The downturn helped management companies gain renewed influence in the club market—and strengthened their long-range interest in owning and operating properties that fit the industry’s future.

By Joe Barks, Editor and Joanna DeChellis, Managing Editor

During the most recent recession, it once again held true that misery loves company—but in the golf and club business, that was largely a positive development for the management companies that own and/or operate portfolios of properties in the market.

Bigger Pieces of the Pie

Five-Year Changes in Portfolio Size* for Selected Management Companies

Billy Casper Golf—2006: 64; 2011: 125

ClubCorp—2006: 134; 2011: 154

EAGLE Golf—2006: 24; 2011: 70

KemperSports—2006: 56; 2011: 85

OB Sports—2006: 24; 2011: 42

Troon Golf—2006: 175; 2011: Approx. 200

*Number of individual properties; C&RB research/estimates

Since C&RB’s last in-depth look at the managed side of the market (“Is Big Business Better Business?” July 2006), most of the industry’s well-established management firms have seen their size and influence grow, and several significant new players in the field have also emerged.  Pinning down the exact size, and industry share, represented by the management-company segment is not an exact science, as some counts focus on “18-hole golf course equivalents” (leaving out business clubs and lending extra weight to multi-course properties), while others look at the number of properties in a portfolio. But in all cases, measures of recent growth and increased representation for management companies in the golf and club market are eye-opening, especially since they were attained during a severe economic downturn and in a business that overall has had flat growth, at best, for more than a decade.  Earlier this year, Golf Inc. put growth for the world’s largest management companies since 2006 at 21 percent, with U.S.-based management firms growing 11 percent in the last year alone.

“Our efforts to make clubs more relevant helped us weather the downturn better than much of the hospitality business.” —Eric Affeldt, President/CEO, ClubCorp

Not surprisingly, this has also been reflected in notable ascensions for management-company executives in various rankings of the industry’s “most powerful” and “influential” people. ClubCorp President/CEO Eric Affeldt took the top spot (after being #4 in 2009) on Golf Inc.’s 2010 “Most Powerful” list, with executives from Troon Golf, Billy Casper Golf, and KemperSports also holding or moving up from their previous Top 10 spots. The leaders of Century Golf Partners/Arnold Palmer Golf Management, EAGLE Golf,  PGA TOUR Golf Course Properties,  and Heritage Golf Group also earned mention as key power players.

Equally important as the growth in raw numbers and evidence of increased influence has been the notable shift in how management companies have expanded their strategies and business models, in terms of the types of properties theyare interested in adding to their mix, how they are venturing into new geographical regions, and how they are rethinking the nature of their relationships with club and course owners and operators.

Firms that traditionally have only been interested in acquisitions are now also exploring long-term management-contract arrangements. Companies that were focused primarily on public or resort properties are now finding the opportunities that have also come to them from the private-club sector impossible to ignore. And barely a week now goes by without a new announcement from a management company that its latest portfolio addition is its “first in [name of state].”

“People ask me a lot of times, what kind of course is OB looking for?,” says C. A. Roberts, President of OB Sports, the Scottsdale, Ariz.-based firm that Roberts says has experienced a “pace of growth that’s a little faster than average” in recent years (OB now has contracts with 42 properties).

“The days of huge initiation fees are gone. Clubs need to be of value to their members and their families.” —Dana Garmany, Chairman & CEO, Troon Golf

“It doesn’t work that way anymore,” Roberts says. “You’ll never find anything that says a project has to be this, this and this. OB has no specific goal; it’s more important to us who are we working for and how that relationship develops. We’re privately held and don’t have to grow for the sake of growth;  we grow for the good of the company. We’ve always approached a project as: ‘Let us fit into your club. Where do you need help?’ Each of our 42 projects is a different snowflake.”

There was clearly more of an “I don’t need a management company feeling” before the recession, Roberts says. But the downturn then caused more clubs and courses of all types to “reevaluate and say, ‘Maybe we need some professionalism around us.’  ”

“There has clearly been a change of attitude in the eyes of ownership groups and even the [staff] professionals themselves,” Roberts adds. “Where for a long time, [we] were seen as a little too ‘corporate’ or ‘cookie-cutter,’ now they’re saying, “Well, let’s hear what they have to say.’ ”

But the resulting spike in recession-induced inquiries hasn’t set off a feeding frenzy among management firms at every sign of distress.

“We get a lot of calls now from troubled properties,” says Roberts. “Once a week, probably, I get a call from John Doe, Board President of Smalltown CC. I say hold on, you can stop there, I know the story: You’re challenged with filling a membership in a town where no one is buying them.

“[Clubs like this] realize they have problems and they think a management company will solve them,” he adds. “But that’s not always the best case. Sometimes they need to fail and restructure to ultimately succeed. We get a lot of calls from people that we can’t help, and so we have to say no, thank you.”

Wine rooms and media rooms that can double as “sports bars” (at Braemer Country Club in California, below) are the types of features that ClubCorp now seeks to establish as essential parts of the club experience throughout its portfolio.

Management firms also aren’t exploiting their elevated status to squeeze existing clients dry or make it impossible for them to return to a more independent or suitable status.

“We’ve had contracts that were terminated upon a sale,” Roberts reports. “Sedgefield Country Club [in Greensboro, N.C.], for example, was an equity-owned club that was sold to McConnell Golf [one of the “boutique” management firms  that has emerged in recent years].

“We encouraged the sale because it was better for the club,” Roberts says. “If we were trying to protect ourselves, we wouldn’t have pushed for it, but it was the right thing for the club, and we encouraged the members to accept the sale.”

Ripe for Change

While management firms are still exercising caution and discretion when surveying what has become a much more opportunity-rich landscape of potential accounts, the events of the last few years have served to sustain, and strengthen, their long-range interest in the club business.

From his new perch at the top rung of industry “power,” Club Corp President/CEO Eric Affeldt says the view really hasn’t changed: ClubCorp sees genuine opportunities for growth and success in the industry, but optimism and aggression must still be tempered with always ensuring a proper fit with the changes that are significantly altering the profile of today’s, and tomorrow’s, club members and guests.

“Our efforts to make clubs more relevant have helped us weather the downturn better than much of the hospitality business,” says Affeldt, invoking the mantra he has pushed since being put at ClubCorp’s helm after it was acquired by KSL Capital Partners in 2006 (see “How ClubCorp is Defining the Market…Again,” C&RB, August 2008).

Because ClubCorp owns most of the 150-plus properties in its portfolio (although, as a reflection of how all management companies are broadening their scope, it is also taking the time now to listen more to increased requests for help on a contract basis), Affeldt says his company did have to notch back the pace of its growth strategy during the worst of recent times.

But that didn’t mean it was hunkered down just waiting for the storm to pass. Rather, ClubCorp “invested time and significant money in ‘deep-dive’ research,” Affeldt says, “to better understand what the club experience meant for former, existing and prospective members.”

Much of that research affirmed that ClubCorp has been on the right track to  “relevance” through how it has been reinventing the 53 business and sports clubs in its mix, while at the same time contemporizing its more traditional golf and country clubs, so that they all succeed in creating and offering what Affeldt simply defines as “space that is used more often,” both inside and outside (where applicable) at a property.

In clubhouses, this has taken the form of “anytime lounges” and media rooms that can be attractive draws both for business and social purposes. “These rooms are becoming popular as ‘sports bars’ in private settings, where you can be comfortable with everyone else who’s there,” Affeldt notes. “They have 100-plus-inch [TV] screens and surround sound that may not quite approach the experience provided by the Jumbotron at Texas Stadium, but it’s pretty close. They also have great appeal for business meetings, or for showing wedding videos at receptions right after the ceremony, and many other purposes.”

Outside, Affeldt says ClubCorp properties are continuing to emphasize helping new golfers get more comfortable with the game at their own pace, by providing expanded practice facilities, short-game areas and putting greens.

“In some places we’ve gone to more than double what used to be considered large for a putting green—to as much as 10,000 and 12,000 square feet,” says Affeldt. “That’s proving to be popular because it helps to segregate kids and others from the more serious players, and brings more people out, regardless of playing ability, to have fun by literally just puttering around. ”

Relevance is also being achieved, Affeldt reports, through the added value that ClubCorp, like other management companies with similar programs, can offer by extending privileges to individual club members throughout its network of properties. In ClubCorp’s case,  the process of making these available is now being streamlined through a new Interactive Benefits Finder.

“We’ve come a long way in helping our members make the most of our network,” Affeldt says. “They love how they can use another club that’s different, but still be treated there like it’s their home club. This continues to be a very strong selling point both for member retention and for new people in our system. When we made our most recent acquisitions in Atlanta and on Long Island, that was one of the things we heard most of all: ‘Wow—I get an improved club here, and I get to go to all of these other clubs, too?’

“[Encouraging members to use the entire network] really fits well with our concept of making our clubs become the physical extension of social media,” Affeldt says. “We want them to be extensions of their communities, and not commodities.

“During the downturn, we had to take a harder look at how to make [cost-control] adjustments while still continuing to find ways to improve the member experience, and I think for the most part we achieved that,” he adds. “Assuming the economy can now remain relatively stable, we’re looking forward to finding more opportunities ahead.”

New and Noticed

Another factor that will keep the established management companies on top of their games while pursuing their increased opportunities is the presence of some formidable new competitors.

“Now is the opportune time to leverage the organization we have built.” —David Richey, President, Toll Brothers Golf and Country Club Division

One new player that even got the attention of The Wall Street Journal recently for what it’s doing in the club business is Toll Brothers, one of the nation’s largest home builders. The company has had club holdings for over 10 years, but as the Journal reported, its interest in the market was renewed as it began to search for any new possible “oasis in the desert” because of the real-estate collapse. The Journal reported that Toll Brothers had more than $1 billion in cash on hand and was currently looking “on both coasts and in Texas for stand-alone, country club deals.”

The company’s Golf and Country Club Division, based in Horsham, Pa. (suburban Philadelphia), did complete two acquisitions in 2010, of Parkland Country Club in Florida and The Hasentree Club in Wake Forest, N.C. As it brings new properties into the fold, it will be well-equipped to manage them, too—the division President is David Richey,  who spent 28 years with ClubCorp, and the last 12 as its VP of New Business Development, before joining Toll Brothers in 2002. Richey has brought in other ClubCorp veterans, notably Senior Vice President Mitchell Laskowitz and Vice President of Operations Maurice Darbyshire.

“We have a team of highly regarded professionals and we feel that now is the opportune time to leverage their skills and the organization we have built, as  [Toll Brothers looks] to expand its country club ownership, management and operations portfolio of premier clubs,” Richey said last year.

Back With a Splash

Another new entry that’s been making a big splash in the management company field is actually a returning player. Peter Nanula, a Harvard-educated lawyer with a background in private equity, ran Arnold Palmer Golf from 1993 to 2000 and oversaw the acquisition of 30 courses, but then sold the company when he thought golf’s future had dimmed. He then became a private equity investor, but decided to jump back into the industry earlier this year, after seeing how courses were selling for bargain prices.

And “jump” is an understatement—Nanula says he wants to buy $50 million worth of golf course assets through a new company, Concert Golf Partners, that recently paid $3.5 million to acquire Heathrow Country Club, a private club with 700 members in Lake Mary, Fla., that is the centerpiece of one of Central Florida’s most well-known private communities.

Nanula has said that he already has two other courses, one in Florida and one in Arizona, under letter of intent. “We are interested in hearing from owners of clubs who want to do something fast,” he added. “There is a large volume of tire-kickers out there who spend a lot of time, but don’t really have the money [to buy]. That story is getting very tiresome for owners and brokers.”

But Concert Golf Partners, Namula said, has cash on hand and can close deals within 30 days. The company wants to focus on courses that have one million people within 20 minutes of the golf course, revenues above $3 million a year, and are not currently professionally managed. “That rules out of a lot of clubs in tourism markets like Las Vegas and Palm Springs,” Nanula said. “They struggle when the economy is down.” But he said Concert Golf Partners would be a good buyer for equity clubs facing bank pressure, bank-owned courses, and clubs like Heathrow, which was foreclosed on in March.

After making acquisitions, Nanula plans to operate the courses on his own and said that Concert Golf is in the process of hiring general managers, directors of golf, and other staff for the properties. But he also made an interesting distinction about how he wants his firm to be perceived.

“We are not building a management company,” he said. “We will be owner-operators with our own team. And for that team, we want to talk to the top 2 percent — people with track records of producing top results.”

Attractive Boutiques

There are also many “boutique” companies that have blossomed over the past five years, by staking out distinctive niches as they focus on specific markets, regions or property types, or develop cutting-edge expertise in specific aspects of club operations.

Sedgefield CC in Greensboro, N.C. was managed under contract by OB Sports, then sold to McConnell Golf—and all parties involved endorsed the transition.

One emerging firm that has successfully combined several of these strategic steps is Raleigh, N.C.-based McConnell Golf, LLC. The company also has a software division, ClubSoft, and McConnell’s VP Sales & Marketing, Ray McDonald, is also ClubSoft’s President.

Not surprisingly, technology is a major part of McConnell’s strategy for developing its business and distinguishing its clubs.

“From a management standpoint, we always begin by trying to save money with efficiencies,” says McDonald. “We run seven properties with one accounts receivable and one accounts payable. We also recently acquired Back Nine Links, a private social network company that turns club websites into social networking sites.

“It’s a departure from the static website mentality,” McDonald says of the Back Nine approach. “It has a strong reservation system, and everything is tied into a social network.

“Social media is how members communicate and keep in touch with one another today,” he adds. “Building a static website is a dated model, and it’s not going to be effective.

“I think the biggest thing any club or course could learn from us is that unwillingness to change, especially when it comes to technology and purchasing, will handicap you at some point,” McDonald says. “The members of your clubs are changing the way they live their lives, and they way they get information. If a club does not stay in tune with the membership, it will lose its ability to be a top priority for discretionary dollars. It can have the finest food, the best course, and the best pool, but if it can’t compete in the market, it will fail.”

Change from the Top

As the profiles throughout the remainder of this special report demonstrate, it’s not hard to find more evidence of the same type of innovative thinking and approaches being carried out by many other management companies—big and boutique, established and emerging—as they try to help individual properties get back on their feet and prepare for what the next generation of golf course and club activity may bring.

Certainly (as evidenced once again by C&RB’s Annual Ideas Issue, June 2011), there has also been plenty of similar innovation on the part of traditionally managed and independent clubs, be they public, private or in-between. And there will continue to be many cases where clubs will look at the management company option and reject it, usually because of concerns about added costs or fears about the loss of control, flexibility and individuality.

But there’s little doubt that management companies have gained renewed strength from the added chances the recession gave them to prove their worth—and that many have taken full advantage of the opportunity to refresh their offers and images, and reinvigorate their portfolios and long-range outlooks.

For evidence of this, consider the comments of Dana Garmany, who returned last year as President/CEO of Troon Golf, which he founded in 1990 and took to a worldwide leadership position for the management-company concept.

“I’m 53 and from the Boomer age,” Garmany says. “But if I ran a club business how I wanted it to be, I’d have a losing proposition.

“The days of huge initiation fees are gone,” he adds. “Of course, there are still some elite clubs, but what I’m talking about is the middle tier of clubs that are now unable to replace their older members. That has less to do with the economy and more to the demographics of who is joining a club today.

“As you phase out traditional members, you have to attract Gen X and Millenials, and what’s being found is that the way clubs are being run is diametrically opposed [to what those groups want]. The mindset for those members is different. They come into a club run by their grandfathers, and there are obscenely odd, stupid rules about cell phones and jeans.

“At some point, clubs have to start operating in a way that melds with Generation X, but they can’t get there overnight. It’s an evolving demographic. If you look 20 years down the road, I think it’ll be okay. But on the five- to 10-year horizon, it will be tough to turn the battleship.”

And as that challenge looms, Garmany cites a significant change that may serve to shift the balance of power even further. “Five years ago, our number-one competitor was an individual who was trying to hire a management company, as opposed to doing it themselves,” he notes. “But now, other management companies are bigger competitors.”