Is the Golf Economy Really Handicapped?

One of my passions is to play golf and I wanted to post something interesting to me so this was a natural fit.  I found two articles that present two similar but different sides to the economic health of the golf industry.  The first article is The 2011 Golf Economy Report which focuses primarily on the economic data from 2011 and compares it to an initial report in 2000 and a second report in 2005.  I don’t want to write a summary of the report but only state that it found the golf economy generated almost $70 billion in goods and services in 2011, down 9.4 percent from 2005, while several other sectors of the golf industry actually grew.  The data indicate poor golf real estate and a decline in golf course capital investment are responsible for this decrease while facility operations, tournaments and associations, and golf-related travel grew by 6.4%, 21.6% and 14.2%, respectively.
            The second article I found focuses more on the socioeconomic issues plaguing the golf industry in recent years.  According to an article in the Economist, The future of golf: Handicapped published in late 2014, the golf industry is facing an economic downturn.  One of the biggest reasons for the downturn is the economic recession from 2007-2009.  However, some other reasons for the downturn are a decline in new and retired players, it’s too meditative in our frenetic world and it’s just too hard.  Some solutions have been to make the game easier and change dress codes to be more laid-back to appeal to the younger generation.  Some have even suggested using the course for other sports like footgolf.  There’s no clear consensus on the exact problem or the solution among golf professionals.
The first thing that stands out to me is that golf is entertainment, at least for most that play it, and the game survived and even thrived in some areas through an economic recession.  Entertainment is one of the first things to go when I tighten up my budget and I suppose it’s the same for many other Americans.  I’m surprised the article in The Economist didn’t highlight that more by comparing the effect of the recession to other entertainment industries.
The second thing which stands out more than anything else are the reasons presented in this article for why there’s a decline in play.  I don’t agree it’s related to the game taking too long or not being entertaining enough.  I agree it’s not an Xbox kind of entertaining but many young people are willing to spend 3-4 hours going to a concert or attending a sporting event or watching it on TV.  I believe to attract attention to the sport, especially from the younger generation these courses need to focus on the almighty dollar.  Even in St. George, where there is a lot of golf, $40 a round is on the lower end of the cost to play.  I know when I was in my late teens and early twenties this was a week’s worth of groceries.  With the growth of course development and construction over the last 30 years, the demand for golf is elastic.  This means a decrease in price will increase revenues. 
Please let me digress for a minute.  I remember a number of years ago The Ledges Golf Club in St. George was a ghost town.  The grass was still being watered and cut meaning fixed costs were still being paid while little to no revenue was being generated.  I used to say there’s too much golf in St. George for these guys to be charging so much.  I think the greens fee was $60 to play 18 holes with a cart.  I would make the comment that you can sell 1 widget for a million bucks or a million widgets for a buck each.  Evidently, someone else took notice and they lowered prices and created a players card for $100 which allowed you to play a round for $20.  People showed up in droves, my friends and I included.  I was not surprised when the course began to thrive.  I don’t want to jump on my soap box here but The Ledges recently raised that players card to $350 and each round is $35.  I know myself and almost 20 other people decided not to buy the card and to play elsewhere when we've all played almost exclusively at The Ledges for the last 3 years.  It should be interesting to see how this plays out for The Ledges.

I tell that story because all the people in that group that left were over 40 years old with nice paying jobs or a comfortable retirement and it still came down to price.  That has to be especially true for a younger generation.  To get a young person or anyone for that matter hooked on golf they need to enjoy it and to do that you simply have to play more often.  This puts an even higher premium on price.  Yes, the game is challenging but so are video games when you first play them.  I’m willing to bet young people would not be as good at video games or play as often if they had to pay a fee of $40 for every 4 hours of game time.  


Dave Tufte said...

Trey: 100/100

I like this post (although they don't need to be this long for me to like them). There isn't too much economics here, but it's not like there's a ton out there about golf economics to begin with.

I'm leery of the article blaming the Great Recession for the decline in golf. I'd been hearing about this decline for some time before then.

These things go in waves, for reasons we really don't understand, but I'm old enough to remember when golf was a dying sport in the 70's and into the mid 80's. Then it came back for no real reason I could see other than as a fad. I'm actually from the generation when everyone played tennis; now, few do.

I do think there are more options than there used to be. And a lot of these are cheaper.

I also think we tend to underestimate the cost of golf even when we admit that it's expensive. I know that sounds weird, but golf is expensive in marginal monetary costs (the greens fees), and marginal non-monetary costs (the time involved), and in the fixed monetary costs (buying equipment), and in the fixed non-monetary costs (driving time, waiting).

As an aside, note that I'm thinking of those costs as being fixed with respect to an individual round.

I also don't think that we can underestimate the effect of alcohol here. Many, many, golf courses in other parts of the country subsidized their courses with profits from alcohol sold at the clubhouse. As we've moved away from that boozier mid-20th-century lifestyle, so has the interest in golf.

I like the personal story about The Ledges. I think we see that a lot in sports and pastimes in general: the price inflation greatly exceeds that of other goods. The excuse is always that customers want more amenities. I'm sure they do, but they seem to want them for less than what would make them profitable.

Jerry said...

While there is no disputing golf is in an economic downturn right now, I find that location and amenities have a lot to do with course turnout. Also the fact that Utah is a dry state. Dr. Tufte related to this, and I completely agree. You go anywhere else and play golf and those cart girls (and boys??) are driving around mobile coolers packed with your choice of light beer and spirits. Almost everyone (of age) on the course is enjoying an adult beverage as they play, so you can't discount the social aspect of golf. I worked at a course in east San Diego that I guarantee was relying on a portion of profits from alcohol,along with their Casino sponsorship. I would even go so far as to say that golf is still a fad, maybe leaning towards who can consume the most beer rather than shoot the lowest score but still a fad nonetheless.

Another aspect of golfing is the restaurants and bars, pretty much every course outside of Utah has a bar or restaurant that can subsidize the course. Outside the cart girls are catering to the active golfers while the others are enjoying a nice dinner or drink. Overall I think the economic position of golf is adapting to accept more social events. Less and less people are out there to actually golf seriously. Weddings, events, and basically any party can take place at most courses across the country supplementing the income from cart and green fees.

Dave Tufte said...

Jerry: 50/50

I don't think it's just because it's alcohol that's available. Rather, I think the demand for alcohol is more inelastic on a golf course. This leads to bigger markups.

This is kind of an odd story, but it popped into my mind as I thought about inelasticity. I'd never made this connection before. But, when I was a teenager (in the suburbs of Buffalo) there was a dinky little gas station across a side road that had a country club on the other side. Sometimes when you'd get gas there, golfers would park their carts on the other side of the road and walk over to the gas station where the prices where lower. Google Street View shows me that the gas station is still there, but that country club (across the street, and over the berm) closed for good last December.

So maybe there's more to this idea that golf is the loss leader being supported by the cash cow of alcohol sales. Perhaps the moral of the story is not to have a place that sells cold beer nearby.

Cubbies said...

One of the major reasons I feel golf is a dying sport is the cost of teaching your kids to golf. Without the opportunity of getting to learn the game at a young age, they are less likely to golf when older. When I first started to golf, adult passes for a cart and green fees was about 9 bucks and youth fees were a dollar. Now I know this was a while ago and in Kanab; but, it is still relevant today. If I want to take my kids golfing I have to deal with inconsiderate older golfers telling me to hurry up or take the kids else where to teach them. And there is the cost of over a hundred bucks to take them. So basically if you want to get serious about golf you need to wait until your kids are older and have moved on.

As far as having alcohol available on the golf course this would definitely help drive the costs down; but, I don't think it would help bring in new clients. If you want new clients you need to be able to attract them at a younger age. When you focus your attention on the older generation you are slowly killing your business. I think this has a lot to do with why the business goes up and down. Once the older generation quits playing, the costs go down and the courses free up for people to learn on and become addicted to the sport. The only problem is the cycle will continue.

Dave Tufte said...

Cubbies: 44/50 (you need a "were" not a "was" in one spot, "else where" is one word).

I agree that costs of teaching kids to play are high. But they are high for other sports too.

Now I absolutely think that the costs with golf are more explicit and more monetary. Getting your kids involved in football is far more expensive, but the opportunity costs of potential injury are implicit, and the explicit costs of medical care post-injury are effectively subsidized by the fact that 85% of the population has health insurance.

And I don't think that the benefits of playing golf have changed that much.

So I'm thinking either the costs are higher than they used to be, or we're subsidizing the costs of other activities.

FWIW: Just to be clear, I wasn't saying that alcohol was the reason golf was popular, but rather that profits on it were helping to cover (cross-subsidize) the costs of the course itself.

Dave Tufte said...

The Washington Post had this article (just before break) about declining interest in golf, with some discussion of reason and responses. There's not too much that we haven't covered in this column, but we're not the only one noticing.