EarthGolf

The National Golf Foundation reported that more golf courses closed in 2007 than opened, a copy of what happened in 2006. Below is their press release.

CLOSURES OUTPACE OPENINGS IN 2007

NGF has identified 113 golf courses, in 18-hole equivalents, that opened for business in the U.S. in 2007. During the same period, there were 121.5 golf course closures, resulting in a net negative of 8.5 courses. This year’s story is much the same as 2006 when the number of closures outnumbered openings by 26.5.

“The development business has run full circle,” says NGF vice president Greg Nathan. “Developers are now being more prudent about the decision to build, and are doing more due diligence on where to build, and at what price point.”

Closures
Many courses close because of higher and better economic use of land, rather than business failure. Courses may be sold to developers when the underlying land has greater commercial real estate value than cash flow value as a golf course. In these cases, the land may have been unwittingly warehoused by the original owner, then sold by the owner’s heirs as a favorable exit strategy.

A disproportionate number of closures were “non-traditional” facilities – either stand-alone 9-holers or short courses (executive or par-3). In 2007, they accounted for 43% of total closures but only 20% of total U.S. supply.

Five-year trend
Looking at the past five years combined, there have been 678.5 openings vs. 491.5 closures for a net positive of 187 courses, or a modest 37.4 per year. That equates to less than three-tenths of a percent of total supply being added per year. In other words, the overall number of golf courses is virtually unchanged from five years ago.

Looking Ahead
While it’s too early to forecast 2008 openings, given the number of courses currently under construction, we expect the number of new courses built in 2008 to be similar to 2007.

This is not shocking given the over supply of golf courses in most areas of the country. It’s also not surprising given the current real estate market. I would predict this trend continuing for another 2 or 3 years at least. I would also expect the number of course closings to decline and the number of new courses openings to steeply decline.

The reason for the number of closings declining is that land development is slowing tremendously. Many courses that close end up as re-development projects. Those won’t happen as often, taking pressure off courses to sell.

The reason for the steep decline in new courses is similar to the decline in course closings, only at a much larger scale. The majority of new golf courses are associated with a residential development. With residential development at extreme lows, that translates to less demand for golf courses - a lot less.

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