RICHARD GILLISlooks at the worrying signs the world-wide recession is having for property developers who have incorporated golf course design into their portfolios
JUST ABOUT the only positive thing about a recession is that it stops people telling you how much their house is worth. But property values are still very much on the minds of the people who run golf and when you peel away a layer or two from the big stories of the last few months they all have their roots in the housing market.
First to Wentworth, and almost as soon as Paul Casey had picked up his winner’s cheque, the Wentworth Club closed the West course for the rest of the year, in order that all 18 greens are dug up and replaced in time for next year’s event. Members are being compensated for this upheaval and will play the estate’s two other lay-outs – the East and the Edinburgh – if they can get a tee time in between the corporate days that is.
Pádraig Harrington’s dislike of the course and its greens has led to him avoiding the event in recent years and his absence was described as “a touch embarrassing for sponsors BMW and the European Tour” by fellow Irishman Graeme McDowell.
(It certainly wasn’t a financial decision: as British Open Champion, Harrington could demand around €290,000 in appearance money for the BMW PGA according one source in the business. Most likely the other absentees – Sergio Garcia, Ian Poulter, Justin Rose for example – could demand similarly substantial fees).
The Tour’s deal with BMW expires at the end of the next year’s event, making them very keen to tie up a contract renewal, particularly as another iconic tournament, the British Masters, has disappeared into the ether.
But the decision to dig up the greens indicates how keen the club’s owners are to retain the event, which has done so much to advertise Wentworth, and the astonishingly expensive property that lines the course, the prices of which have been boosted by 35 years of annual free-to-air BBC television coverage.
Well before the Spanish and Portuguese golf property booms of the 1980s, Wentworth showed the link between golf’s holy trinity of events, TV and real estate.
Since 1964 the club hosted the World Matchplay, and then the PGA, helping turn the estate into the most aspirational golfing address in Europe. There was a time when the stucco-fronted mansions – several are on sale currently for between €4.5 million and €12.5 million – were occupied by old school bankers from the City and Bruce Forsyth’s mates from the British showbiz community.
Today their owners reflect the new world order: hedge fund managers, footballers and new money from Russia; Boris Berekovsky, the secretive exiled Russian oligarch, lives there, as did Andriy Shevchenko during his ill-fated sojourn at Chelsea.
However, the legacy of Wentworth’s success has been profound, as it has been used as a model by property developers the world over, each attempting to use its magic formula to sell houses.
Many of Ireland’s newer courses, from the K Club to 2011 Solheim Cup venue Killeen Castle, have used golf to this effect to varying degrees of success. But now the market has turned and golf finds itself leveraged to the hilt, every membership and green fee loaded with debt.
The problem, according to one influential business observer, is that demand for the game in established markets such as Ireland is falling, memberships are down and there is an oversupply of high-end courses, or mini-Wentworths.
These can be defined as having high fixed costs in the form of large, ostentatious clubhouses, which demand correspondingly high membership and green fees in order to pay back the debt accrued in building them. What’s more, to market these clubs, and the houses that line them, it has been deemed necessary to maintain an exclusive – make that snooty – image.
Andrea Sartori is the head of KPMG’s Golf Advisory Practice, the major player in advising property developers and club owners. He told The Irish Times: “The particular challenges being faced in the UK and Ireland are down to the strategic choices that clubs took in the past 15 years: not opening up enough to families, being very exclusive, not opening up to women.”
If you go to a German, Austrian or Dutch golf course, says Sartori, the membership structure is very different reflecting a more enlightened golfing culture.
“It is amazing how different they are, with women members up to 35 per cent, which is far, far higher than you will find in the UK and Ireland. This is important because if you include wives you are more likely to bringing the children to the club, which is obviously important to grow the game of golf. In the UK and Ireland we are having so many problems because there is some issue of over-supply of golf courses, too much has been built too quickly over the last 15 years.”
By linking golf so strongly to the property market, developers and club owners have changed the type of courses that are built, with the emphasis on difficult “Championship” lay-outs aimed at attracting professional events in the hope of the “Wentworth effect”. To this can be added the cult of celebrity in the form of “signature courses”, which carry the name of a famous player.
Pat Ruddy, course architect and owner of the European Club in Brittas Bay, Co Wicklow, agrees property developers have had a major impact on the way courses are designed.
“Golf course design has been infected by the optimism of the 1990s and early 2000s just like the rest of society, but it’s important to keep in mind that the sport is just a microcosm of a wider world and that it had gone through several decades of dull design after the second World War and that an outbreak of creativity and exuberance almost had to follow when economic conditions allowed.
“Lots of people using golf courses as marketing tools for houses and hotels spent more on golf courses than the game itself would warrant if economic returns were to be based on golf activity alone. Others fell into the trap of trying to keep pace. Few adhered to the template of the Christian churches which have taken 2000 years to get to where they are today, building generation by generation, to spread the inputs and match them to earnings.”
The case for cheaper, easier golf courses is currently being made by developers in central Europe, which Sartori equates to where golf in Scandinavia was 20 years ago.
“What they got right was they made golf a sport that was affordable. The facilities were not overblown or overly elaborate, they didn’t build huge clubhouses which are very expensive to maintain. It was farmland that was redeveloped at a reasonable cost. This helped them bring down the cost of playing in terms of green fees and memberships. It also helped to break the perception of golf being a very exclusive sport.”
AS THE STARSof the European Tour continue their Race to Dubai, they risk a collision with ex-pats coming the other way. The car park at Dubai City Airport tells the story. More than 3,000 cars – including Mercs, BMWs and 4X4s – have been left abandoned by their owners, some of whom have left their maxed out credit cards taped in to the glove box in their haste to leave the Gulf city state. According to the BBC, over €185 billion worth of real estate projects have been shelved since the credit crunch began, causing an exodus of construction workers, developers and other associated industry workers.
Golf has played a central role in the Dubai story, which saw the Wentworth model taken to a new, utterly unprecedented level. Leading the charge was Leisurecorp, the property development company that has mixed the most potent elements in the golf business – celebrity, real estate and oil – to become the single most significant business in the sport, and one which plays a critical role in the future of the European Tour.
Leisurecorp has embarked on a building and acquisition spree that has stunned observers, culminating in an audacious coup last year, when it paid €63 million for Turnberry, the host venue of this year’s British Open. The company also owns Pearl Valley in South Africa (home to the South African Open) and the Jumeirah Golf Estates in Dubai (where the Dubai World Championship is due to be played) among others.
There have been worrying signs lately: Leisurecorp’s chief executive David Spencer has been replaced and the company has been subsumed into another Dubai-based company, Nakheel.
The reason for the switch in ownership is the Dubai property market, which is in freefall, with some conservative commentators (KPMG) putting the fall in golf property at 50 per cent from its high of 2006. Less conservative observers are saying the drop is nearer 80 per cent.
Leisurecorp’s business model is focused on selling expensive houses around its golf courses and so is very exposed to the downturn. For example, it is currently building 1,000 houses around its Earth course, a Greg Norman-designed lay-out, which forms the first of four such projects planned in the city.
According to new chief executive Colin Smith, a former Uefa executive, 90 per cent of the homes have been sold, with final payments due when the houses are completed, “sometime after the first quarter of next year”.
However, many of these people are likely to be “flippers”, speculators who bought off plan and intended to re-sell the house as it comes to market. With property prices down, there is a real risk that they will write off their down payments and join those whose cars are at the airport.
“The housing market in Dubai has taken a major hit,” says Sartori. “There has been an oversupply of residential property and too many speculators as a proportion of the houses that are being sold, rather than people buying their houses to live in them. Now there is a huge stock of property which they all want to put on the market at the very discounted price. It will take some time before demand and supply balance off.”
This would be just another tale of housing woes were it not for the fact Leisurecorp’s money is funding the European Tour’s Race to Dubai and Dubai World Championship. Smith told The Irish Times they were committed to the deal with the Tour and that Turnberry’s hotel will be ready in time for the British Open.
So far, so expected.
But there are some other issues. The deal with the Tour was announced last year as a 10-year €70 million affair but now Smith described it as “five years, with an option to extend for another five”. And he wouldn’t be drawn on whether there were any opt-out opportunities earlier in the contract. If they pull out early, several of the Tour’s events will go with them.
Next, the €63 million paid for Turnberry gives them one of the world’s great courses, but can they make it pay? They have spent money upgrading the hotel, but the real value in the deal was property; the prospect of the famous Ailsa course turned into an American-style country club will horrify purists: we will be in conversation with South Ayrshire Council said Smith, about building houses “in the area of Turnberry”.
Finally, the European Open, previously used by Michael Smurfit to secure the Ryder Cup for the K Club, was played this year at the London Club in Kent. As part of its deal with the European Tour, Leisurecorp became the event promoters for this year only and have suggested they want to take it to Turnberry in the future. Peter Dawson of the R and A is not so sure. “We prefer to keep Open venues special,” he said recently. If Leisurecorp don’t get their way, the event’s future is uncertain.
Meanwhile, back at the European Tour’s Wentworth HQ, chief executive George O’Grady and his management team have been looking in the local estate agents window and noted the effect their events have had on the price of local housing market. Now they want a piece of the action for themselves and are about to become property developers in their own right. The endgame of this strategy would be to hold European Tour events at European Tour courses, and what’s more, sell the houses that line the fairways. This way, the circle is complete and rather than generate money for developers, they keep the profit for themselves.
As Pat Ruddy remarks, there was a time when golf was a simple stick-and-ball game. “Simplicity has its virtues too. Happiness on the golf course comes down to finding someone you can beat. The rest is extra. And it’s the extras that cost.”
“The car park at Dubai City Airport tells the story. More than 3,000 cars have been abandoned by their owners, some of whom have left their maxed out credit cards taped in to the glove box in their haste to leave the Gulf city state.
