Golf hits the bunker
We created too many courses for too few golfers and now face the prospect of ghost golf courses to go with our zombie hotels. Only rock-bottom green fees are easing the pain, writes FIONA REDDAN
IT’S A SHOWERY Sunday morning in April and, despite the inclement weather, golfers are lining up to tee off at Tulfarris Hotel and Golf Resort, in Co Wicklow. Although the grey skies overhead and the lightly falling rain are obscuring the view of the Blessington lakes, every 10 minutes a new set of players gets ready, drivers in hand, to embark on this particularly scenic parkland course. For the golfer who drops by unannounced in the hope of getting a tee time, disappointment awaits. A look at the club’s time sheet reveals that the course is almost booked out for the day.
To the casual observer it would appear that the golf resort is in a state of rude health. But it isn’t. It’s broke.
Just like the country’s many bankrupt hotels, golf courses around the country are being kept open at the behest of receivers. Clubs such as the Heritage in Portlaoise, Moyvalley in Co Kildare and the Citywest in Co Dublin are being kept open to bring in any revenue they can to satisfy their creditors. Some say that, in doing so, they are aggressively undercutting their competitors. But while such an approach is undoubtedly good news for the consumer, it is quite the opposite for this struggling industry.
It’s not so long ago that Irish golf businesses were riding a wave that, as with the property sector, many believed would never crash. In 2006 the Ryder Cup came to Ireland and the hype surrounding the sport was at its zenith.
Developers capitalised on tax incentives to build hotels with championship golf courses alongside. They signed up stars such as Seve Ballesteros and Darren Clarke to sell the new resorts. Rising disposable income meant demand for membership soared, while some homebuyers sought the prestige of owning property on one of these courses.
But this fashion for bigger and better golf courses, fuelled by bank lending, was storing up major problems for the industry. Between 1995 and 2010 about 100 new courses were created, according to research by the financial adviser FGS, which meant that when the economy tanked, and people’s disposable income took a nosedive, there were simply too many golf courses and not enough people to play on them.
Now many big-name courses are in serious financial difficulties, though they are being kept open.
“Many courses were ill-conceived, in the wrong location or overleveraged. In the real world they should be out of business, but they’re not: they’re there competing in the market place,” says Marty Carr, chief executive of the Carr Group, which manages golf clubs including Moyvalley and South County.
This, the argument goes, is creating an unfair imbalance in an industry already battered by the recession. On one side are the golf clubs that are struggling to survive but still have to service their debts; on the other are the so-called zombie clubs, technically insolvent, not servicing their debts, but nonetheless still open so as to generate cash for the receiver.
“Those who are trading okay, and are operating profitably but can’t service their debt, are more likely to be kept alive by the financial institutions because there’s a better chance of extracting value out of them at some stage,” says Carr. In order to extract value, however, debt-ridden clubs are slashing their rates.
Tulfarris is offering annual membership from just €1,000, and daily rates are available from €20, or €30 at weekends. These figures are down from a previous signing fee of €15,000 and green fees of €50 or €60.
At the Heritage, where green fees would have once set you back up to €135 at weekends, you can now get on the course for €40 on Saturdays, while in midweek there’s a golf-and-lunch package for €35.
Citywest has introduced a range of membership options. Its annual fee used to be €1,600, but this has come down to €1,100, while it has a pay-as-you-play option starting at €500.
Farther south, at Blarney Golf Resort in Co Cork, the annual sub has remained constant, at €1,200, but membership now includes access to the hotel’s leisure facilities and there is no longer a joining fee of €5,000. There is also the option of a three-month trial for €350.
While golfers are happy to have the opportunity to play at top-class courses for cut-price fees, embattled golf clubs feel differently. “The difficulty is that those courses in deep trouble are cutting prices dramatically to generate cash flow, and this is undermining some of the healthier golf courses,” says Carr.
For Richard Collins, chief executive of Druids Glen Resort, Co Wicklow, the situation is “irresponsible and wrong . . . We all have to acknowledge that the taxpayer is paying for these properties to stay open. It puts pressure across the system, and viable golf courses will get into trouble”.
Bernard Gibbons, general manager of Powerscourt Golf Club, in Co Wicklow, agrees, arguing that zombie clubs are doing “so much damage to top-end clubs” by knocking down rates to levels nobody can compete with.
But the zombie golf courses, just like their hotel counterparts, are not for turning. Although Mark Howell, general manager at Tulfarris, has sympathy with other clubs, he feels Tulfarris has managed to turn things around “not by undercutting” but on its own merits. “I don’t think we’re necessarily driving the price down,” he says, adding that golfers are no longer willing to pay the prices of old.
THE DOWNWARD pressure on prices is part of a larger trend. Kevin Markham, the author of Hooked, a book about playing all of Ireland’s courses, estimates that about 70 per cent of them have dropped their prices over the past two years, sometimes by as much as 50 per cent. Many players would argue that the industry as a whole is to blame for its woes, rather than just clubs in financial difficulties. “People got carried away, with prices that are now difficult to justify,” says Markham.
Another case in point is the large joining fee that clubs used to require (see panel, above), while some also sold preferential-type shares, which enabled their owners to sell them on in the future, ostensibly at a higher price. At Powerscourt, for example, members paid €50,000 for a redeemable preference share. Now, however, Gibbons would put a price of €15,000 to €20,000 on the Powerscourt share, although “even at that you couldn’t shift it at the moment”.
“A lot of courses are still hanging on to this concept of joining fees, but it’s gone in the short term,” says Collins.
Unsurprisingly, clubs are finding it difficult to sustain their business models. In 2004 Dromoland Castle Golf and Country Club, in Co Clare, embarked on a €5 million redevelopment, with the aim of establishing its golf course in the top tier. According to its managing director, Mark Nolan, the plan was to charge green fees of about €120 and a joining fee of about €25,000. When the economy slowed and tourists started to stay away these prices no longer looked viable.
Now the club offers a €50 green fee for hotel residents, and rates of €65 to €75 for non- residents. The joining fee is now €5,000, with an annual subscription of €1,250.
It’s a similar story at Druids Glen. Not so long ago the club was charging a joining fee of €45,000, but this is now gone. These days golfers can join the club for an annual subscription of €2,600, which is fixed for three years.
This restructuring has paid off, and the club has doubled its membership in the past year. It has also cut green fees, which has led to an 8 per cent increase in green-fee revenues.
It’s no surprise, then, that clubs are using green fees as loss leaders to get golfers on to courses and into clubhouses and club shops, and with luck taking out memberships. Given the number of golf clubs, though, attracting this footfall is challenging.
In 2009 Irish golf had a capacity for 23 million rounds of golf, but only 13.3 million rounds were played. “The common perception is that the number of courses will reduce,” says Kevin Markham, “but those that are left will be healthier.”
Marty Carr predicts that about 50 clubs will have to close. “There used to be a lot of prestige and vanity in owning a trophy golf property, but from a commercial perspective the market for a lot of these golf assets, long-term, is probably not great,” he says.
But which ones will go? Typically, it’s the market that decides, but with banks keeping open courses that can’t pay their bills, it’s not so clear. For some it’s the zombie courses that need to be got rid of. “The only way this market is going to survive is if they close,” Gibbons says.
SLASHING RATES WON’T guarantee survival for embattled clubs. In north Co Dublin Turvey Golf and Country Club, which had been offering early-bird rates of €15 and €20, closed earlier this year. Limerick County had been offering membership from €600, with no joining fee, but it too closed in January. And at Tulfarris, despite its €1,000 rate, membership remains flat, according to the club.
If clubs do close golfers will lose out, as the quality courses may be the ones shut down. But there might be another solution. Carr suggests that amalgamating several clubs could provide a solution.
“Rather than have them battling against each other, head to head, you could merge two or three courses together to have one very high-end, viable golf course,” he says.
Meanwhile, Rory McIlroy’s close call in last weekend’s US Masters might give a boost to the game. “The Masters is seen by most casual fair-weather golfers as the start of the season, time to dust off the clubs,” says Anthony Brady, sales and marketing director at Mount Juliet, in Co Kilkenny, which launched a membership drive during the tournament. According to Brady there was an “overwhelming response” to the advertising campaign, and the club is in the process of converting inquiries into subscriptions.
Unlike other top-rank courses Mount Juliet never had a joining fee for individual members, but its corporate joining fee has been cut from €5,355 in 2006 to €4,000 this year. It has also cut its annual subscription from a high of €3,375, in 2009, to €2,450.
Another potential bright spot on the horizon for golf clubs comes in the shape of the much-coveted, but recently rarely sighted, American golfer. Although tourism is not back to the heady days of 2007 Keith McCormack, head of business tourism, golf and events at Fáilte Ireland, says that, after a 20 per cent decrease, international tourists are again booking, and “the American visitor is back”.
As in 2006, an international team event is coming to Ireland. The Solheim Cup, the women’s version of the Ryder Cup, will take place in September in Killeen Castle, Co Meath. This time, however, rather than hyping up unviable businesses, it is hoped that it might just get more people back out on golf courses.