The industry debate over how much a club should budget to maintain its golf course seems never-ending, and that’s understandable. The course consumes a significant portion of the cash required to run a club and it is also one of the most visible and member-impacting amenities, so a high degree of focus is justified.
As a start, let’s consider the following scenario: While the median club in the country spends close to $1.2M on course maintenance, two clubs within a few miles of each other spend $700K and $1.75M respectively on their 18-hole courses. We all know, and have probably played at, clubs on both ends of this spectrum.
The Usual Discussion
Over the past three years, we’ve had the opportunity to interact with leaders of hundreds of clubs across the country. Typically, the discussions we hear about course maintenance budgets involve benchmarks such as cost per hole or cost per acre and a variety of specific characteristics ranging from type of grass to geographic location. To understand the way in which these factors might be used determine how much money a club spends on course maintenance, we undertook extensive analysis of club industry data, studying clubs that range in annual revenue from $1M to $40M, exist in nearly every state in the country, have nine through 108 holes, grow every type of grass and see variation of seasonality, weather conditions and rainfall.
The Business Model View
The data revealed that while traditional benchmarks (cost per hole, cost per acre, cost per member, type of grass or geographic location) may represent the actual spending of an individual club, the simple fact that the club up the road is spending more on their course than you are is not enough to justify a decision to beef up the budget. So, how much should you be spending? Contrary to conventional wisdom, our research clearly shows that the answer is ultimately not determined by some combination of physical characteristics. The reality is that clubs spend what they can afford to spend.
Before you dismiss this idea as random or arbitrary, consider this: The amount a club can afford to spend is eminently quantifiable and can be easily and accurately benchmarked. In a previous article, we discussed the Available Cash Model, including how the model illuminates the sources of cash a club generates to pay for things like course maintenance, G&A, buildings, interest expense, etc. The proportionality of spending in clubs is highly consistent and represents the foundation of the common club business model. See the pie chart below for the available cash allocation, including course maintenance, across all clubs. The proportions shown, +/- a few percentage points, are consistent across the entire industry, independent of club size or geographic location. The business model of clubs, as defined by data from the industry itself, defines these proportions as the benchmark. So roughly one-third of a club’s Available Cash (don’t think revenue) is the affordability at the average club.
Different but the Same
Going back to the industry spending distribution ($700K to $1.75M), is the club spending less, wrong and the club spending more, right? Would you conclude that one club is spending $1M too much or the other $1M too little? Of course not. We know each course can be beautiful and a pleasure for its members. In fact, the examples we offered at the beginning of this article are real clubs located just a few miles from each other. They are spending 32 percent and 34 percent of their available cash respectively on their course—nearly identical spending from the business model and affordability perspective. Any of the traditional measures, cost per hole, cost per acre, geographic location, etc., would have led to a very different, and incorrect, conclusion. The broad value of this model is further realized when one understands that it doesn’t matter whether a club has 18, 36 or more holes. The affordability, a.k.a. the proportionate spending on course maintenance, doesn’t vary based on hole count, number of acres, type of grass, etc. As supported by industry-wide data, the only driver of a club’s course maintenance budget is affordability. Clubs spend what they can afford!
On the margin, there is naturally some variation. Golf-only clubs, with less competition for cash resources tend to spend a higher proportion of their available cash (into the low 40 percent range) on their course, while very large clubs, or clubs with significant non-golf sports facilities tend to spend in the high 20 percent range of their available cash. The national median is 32 percent of available cash going to course maintenance. The split between course spending and non-golf sports spending is actually an indicator of the “golf club vs. family club” strategy. Geographically, there is variation on the margin, but only a few percentage points from the national median, as per the data map below.
So, what does all this mean? We now know that individual data points, without the context of the big picture, are often misleading and inappropriate for decision guidance and support. Next time you’re in one of these discussions, remember that your club, like all clubs, is subject to the common industry business model and your budget is driven by your available cash. It is powerful to grasp this strategic fact and for the purposes of discussing course maintenance budgets, having a clear understanding of the concept of available cash and affordability can change the dialogue to a strategic one.
Russ Conde is the co-founder and chief operating officer of Club Benchmarking. In 2009, Ray Cronin and Russ Conde formed Club Benchmarking with the vision of creating the club industry’s centralized data-sharing platform that today includes data from more than 1,000 clubs in a centralized online database and provides a key decision support tool for more than 360 clubs across the country. Russ can be reached at [email protected].