After Boom, Golf Isn’t Out of Woods

When Palm Desert Country Club opened in the early 1960s, it promised carefree living along verdant fairways.

Today, the clubhouse is in disrepair, the grass is brown, and the course -- one of 120 in the golf-loving Coachella Valley -- is dismissed even by some who live along its fairways as a “dog track” and a “cow pasture.”

The current owner hopes to revive the club by spending $25 million to renovate the clubhouse, fashion new sand traps, lakes and a waterfall and squeeze in dozens of additional homes alongside its 27 fairways.

If the remodeling succeeds, Palm Desert Country Club could avoid the fate awaiting other troubled courses in an industry roiled by soaring real estate prices, lean corporate entertainment budgets and the sport’s failure to attract and retain participants.

Operators are dangling discounts and promotions in front of customers -- and courting a new generation of duffers who prefer T-shirts to polos and wouldn’t think of playing without their iPods and Bluetooth-enabled cellphones. To survive, some courses are taking Palm Desert’s approach: plowing under acreage to build homes that will finance improvements.

This isn’t the scenario that golf’s gurus envisioned in the 1990s, when the “Tiger effect” -- a surge in interest in the sport inspired by the arrival of Tiger Woods on the pro tour -- and dot-com stock options fueled the belief that a course a day could be built for the foreseeable future.

That euphoria extended into 2000, when 400 courses opened nationwide. This year, about 150 will open, still far exceeding the 50 or so that will shut down.

The build-it-and-they-will-come mentality has been fueled by demand for high-end communities anchored by alluring courses. It comes after a heady half-century of growth; only 3.5 million Americans played golf in 1950, compared with 27.3 million in 2004.

But the number of rounds played increased by just 0.7% in 2004 after three years of decline. The ranks of serious golfers -- the roughly half of all players who account for the vast majority of rounds -- fell by nearly 5% last year.

“We’ve gotten to the point where we could probably stand to close a course a day for the next 10 years,” said Walt Lankow, the owner of a family-run golf business outside Boston.

Woods has lured newcomers, including many minorities, to the game. Latinos, Asians and African Americans now account for one-fifth of all players, according to a 2003 National Golf Foundation survey.

But many new golfers quickly retire their clubs because of the game’s high costs, its inherent difficulty and the time it takes to play 18 holes -- or because they come to agree with Mark Twain’s observation that golf is a good walk spoiled.

That leaves golf’s near-term success in the grip of baby boomers, those now in their 40s and 50s with time and money to play, their fascination with the game ingrained after watching Jack Nicklaus and Arnold Palmer turn it into a television staple.

“We see 15 to 20 years of terrific business ahead for our company,” said Henry Dozier, vice president of golf for Pulte Homes, which owns the Del Webb retirement communities. “If you were born in 1964, that makes you 41 right now, and you’ll be hitting the Del Webb sweet spot in 10 years and be in it for another 10 years.”

What’s uncertain, said Steve Mona, chief executive of the Golf Course Superintendents Assn. of America, is whether boomers with a wealth of leisure activities to choose from will hold onto their clubs or trade them for running shoes, bicycles and kayaks.

Golf also must hone its marketing game for younger consumers “who’ve had computer screens in front of them since grade school,” said Dana Garmany, chairman of Troon Golf, a Scottsdale, Ariz., company that owns and operates courses. “If golf doesn’t understand how to evolve, it’s going to end up being like polo.”

Golf’s problems are evident in corporate entertainment spending, which was slashed after the Sept. 11, 2001, terrorist attacks.

“Instead of going to Scottsdale or Palm Beach in January, many companies are going to Atlanta, holding the meeting at the airport Marriott and dispensing with the golf altogether,” Mona said.

Most new courses in the last decade have been high-end, daily-fee clubs that are open to the public. But the intense competition for golfers willing to spend $100 and more for a round has pushed the pendulum back in the other direction, a return to private courses for members only.

In most cases, the developer builds the course and surrounding homes and eventually sells out to the homeowners or an operating company. The math can work, if the owners are willing to pay for upgrades over the years, and the course generates enough cash to remain healthy.

But Garmany said the course-building binge has hurt “middle-market” clubs with initial memberships costing $5,000 to $15,000, which haven’t been able to boost daily playing rates for six years because of the wealth of options for players. The Palm Desert Country Club has been stuck at about $50 a weekday round for years, though green fees will increase to about $75 when it reopens next year, in line with comparable nearby courses.

The industry is responding with its first unified effort to recruit and retain players, seeking to add 1 million a year through 2020, and push the number of rounds played to 1 billion a year. Results have been mixed.

As golf struggles to keep its ranks filled, it also is wrestling with a booming real estate market that is tempting some course owners to sell to developers, even as it drives the market for new, generally upscale facilities in such golf-centric regions as the Coachella Valley.

It’s what happens after the courses open that worries existing clubs.

“Developers have a tried-and-true formula in which golf courses enhance the value of their real estate,” Garmany said. “But we calculate that only 20% of what’s being built pencils out.”

Developers suggest that Garmany sharpen his pencil.

Most faltering courses were built five or 10 years ago with no economic support beyond their original capital investment and cash flow from operations, Pulte Homes executive Dozier said.

“Some people have the impression that developers build regardless of whether there is a market for more courses, but that couldn’t be further from being accurate,” he said. “We spend a lot of time on each market before making a decision.”

Golf’s new economics have ended the days when club pros could build a career on a solid swing and a winning smile. The emphasis is on luring customers and getting them to play often.

Courses are rolling out frequent-golfer cards, wine tastings and barbecues. Some offer day care for toddlers and free rounds to children playing with parents. Others offer deep discounts on second rounds.

Operators also are recognizing that golf traditions are not sacrosanct.

“These kids are going to be bringing their laptop, their cellphone and BlackBerry, and they’re going to be wearing their favorite cool shirt,” said Tim Hurja, a PGA pro whose company books golfers onto Palm Springs-area courses. “What’s golf going to do? Say, ‘No, no, no, you can’t have a cellphone, you’ve got to wear this shirt, and you can’t have a mulligan?’ ”

For Palm Desert Country Club, privately owned but open to the public, salvation might lie along its fairways. The owner, Dahoon Investments Inc., has joined with Kosmont Cos. to fund the project, which includes a cost-saving watering system.

Palm Desert’s reshaped greens, new bunkers and lakes are being financed with profits from the construction of 41 course-side homes. The browned-out driving range will give way to 54 more homes.

Mom-and-pop operators used to make a go of it on the strength of cart rentals, green fees and whatever revenue the clubhouse and pro shop could generate.

“But the reality is that you need to have the revenue from something other than operating income to make capital improvements,” said Larry Kosmont, president of Kosmont Cos., an Encino-based real estate consulting firm.

In Palm Desert’s case, that meant building additional homes, but the plan had to pass muster with the city of Palm Desert and the subdivision’s homeowners, some of whom remain skeptical because of previous development plans that faltered.

Fort Worth-based D.R. Horton Inc. didn’t fare as well when it wanted to build homes on half of the Hidden Valley Golf Course in Norco. The plan was shelved this spring after angry residents, fearing traffic and lost views, threatened to recall City Council members who sided with the builder.

The power of the real estate market is being felt at courses across the country. Half a dozen courses in Myrtle Beach, S.C., could close during the next few years to make room for housing. Development is also supplanting courses near Grand Rapids, Mich., and Raleigh, N.C.

Even financially healthy courses are wringing additional revenue from their land. The Pete Dye Challenge Course in Rancho Mirage replaced some of its bunkers with lakes. Though water can encourage speedier play than sand -- golfers often need several swings to escape bunkers and then must spend time with a rake in hand -- economics was the driving force.

In Palm Desert, real estate agents say existing homes will rise in value when the 43-year-old country club returns to play early next year.

Scott Johnson, the course’s general manager, drummed up support for the project by telling residents to consider the alternative: a course that would continue its downward spiral.

“If we didn’t get this project approved and completed,” he said, “we wouldn’t have much of a golf course left.”