You certainly cannot put the last decade in the golf business in perspective without looking at the changes in the supply and demand balance… or imbalance.
Let’s begin by re-visiting the golf development boom of the mid to late 1990’s… The industry was riding the real-estate boom and the opening of new courses was disproportionately driven by developers building and maintaining high-end courses as an amenity to sell homes and lots. While not a universal truth, most of the entrepreneurs funding this course construction were not concerned as to whether the course could survive on its own as a business. Thousands of golf courses were added to the supply in the seven years from 1994 to 2000.
At the same time, the golf participation rate was holding steady (around 10.5% of the U.S. population, age 6+) and we saw an increase of nearly five million golfers primarily due to population growth and increases in some key demographic groups.
What happened to the golf landscape over the past decade is a not-so-simple lesson in economics. Golf course over-supply has diluted the stagnant demand and created a highly competitive environment for course owners and operators. Add two recessions during this period and what you have is an extremely challenging marketplace.
The accompanying chart offers an illustrative overlay of trends in several core metrics in our industry. You will note that rounds played have seen a cumulative drop of 12% since 2001. This drop in rounds (equivalent to approx. 60 million rounds) has been driven, in large part, by the two periods of recession mentioned earlier (2002-2003 and 2008-2010).
From 2001 to 2005, the industry was still adding to golf course supply at a rate of over 100 net courses per year. Although we have seen a net reduction in course supply since 2006, we remain in an oversupply situation (despite the six years of net reduction in supply, we stand today at 300 facilities higher than 2001 levels).
The good news… there are several factors with the potential to improve this situation:
- Latent demand – millions of non-golfers interested in taking up the game
- Dedicated PGA of America Golf 2.0 initiatives to help activate interested non-golfers
- Economic recovery should aid increases in rounds played and spending
- The expected net closure of golf facilities over the next decade should help improve the dilution of demand at the golf course level
We expect the combined result of these factors to reverse the trend and provide a rise in golfers and rounds per 18 holes.