Do public course renovations pay off?

First, let me say that I hope everyone who attended the recent GIS show in San Antonio had a good show and enjoyed my home state, despite some inhospitable weather. Texas can’t get its weather in shape for either GIS or the Super Bowl! I had a nice show, meeting and seeing everyone I wanted to, and I appreciated touching base with several who take the time to read this column.

I also made an ASGCA presentation on the potential financial returns for public course renovations. It’s the $1 million question that potential clients always ask, and I presented independent data gathered in 2014. I was part of a National Golf Foundation business report team for a course in the Dallas-Fort Worth area. Recommended options ranged from closure to total renovations, with a few stops in between. When their City Council asked for backup data for the renovation options, NFG retained Sirius Golf Advisors, a Texas-based golf course business consultant to survey recent public course renovations and their financial results.

Since 2000, DFW has seen 19 public course renovations, and Sirius was able to obtain financial data for many courses that had undergone renovations. For the presentation, I added one of my new renovations that didn’t make their list, to make it an even dozen, and adjusted their average numbers accordingly, as shown below in chart form:

As seen, according to the Sirius Golf Advisors data, the nine major renovations increased revenues by an average of 63.7 percent and $546,709, with increases ranging from only $73,000 to nearly $730,000.

There were four minor renovations, which focused on turf improvement for greens or greens and tees, with little new design. These increased revenues by an average of $210,000. The least successful renovation actually lost revenues, owing to losing turf on their new greens in year two, negating any improvements. The most successful minor renovation is actually a sister course in a 36-hole facility, and the other course had been totally rebuilt, with improved clubhouse, and upgraded service the year before its greens were re-grassed with the “no till” method discussed last month. It clearly gets some residual benefit from the other course.

The minor renovations increased revenues by an average of 23.3 percent and $210,250. Even without the “outlier” top and bottom performers among minor renovations, the middle two renovations averaged revenue increases of 12.2 percent and $120,000, about half the average when considering the other two.

The consistency of increased positive rounds, revenues and ROI results is very encouraging for anyone considering a major renovation. However, DFW has good public golf demographics, which may generally mirror other large and vibrant urban areas, but may not reflect depressed and/or rural areas or resort-based golf courses. And, on both the private or public sides of golf, there are many sub-markets, and you have to know where that biggest opportunities lie, and what it takes to hit that sweet spot or niche in that particular market place.

In short, your proposed renovation needs its own specific economic analysis. Post-2006, most golf course master plans I have seen are preceded by a golf course business plan.

NGF/Sirius Golf Advisors did provide some thoughts based on their survey. They believe that you need to reposition and rebrand the facility in the marketplace, to maximize revenue gains. Name changes may occur but aren’t always necessary. And, accomplishing that requires that you do everything right – including improving the golf course in design, maintenance, service and image (logo, amenities, etc.) to see the best financial return.

Minor renovations can be financially successful. While they returned much less in total revenues, usually by providing improved greens, which golfers always value, their ROI calculated as increased annual revenue (assuming year two results continue) divided by construction cost. It may pay to fix just what needs fixing on an otherwise solid course.

The statistics also show that first year returns are often highest, probably due to pre-re-opening marketing, buzz and curiosity, and then dip into a more sustainable pattern the second year. While the survey only covered the first two years of post-renovations operations, for which they had data, for consistency, NGF notes that most courses have maintained their new revenue levels, even for those that are 10 years old now.

Raising prices after renovation makes sense. Golfers expect to pay more for a better product, and increasing revenues by $500,000 via 20,000 more $25 rounds is a lot harder than 5,000-10,000 new rounds, with all rounds grossing $40-50 per player on a “new and improved” product!
 

Overspending rarely pays. Most projects require value engineering to infrastructure, design and image improvements. If at all possible, minimize clubhouse improvements – projects with less than $200,000 for clubhouse improvements provided the highest return. While it sometimes is a necessity, clubhouses rarely pay off. In all cases, a review of the “want to haves” vs. the “market-based must haves” is essential.

The financing mechanism for these courses wasn’t available, but their – and your – biggest task will be to determine whether anticipated new revenues will support new debt. With currently low interest rates, $500,000 in revenues might support $7 million for a break even, debt-free facility. It’s rarely that clean cut, and that figure must also cover interest carry, lost revenues, etc. Many courses wait for their original construction debt to be paid off, and then issue new debt that they can comfortably cover in anticipated revenues.

Those of you who have been through the renovation process will probably agree that it is usually necessary, often profitable, but never all rainbows and butterflies.

Jeffrey D. Brauer is a veteran golf course architect responsible for more than 50 new courses and more than 100 renovations.  A member and past president of the American Society of Golf Course Architects, he is president of Jeffrey D. Brauer/GolfScapes in Arlington, Texas. Reach him at jeff@jeffreydbrauer.com.