By Peter Blais

Limited access to capital is compelling many operators to rethink key strategies and do more with less

TOM “WHITEY” O’MALLEY AND HIS BUSINESS PARTNER RECENTLY DECIDED TO APPLY FOR a $250,000 line of credit to get them through the winter months and fund some planned renovations after buying out a few other partners the previous year. The co-owners of Saddleback Golf Club north of Denver, Colorado, already had several loans, but based on their favorable credit history, they thought the transaction would be a “slam dunk.” Their local lender agreed.

However, when the application made its way up to higher levels in the bank, management offered to loan them the money at a much higher interest rate than the longtime customers were used to. “They had decided golf was a bad investment and were considering stopping golf loans altogether,” O’Malley notes. “It flabbergasted us and our local banker.”

The bank management cited its own difficulty in obtaining credit in this struggling economy, even though the government has lowered the interest rates it charges banks to obtain capital. O’Malley and his partner weren’t buying it.

Rather than paying what they considered an unfairly bloated interest rate, the two owners identified some creative ways to lower their debt and take the bank out of the picture. Specifically, O’Malley’s partner reached into some of his own savings, and O’Malley refinanced his house to to generate extra capital. Spring eventually came and golfers started teeing it up once again.
As for the planned renovations? O’malley shelved those for the time being, opting instead to wait until the current economic funk lifts before trying to take on more debt.

Truth be told, many course operators around the country are finding themselves in similar situations—or worse. Some public and private facilities that financed renovations or acquisitions when the economy was stronger are now struggling to make payments on those loans and, in some cases, simply hold on to their properties. Other owners, meanwhile, find themselves unable to secure financing for cash flow or much-needed repairs and renovations that could help them stay more competitive in the quest for members.
It’s the ultimate catch-22.


Hitting Home

John shields is intimately familiar with the financial squeeze currently gripping the golf course industry. The owner of Glenn Dale Golf Club and president of the Maryland Golf Course Owners Association, Shields knows operators in his region, northeast of Washington, D.C., who owe lenders anywhere between $2 million and $10 million. One nearby course closed last year for financial reasons, and the original owners of another facility were forced to take back the property when the operator could no longer make his payments. Two other clubs are debating whether or not to open their doors at all this year.

“There is no good answer,” says Shields, who points to a relatively flat participation rate as one of the major underlying causes of trouble. “We really haven’t had a significant increase in rounds since 1990, but there has been about a 50-percent increase in the number of courses since then. That translates to a third less rounds per course for all course operators over the past 20 years.”

It’s a familiar refrain, but one that resonates with owners around the country, particularly in the current climate. Making matters worse, operators who have traditionally viewed their land as a hedge against uncertain times are finding they no longer enjoy that luxury.

“Many owners always believed the underlying value of their property for potential housing or commercial development would cause lenders to view them in a favorable light if they needed cash to steer them through a rough stretch,” says Greg Stang, director of operations for Wilson Golf Group, which owns eight golf facilities in Minnesota, Wisconsin and Colorado. “But with the housing market in shambles and commercial businesses in recession mode, that’s not the case.”

Wilson Golf Group (WGG), unlike some less-fortunate companies, has been able to continue operations without cash infusions. “We’re hanging tight, hoping to improve and finding creative ways to enhance the bottom line,” says Stang, who also serves as president of the Midwest Golf Course Owners Association.

For instance, WGG recently contracted with a new software vendor for its databases and e-mail lists, and has subsequently beefed up efforts to communicate with customers and fill tee times. On the expense side, the company began pre-buying as much as 90 percent of its fuel a couple years ago and was able to lock in prices at six of its eight courses. That move alone has yielded approximately $50,000 in savings, and Stang expects to save that much or more in 2009.

“We also had some success appealing our property taxes at three of our courses,” says Stang, who notes that those efforts produced a total of about $90,000 in annual savings at WGG’s two courses in Colorado.

Indeed, cutting costs—or at least looking for places to trim fat—seems to be the preferred tactic for owners seeking liquidity. Mark Farrow, general manager of Remington Golf Club in Kissimmee, Florida, advises operators to “go back and scrutinize every line item in the budget to see where you might do something, anything, more efficiently.” At Remington, that’s taken the form of reduced grooming on some out-of-play areas, which helps the club save on maintenance, inputs and labor.
But with most owners already having sliced their operations to the bone and the economy showing no signs of improving in the short term, trimming costs is easier said than done. Plus, cutting too deeply in some areas may actually backfire.

“You always have to reinvest in your product to stay competitive in the marketplace,” Stang says. “Conditioning and equipment have to be kept at a certain level. Otherwise, you’ll just fall further behind.”

According to Stang, WGG managers avoid making concessions on areas of the course that customers notice. That means staying away from no-mow patterns, maintaining roughs at a lower height to minimize difficult lies, and ensuring greens are in prime condition and not too difficult to putt. “Standards must be kept, and course conditioning is the most important of those standards,” he notes. “We won’t cut there.”

Perhaps the most common cost-cutting strategy is the one employed by Shields. “There’s basically no credit available, so we’re trying to keep what cash reserves we have in the bank for when we really need it,” he says. “That could happen if things continue like this for another two or three years.”


When Cutting Back Just Won’t Cut It

Sometimes no amount of cost cutting can help operators whose bank notes have come due and are scrambling for credit. In the past, this might not have been a huge problem; but in the new economy, traditional golf lenders are exiting the business, which leaves far fewer options for capital.

“It has never been more difficult to borrow cash,” says Larry Hirsh, founder and president of Golf Property Analysts. “What are the alternatives? Daily fee courses can try to find additional investors.” Then again, identifying individuals willing to part with their own money is an equally challenging proposition with all the hits many have taken in their own portfolios.

Another option is to try the original route taken by O’Malley. Though he ultimately chose an alternative approach to secure needed working capital, most experts agree that O’Malley’s initial tactic of leveraging past banking relationships is the best approach to securing capital to fund mission-critical projects or help guide a business through a rough period. For operators who choose that strategy, William Dunkelberg, chief economist for the National Federation of Independent Business, offers these tips:

• DON’T PANIC. Get the facts before reacting. Find out if you’re facing a change in your bank’s willingness to extend credit, reflected by smaller lines of credit or higher interest rates.

• BRANCH OUT. If your banking relationship is with a megabank, start making friends with community banks.

• EDUCATE YOURSELF. Find out if your bank loans are affected by the mortgage crisis by checking the FDIC’s summary of deposits site (www2.fdic.gov/sod). Most community banks are not impacted.

• MAINTAIN A RELATIONSHIP with your banker and renew your friendship. Update information related to any loans you may have. Remind your banker that you’re a valuable, long-term customer who cares about continuing the relationship.

• MANAGE YOUR CASH WELL. Don’t invest in inventories that you may not need or make capital expenditures that aren’t currently required for the business. Doing so improves your balance sheet and demonstrates vigilance to your lender.

• CHECK YOUR CREDIT REPORT for accuracy and correct any erroneous entries with the major credit bureaus: Equifax, Experian and TransUnion.

• MANAGE YOUR ACCOUNTS RECEIVABLES, especially if they’re collateral for any loan. Make sure your lender knows that they are good assets.

Ultimately, loans have to be repaid and the appeal of that new renovation or piece of equipment can quickly lose its luster when payments come due and there’s little cash in the register to fund it. Small wonder that owners who have access to capital or are fortunate enough to have reserves stress the importance of financial prudence, particularly for the immediate future. “We could use a new irrigation system, but I’ll go back to using quick-couplers before I’ll buy a new one in this economy,” Shields says. “If you think you might not be able to afford something down the road, don’t take on the debt to buy it.”

The Golden Age of golf ownership is over—or, at the very least, on an indefinite leave of absence. Logic and history suggest that money will begin to flow again and course owners will eventually have greater access to capital. But until then (and, perhaps, long after), fiscal conservatism should govern business decisions and strategies.

“Owners are starting to realize you can’t get everything you want, especially in the golf business,” says Tim Miles, Sr., president of GolfVisions, a golf course management firm based in Northlake, Illinois that operates 10 courses around the state. “We need to change our culture. The question now is, ‘What do you need?’ rather than, ‘What do you want?’” 

Peter Blais is a Maine-based freelance writer.