Are We There Yet?
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The annual tally of golf course closures dropped again last year, down to 105 by our count, as measured in 18-hole equivalents (18-HEQ). This represents a 62% decrease from the peak of the supply correction in 2019.
Like a child on a road trip might ask, “Are we there yet?” Has supply and demand finally returned to a reasonably balanced state? Is the correction over? The answer, at least at a macro-level, is a qualified “yes.”
A couple of things lead us to believe this. First, the number of golfers per 18-HEQ is back to where it was before the golf development boom of the 1990s, when golf supply and demand seemed to be in pretty good balance. Figure 1 illustrates the decline in this important ratio due to the surge in golf course development, and its eventual recovery.
Which leads in part to a second thing: golf courses are making money again due to somewhat less competition, increased demand thanks to the pandemic, and even the long-lost ability to nudge up green fees and membership dues. An NGF survey of golf facilities in 2022 revealed that only 4% of public courses and 1% of private clubs were in a state of financial distress. This is a sharp drop from previous surveys. In that same survey 2/3 of public courses and 4/5 private clubs claimed to be in good or excellent financial shape.
Of course, we’ll see closings this year, and every year. Golf courses are by and large small businesses. Thousands of them around the country. When they close, it’s not necessarily a reflection on golf’s popularity. It can be because they’re not making enough money, or the land is worth more than the course on it. Sometimes it’s as simple as there not being anyone in the owner’s family to take over operations and there’s no interested buyer.
Last year’s course closings represented just under 1% of total supply. Hard to say what a normal golf course business attrition rate is, but it wouldn’t be unreasonable to think somewhere between one-half and one percent. Which, by the way, is pretty darn good compared to other small businesses.
According to the U.S. Bureau of Labor Statistics (BLS), approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years. Only 25% of new businesses make it to 15 years or more. These statistics haven’t changed much over time, and have been fairly consistent since the 1990s. By that standard, our golf course attrition rate is nothing to be ashamed about.
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