properties do not compare to each other. There are substantial physical differences between the different types of golf properties and operations. It’s not uncommon to see a course designed for one market segment attempting to succeed in another. Sometimes, renovations can accomplish this goal, but attempting to make a simple “vanilla” muni into an upscale private club or resort seeking a major championship is a steep uphill climb, if there’s a chance at all.

Leadership/Management

Golf courses and clubs exhibit all types of leadership and management. Municipal courses often have professional management directed by political appointees. Member-owned private clubs can be run by committees and boards (or benevolent dictators) who direct hired management professionals. “Mom and Pop” courses are typically family businesses educated in the school of hard knocks. There are also a growing number of courses and clubs owned and/or managed by professional management firms of all sizes, who often contract to provide their services to ownership or clubs. The problem I often observe is the amateurs directing the professionals, not taking the advice they’re paying for and implementing bad decisions.

While there’s no doubt that some courses will close either because there’s a higher and better alternative use for the property or the economics just don’t work, many course closures can be avoided simply by proper market positioning, understanding the realistic potential of the facilities and capable leadership and management – Turn Around. I’ve been a member at clubs that have failed and closed and observed many others in the course of our 40+ years in the business. The above issues are almost always the culprit and the failures are often avoidable. Formulating the right plan and installing the right people can make all the difference.

Larry Hirsh, CRE, MAI, SGA is President of Golf Property Analysts.

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