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If You Build It, They Won't Necessarily Come

Egged on by industry cheerleaders and promises of a golf boom, developers have oversaturated the U.S. with courses and driven each other to financial ruin

To the untrained eye, Roscommon, Mich., is in the middle of nowhere. A 2 1/2-hour drive up Interstate 75 from the northern suburbs of Detroit, 12 miles off the highway, surrounded by scrub pines, it has neither tourist traffic nor industry to support it. Snow falls from November to April, and the deer outnumber the people. It has no ski hills, no commercial airport, and it's set in one of the poorest counties in Michigan. A perfect spot, three Arizona developers decided in 1996, for a world-class, upscale golf course: If we build it, they will come.

Thus began the checkered history of Forest Dunes, a 7,104-yard gem designed by Tom Weiskopf that was built and foreclosed on shortly before it was set to open in 2000. It is a poster child for the current state of the golf industry, its dreams and schemes run aground by a glut of overbuilding and the new millennium's altered economic state. "The original idea was for there to be 1,200 homes on the property," says Walter Mabry, head of the board of trustees for the Detroit-area Carpenters Pension Trust Fund, which was making its first foray into course development when it became the primary lender to Forest Dunes. "We didn't have a lot of union activity in the field of residential home building in Michigan, and we thought it would put our members to work."

It hasn't--not yet, anyway. Instead of 1,200 homes at an average cost of $350,000, only seven houses, six of them built on spec, have gone up on the 1,190-acre site. In its first three years only 60 golf memberships were sold. (Just 45 remain.) Grand plans to extend the Forest Dunes season by adding an equestrian center, a second 18-hole course, cross-country skiing, snowmobiling and fishing were put on hold while the pension fund foreclosed on its $20.6 million loan to developers Payne Palmer, Thomas Barrett and Jerry Peterson in July 2000.

For the next two years more lawsuits were launched than fairway woods, and Forest Dunes was left unmaintained. Construction on the clubhouse was suspended, leaving a shell of steel girders overlooking the 18th green. Finally, late in the summer of 2002, Forest Dunes was reopened under the ownership of the carpenters' pension fund, which refurbished the course and sank more millions into buying an adjacent 800 acres. The fund resumed construction on the immense, 24,000-square-foot, Bavarian-style clubhouse, which opened in October. Whether the pension fund is throwing good money after bad or making a wise investment in the future of golf remains to be seen, but there's no question that the fund has created a memorable golfing experience in the wilds of Michigan. Last January, Forest Dunes was named Best New Upscale Public Course of 2003 by Golf Digest, and there's again talk of adding a second 18. "It got off to a rough start," says Mabry, "but we still believe it's going to be a big success, especially now that Jim Dewling is involved."

Dewling, president of Total Golf Inc., has held about every position in Michigan golf there is to hold, from assistant and head pro, to country-club general manager, to designer, builder and owner of his own course. Over the last 27 years Dewling has been involved in 44 golf projects in Michigan, and his company owns or manages 12 facilities. "I was in the business before the boom, and making this thing work will be one of my hardest professional challenges," he says, sweeping his eyes over the manicured, rolling fairways of Forest Dunes, admiring the army of nine groundskeepers as they top-dress a single green. As Dewling envisions it, Forest Dunes has the potential to become the Pine Valley of the Midwest--an exclusive, unique golfing enclave for captains of Michigan industry. "A lot of people are looking for a second golf club, and this could be it," Dewling says.

He knows it will be a tough sell. Michigan is saturated with 854 golf facilities, according to the National Golf Foundation (NGF), trailing only California and Florida, and if location, location, location are the three key words in real estate, the question Forest Dunes must answer is, Roscommon County? Roscommon County? Roscommon County? "If you were a developer who knew Michigan," Dewling says, "you would never have done what they've done up here."

Golf-industry consultants have been saying pretty much the same thing from South Carolina to Texas, and from Maine to Arizona, as one struggling course after another has engaged their services for help. Egged on by industry cheerleaders and promises of a golf boom fueled by a demographic cocktail of aging baby boomers and Tigermania, developers have oversaturated the market with new properties, driving one another to the brink of financial ruin or beyond. According to NGF figures, there were 11,178 courses for 23 million golfers in 1990. By 2003 the number of courses had soared more than 32%, to 14,827, almost all of the increase coming in daily-fee facilities as the number of private clubs remained fairly constant. There are 1,165 more courses in the pipeline, 415 of which are currently under construction. Meanwhile, the number of golfers has risen 15%, to 27.4 million, but that figure includes golfers who play as few as one round each year. Only about half of the 27.4 million are so-called core golfers, who play eight or more rounds a year, a segment that has been shrinking since 1997, from 13.5 million to 13.2 million. Rounds per year in the U.S. have gone down for the past three full seasons, from an alltime high of 518.4 million in 2000 to 494.9 million in 2003. That's fewer rounds than were played in 1999 (496.4 million). The result? Greens fees have gone down, revenue has shrunk, and untold scores of courses have either been forced into bankruptcy or been unloaded at fire-sale prices.

A regional sampling:

• In Stratham, N.H., the tony Golf Club of New England--nicknamed the Millionaires' Course because its elite founders included New Hampshire's governor, billionaire Craig Benson, and Tyco defendant Dennis Kozlowski--had to file for bankruptcy in 2004 after only a year of operation, staggering under about $18 million in debt.

• In Houston, one of the most overbuilt markets in the country, 35 new courses opened between 1998 and 2002. One was 27-hole Fish Creek Golf Club, a high-end, daily-fee facility designed by Steve Elkington and built for $14.5 million. After its first two years of operation the property was foreclosed on by the Woodforest National Bank. Among those taking a bath on the deal was discount-brokerage baron Charles Schwab.

• In Phoenix, another overbuilt market, the venerable Thunderbirds Golf Club was refurbished for nearly $15 million to compete with the new courses springing up around it. Even that didn't help the course turn the corner. The club's owners were foreclosed on, and in 2003 the place was bought by a group of local investors for $4.8 million--less than a third of the amount that had been poured into it a few years earlier.

• Faced with a steady decline in membership, the board of Chemung Hills Golf Course, a private club that was built outside Detroit in 1923, sold out to a housing developer to meet operating expenses. "The simple truth is that the land was worth more than the course," says Dewling. "This is the next trend: courses being bought as real estate speculation. It's happened to six courses in the Detroit suburban market that I know of, and as many as 30 may be in play."

But for every course that's plowed under to make way for houses, four to five continue to be built. According to the NGF, 90 18-hole courses were decommissioned in 2002 and '03, while 391 new courses opened. Of those, about 48% were attached to a real estate project. "Residential development is what's strangling the industry right now," says Jim Dunlap, an editor at Golf Inc., which covers the business side of golf. "What better way to get people to move into your community than to have a beautiful golf course outside your window?"

According to Gregg Logan of Robert Charles Lesser & Co., a real estate advisory service in Atlanta, the premium a developer can demand for a lot on a golf course ranges from 30% to 200%, depending on the course. "The fancier the course, the higher the premium," Logan says, "and only 30 to 35 percent of those who buy in a development with a course play golf. They're attracted by the social implications, the prestige and because your house is sitting on something pretty and green. It doesn't matter if there's an excess supply of courses. Courses are being built today to sell real estate, not because of a demand for rounds."

As each new course opens, it steals golfers from existing tracks. Price wars are waged, deals are cut, revenue sags and owners bleed. "Look out for round 2," Dewling warns, predicting that times may get tougher for course owners before they get better. "When interest rates go up, it could trigger a whole new round of bankruptcies. A lot of operators are carrying too much debt, and more courses are going to disappear."

That can't happen soon enough to suit independent operators like Walt Lankau, who has owned Stow Acres, a 36-hole facility in Stow, Mass., for 18 years. "In eastern Massachusetts we've had somewhere between 55 and 58 courses open since 1991, 12 to 15 in my immediate market," says Lankau, whose term as president of the National Golf Course Owners Association expired last January. "I guarantee you my land is much more valuable as building lots than as a golf course. The NGF used to talk about the need to add a course a day until the year 2000 to keep up with demand. At our last meeting an industry veteran told me we should be closing a course a day for the next 10 years. He was trying to be funny, but it's not that much of a joke."

A course a day for the next 10 years: That was the battle cry of the National Golf Foundation in 1988, when it published its strategic plan for managing the growth of the game. "Golfers were increasing at a rate of three to four percent a year, and we said if it continued, to maintain the balance of supply and demand, we needed to add 350 to 400 courses a year for a long time," says Joe Beditz, president of the NGF. "In metropolitan areas the supply gap was particularly acute. People were spending the night in their cars to get on a course like Bethpage. So people took our information to the banks and started building. What no one remembers is that 10 years later, in 1999, we issued a second report saying our assumption of three- to four-percent growth wasn't happening. Baby boomers were working more, not less, than their parents. Supply was outpacing demand by a considerable amount. We said, 'Stop!' But the developers went ahead and built another 1,500 courses anyway. They saw gold in them thar fairways. Instead of a golf boom we had a construction boom, and everyone built in the same markets at the same price points. The only way to win was to hurt your competitor. People built irrationally, and now they're blaming us."

"Somewhere between 1993 and '95, the industry passed through equilibrium," says Jim Koppenhaver, president of Pellucid Corp., a market-research company that helps course owners track customer trends. "But an additional 300 to 400 facilities a year continued to pass through the pipeline--several hundred more than the market could accommodate. The banks figured it out and began shutting down the cash flow."

"It's cyclical, like any other business," says Larry Hirsh, president of Golf Property Analysts Inc., a real estate appraisal firm in Harrisburg, Pa., that specializes in golf course properties. "You have a boom, and everyone goes out and starts building to satisfy the demand. The height of the boom was in 1998 and '99. In 2000 bad things started to happen. Bank of America, which was the industry's biggest lender, shut the doors of its golf lending unit. Golf Trust of America, a real estate investment trust that owned 47 courses, began to liquidate its portfolio. Then business publications started trashing the industry."

Particularly damaging was a front page story on July 22, 2001, in The New York Times that chronicled the flood of course bankruptcies in Myrtle Beach, S.C., with its 123 courses in a 60-mile strip. The stock market, meanwhile, was reeling, and the U.S. economy was mired in a recession. Corporations began slashing expense accounts. The business outings of the '90s became a pleasant memory. People began working longer hours if they were lucky enough to keep their jobs. Then came 9/11.

Americans began traveling less, but it wasn't simply resort courses that were hurt in the aftermath of the destruction of the World Trade Center. "Our rounds fell from 90,000 in the peak years of '98 and '99 to 77,000 in 2002," says Lankau of Stow Acres, a facility that caters almost exclusively to area residents. "Overbuilding wasn't the only factor. The economy was weak, the weather was bad, and 9/11 made people rethink how they wanted to spend their time. People indicated to us that they wanted to spend more time with their children."

Nationally, that translated to less time playing golf. "People don't have six hours to burn, which unfortunately is the time it takes to play 18 holes by the time you have a drink with your buddies afterward," says Tom Landry, executive director of the Massachusetts Golf Association. "The last three years the number of golfers has been stagnant, and those who play are playing less. Folks want to spend more time with their families, and right now junior players are the most-discriminated-against segment in golf."

Alarmed by the trends, the golf industry belatedly initiated efforts to make the game more kid- and woman-friendly. The First Tee program, Play Golf America and Golf 20/20 are three programs designed to encourage young golfers. Many courses have started hiring women pros and have launched executive women's leagues, but it will take time for those initiatives to yield results. In the meantime people are leaving the game faster than they're picking it up. "The industry's problem isn't attraction, it's retention," says Koppenhaver, who cites research showing that between 2001 and '03, four million new golfers picked up the game while six million players abandoned it. "It's too expensive, it takes too much time, and it's too difficult to play," he says. "Tiger Woods has done wonderful things to increase TV viewership, but the numbers show that he hasn't inspired people to pick up a club, play and stick with it."

Rising supply? Falling demand? The laws of economics tell us there's only one possible result: Prices fall. That's good news for the average golfer. "In today's market you can play at a 10- to 20-percent discount to what you paid five years ago," Koppenhaver says. "Courses that were built with a $75-a-round price target are now getting only $50. It's a double whammy: The owner can't hold his rate, and he's losing rounds. We still have a significant buying cycle to go through before we absorb the oversupply, and people are going to lose a lot of money. It's not like dry cleaners, which get shut down when they fail. When a golf course fails, it's still there. Very few are plowed under. Even in a down market there are plenty of people ready to jump in and buy."

Sometimes irrationally. "Ego gets involved," says David Southworth of Willowbend Development, a course development company owned by Paul Fireman, the CEO of Reebok. "Someone has a dream, so he wants to build something nice. He wants a nice clubhouse, a big-name architect. He wants to drive his buddies over and have them play the course and make an impression. Pretty soon he has overbuilt. He has spent too much. Some courses that were built for $10 million are now for sale for $2 million, but if you look at the cash flow--courses typically sell for somewhere between six and 10 times cash flow--they're only worth $1 million. We have an expression in the industry: It's good to be the first son, the second wife and the third owner of a course. It's only then that your costs are low enough to make it work."

"A rule of thumb for course owners is you have to charge $1 of greens fees for every $100,000 of invested capital," says Stuart Lindsay of Edgehill Consulting, a golf-industry specialist based in Mequon, Wis. "So if you spend $12 million building a course, you have to charge $120 in greens fees. Very few people can afford to spend that on a regular basis, and many who do already belong to a private club. So the guy goes under, and the new owner who buys the course at auction for $7.5 million only has to charge $75 a round. That has a ripple effect throughout the market, deflating prices. This is a lousy time to be an owner, but it's a great time to be a golfer."

As in any other business, the owners who've survived the current downturn are the ones who've prudently managed their finances and best catered to the needs of their customers. "You get one shot at the public," says Dewling, "and you can't fool them. They vote with their dollars. You have to exceed their expectations to get them back." Far from feeling gloomy about the glut in Michigan, Dewling regularly visits distressed golf properties and auctions, looking to add to his stable of courses. "The economies of scale absolutely work in golf," he says. "It gives you buying power with foodstuffs, equipment, merchandise for the pro shop, advertising and cross-marketing. We have a frequent-player program offering discounts at all our properties. We have a database. If the weather looks like rain, we send out an e-mail saying we'll give you a 10-percent discount if you show up. There's a lot of creativity that course owners are beginning to tap into."

In Massachusetts, Lankau has started using progressive tees for beginners, which are simply markers set in the fairway so kids and beginners can find a level of play they enjoy. "To create players, you have to do more than teach them how to swing," he says. Responding to surveys that say the game takes too long, he's offering nine-hole greens fees and opening the course earlier so businessmen can play nine before work.

In northern Michigan, Rick Smith, who's Phil Mickelson's swing coach, is a partner in the 81-hole Treetops Resort, which has a reduced twilight rate to take advantage of the long summer days in the short season there. "It stays light until 10:30 here," says Smith. "We have golfers who eat dinner at 6 p.m. and still get in 18 holes."

Treetops is about 45 minutes north of Forest Dunes, and rather than seeing the Weiskopf course as a threat, Smith sees it as a regional asset and is talking to the owners about package deals. "I like what they did," Smith says. "Their timing was a little off, but it's one of Weiskopf's best courses, and the pension fund is in it for the long haul. If we can work out a reciprocal agreement, it would help both of us."

The best news for Treetops is its advance bookings are returning to the peak levels of 1998 and '99. Industrywide, according to the NGF, rounds played through the first three quarters of the year were up modestly from a year ago despite a bad hurricane season. A light shines at the end of the tunnel, and for those still standing it may not be an oncoming train. "It's amazing how much optimism there is out there now," says Henry DeLozier, the vice president of golf for Pulte Homes, a company that will build about 40,000 houses in 2004 and currently owns 23 courses, with plans to add 12 more. "By 2010 there will be 18 million more people who are over 55 than there are today. I'm extremely bullish on the golf industry as it relates to baby boomers."

Aging boomers, a notoriously self-indulgent lot, are the last best hope for the industry because research shows that at age 55, golfers who play 20 rounds a year up their average to 35. Companies such as Pulte can take advantage of the glut of courses by either acquiring them for housing or building near them. "In the past three years we've bought five courses--two in Las Vegas, two in Michigan and one near Chicago--that we are decommissioning and developing for housing," DeLozier says. "Our audience will continue to want golf as part of its lifestyle, but these days maybe we don't need to build a course to satisfy that. Instead we make arrangements to send our clients to courses nearby that are hurting from lack of demand. We've done that in New York, New Jersey, Philadelphia, Washington and Orlando. I don't subscribe to the notion that the golf industry will never get well. The oversupply will be absorbed in the next three to five years."

Course owners who can hang on until then might finally discover that there really is gold in them thar fairways.

How the Boom Went Bust

Golf participation got a big lift as Tigermania and the economy surged in the late 1990s, but while course building has steadily increased, play leveled off in 2001 and has fallen since.

"An Industry veteran told me we should be closing a course a day for the next 10 years," says WALT LANKAU, past president of a course owners' group.

Says realty expert GREGG LOGAN, "It doesn't matter if there's excess supply. Courses are being built to sell real estate, not because of a demand for rounds."

"The last three years the number of golfers has been stagnant, and those who play are playing less," says TOM LANDRY, head of the Massachusetts Golf Association.

"Look out for round 2," says Total Golf's JIM DEWLING. "When interest rates go up, it could trigger a new round of bankruptcies. Operators are carrying too much debt."


Illustration by John Hendrix

La Cost Ya COuntry Club Whine Valley Golf Club Abandoned Dunes Bankrupt Bay Missing Links Busted National Golf Club Lonesome Pines


Illustrations by John Hendrix




 Rounds of Golf Played (in millions)









Golf Courses