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By Jay Karen
CEO, NGCOA
While there are promising indicators and progressive things happening in golf that cause me to be quite bullish about the long term prospects of our industry, the business of running golf courses in America – by and large – has been a slog for the past 15 years. The supply and demand curve has been moving in the wrong direction since before the Great Recession. Most experts agree the number of course closures will continue to far outpace course openings for the next decade. If you compare the average price of a round of golf ($38 according to We Are Golf) to the change in Consumer Price Index, golf is arguably cheaper than it has ever been. Pellucid Corp reports that 39% of golf courses in America operate in the red. Despite the challenges, I do not believe there is a macro, existential crisis (there are over 14,000 golf courses generating an $84B impact on the American economy). However, this is our current climate. It’s still a great business, but it is hard to succeed.
While the economic pie of rounds and revenue seems to shrink, one can’t help but notice the prosperous rise of Online Tee Time Agencies (OTTAs). With too many courses and not enough golf being played, the supply and demand plight naturally causes downward pressure on the price of golf, thereby creating conditions incredibly challenging for the typical golf course operator. Golfers can find affordable golf in every market in the United States. It’s a buyer’s market, plain and simple.
The OTTAs in golf claim to serve both the supply side (primarily through technology and marketing services to golf courses) and the demand side (primarily through easy booking of tee times for golfers). However, from my observation, their value is heavily weighted towards the needs and desires of the golfers – the aggregation of tee time options at multiple golf courses, all on one screen. I don’t believe golf courses need the marketing services of OTTAs to meet the natural demand for golf in our marketplace, nor do I think they stimulate incremental demand for golf. But that’s me. Unfortunately, despite the positive contributions to the game of golf from the parent companies and organizations affiliated with the OTTAs, the dominating push by the OTTAs to sell the lowest priced tee times, which conditions golfers to favor those times, is an albatross around the necks of the golf courses who provide the inventory.
Why “FREE GOLF” is detrimental to the health of our industry
If you are among the audience or followers of NBC, NBC Sports or the Golf Channel, you’ve likely seen the recent launch of the new GOLFPASS program. GOLFPASS is Golf Channel’s investment in the subscription model of services for their golfing customers. Leveraging the celebrity of Rory McElroy to give it serious fuel, GOLFPASS offers golfers one free round of golf every month, access to subscriber-only golf content, 400+ hours of instruction, travel credit at golf resorts, and more – all for as little as $99 for an annual subscription, or $9.99 per month.
As a subscription service, there’s actually a lot of value packed into GOLFPASS. It reminds me of Amazon Prime. For the low fee of $12.99 per month, Prime subscribers get free, two-day shipping on over 100 million items, exclusive access to favorite moves and shows, unlimited access to millions of songs, unlimited photo storage, free online gaming, and more. Compared to when free shipping was the only benefit, it’s easy to see why consumers are so attracted to the value package. Looking at GOLFPASS, there’s a lot of value packed into the offer. It will no doubt increase engagement in golf, and that is a good thing for all of us concerned about retaining interest and involvement in the golf economy. Although GOLFPASS marketing doesn’t appear to single out the free round as the primary feature (as free shipping has been the primary feature of Amazon Prime since the beginning), I cannot help but be fixated on the free golf. But I am biased, because I represent the supply side of the industry – the golf courses around the United States. Free golf is the fatal flaw for all the golf courses now inextricably and unwittingly involved in the program.
Let’s attempt to follow the dollars and see what is happening. Joe Mulligan gives his Visa card number to the Golf Channel as a new GOLFPASS subscriber, and the Golf Channel bank account increases by $10 per month – automatically (and exponentially, of course) – while Joe likely forgets over the next four years that his card is even being charged. Isn’t that the little secret of the subscription model – that the seller benefits from the “breakage”? Meaning, if Joe doesn’t actually – or frequently – use the benefits being offered, the Golf Channel still gets Joe’s regular monthly payment. Many companies – even golf courses themselves – are moving in this direction. Nevertheless, score one for the Golf Channel!
Joe gets his first monthly promo code from GolfNow and goes to GolfNow.com to book his free round of golf in the Orlando market, and claims his “Hot Deal” (free round promo codes can only be used on the bartered tee times, and only Mon-Thur after 12:00 pm). If the Golf Channel is lucky enough, Joe got his buddies to sign up for GOLFPASS, and they all sign up for the 12:08 p.m. tee time on Monday. Joe and his buddies enjoy their round of “free” golf, go home, and hope to do it again next month after GolfNow emails the next promo code. Score one for Joe and his buddies!
While incurring the costs associated with Joe’s round of golf, the golf course received no income and attracted customers whose primary motivation was to pay as little as possible. One can make an argument that the golf course scored by receiving some marketing and technology benefits (among other possibilities) from GolfNow in exchange for no-revenue, bartered tee times. And some might argue that Joe and his buddies are going to buy some hot dogs and beer while on property. But I think that is a dubious position (more on that later). So for argument’s sake, I say the golf course scored zero.
No matter the deal or the no deal between golf courses and GolfNow, the last thing our industry needs is major corporate media promoting free golf to the masses on the back of golf course owners and operators. OTTAs are already adept at peddling rounds of golf at 20-80% off the rates of adjacent tee times on the tee sheet. Do golfers now need free golf in order to play? Is it hyperbolic to think the only natural progression after free is that golf courses will one day have to pay golfers to play their courses?
If GOLFPASS is wildly successful, it could very well mean millions of rounds of free golf being played all across the land, while golf courses continue to bear the burden of the significant fixed and variable costs needed to keep the golf courses running. The shrinking effect on the bottom line will be harmful at best and devastating at worst, leading to greater struggles and possibly more closures of good golf courses. How would this ultimately good for the golfer? How is this good for anyone in golf, including employees that work at golf courses and vendors that partner with golf courses? What about the housing development adjacent to those courses now offering free golf? Are they looking forward to viewing fallow land out their back windows?
Why bartered golf is the kryptonite weakening our industry
We cannot separate the danger of free golf from the fact that over 6,000 golf courses willingly provide the bartered inventory to allow this to happen. Barter itself is not an evil concept. As a method of exchange, it dates back to ancient times. If bartering involves the fair trading of goods or services between two willing parties receiving comparable value in the exchange, there is no problem. However, a “haze of ambiguous value” clouds the entire barter economy in golf, thereby preventing course operators from truly understanding what they are giving up in this exchange.
OTTAs that offer barter to golf courses as a compensation option are not evil per se. OTTAs, like GolfNow, capitalized on an incredibly clever business concept that was once much more discreet in nature. Before the meteoric rise of GolfNow as we know it today, the lowest-demand tee times were once peddled only through vehicles like email, where a golfer couldn’t easily compare the discounted rounds against all the other rounds in an aggregated view.
When the bartered round of golf was made the centerpiece of the relationship in an online environment, which included handing over partial or total control of pricing to the OTTAs for those rounds of golf, the OTTAs found themselves sitting on a treasure trove of inventory over which they had partial or total price control (certainly the fatal flaw operators have made over the years in these dealings). The decade around the Great Recession only made the conditions more conducive to build this treasure trove, because they were offering services for no cash-out-of-pocket. There might be nothing more seductive to a cash-poor business that runs below 50% occupancy than free technology and marketing. Thus, the permeation and influence of the OTTAs spread like a viral infection in our weakest moments. Some argue that the bartered inventory did nothing more than create new, virtual golf courses that compete directly against the very ones that supply them with their inventory. Research from the Golf USA Tee Time Coalition reveals that 47% of golf courses participating on OTTAs believe they are in direct competition with their OTTAs (an additional 26% are on the fence). Unfortunately, Coalition data also reveals that golf courses that barter don’t appear to be ready to give it up. While more than half of golf courses do not agree that barter should be a payment option in our industry, 86% of those who barter would prefer it to continue. These relationships are complicated, to say the least, and wrangling back control of pricing and inventory is going to be its own slog.
The ORCA Report, which has approximately 700 public golf courses sharing performance data every month, yields one of the most important data points in our industry and helps to remove the haze: Barter Opportunity Cost. BOC indicates what income a golf course might expect to earn had they sold those bartered rounds on their own (at an average price based on the price sold of adjacent tee times). Early insight into ORCA data coming from nearly 400 golf courses engaging in barter reveals an average of $37,000 in BOC for 2018. I recognize that golf courses participating in barter might not sell all of those tee times on their own, and OTTAs are not getting full price for those rounds. But this certainly gives you an indication of what the recapture could be if golf courses employed better marketing and price controls.
OTTAs do anything they can to monetize those bartered rounds, including the use of discount codes, gift cards, and now subscription. They’ve moved from gluttony (who remembers the rap video at the GolfNow sales meeting about selling boatloads of trade time?) to desperation (free): both deadly sins in business. All this on the backs of golf course owners and operators. I am gravely concerned that price abdication by golf courses and the prolific offering of heavily-discounted and free golf will grease the already-slippery slope towards struggle and possibly more course failure. What the golf industry desperately needs are these OTTAs to emulate the restaurant industry’s OpenTable, which facilitates no discounts or free meals. The OTTAs should have no influence on price. Let the courses compete on their own merits, and just give the world frictionless, beautiful aggregation and ease of booking – and get out of the way.
Later this season, NGCOA will publish a guide for course operators interested in understanding the details of barter. This resource will take a comprehensive look at the economics of barter in our industry, services offered in exchange for barter, prices that can be paid for such services, tips for negotiating healthy contracts, and more tools and knowledge to help course operators calculate the cost-benefit equation. The manifestation of GOLFPASS and marketing of free golf should cause course operators everywhere to take a fresh look at their dealings. At the very least, explore what the pay-to-play options are, and calculate your BOC. Talk with your neighbors. Have you gone on and off barter and have a positive story to tell? Please share it with us. Course owners and operators: we have to stop whistling past the graveyard and end this race to the bottom.