Chain ownership promises to shake up Canada's golf courses
Chain ownership promises to shake up Canada's golf courses
For Bruce Simmonds, golf is not so much a game as a gamble— and so far, his bet appears to be paying off. In simple terms, the gamble is this: that chain ownership can prove as profitable in the golf-course business as it is in countless other industries, from fast food to funerals. Simmonds, 44, is founder and president of ClubLink Corp., a three-year-old company that has been snapping up private courses in Ontario in the first stage of a planned national expansion. In 1996, the combined membership of ClubLink’s golf courses in Ontario rose 20 per cent, while revenues increased 27 per cent to $22.5 million. Business is so good, in fact, that Simmonds recently raised the initiation fee couples pay to join King Valley Golf Club, the company’s flagship course north of Toronto, to $75,000 from $60,000. “The growth has been dramatic,” says Simmonds, who is now pressing ahead with plans to buy 23 clubs in the southeastern United States. “It really is fantastic.”
ClubLink is pursuing a so-called roll-up strategy similar to the approach used by Loewen Group Inc., the Burnaby, B.C.-based chain of funeral homes. Like golf courses, funeral homes were traditionally mom-and-pop operations
until entrepreneurs such as Loewen Group founder Ray Loewen began buying them out. Today, Loewen controls 984 homes and 356 cemeteries, generating almost $1 billion in annual revenues. Simmonds and several like-minded investors hope to lead the Canadian golfing industry—in which all but 200 of the nation’s 2,000 courses are independently owned—through a similar wave of consolidation. In Vancouver, former Loewen Group chief financial officer Bob Garnett runs a company called Eaglequest Golf Centers, which has been buying up small golf courses and driving ranges in British Columbia, Washington and Texas. And in June, Granite Golf Group Inc. of Toronto received $138 million from a Texas-based venture capital fund to finance the purchase of dozens of public golf courses across North America. As Simmonds
puts it, the golf industry has one big advantage over the funeral business: ‘You only die once, but you can play golf 30 times a year.”
The success of the three companies’ growth strategies largely hinges on whether the game continues to increase in popularity as the baby boom generation grows older. According to a survey last winter by Score magazine and ComQuest Research of Toronto, 25 per cent of Canadians over age 18 played at least one round of golf in 1996, up from 18 per cent in 1990. By all accounts, that makes Canadians the world’s most avid golfers. In the United States, by comparison, only 16 per cent of the adult population teed up last year.
The ComQuest findings were supported by another study re-
leased in April by the Royal Canadian Golf Association. It concluded that nearly a million Canadians have taken up the sport in the past seven years. Most observers expect the growth to accelerate. “Everything on my radar screen suggests we’re in for a
growth spurt over the next 15 years,” says Mike Hough, an analyst at HSBC James Capel Canada Inc. in Toronto.
Simmonds’ decision to start acquiring golf courses could not have been better timed. In 1989, just before the economy entered a deep recession, the bottom fell out of the high-end golf market. Memberships that once fetched $45,000 were suddenly worth a small fraction of that. Simmonds, a chartered accountant who already owned one course near Toronto, assembled a team of investors and in 1992 floated a stock issue on the Toronto Stock Exchange. They raised $45 million, which ClubLink used to finance the purchase of three more golf courses. Its most expensive acquisition was King
Valley, which had cost a Swiss firm nearly $28 million to develop three years earlier. ClubLink bought it for only $12 million. The company has since purchased two additional Toronto-area courses, one in central Ontario’s Muskoka region and two near Ottawa. A seventh Toronto-area course is under construction.
Once it buys a course, ClubLink moves quickly to boost revenues by centralizing management and cutting surplus staff. Millions of dollars can be saved by buying equipment and supplies in bulk—
everything from fertilizer and grass seed to golf carts and clothing that is sold through the pro shops. Vancouver-based Granite Golf even hopes to save money by transferring staff each winter from its Canadian properties to clubs in the southeastern United States.
For golfers, one of ClubLink’s attractions is the access members receive to other chain-owned courses. At the Kanata Golf & Country Club, just west of Ottawa, membership costs $15,000 up front plus as much as $2,195 a year, but for that price members are allowed to play for free at some of the firm’s other courses during certain hours. On average, ClubLink says its courses are operating at 75 per cent capacity—high enough, apparently, to allow the company to raise its fees. A joint membership at ClubLink’s GreyStone Golf Club, southwest of Toronto, now lists for $77,500, up from $22,000 in 1994.
Profits are also increasing. After a loss of $2.5 million in 1995,
the company earned $1.9 million in 1996, and analysts expect profits to exceed $13 million by 1999. “The concept is very sound,” said Dick Grimm, one of Canada’s leading golf authorities. “They have been acquiring some significant properties. I think they’ve turned the corner.”
Simmonds’ latest move is intended to lengthen the golf season. The company recently loaned $4 million to Greenville, S.C.-based Golf South, which operates 23 courses in the southeastern United
States, where thousands of Canadians spend all or part of the winter. ClubLink members will receive a discount on green fees at those courses. Moreover, Simmonds says the cash injection gives ClubLink an option to purchase 51 per cent of Golf South in the next three years.
ClubLink is also trying to boost revenues by renting its facilities to corporations and charities for fund-raising events. At about $35,000 a day, Simmonds says that King Valley is the most expensive course to rent in Canada. Meanwhile, the company has major condominium developments underway at The Lake Joseph Club in the Muskoka region of central Ontario, King Valley and the Emerald Hills club northeast of Toronto.
Simmonds’ strategy, however, is not without risk. Private, high-end golf courses are particularly susceptible to downturns in the economy, which can quickly undermine the value of a $75,000 membership. Partly for that reason, Granite Golf president Elliot Lewis said he plans to avoid the elite market altogether. Last month, Granite lined up financing from the Lone Star Opportunity Fund, a Dallas-based venture capital group, to underwrite the purchase of dozens of public golf courses across North America where golfers typically pay from $20 to $75 to play 18 holes.
Lewis says his company is now negotiating to purchase 32 clubs in Florida and intends to own or manage 150 courses in about five years. “We want to stay with affordable golf because it lessens the risk in a downturn,” Lewis says. “A lot of retirees are going to golf on the affordable golf courses, so we see that as a major bonus for us.”
While ClubLink and Granite chase existing golfers, Eaglequest of Vancouver is buying up driving ranges and golf centres in an attempt to make money from younger, less experienced players. Golf centres generally offer shorter golf courses and expert instruction to people who do not have time to play a full 18 holes. So far, Eaglequest has purchased 14 driving ranges and
golf centres in British Columbia, Washington and Texas. Eaglequest president Garnett says the firm hopes to have 100 by 1999. ‘We are going at full speed,” he says. ‘We had underestimated the potential for growth in the industry and the scope of the opportunity.”
As part of its growth strategy, Eaglequest recently hired Richard Zokol, a Canadian golfer who has spent 15 years on the PGA Tour, to be its education co-ordinator. Now, at the company’s state-of-theart facility in Coquitlam, B.C., customers can play a nine-hole course or practise driving golf balls under the watchful eye of an instructor. Like Simmonds and Lewis, Garnett believes the industry is just taking off. “The other side of the coin is Tiger Woods,” says Garnett, referring to the 21-year-old native of Cypress, Calif., who is golfing’s latest sensation. “He has opened up the whole market to the younger generation.” That should make the country’s golf courses even busier, and club owners even richer. □
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