(Editor’s note: After the upcoming U.S. Open at Torrey Pines, there are no municipal golf courses on the majors schedule for the foreseeable future. In a three-part series, Golfweek sheds a spotlight on municipal golf, why it’s a crucial piece of the golf industry and how it’s evolving. To see the first part, click here.)
To spend an hour listening to Peter Hill explain the history of North American golf course construction, primarily public-access golf, is like getting Warren Buffett to drop by your college business class for a lecture on investing.
There little emotion in Hill’s voice as he thoroughly dissects how and why municipal golf courses have been built, where they’ve been built, why many were set up for failure, and what obstacles they need to overcome in order to become successful.
Hill loves golf, for certain, but for more than three decades he managed these facilities — some good, some bad, some in urban areas, some in the suburbs — in a cunningly calculated fashion. While others get warm and fuzzy discussing the sentimental value of their local muni, Hill came at these sites with a checklist to mark — tee sheet percentages, payroll totals, pace-of-play averages, utility expenses, etc.
Get the numbers to work, and the course will be a success. Allow too many columns to slip into the red and suddenly there’s a permanent closed sign on the clubhouse door.
Hill co-founded Billy Casper Golf in 1989 with Robert Morris and 51-time PGA Tour champ legend Billy Casper. By the time the firm became Indigo Golf in 2020, the group managed over 160 properties in 26 states, and was one of the largest privately-owned golf course management companies in the United States. Hill’s group didn’t own municipal golf courses — if they did, they’d no longer be classified as municipal. Instead, they helped those that had trouble helping themselves. Often, municipalities allowed courses to fall into disrepair, didn’t manage the books well, or had trouble finding the proper price point. Or sometimes they realized they simply didn’t know how to run a golf course efficiently.
Hill’s group started small, but as word spread of their success, more courses came seeking their services.
Soon after the name change, Indigo sold out to Troon, which has become one of the biggest power players in golf. Others who handle similar services for municipal courses include Hampton, ClubCorp, Arnold Palmer and Arcis, just to name a few.
But how did we get to this point, one in which municipally-owned courses need an added level of management?
With decades of this knowledge under his cap, Hill is the perfect person to explain why we’re still losing a few municipal courses each year, why some are financially self-sustaining while others aren’t and where the industry is headed as a whole.
Before the ’90s: ‘Franchise locations’
The older the course, the more likely it’s in a city center, Hill explained. In the 1960s, when television shined a light on golf with Arnold Palmer and others, municipal courses boomed. Those cities that didn’t have a course — or multiple courses — added them as sound recreation alternatives.
And the time was right in terms of land purchases and access to utilities.
“You really need to look at this as a time series,” Hill explained. “Historically, a lot of municipal golf that was built before the 1990s, those courses have been there a long time. I’ll say there were probably a couple thousand that probably predated the 1990s in municipal golf.
“And so as a result of that, they were built when land was cheap and when it didn’t cost a whole lot to build them. So a lot of these municipal course facilities have what we would call ‘franchise locations.’ They’re closer to population, they’re more in the fill, they’re core golf courses and so the bedrock of municipal golf, going back to 50 to 60 years is that they’re really well located.”
These courses, like Austin’s Lions Municipal, were built in prime areas, but often the land prices have gone up dramatically, making such a large greenspace far too valuable. If the land hasn’t increased in value, it’s likely the area has hit hard times, and that presents another series of problems.
The ’90s boom: Too many courses
As Tiger Woods hit the scene and golf came back in style, suburbs were in the middle of wooing inner-city dwellers, often competing for potential residents with a few handy trump cards — good schools and better recreation.
“That’s when the municipalities look sort of looked around and said, ‘hey, why don’t we build one?’ ” Hill said. “And because golf was popular and they had the land, that resulted in a lot of municipalities building golf courses.”
Cities, towns and counties did this in conjunction with private developers, many of whom saw golf as an opportunity; many of these courses wind through residential neighborhoods.
“A lot of the stuff that was built in the 1990s and in the first decade of this millennium had to be built farther out. They were more remote and not as well located as the initial municipal inventory that was built 50 years prior,” Hill said. “A lot of stuff that was built in the 1990s and in the first five or eight years of the 2000s, there were a lot of courses built that shouldn’t have been built.”
As Hill tells it, many of those municipalities that built courses in this era did so for all the wrong reasons — not because demand wasn’t being met, but rather to add to the city’s jewel box. When play started to dip again, these courses were ill-prepared to weather a storm.
“When participation started to decline from the early 2000s up until recently, you had an oversupply for the first time in the history of the game,” he said. “And a lot of that oversupply was driven by municipalities deciding that they should get in the business.
“Which, by the way, irritated a lot of people in the private sector. These people were like, ‘go build bowling alleys or bars and restaurants.’ Instead, they just picked golf as a segment because they had the land and it was politically expedient. Many of them looked across the street and saw their brethren who built a golf course — so they said, ‘why don’t we go build one too?’”
The move to managing courses
Hill added that many municipalities didn’t use sound vetting processes when building newer courses, often ignoring factors like the move to online tee times and discounted rate demands, circumstances that also caused a dip in the hotel market.
Hill’s company originally started by helping to complete the design process, but quickly realized there was a larger need in managing the courses. This vision is one of the reasons he was consistently listed among Golf Inc. magazine’s 10 Most Powerful People in Golf list.
“We’d be hired on to see these projects through and we’d say to the municipality, ‘We want you to know you’re probably not going to realize the financial returns or financial performance that you anticipate for years.’ And they’d go, ‘No, that’s not right, because we have this study over here done by Joe Blow who says we’re gonna have X amount of revenue and X amount of expenses and we’re gonna make that much money,’” Hill said. “And we’d say. ‘well, that may have been the case eight years ago when you started this thing, but it’s not the case today.’
“We already saw the headwind of increased supply and decreased demand, but no one would ever really wanted to hear the bad news and they went ahead and did it.”
Issues: Expenses or revenues?
According to the National Golf Foundation, only an estimated 67 percent of all public-agency golf facilities made enough revenue in 2019 to cover all on-site expenses. So why do it?
Those in socio-economically thriving communities can afford to take the hit. And often, large cities see this as a means to keep residents from fleeing to suburbs. But when the pandemic hit and budgets were smashed, the microscope returned, even in areas where the number of golf rounds skyrocketed.
All this leads us to the bigger question — what helps make a golf course economically sustainable?
Like with any business, it’s either a revenue issue or an expense issue.
If it’s a revenue issue, Hill said:
• Either the course isn’t charging enough
• The course isn’t managing its tee time inventory properly
• It’s in a bad location
• It’s an indication of how well the facility is maintained
“Golfers really care about playing conditions. You can have a really well-located golf course that is in a high-demand area that’s in terrible shape — the greens and the tees and the fairways are just not up to snuff — and nobody’s going to come,” Hill said.
Meanwhile, on the expense side, the following factors come into play:
• Simple daily overspending: “You can spend an unlimited amount of money on a golf course. What’s the right amount to spend? That’s the question.”
• Labor: Muni courses often fall under a parks and recreation umbrella with municipalities. Often, the workforce is fit to accomplish the work necessary, rather than building a workforce to accomplish the work. In other words, 30 employees from the parks and rec department split up chores because they’re already on staff, rather than hiring the necessary number of bodies — say, 10 — to get all the tasks completed.
• Utilities: How much does water cost? Are there land expenses? What arrangements are worked out with local utility companies?
Hill said when a municipality came with its books open, he could determine if the course could remain viable almost instantly. Practices like tiered pricing allowed Hill and his company — like many others now in the space — to optimize golf course profitability.
“I could tell within a half an hour of looking through the financial information how much it would cost to run that golf course and if it would be profitable long-term,” Hill said. “Remember, golf courses are like sporting events cruise ships, airlines, stadiums. All seats should not be sold at the same price. There’s tiered pricing depending upon demand, time of day and how far out you make a reservation.”
Clubhouses, restaurants and other pieces
One fallacy Hill wants to shed light on is the notion that bigger clubhouses, better restaurants and merchandise shops are a sure-fire path to economic success.
In fact, Hill said, while these auxiliary pieces might help on the revenue side, they are often major drains on the expense side. And remember, if the goal is financial sustainability, it’s all about the balancing act of revenue and expenses.
“If you took a really high-quality public golf course in a good location and you have a choice between running that golf course out of a double-wide trailer, which is dressed up in order to look like a nice thing, or building an 8,000-square foot clubhouse, you’ll make more money running it out of the trailer. Always,” Hill said. “You’ll gross more money if you have a clubhouse that has food and beverage and whatnot with a big golf shop. Your gross will be higher, but your margin will be less.
“Look, the margin on an incremental round of golf is 85 or 90 percent. The margin on a food and beverage business is 15 percent, right? There’s nothing wrong with it, it’s just a completely different business. If you want to do things in the most efficient way, the double-wide wins every time.”
Case study: Houston’s Memorial Park
A municipal golf course is akin to a college — people seem to develop some of their strongest friendships there and even if they graduate to ritzier surroundings, they still hold a soft spot for it.
Case in point — Houston Astros owner Jim Crane, who grew up playing the city’s once-proud Memorial Park, and has since revived the course through his Astros Golf Foundation, which helped to fund a $34 million renovation that enlisted the services of top architect Tom Doak.
When the makeover was complete, the Houston Open, which had been at Memorial until 1964 when it fled for the suburbs, returned for the 2020 season.
The muni was due for a refresh in the 1990s and the city found $7 million to provide an adequate if underwhelming facelift to the property. But Crane starting asking about the potential of hosting a PGA Tour event and momentum started to build.
Is this a model that can be used in other places? Daniel Gilbert’s efforts to put the Rocket Mortgage Classic in Detroit were substantial, but could a muni have been saved in the process? Could other cities follow a similar loophole of allowing a wealthy civic-minded business leader to refurbish courses, all with the thought of getting major events to these venues?
Possibly. But even Doak — who is also part of the National Links Trust project in Washington, D.C., which is on track to refurbish three inner-city golf courses — isn’t certain there’s one true recipe for success on these projects.
“This could be the way things go,” said Doak about private-public partnerships. “It’s a little easier without all the red tape of dealing with city bureaucracy and all that. And that helped this project in Houston, too. Dealing with the red tape we had to here was just up front in the project. As a matter of fact, they didn’t want us to start until the day after Election Day, so we got a little bit of a late start.
“But combining a public-private partnership, especially when the Tour is also involved, it adds a whole bunch of corporate sponsors who are willing to jump in. It makes a project like this go easier.”
Then what’s the hold-up? Why not simply engage more big-money donors, many of whom love golf?
“The potential donors are always afraid that the city won’t take care of this after they do it. That’s the real thing,” Doak said. “The foundation in Houston, they made sure the contract for the tournament is for five years, so at least for five years, they’re very involved in maintaining the golf course. The Tour sends their staff in and makes sure everything is going right. That’s the trick in most places.
“A lot of these old golf courses don’t need much architecture. They were built well. They need better maintenance and they don’t get it. That’s the easiest thing for cities to do, but they often don’t do it.”
COMING THURSDAY: With the golf mecca of Bandon Dunes leading the way, Oregon is hoping to build a municipal-public-private relationship that helps grow the game for everyone. It’s not the only place this is happening. Another example is in San Francisco where the hope is that players evolve from Lincoln Park to Harding Park to Olympic Club — all very different but all in proximity.