C&RB sat down with Dana Garman, Chairman and CEO of Troon Golf to talk about the club industry from his perspective.
Q: What is your view of the industry? How has the industry changed over the past 5 years?
I think from a pure industry point of view, we have to divide the business into three segments: public golf, resort golf and private clubs. Over the past 5 years, you had a running up in ’06 and ’07 on the resort and public side. Those two segments tend to float with the economy with a 6 month lagging indicator. The private side is more longterm with evolving issues such as changing social demographics.
As you phase up traditionalist members, you have that shift to attract Gen X and Millenials and what’s being found out is that the way clubs are being run is diametrically opposed. So the debate is how to make that dichotomy viable.
What’s clear is that the ego factor of joining a club, which was one of the main drivers a few decades ago, is gone, because for people under 40, they don’t want those bragging rights. For many, being a member of a private club is a negative. The issue of whether or not to join a club becomes: I will join only if it makes financial sense for my family.
Of course, there are still some elite clubs and there always will be. What I’m talking about the middle tier clubs that are now unable to replace the older members. That has less to do with the economy and more to the demographics of who is joining a club today.
The mind set for those members is different. They come into a club run by their grandfathers and there are these 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 the 5-10 year horizon will be tough to get this co-existing mentality. It’s tough to turn the battleship.
We get a lot of calls from clubs that say they want to hire us. We ask about the situation. They say they had 400 members, but are down to 330. We ask how many memberships they sold last year. They say 6. We say, ok, what needs to change? They say nothing.
That’s the problem. Clubs need to change. The days of huge initiation fees are gone. Clubs need to be of value to their members and their families. It’s not your dad’s golf club anymore.
The intriguing change is how to co-exist people, that goes from the boomer to the millennial. The “it’s about me” generation to the “its not about me, it’s about my family” generation that is more focused on volunteerism, that doesn’t want to flaunt their wealth.
We started seeing this shift about 7 years ago when we started having people call and join, but say please don’t put my name in the directory.
Q: In 2006, we reported that Troon managed 175 club/course properties, and that the breakdown by type of property was 25% private, 25% resort, and 50% lodging. How has the total number of properties under your management, and the breakdown by type, changed over the past five years?
We have gone from being in the upper end daily fee, now we have around 200 courses almost 60 are private.
We went from 10% interest in private, to 50% in the last 2 years. I think that it makes sense, those are the facilities are in the most duress. They are equity clubs run by volunteers who are not doing a great job. They realize that they need a team to help.
At this point, we’re equally invested in each type of property.
Q: In terms of specific properties that have been added or dropped, what would you cite as the most notable and significant changes to your portfolio in the past five years, and why?’
I would say as far as notable additions, Kapalua Golf Resort has been a huge ad for us. On the private site, BallenIsles Country Club was also notable, too. A lot of clubs look at us like an insurance policy. Because when its an independent club, they are only as good as that one manager. We help them with the corporate staff and gives them a sense of security.
From 2008 to 2009 we had 26 worldwide projects just stop. That’s how quickly the development stopped. We went from a development company, to operating properties now, not developing. And I don’t see development coming back anytime soon. 80-90% of courses in this country weren’t built as a golf first destination. So what that meant is that you added inventory that wasn’t needed and now they have to operate with a half filled membership. I think you’ll see quite a bit of contraction still going forward. You’ll also see a lot of private clubs go to semi-private. Zoning change will also come too. And I’d bet you’ll see some semi-private go completely public.
Q: In your current portfolio, what percentage of properties do you own as well as manage, and what percentage do you manage under a contract with outside ownership? How has this mix changed over the past five years?
We own less than 5%. We are a 3rd party manager for 95%. In past years, we were as much as 10% and we’ve sold off some of that over time.
Q: How did the recession affect contracts and fees, in the case of properties managed for outside ownership?
There was a lot of downward pressure. Everyone is looking for the best deal they can get. We’ve seen a lot more contracts that are done differently. We want to sell this, you have this contract for x, we’ll pay you an incentive, then terminate upon sale. That’s a changing dynamic from today.
The one thing that has changed for us, 5 years ago, our #1 competitor was an individual trying to hire management company as opposed to doing it themselves. Now, other management companies are bigger competitors.
The thing we try to do is show real life examples about how we’re a full on company with a hotel model and complete services across the board. We’re not a here or there company. We can take the whole thing and run with it.
Q: How did the recession also affect your approach for properties already under your management? What were your major areas of focus for guiding those properties through the downturn?
As a management company, every task is different. You may have an owner who says run this as a business for profit, and another owner who says the restaurant always needs to be open and you have to keep valet parking. Each case is different.
As part of our business plan, we sit down with the board and ownership and say here’s what you can do, then they can pick and choose how severely they want to impact things. You can go in and say do you want to run you’re restaurant as an independent business or run it as a part of it the business and have dues offsets costs? Another area might be, do you want the course to be highly manicured, and at what level? You can fine-tune these things based on financials and show them, here’s what you’ll get for $X.
And again, more people are looking from efficiency and profit standpoints than 5 years ago.
Q: With the industry now appearing to stabilize again, what is your long-term strategy for your portfolio and the properties within it?
I think we’re going to continue to do what we’ve been doing since day one: Expand with properties that have golf, small resorts and inns. We’ll add good properties that have a golf element in a smart way, so that we know we have the resources to take that on from a corporate level.
Basically, we’re structured so that every one of our operating VPs acts as a CEO of a small managment company. We have more people per property. The reason we do it that way is to help each property have a clear structure to work through.
Q: Do you think that management firms must still combat the “corporate” or “cookie-cutter” stigma, both in trying to attract new business and in finding and keeping the best management talent for your company and its individual properties?
Yes. For sure. The parallel is to look at the hotel business. If you went back 50 years ago, you’d see very few flags. They were almost all independent. Today, there are some fine independents, but the most elite hotels are in chains.
We talk to the clubs we manage about the minimum quality standard that will be in place everywhere. From there, there is plenty of room for customization. We offer them back of the house efficiencies, we give them our training manuals to help make the club more efficient. We’re sort of like Intel inside. We’re a halo brand. The facility comes first, then we add some credibility to it.
Q: What can all clubs and courses in the market, including those that will always remain independent, learn from the programs and practices that Troon now apply at the various properties under its control?
I think the main thing is that clubs need to embrace change. It’s coming. I’m in the boomer age group; I’m 53 and if I ran the business how I wanted it to be, I’d have a losing proposition. You have to be able to say to yourself, “I need to make change.” You can’t stay the same and still be a successfully run club. You need to realize that a 38 year old man or woman who leaves work will need to be on their Blackberry or iPhone.
The industry is evolving, we’ve been making speeches, the traction has hit and its time to do something about it. The old country club model doesn’t look right so we need to do something different.
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