Golf Business Community

Congratulations on receiving the Golf Business Forum Lifetime Achievement Award. How do you feel about receiving this reward?

Well it’s a terrific honor, especially when you look at the list of previous winners. To be honest, I feel a bit inadequate, but I am truly honored.
 
KPMG says one of the factors that distinguish Troon Golf is its achievement in growing its business internationally in a way no other operator has managed to. How have you done this?

We work with more than 200 courses, of which 65 are outside the USA, in 23 countries. It has been a long process because you can’t go out there and do things in only one way. We’ve always tried to think about the local customer and their sensitivities, use increasing numbers of nationals rather than ex-patriots, while at the same time professionalize the management, make the operation smoother, make it more hospitality driven and increase the business acumen so courses are making the right decisions from a financial and budgetary standpoint. Over 13 years of working overseas we have gathered data from courses internationally, from Mexico to Asia, and the more data you have, the better you can be. We’ve had some slips and falls, but at the same time we are very proud of what we have achieved.
 
You set up the business yourself in 1990. What was your experience before this – and what was the vision for Troon Golf at that time?

After college I had two years trying to make it as a full-time golfer, but I realized that wouldn’t pay the bills and support a family. So, I went back to school and got a restaurant hospitality management degree, which led back into golf where I was fortunate enough to be made director of golf and general manager of a club whose course and clubhouse was being renovated, so that gave me valuable operational experience and insight. In turn, that opened the door to the job of overseeing the building of Troon North in 1989, where my partner and I put together the team that would open and run what became a very successful business. We were asked to stay on and manage the operation and, at this time, we set up a payroll company and a small management arm to operate the club – we called this business Troon Golf. But there really wasn’t a big dream in those early days to turn the company into an international operator.
 
What was in your first business plan?

We had it in mind that we could grow to around five courses, so we didn’t want to be the biggest company but we certainly wanted to be the best. In 1994 we got to six courses and it just started to snowball from there. Actually, what we did was hire the best people – hotel guys, food and beverage experts, qualified agronomists – and modeled ourselves on high quality hotel brands such as Four Seasons. We wanted to be involved in every aspect of a golf resort or real estate development – from technical support to capital improvement support. In reality we lost money for two years, but having the best people gave us credibility and enabled us to get the job done well. By 1996 we had some infrastructure and some really well qualified people, and we were able to sell our services effectively. That’s when Starwood Capital bought out my partner and then Goldman Sachs (1999) became shareholders in the business, which is the structure we have today.
 
What sort of work were you doing at that time?

There were a lot of courses being built at this time in the United States, so our business plan was to go in before construction started and fix everything on the ground. Our niche was that we were operators with development services as well, so we could coordinate the architect and construction crew and see the course through from concept to operating, as opposed to operating after it had opened. We were at the front end of development, creating membership and marketing plans. So we carved out a niche in services for new courses and developers would look to Troon Golf because we had services they didn’t.
 
Are you surprised at how the business has grown, particularly internationally?

We had an easy inroad to starting overseas as Starwood, our new partner, had purchased the Turnberry Hotel in Scotland. I also had a personal relationship with Greg Norman and he introduced us to work in Australia. From there, Goldman Sachs’ interests in Japanese golf clubs led us to consultancy work there. At this point we started to look at clusters of overseas work, we were refining our touch points, and partly by plan, partly by accident, by the early 2000s we had an international strategy.
 
As an entrepreneur, how would you characterize yourself and the way you go about your business?

I would say what I have tried to do from day one is surround myself with good people. Mark McCormack, the founder of IMG, said that if you look around your boardroom and all you see are lightweights, you are a lightweight yourself. So I hired what I thought was the world’s best agronomist in 1990 and the best engineer in terms of golf developments, both of whom are still with me today. I think I realized that golf was a little bit like the hotel industry 30-40 years ago. It needed more professionalism, business plans and a hospitality ethos, not just some guys who play golf. And it needed good teams to lead that change.
 
Troon Golf defines its operations business as management, development and marketing. In practical terms, what does that mean for a golf course?

It depends whether it is a new operation where we can develop our own marketing plan, or if it is already open. If it is already operating, you have to look at the numbers before getting into the minutia of day-to-day details. What we do and how many people we bring in will depend on what is required – there is no single formula. Regardless, it is much more profit driven now and all golf operations, whether they have real estate or not, have to produce cash.
 
You must have seen a wide variety of courses in different business situations?

In the first seven or eight years we uncovered everything, from fraud and embezzlement to employee abuse. We saw some very strange things. However, I think golf operations generally are much better than they used to be, and I think we have to take some credit for that. It’s all about having the comparative data which makes it easier to look at the facts. 
 
Describe Troon Golf’s business model

For daily fee courses, including resorts and semi-private clubs, our income is based on the delivery of gross revenues and some GOP (gross operating profit). With private clubs, which make up approximately 25% of our portfolio, a flat fee is charged and we are tied to member satisfaction. What’s encouraging is that our retention rate in contract renewals is approximately 93% while our average contract length is nine years. Where we do lose a course, it is generally down to it being sold or issues with the lender. The good news for us, in the long term, is that we have a great retention rate of customers.
 
Have you ever got it wrong?

We have had a failure or two with private clubs, probably where we thought we could move the needle but, in retrospect, we could have told the owner it wasn’t going to work. Some courses fall into a downward spiral from which it is difficult to get out – there is a point of no return.
 
At the start of the economic downturn, Troon Golf lost 25 courses – most of them in development. How much of a setback was this, and how did you recover?

It was more than 10% of our portfolio and we had never seen that before. We had to diversify and replace the new developments with operating contracts. Although this was a tougher sell, put us in direct competition with other companies and meant that we were working with smaller turnover businesses rather than new, large developments, we will be back on track to our historical revenue highs in the second quarter of 2012.
 
You’ve said that it is a good time to be a golf operator rather than a golf course owner. What did you mean by that?

That was actually a little while ago and I was talking about the need for golf courses to be operated efficiently. However, there is probably a time coming again very soon that you do want to own a golf course. When the market bottoms out, there may be some value. It may be risky now, but we think in 2012 and 2013, we will see more people taking a shot at it.
 
Has the customer changed?

There is no doubt that the economic downturn brought about a sea change. Discretionary spending suffered a complete and rapid decline across all sectors. We have started to see some of that come back, driven by the baby boomers, those in the 53 to 57-years age group who can afford to spend money on golf and are committed to playing regularly and competitively. It’s the next generation that is the challenge – how do we make golf fun for the under-40s, who do not have a competitive zeal and treat a day’s golf like a spa day? Their wants and needs are so different and we have to recognize this. If a 38-year-old executive has managed to get away from the office to play golf on a Friday afternoon, you can’t then tell him he can’t use his cell phone or log onto the internet in the clubhouse – what chance is there of him becoming a member? If people quit the game they don’t come back, so we have to keep people playing.
 
What about families?

Families are essential. If you go back to 1995, the decision to join a golf club and pay an initiation fee was made by men 75% of the time. Now, I would say in 98% of cases it’s the family that makes that call, so that’s a very big shift. We have a kids-play-free program across the portfolio and course-within-a-course layouts and nano par-3 set-ups so kids can play. There needs to be an offering to make the family inclusive.
 
What is the outlook for the golf course industry over the next five to seven years?

In the short term, while the baby boomers are still spending the most money in golf, discretionary spending will return and that will help the daily fee and resort courses.  However, I think the big issue will be for private clubs – the days of big initiation fees are gone and they will need to find a new model. In the golf boom of the 1990s, golfers didn’t really play more golf, they just spent more money on it. They had two memberships, not one, they went on more than one golf holiday and bought more than one set of clubs. So private clubs will still need the annual dues (membership income), but they are going to have to find new ways to make money.
 
What is your future vision for Troon Golf?

The USA market is going to remain flat for development in the next three to five years, so we want to expand internationally and build a profit base by getting to the right places, including Asia. Our systems are set up to absorb growth and we are going to get on with doing what we do, keep our heads down and not get diverted by the ups and downs – we are focused on delivering results. We want to hire more people and we think 2012 and 2013 will be good years for us. Long term, we are working on solutions with the industry to bring more people into the game and retain them.
 
Which countries offer the greatest opportunities for golf operators – and which are more challenging?

For Troon Golf, we have to consider not only where there are opportunities for golf, but where our contracts, which tend to be long-term, can be protected. So we have done well in countries where the rule of law is respected and the judiciary is strong – that’s why we were initially able to expand into the UK, Australia and the Middle East and suffer less bad there even than in the United State. In my mind there are three country scenarios: where golf and tourism is established and contracts are protected; countries where courses may be slower payers and we may have to decrease our employee liability; and countries where we cannot sign long-term contacts so we have to ask for up-front fees and insist the club or resort manages the payroll and employs staff directly. In terms of China and Asia more broadly, we are working there and are also figuring out how best to do business. Morocco is a growing market for us at the moment and while the Middle East has slowed down, it remains an important market.
 
How would you assess the practices and standards to which golf courses are managed in developed markets and emerging markets? Can we all learn from each other?

It goes both ways. There are some great inroads in Asia using American standards, but also Asian standards coming back to our US operations. We found Asian golf shop operations were underutilized and tended to sell food products and maybe some caps. So we were able to set up fully stocked shops with branded shirts. The results, particularly in Japan, were an astounding success.
Equally, we learned from one of our Middle East venues that a small but well laid out kitchen was much more efficient than some of the large kitchens that might be found in a new clubhouse in the States. So we brought this concept back to California, again with great success.
 
You retired from Troon for more than a year – why did you decide to return as CEO, and what does it feel like being back in the office again?

I had an illness and had been pretty sick and it wasn’t clear if I was going to be here, so there were some other things I wanted to do. However, I remained executive chairman and, as it turned out, the board asked me to come back as CEO. My health is holding out and as long as that is okay, I continue to run the business. We have a very good team, I am energized and very happy to be actively engaged.
 
You made it to the top of Golf Inc’s list of the Most Powerful People in Golf. How did that make you feel?

That is certainly something I don’t agree with, and is probably based on the number of employees we have. The people that have won this award before, including Jack Nicklaus, are icons and I’m humbled to be mentioned in the same breath. If we’ve changed some things, made aspects of the business more professional, that’s great. But I get the most satisfaction from seeing my people advance and achieving great results at our courses.