As expected, 2010 was a tough year for golf operators.

Trading

Not only did golf operators have to contend with difficult economic conditions, but snow and freezing temperatures prevented play for long periods in many areas at the start and the end of the year. Thankfully, the good weather in spring and early summer, together with the positive effect of the successful Ryder Cup event, enabled many to regain some of the lost ground.

In 2011 operators will have to decide how to deal with the increase in the VAT rate from 17.5% to 20%. Whilst this only adds 75p to a £30 green fee, it adds £25 to a £1,000 subscription before any annual increase.

This increase, together with the prospect of harsh economic conditions in 2011 resulting from Government cuts and increased uncertainty over jobs, will make it harder to retain members and recruit new ones on the traditional basis.

New innovative ways of attracting members need to be employed. Systems such as the points system and smart golf programme are growing in popularity, demonstrating how operators are thinking on their feet to meet the changing environment.

At the same time operators need to give greater priority to controlling costs. We have noticed more golf courses, particularly those held on leases registering as Community Amateur Sports Clubs thereby getting an 80% rebate on their rates.

Sales

Market conditions are now as difficult as at any time over the last 10 years. The number of courses coming to the market in 2010 was high (around a 50% increase on the previous year) as banks chose to bring distressed businesses to the market. In a small market this put buyers in a position of strength and prices weakened in some cases dramatically. Our records show that 20 courses sold in 2009 of which two were forced sales. In 2010 this fell to 14 sales of which 11 were forced sales.

Whilst well-located, profitable freehold courses are likely to continue to attract interest and retain their value, others, unless they have some unique selling point, may become increasingly difficult to sell with the result that values could fall further, particularly for those in a forced sale position. Clearly, the key is to avoid a forced sale and seek advice at the earliest opportunity.

Options

There are options available for operators looking to move out of the sector. Over the last year at Strutt & Parker, we have advised a variety of clients on alternative routes. In the case of a course in north east England, this involved finding a tenant to take a lease of the business, thereby retaining their freehold but enabling the owner to withdraw from the day-to-day operation. We advised an owner of a poorly performing business in the south west to engage a golf course management specialist to review and re-focus the business and it was interesting to note that the introduction of fresh eyes made an immediate impact.

Options for other clients included retaining a stake in the business by either granting a vendor loan or retaining some shares, and even exploring the potential for alternative use. 

Freehold golf course investments are well sought after so sale and leasebacks may be considered by some. 

If you want to make a change in 2011 and would like to make a plan to beat market sentiment, we would be pleased to have a confidential discussion and provide an appraisal of your options. Contact the team.