Golf and the Economic Downturn

Transcription

1 GOLF ADVISORY PRACTICE IN EMA Golf and the Economic Downturn A survey of golf course owners and operators in Europe, Middle East and Africa ADVISORY

2 All Golf Benchmark reports are available for download on the source of industry knowledge. Front cover: The Twenty Ten Course at Celtic Manor, Wales Inside cover: Montgomerie Course at Celtic Manor, Wales

3 Golf Benchmark Survey 2010 Golf and the Economic Downturn 3 Dear Reader, What impact has the economic downturn had on the golf business? While banks collapsed, share prices tumbled and national economies spun backwards into recession, the golf industry has been left wondering whether it is still driving forward, or waywardly wandering towards a bunker from which it may be difficult to escape. Andrea Sartori Partner, KPMG Advisory Ltd. Head of Golf Advisory Practice in Europe, Middle East and Africa info@golfbenchmark.com There are numerous stories of golf courses facing financial woes, others being sold at knockdown prices, while some have closed completely. KPMG s Golf Advisory Practice decided to assess the state of the golf business and performed this survey on the performance of golf courses throughout Europe, the Middle East and Africa. Specifically, we wanted to know how golf courses have been impacted by the credit crunch and what actions they are taking to counteract the downturn. The results are fascinating. For example, our survey found that: Nearly 50% of the courses surveyed have seen revenues and profitability fall; Resort courses and golf courses linked to a residential community appear to have been hit harder than traditional, stand-alone golf courses; Half of the golf courses surveyed have made redundancies or cut staff costs; Still, 54% of golf course businesses have a positive outlook for This survey is designed to offer an indication of what is happening in the golf business. We hope you find the results useful and insightful. If you would like to discuss this survey, please feel free to contact KPMG s Golf Benchmark Team or myself. To download our other market intelligence studies, please visit golfbenchmark.com. I would like to express my special thanks to all golf course owners and operators who contributed to this report. Yours sincerely,

4 4 Golf Benchmark The source of industry knowledge 2009: The year the world went backwards No one in the golf business has seen a financial crisis quite as bad as the one we have experienced in the past year. Even the great Arnold Palmer, in his address to the KPMG Golf Business Forum in May 2009, a few months before his 80 th birthday, acknowledged that although he was born during the Great Depression, today s economic situation was unprecedented. As has been well documented, the international financial crisis erupted in September 2008 and spread rapidly around the world, fuelling the most severe, intense economic storm since the 1930s. Banks failed, an international credit crunch ensued, consumer wealth contracted, spending dried up and international travel declined dramatically, as did capital investments. It was no different in the golf business. New developments, including some high profile projects in the Middle East, were put on hold as finance evaporated, real estate sales collapsed, golfers stayed at home rather than travelling abroad and courses struggled to renew memberships and maintain green fee revenue. In short, golf had driven into the rough and there was no quick way back to the fairway. December 2009 data reveals just how severe this downturn has been with gross domestic products contracting in almost every corner of the world. GDP growth (%) in different geographic regions * 2011* World (PPP exchange rates)** Euro Area Eastern Europe Middle East & North Africa Sub-Saharan Africa*** US Japan China Asia & Australasia (excl. Japan) Latin America *forecast **PPP = purchasing power parity ***Refers to Angola, Kenya, Nigeria and South Africa only. Source: EIU, December 2009

5 Golf Benchmark Survey 2010 Golf and the Economic Downturn 5 Of course, there are some exceptions. China, although experiencing a slowing in its growth, is nevertheless still moving in the right direction, as is the wider Asian region (excluding Japan) and, to a lesser degree, the Middle East and North Africa. Unsurprisingly, Asia and particularly China are the regions attracting attention for new golf projects. The question the golf industry is now asking itself is, what is the short-term future of the global economy and for how long will the crisis impact the industry? Our survey shows a wide variety of opinions from region to region. Golf courses have been hit hard, there is no doubt, but have they escaped the worst of the recession and how will the industry fare in 2010 and beyond? Read on to find out who s going to be teeing up a successful year ahead, and who s hacking around in a bunker.

6 6 Golf Benchmark The source of industry knowledge What impact has the crisis had on golf? Has the global economic downturn had a negative impact on your operations in 2009? If yes, what was the impact on rounds and revenues recorded at your facility from 2008 to 2009? Exactly two-thirds of the golf courses surveyed indicated that the economic downturn had impacted negatively on their operations. An especially high percentage of courses located in golf tourist destinations (heavily reliant on green fees) have taken a hit. Of all surveyed regions, South Africa (and Mauritius) were the most impacted countries. 100% 90% 13% 80% 70% 16% 60% 50% 10% 40% 30% 20% 27% 10% 0% Rounds No 34% Yes 66% decrease by 20% or more decrease by 10 20% decrease by less than 10% stagnation 13% 17% 16% 20% Revenues 1 GBI Great Britain & Ireland; WE Western Europe; NE Northern Europe; CE Central Europe; SA South Africa; BNL Benelux; EE Eastern Europe; ME&NA Middle East and North Africa. Please see our Methodology on page 15 for country grouping. Negative impact of the global economic downturn by region 1 100% 10% No 90% 26% 30% 33% Yes 80% 39% 41% 44% 70% 64% EMA 60% 50% 90% 40% 74% 70% 67% 30% 61% 59% 56% 20% 36% 10% 0% SA WE GBI ME & NA BNL NE EE CE Source: Golf Benchmark Survey (GBS) 2010 Courses forming part of a mixed-use residential community and/or tourist resort seem to be more affected than stand-alone courses, with a significant 78% of the former having experienced a negative impact on operations. Negative impact of the global economic downturn by type of facility 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 41% 59% Stand-alone golf course 22% 78% Part of a mixed-use residential community or tourist resort No Yes

7 Golf Benchmark Survey 2010 Golf and the Economic Downturn 7 Thirty-nine percent of the golf courses surveyed declared a decrease in the number of rounds played, with a third of those noting a significant drop of more than 20% compared to Nearly half of the courses declared an overall revenue decrease, which can be related to the decline of one or more of the following: number of members, pricing of green fees, number of green fee rounds played, or additional revenue sources such as food and beverage (F&B) or sponsorships, for example. Compare your operational performance in 2009 to that of % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 39% 27% 47% 21% 36% 32% 34% 32% 32% 32% 25% 43% Rounds Revenues Members Costs Decreased Stayed the same Increased Overall demand in terms of membership remained more or less the same (i.e. the increase at some facilities offset the decrease at others). Interestingly, costs increased at 43% of the courses surveyed. This is particularly worrying when compared to those courses that either saw a decline or stagnation of revenues. Cost-Revenue matrix Costs Increased Stayed the same Decreased Revenues Increased 19% 6% 7% Stayed the same 8% 8% 5% Decreased 16% 11% 20% Our survey shows that 35% of golf courses might be in trouble (e.g. experiencing decreasing or stagnant revenues without being able to decrease costs). If this trend continues, inevitably it could lead courses to an unsustainable business operation.

8 8 Golf Benchmark The source of industry knowledge Region-to-Region a varied picture Although 2009 was characterized by a decrease in or stagnation of rounds and revenues, some emerging golf regions such as Eastern Europe and the Middle East still experienced growth. However, local experts believe that this growth is much lower than it would have been under better economic conditions. South African and Western European golf courses recorded a decrease in the number of rounds, averaging minus 5 6%. The average estimated change in the number of rounds in EMA overall is in the range of -2% to -4% compared to Changes in the number of rounds played by region 8% 6% 6% 4% 3% 2% 2% 0% 0% -2% -4% -3% -3% -3% -6% -6% -5% -8% SA WE GBI BNL EMA Total NE CE ME & NA EE A higher number of the golf course operators in our sample have declared a revenue decrease (47%) than those indicating a decrease in rounds (39%). While 50-70% of the golf courses recorded shrinking revenues in most regions, in Central Europe, Eastern Europe and in the Northern European region the fall back was limited to a much lower share of the facilities. The overall estimated reduction of revenues was 3 5% in EMA on average.

9 Golf Benchmark Survey 2010 Golf and the Economic Downturn 9 Changes in revenues by region 8% 6% 6% 4% 2% 0% 3% 4% -2% -2% -4% -4% -4% -6% -5% -6% -8% -10% -8% WE GBI SA BNL EMA Total NE CE ME & NA EE To better understand the magnitude of the decline of revenues in absolute terms throughout the EMA region, please see below the average revenues achieved per region at an 18-hole golf course (based on the 2008 edition of the Golf Benchmark Survey), together with the share of supply. Source for comparison: Average revenues at 18-hole golf courses (2008) EUR 000 Middle East 5, % Western Europe 1, % Average revenues (EUR 000) Benelux 1, % Share in EMA supply (%) Central Europe 1, % GB & Ireland % South Africa % Northern Europe % Eastern Europe % Source: KPMG Rounds and Revenues Report in EMA 2008

10 10 Golf Benchmark The source of industry knowledge What industry experts say Lodewijk Klootwijk Director European Golf Course Owners Association KPMG provides a very good service to the golf industry by measuring our performance. The outcome of this research of KPMG was very similar to the impression we get from our members across Europe. Destination courses suffer most, but local golf is not overall that bad. Strangely enough about 1/3 of the courses had the best year ever due the good golf weather in 2009, which seems to have a bigger impact on the golf business than anything else. For some years the golf consumer is changing from membership player to green fee golfer. The credit crunch is speeding up this effect. The big challenge for the golf industry is that we have to find ways to bind the new golf consumer with products that fit their needs. If we as golf industry succeed, the future looks very bright! Jerry Kilby Chief Executive Officer Club Managers Association of Europe There is no doubt that the global economic recession has had a considerable impact on the sport of golf, but the declining number of new projects is not, in itself a major issue. It is argued by many in our industry that there is a great deal of over-supply, and in some regions, the last thing that is needed is another new golf development. For existing golf club owners and operators, the major trends that have affected most golf clubs throughout the EMA region in the last 18 months are the declining interest among younger generations in club membership and the less frequency of play by casual golfers. To counter this, club owners, boards and managers are looking at offering more flexible membership options; programmes to attract new people (especially women and children) into the game; and providing a broader range of sports and leisure facilities to be less reliant on golf revenues. Bruce Glasco Managing Director Troon Golf Europe Middle East & Africa The impact of the crisis has been felt the hardest in the corporate sector where we have seen this business segment drop by as much as 50% in some markets. This has obviously led us to focus more on the other customer segments and use more of a grass roots strategy. Having strong systems and a database of loyal customers to draw upon has been instrumental in us maintaining play levels. However, without the corporate sector our yields have suffered. As for cost cutting we eliminated any overtime, reduced some seasonal staff numbers and have deferred some non essential capital purchases but have really tried to do more with less and most importantly, not impact the customer/members perception of value for money. Overall, Troon Golf's success is based on the efficient management and understanding of costs while maintaining or even raising the customers perception of value for money. Engaging in price war strategies is not an appropriate model in any instance as no one wins in the long run. Focusing on the delivery of customer experiences is at the core of Troon Golf's principals and a key factor in perceived and actual value for money, weathering difficult times and flourishing in more affluent periods.

11 Golf Benchmark Survey 2010 Golf and the Economic Downturn 11 and more specifically about the UK Stephen Lewis Chief Executive Officer Crown Golf In 2009, the UK golf market has shown itself to be reasonably resilient in these challenged economic times. It has, however, not escaped unscathed with areas such as corporate golf, society golf, secondary spend all coming under sales volume pressure. The Resort based golf market has experienced price competition with several discount offers being placed in the market by the larger groups in an effort to stimulate and win market share. Golf membership demand in the UK is also coming under pressure although most UK operators have experienced good green fee demand during the main golf season and on-course golf retail has held up well. At Crown, we have reacted to the challenges of the economic downturn by focussing on improving operational efficiencies, yield management, targeted marketing, improving the customer/member experience, golf course quality and retention. As a result we have delivered an improved performance in 2009 versus 2008 in green fees and total secondary spend and a stable membership base. The challenge in 2010 will be no less demanding but inclement weather aside, we expect demand to remain stable. Colin Mayes Chief Executive Burhill Golf and Leisure Ltd My overall opinion of how the UK golf market has dealt with the financial crisis of 2009 has been very well, all things considered. At the beginning of 2009 I think all leisure related businesses were trying to second guess what the worldwide financial crisis would mean for them. The fact is that many UK golf businesses were helped by the large number of UK residents who for financial reasons decided to limit there vacations overseas and decided to stay and spend more leisure time in the UK. At Burhill we saw the number of golf rounds grow over Whilst there was a marked reduction in corporate golf activity this was compensated by the increase in casual golf players particularly during the traditional holiday periods. Our continued focus on providing quality and value for money in all of our activities will ensure that we are able to meet the many challenges within our industry over next decade. Andrew Stanley Founder/CEO Golfbreaks.com Despite all the doom and gloom, and after a slow start, 2009 turned out to be a record year for Golfbreaks.com. We booked up 134,000 golfers during the year, up from 110,000 golfers booked in 2008 (22% increase). UK had an outstanding year throughout, with many golfers choosing to stay here as opposed to travelling abroad. Bookings to Europe had a very slow start to the year, though we managed to renegotiate rates with many of our venues to provide added value, particularly with those in Spain and Portugal. As a result, the volume of bookings to these two countries grew considerably in the second half of the year. Spain saw the largest year on year growth (60% up on 2008) and Portugal finished 17% up. France ended up 26% down on the year before. We anticipate another year of growth in 2010 with demand for countries like Turkey and South Africa continuing to rise.

12 12 Golf Benchmark The source of industry knowledge How have golf courses fought back? An interesting aspect of the survey was to understand the measures golf course managers have taken to offset the negative effects of the downturn. The chart below summarizes the proportion of golf courses that have considered one or more specific actions to mitigate the impact of the economic crisis. What measures have you taken? Cost cutting measures 65% Changes in marketing strategy 63% Improving customer satisfaction 58% Changes in pricing 44% Refinancing and/or restructuring 18% No specific measures were taken 18% 0% 20% 40% 60% 80% Two-thirds of golf course operators have taken measures to cut their expenses, with almost half of all survey participants having cut, or planning to cut, staff costs in the near future. Here we would like to highlight that staff costs in the EMA region generally account for 30-40% of total revenues on average. Sixty-three percent of golf course managers have changed their marketing strategies. In today s world it is inevitable that a business will utilize the features and benefits of the Internet, in terms of online sales and marketing. The creation of alliances with hotels, tour operators, and other industry stakeholders is also very important for a long-lasting successful operation. Not surprisingly, one finding of our survey is that those courses that have taken these measurements tend to perform better. Adjustments in pricing strategies have been very variable. Only 18% of the golf courses have implemented price reductions, while many others have shown a slower reaction of yield management to changing demand patterns. Less than 20% of the courses surveyed have refinanced their operation or have introduced restructuring measures, such as management restructuring or outsourcing certain facilities (e.g. pro-shop, F&B outlets). Eighteen percent of the respondents have not taken any specific measures, continuing their operations as before.

13 Golf Benchmark Survey 2010 Golf and the Economic Downturn 13 And how do they see the future? When do you expect to see the end of the economic downturn? Almost one-quarter of the golf course operators interviewed have already noticed an upswing in their operations/financial performances (with an especially high proportion of golf courses located in Central Europe, where several of them have not even experienced a negative impact on their operations). On the other hand, 35% foresee an upswing by the end of 2010 and 41% of the respondents expect the recovery only in 2011 or later. Already improving 24% 1st half of % 2nd half of % 2011 or later 41% Despite this relatively pessimistic view on the economic recovery, golf course managers are relatively optimistic for 2010 with 54% of them foreseeing excellent or good performance and only 7% expecting poor performance. Taking a regional outlook, more than 30% of golf course owners/operators in the Middle East and Eastern Europe expect excellent results. South African operators also show very positive expectations for 2010, despite 90% of them being hit by the economic downturn in On the other hand, we have noted that courses in Great Britain and Ireland are particularly pessimistic with 49% expecting medium and 11% foreseeing poor or very poor performance. How do you foresee the business performance of your golf facility in 2010? How do you foresee the business performance of your golf facility in 2010 compared to 2009? Excellent Good Medium Poor Very poor Better than % As bad as % Further decline 7% EMA Total 9% 45% 39% 6%1% ME & NA EE 34% 32% 32% 31% 34% 32% 5% SA 16% 57% 19% 8% NE 8% 58% 31% 3% WE 6% 40% 42% 9% 3% CE 5% 58% 32% 5% GBI BNL 3% 3% 37% 44% 49% 47% 8% 3% 6% 0% 20% 40% 60% 80% 100%

14 14 Golf Benchmark The source of industry knowledge Concluding thoughts While golf course operators, on average, are feeling rather positive about their future prospects, two fundamental business factors suggest the way back to the fairway will not be straightforward. Firstly, 35% of the golf courses surveyed are facing the worrying combination of decreasing revenues and increasing costs. For some golf courses, the narrowing of profitability might come sooner than expected. Indeed, it has surprised some in the industry that several courses performing poorly did not go out of business in It would not be a surprise if we saw this happening in The depressed transaction prices of golf courses are evidence to the fact that the industry is really struggling. Secondly, nearly half of all the courses surveyed reported a drop in revenues, fuelled in part by one or more of the following: a fall in memberships, in green fee revenue, as well as in F&B spending. While this decline in revenue may not be significant when averaged out (-3 to -5% across the EMA region), it is still worrying that 13% of courses have reported a reduction of more than 20% in the number of rounds played. Golf courses particularly those linked to tourist resorts and the ones operating in mature markets like Great Britain and Ireland will have to work very hard on their relationship marketing, pricing strategies and service levels to attract new customers or lure back the old ones. KPMG s Golf Advisory Practice remains at your disposal to review your operations and advise you on improving your level of efficiency in these difficult times. For more information about KPMG Golf Advisory Practice s work and research, visit golfbenchmark.com.

15 Golf Benchmark Survey 2010 Golf and the Economic Downturn 15 Methodology and Sample Profile Composition of sample: by size of golf course The analysis presented in this report is based on the responses of more than 300 golf course operators from 32 countries who have participated in this survey, performed in fall Nearly two-thirds of the participating golf courses were 18-hole facilities, while 9-hole courses and 27-hole or larger facilities made up 11% and 28% of our sample, respectively. 9-hole 11% 18-hole 61% 27-hole+ 28% integrated versus stand alone Forty-five percent of the golf courses surveyed are located in a mixed-use residential community and/or are part of a tourist resort. The remainder are stand-alone courses. More than 70% of the golf courses are owner-operated and 57% of the facilities in our sample are profit oriented. Distribution of survey participants by geographic region Stand-alone golf courses 55% Part of a residential 45% community or tourist resort by operator Region Great Britain & Ireland (GBI) Western Europe (WE) Northern Europe (NE) Central Europe (CE) Southern Africa (SA) Benelux (BNL) Eastern Europe (EE) Middle East and North Africa (ME&NA) Participating countries Great Britain, Ireland France, Italy, Spain, Portugal Denmark, Finland, Norway, Sweden Austria, Germany, Switzerland South Africa, Mauritius Belgium, Netherlands, Luxemburg Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russia, Slovenia, Ukraine Bahrain, Saudi Arabia, United Arab Emirates, Tunisia Owner-operated 73% External management company 6% Other 21%

16 Golf KPMG Benchmark Advisory Ltd., a Hungarian Survey limited 2007 liability Europe, company Europe, and Middle a member Middle East firm East of the & Africa KPMG & Africa network of Summary independent Report member Report firms Golf affiliated Benchmark with KPMG International Survey Cooperative ( KPMG International ), a Swiss entity. All rights reserved. Real estate Golf Leisure Tourism KPMG's Golf Advisory Practice possesses in-depth know-how and experience of the business side of the golf industry. We provide professional services to developers of new golf courses across Europe, Middle East and Africa, particularly for those courses included in integrated real estate developments and tourist resorts. We have also assisted tourism institutions with their golf development strategies and helped numerous owners and operators of existing golf courses in becoming operationally more efficient in an increasingly competitive market place. In addition, we are the organizers of the annual Golf Business Forum (golfbusinessforum.com), and have initiated numerous studies which provide valuable benchmark information to the industry. Our services include: Market and financial feasibility studies Business plans Project conceptualization and investment planning Golf development strategies Business performance improvement Valuation services Transaction services Management contract negotiation Contact: Andrea Sartori Partner Tel.: andrea.sartori@kpmg.hu Durban Country Club Photo: Grant Leversha 2008 KPMG Advisory Ltd., a Hungarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.

17 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 (GBS), 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 Insight report. For more information on our thought leadership and to download all our reports free of charge please visit The Golf Business Community is an exclusive 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: 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

18 golfbenchmark.com For further information please contact the Golf Benchmark Team: KPMG Golf Advisory Practice in EMA H-1139 Budapest, Váci út 99 Hungary Tel: 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. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative ( KPMG International ), a Swiss entity KPMG Advisory Ltd., 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.