During the past 2+ years, golf has enjoyed a surprising and welcome surge in popularity. Rounds were up in 2020 and 2021. Private clubs reported surging membership and it is widely believed that more than half the nation’s private clubs have waiting lists for membership. Is that all about to change?
Lately, on my drive to the office I hear about the Federal Reserve Bank (Fed) raising interest rates, sometimes by as much as 3/4%, the largest increase in more than 30 years. We all know about the current inflationary environment and rising (& then rapidly falling) gas and food prices. Is the traditionally affluent golfer population immune to this? While we recently explored golf’s sustainability relative to water, how much do we know about the economic sustainability of golf’s growth from the past 2 years?
It wasn’t so long ago that clubs were begging for members, golf courses were closing at alarming rates and golf retailers were closing their stores. It’s been said that COVID did for golf what Tiger Woods couldn’t do. The National Golf Foundation (NGF) reported a “slower start to the season”, which was blamed, at least partly, on weather conditions. With the May-August months typically responsible for approximately 45% of annual golf rounds, it won’t be long before we begin to see a picture of how sustainable the COVID surge is.
One might think that all this spells doom and gloom for the golf industry. However, despite the persistent inflation, there are mitigating factors that could be to golf’s advantage. As expected, though many workers are headed back to the office, many are also embracing and pursuing working remotely or at the very least visiting the office less frequently. Eliminating the commute leaves more time for golf, or at least to visit the practice range. Combined with historically low unemployment, though impacted by the higher prices from inflation, consumers are still more likely to participate in recreational activities like golf, even if less frequently, than if they were unemployed or their business required more hours.
Existing economic conditions are somewhat unique. Low unemployment, high corporate profits, increasing interest rates and high inflation send mixed signals. The stock market (DJIA) as of 10/4/22 is roughly equal to where it was on January 1, 2021 and 57.68% higher than it’s COVID low point on March 20, 2020. Of course, who gets credit or blame for these and other economic indicators is likely to depend on one’s political allegiances, but the fact is that COVID has been an unprecedented shock to the economy and corrections and measures to stabilize were/are inevitable. So, where does this leave the golf industry?
Golf’s fundamentals are unchanged. It is an activity that can be pursued to late in life with both friends and family. It’s outdoors and a vehicle for socialization. While perceived by some as expensive, it’s cheaper (in some segments) than many other leisure activities but it is a very inefficient use of land assets, allowing a limited number of participants at anyone time on a large piece of ground.
How sustainable is the surge? Most observers have opined that some of the growth will endure. Nobody knows how much. In order to sustain growth, (IMHO) the golf culture needs to progress, not only embracing, but also actively capturing a broader cross-section of the population. Like many industries, Diversity, Equity & Inclusion (DEI) has become a popular buzzword in golf but needs to be successful. In this article (Is Golf’s Culture Its Own Worst Enemy), I wrote in 2017, some of the (self-imposed) obstacles to growth of the game are discussed, as well as at further length in my book The Culture of Golf – Isn’t it Just a Game.
No doubt, any negative economic pressures will impact golf. Rising interest rates could reduce the number of potential buyers from the market, restrict clubs from making enhancements and improvements to facilities and if there are more “second thoughts” about establishing or continuing membership, entrance fees, dues or other costs of membership could decline to make it more attractive in a more competitive (both with other clubs and other activities) environment. Daily-fee and destination golf would also be impacted should there be an economic slowdown.
It stands to reason that if you’ve read this far, you’re wondering what I think will happen. While I can’t confidently predict our economic future, I’ll offer some comments:
- I think Golf has the ability to sustain at least some if its gains, especially if it broadens its appeal and reach more assertively than just talk;
- History tells us that golf property (clubs/courses) will not fluctuate that much in value on the basis of capitalization rates and revenue multipliers;
- I strongly believe that buyers will continue to seek acquisitions of golf properties;
- There are likely to be a higher percentage of golf properties (especially lower revenue) sold with some type of seller financing, depending on the lending environment;
- If the economy is perceived to be declining, club membership will be impacted. Any number of elements could fluctuate. Membership and rounds at daily-fee courses could decline. Entrance fees could be impacted. “Deals” on dues and green fees might be offered. If government measures are perceived as successful, each of these factors could increase.
Nobody saw the golf surge of 2020 and 2021 coming, and in fact, many expected COVID to hurt golf. Now that we are perceived as recovering from COVID, even though it’s still there and we have to be vigilant, I think golf has an opportunity to capitalize on the surge by broadening the base and sustaining an environment of growth. Course closures have been down of late and most are of the lower-end daily-fee and 9-hole variety, some of which have become at least marginally profitable during the COVID period. Time will tell if those remaining will survive long-term.
With all the mixed economic news, the lingering question is “are we headed for recession?” One answer to that question is that “if we’re not in a recession now, we’re headed for one. The National Golf Foundation (NGF.org) acknowledges that while golf caters to a relatively affluent customer base with 47% maintaining incomes of $100,000+, 53% are less than $100,000 and more sensitive to a potential recession, possibly even before it gets here. As of June, 2022, Golf Datatech reported US rounds down YTD by 5.7%, but up for the month from last year by 2.7%. Stay tuned for more data at summer’s end.
Unfortunately, in today’s politically charged environment, economists often take a politicized position and we’re all left to sort it all out on our own. That said, our society in general and the game and industry of golf in particular have survived lots of “ups and downs”. Golf will survive any potential decline as well. The key is to anticipate and avoid or minimize that decline by broadening appeal.