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The Golf Recession Reviewed by Steve Sailer UPI, November, 2003 |
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First of a four part series MOORPARK, CA: In late October, one hundred foot high walls of flame raced through the foothills of Moorpark, Calif., an affluent suburb 48 miles northwest of Los Angeles, only to be stymied when they reached the sprinklers of the town's three new golf courses. Today, the emerald fairways contrast eerily with the blackened hillsides. Many trees on the edges of the courses struggle for life, green on one side, charred on the other. The future of the $62 billion dollar per year golf business (according to a study by Wachovia Corp.) is similarly uncertain. Long term trends -- such as environmentalism, new club and ball technology, and an increased desire among golfers for spectacular golf holes -- have been making the game an increasingly expensive and time-consuming near-luxury at a time when the business cycle and, perhaps more worrisomely, demographic trends have been working against golf's popularity. Despite steady population growth, the sport is currently in a sharp recession in the U.S., with the number of rounds played in the first three quarters of 2003 down by five percent compared to the same period in 2002. And last year was already down 3 percent compared to the all-time peak in 2000. While demand has been weak, the supply of new golf courses, especially lavish "country club for a day" links, has been relatively strong, with the nation adding a net of 2,565 golf courses from 1994 through 2002, a 21 percent increase. This growth was driven by both rational motivations, such as the $50,000-75,000 premium that real estate developers can charge for homes located on a fairway, and emotional reasons, including the urge some golf-loving businessmen feel to leave their mark on the landscape by helping create a beautiful golf course. A few viscerally exciting industries, such as airlines and movies, are notorious for never generating consistent returns on investment because so many entrepreneurs launch start-ups. Golf may be similar. The stock prices of the ten golf equipment manufacturers in the Bloomberg Golf Index have badly underperformed the S&P 500 since mid-1998, as countless newcomers to the industry have tried to reproduce the legendarily late-in-life success of retiree turned clubmaker Eli Callaway. Likewise, the golf course industry may have to contend with a perpetual excess of what economist John Maynard Keynes called the "animal spirits" of businessmen. Until this decade, the number of new golf courses lagged demand as more rigorous environmental restrictions slowed construction. For instance, plans for the construction of the Valencia Tournament Players Club northwest of Los Angeles were announced in 1985, but the course didn't open until June 2003 after protracted legal and regulatory wrangling. During the flush 1990s, the biggest pricing innovation in the Southern California golf market was the trend toward declaring Friday to be part of the (higher priced) weekend. After decades of rapidly rising green fees -- for example, the price to play famed Pebble Beach on California's Monterey Peninsula has risen nineteen-fold from $20 in 1973 to $380 today, while the Consumer Price Index only 4.2 times higher -- many courses have begun to resort to discounting. Touring pro Peter Jacobsen and his golf architecture team moved five million cubic feet of dirt to create the verdant Moorpark Country Club out of rugged canyons and ridges. The third high-end course to open since 1999 in a town that previously had none, its posted weekend greens fee is $95. That price seems more formidable to golfers in 2003 than in the sky's-the-limit economy before the recession. "For $95, they better guarantee I'll make a hole-in-one," joked Torrance, Calif. businessman Steve Valles. But, golfers could have gotten out on the Moorpark CC course last Saturday, a 70 degree day, for $66.50 if they'd waited until the day before to buy tee times through the Southern California online consolidator Click4TeeTimes.com. Golf courses resemble airlines or hotels in that the value of their stock in trade -- a reservation -- evaporates if it isn't sold on time. This instant perishability of the product encourages them to unload unused capacity to price-conscious consumers, while keeping list prices high for those willing to pay. Yet, discounting was slow to flourish in an industry where attitudes have traditionally been molded by the most prestigious private country clubs, which were built by capitalists as refuges from the crass rigors of capitalism. Now, however, course operators are innovating. For example, Moorpark's Tierra Rejada, a strenuous course hacked out of the mountains near the Ronald Reagan Presidential Library, offers a list price of $90 on weekends, but also makes available a coupon on GolfQ.com allowing golfers to play for the "twilight" rate of $55 in the late morning. More clever pricing can only go so
far, however. While the hoped-for economic recovery should offer relief,
the next article in this series will examine the negative demographic
trends that golf faces. Steve Sailer (www.iSteve.com) is a columnist for VDARE.com.
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