I am not in the habit of offering editorial comment here on the goings on at Walt Disney World or The Walt Disney Company in general. There are a myriad of web sites and blogs out there (many by friends of mine) that offer that content and do a great job of it. That being said, the announcement this past week that Arnold Palmer Golf Management will takeover the operations of the Walt Disney World golf courses is something that, given my focus and the content of this site, could not be left alone.
In order to provide some context, I spent a fair amount of time over the past few days, doing some online research, trying to get a sense of the current state of the golf industry and recent trends. I am a Biostatistician (a stats geek focused on life sciences) designing and analyzing data for clinical trials for drugs and medical devices. I have been professionally involved in healthcare, in one capacity or another, for almost 30 years. Since I collect and analyze data for a living, I felt that I needed to spend time getting data before I wrote this post in order to be able to intelligently comment on this significant announcement by Disney and attempt to offer some forward looking perspective. Much like healthcare is undergoing a fundamental and transformative shift, the golf industry has been experiencing its own for some time.
So, go grab a cup of coffee (that’s cawfee for the Noo Yawkers in the room, I’m an ex-Noo Yawker myself), sit back, relax and thanks in advance for taking the time to read this.
While we know that Disney has historically partnered with corporate sponsors to share the investment risk of significant development, they have also been increasingly “outsourcing” certain aspects of the operations at Walt Disney World. This deal with Arnold Palmer Golf Management is certainly another example of that shift, based upon various economic and strategic factors.
Golf as an industry, like the burst tech industry bubble of early 2000 and the burst housing bubble of the past couple of years, experienced significant growth which began in the mid 90’s, only to experience a significant down turn that began in earnest in 2001 and continues today. The reasons for golf’s growth have been discussed extensively elsewhere, but the key factors include:
- A significant increase in the construction of private golf clubs and gated golf club communities during the mid to late 90’s, as significant personal wealth accumulated during the explosive growth of the tech industry. A lot of individual entrepreneurs and venture capitalists made an awful lot of money during this time frame, which facilitated high end residential growth, in many cases, associated with private country clubs. The extra disposable income enabled more people to participate in the game of golf, both at home and on vacation.
- Tiger Woods turning pro in 1996 and his meteoric rise to fame facilitated significant growth in the interest in golf, often by a lot of people who prior to that had only watched on TV or never had any interest in the game at all. Notwithstanding Tiger’s fall from grace over the past couple of years, his influence on the growth of the game in the late 90’s, especially amongst minorities, cannot be disputed.
- There was explosive growth in public and resort based golf courses as well, as developers anticipated the increasing need for generally accessible courses, as broad interest in playing the game increased. Speaking from personal experience, back in the late 90’s, it become increasing difficult to get a tee time at a course of your choosing, on a day and time that fit your schedule. Demand was greater than supply and developers reacted accordingly, seeing opportunities for profitable investments.
Golf’s downturn over the past decade, much like the housing bubble, has been facilitated by extreme over-development, the broad economic impact of the downturn in the stock market in 2000, arguably the post 9/11 economic downturn in travel and tourism and has been further exacerbated by the recession of the past few years. This has led to golf course owners finding it increasingly difficult to make money, as supply materially exceeded demand. Golf courses have been closing at a rate that exceeds new development, in reaction to the normal supply/demand process. Parts of the country where there has been particularly significant over-development include places like Palm Springs, Scottsdale, Las Vegas/Henderson and central Florida. There are just too many courses in these locations, given the current level of demand.
Ongoing research has been conducted by golf industry entities such as the National Golf Foundation and Golf 20/20. The NGF research is only available to paying members, but I found a presentation and other information from Golf 20/20 (Powerpoint), given at a May 2011 Forum at World Golf Village in Florida, which provides at least a glimpse into the recent past and current state of the industry. There is also a report from Golf 20/20 (PDF), which provides a glimpse into the state of the industry in Florida specifically, albeit, it is a few years old (2007), so reflects data just prior to the onset of the current recession.
The key take away messages from the Golf 20/20 presentation are:
- Almost half of the respondents in a January 2011 survey (n = 15,000) believe that the game is too expensive
- Golf is not perceived to be a generally accessible sport economically and 22% believe the game to be discriminatory to women and minorities
- Golf has an ‘image problem’
- Participation in the game has declined from 18 million “Core” golfers in 2005 to 14.8 million in 2010 (~18% decline)
- Participation by “Occasional” golfers declined from 12 million in 2005 to 11.3 million in 2010 (~5% decline)
- The game is presently losing more currently active players annually than it is gaining in new players
- The number of rounds of golf played annually declined from 500 million in 2005 to 475 million in 2010 (~5% decline)
- The number of new 18 hole golf facility openings peaked in 2000, with almost 400, but rapidly declined in 2010 to just 46.
- 18 hole golf course closings increased from 32 in 2001 to 146 in 2006 and has stayed above 100 per year through 2010.
- The net growth (more new courses than closed courses each year) in 18 hole golf courses has been on a decline since 2001, with a net loss in courses of 220 from 2006 – 2010
- The number of driving range facilities dropped from 1,574 in 2000 to 1,048 in 2010 (~34% decline)
- The forward looking projections for golf courses over the next 5 to 10 years is that there will continue to be a net loss of around 100 per year, declining from around 16,000 courses now, to between 15,000 and 15,500.
So the general perspective seems to be that weak economics are driving a notable downturn in interest in the game, reducing rounds played and therefore impacting the financial viability of existing golf facilities, forcing a large number of courses to close each year due to their inability to stay financially viable.
There is a modestly positive perspective in the presentation, that the future of golf, with a strong economic recovery, can be optimistic. But the current situation is clearly not favorable and this is where hard strategic business decisions have to be made.
So, this brings us to the decision by Walt Disney World to turn over golf operations to Arnold Palmer Golf Management. I could not find any online information regarding the trend in the number of rounds of golf played at Disney World’s courses. But one can engage in some speculative inference, based upon various facts over the last few years.
One of the interesting trends at Walt Disney World over the past few years has been the increasing frequency of discount programs for golf. How much is specifically due to the downturn in play at the courses and how much is due to the economy generally, is difficult to know. It may be difficult , if not impossible to separate the two. Discounts at Walt Disney World for resort and dining packages, for example, have been prevalent for the past few years. What has occurred in the past couple of years with respect to the golf courses specifically includes:
- $59 play all day discounts for the multiple long 3 day holiday weekends, which never happened in the past.
- The two round pass discount is essentially year round now, whereas before it was summer only, when play was down in the off season.
- Play 9 holes at the Lake Buena Vista (LBV) course for $49. Half round pricing is almost never seen at resort courses.
- Free golf club rental for Walt Disney World resort guests, making it easier for Guests to consider a quick, otherwise unplanned round, or play a round without having to lug clubs on a plane, which given the luggage fees common now, adds to the expense of travel.
- Shifting from higher weekend pricing (as compared to weekdays) to the current standard pricing 7 days a week.
- The addition of rounds at Oak Trail as part of the water park and more theme pass add-on and for premium annual pass holders.
Of course, the biggest news pertaining to Disney World golf over the past few years, prior to Palmer, was the announcement of the Four Seasons resort in March of 2007, the subsequent closing of the Eagle Pines course in August of 2007 and the planned transfer of the Osprey Ridge course to Four Seasons in 2010. This was a significant shift away from the previously announced Disney Vacation Club (DVC) golf resort at the Bonnet Creek location back in 2001. That project never got off the ground, but one can infer that the subsequent arrangement with Four Seasons was an extension of those plans. Given that it can take years to design a major resort facility such as Disney planned with the DVC golf resort, the planning would have likely started in the mid to late 90’s, as golf was experiencing explosive growth. The announcement of the DVC golf resort in 2001, would have occurred just as the downturn in golf had begun, logically giving Disney reasons to subsequently reconsider the plans as more economic data became available during the year and 9/11 occurred, further raising doubts about the DVC expansion. The new plan with Four Seasons takes one golf course offline (Eagle Pines) and shifts the operational liabilities for the Osprey Ridge course away from Disney. The Four Seasons plan itself, including the Golden Oak residential community, has been further delayed by the recession and the Four Seasons resort is now planned for opening in 2014, also delaying the transfer of the Osprey Ridge course until that time. The first Golden Oak residents are apparently just moving in this week. Palmer Golf will manage the Osprey Ridge course until the transfer to Four Seasons occurs.
So, what is my take on the Palmer announcement and what the future might hold? (Go grab another cup of coffee…)
So far the details from Disney and/or Palmer have been largely superficial. Questions quickly arose regarding DVC and Annual Pass holder (AP) golf discounts. The only official comment that I have seen as of this writing was from Darrell Fry on the Disney Parks Blog entry for the announcement, indicating that “Yes, DVC Members and Annual Pass holders will retain their golf benefits.” Beyond that, we don’t know anything about green fees or any other services pertaining to golf that may or may not be subject to change as the Palmer group takes over management on September 25.
It is clear to me that having Palmer Golf Management take over the golf operations at Walt Disney World is not just a desire to shed the operational liabilities of running the courses. After all, Disney did that with the golf course it owned in Celebration some years ago, when they first turned it over to American Golf and later to Celebration Golf Management, which operates several courses in the Orlando area. Neither organization offers the name recognition of Arnold Palmer.
So what does Arnie bring to the table besides the obvious experience in golf facilities management (not that Disney lacks that experience over the past 40 years, since the courses first opened at Walt Disney World in 1971)? Clearly, name recognition is part of the equation, which in turn infers that Disney wants to see the golf facilities thrive and not just exist. Arnie would not engage in this and risk his own name unless long term success was a strategic goal. That this agreement is a 20 year deal, also suggests that Disney is taking a long term strategic view and that this is not just a quick tactical reaction to the current economic situation.
There are a myriad of other courses in the area, across the spectrum of designer names and prices and Disney World has always competed with them at some level. Given the current economics of golf, the competition has only increased and will continue to do so. The Palmer Advantage Club brings some number of additional potential players to Disney World as a consequence of perks offered via membership, though by itself, is not likely to make a material difference economically.
Beyond those near term views, we will need to wait and see what Arnie’s group does in terms of sales and marketing strategies, including pricing, discount programs for DVC, AP holders, Florida residents, active duty military personnel (eg. staying at Shades of Green) and other incentives to play the Disney courses. For those who would like to see pricing be reduced, I am not overly optimistic of material reductions in day to day pricing. Walt Disney World is a premium resort and I don’t see them undervaluing either the Disney or Palmer names by reducing regular green fees. Playing golf at premium resorts around the U.S. is expensive and I don’t see that aspect of golf changing, as long as the premium value back to the consumer is there.
What actually intrigues me the most about this announcement is the plan to have Arnie “redo” the Palm course and have it reopen in 2013. When this activity will start, resulting in the course being closed for some period of time, is not yet clear. Near term, my thoughts are what happens to the PGA Tour event at Disney World, held in late October? It would seem logical to wait to begin the redo for a few weeks until after this year’s event, possibly/likely having the Palm still be closed in 2012. Do they play the LBV course as the alternate or just play the Magnolia course only? I would guess the latter, which keeps crowds to one location on property, as well as all of the corporate and hospitality tents, TV and other infrastructure issues. This approach might set the stage in the future for the Disney PGA Tour event to be held on one course only, which is common for Tour events at locations with multiple courses. Those who have been around for some time, may recall that the event was for a time, played on all 3 Disney courses (Palm, Magnolia and LBV), with a Thursday, Friday, Saturday rotation on the three and the final Sunday round on the Magnolia.
I am intrigued by this part of the announcement for several reasons. First, the 3 courses that will remain at Walt Disney World, the Palm, Magnolia and LBV are all by the same designer, Joe Lee and date back to the early 70’s. While we all have a level of nostalgia for all things Disney (Horizons fans, and I am one, know of what I speak), the reality is that each of the courses are showing their age, despite having had some updates over the years. Second, will the Palm be the only course that will undergo a change in the near future? Might Disney and Arnie consider bringing in other top course designers to redo the Magnolia and LBV? Perhaps Nicklaus, Player, Norman, Faldo, Robert Trent Jones, Rees Jones or others? That strategy, if it happens, would turn the Disney World courses into a top destination in the Orlando area, providing a terrific variety of top name designers, increasing the attractiveness of the courses and would certainly command top tier green fees.
That strategy would also have other benefits, namely making the Walt Disney World Resort much more attractive to the professional golf tours. The Palm and Magnolia courses are some of the easiest courses on the PGA Tour and the low winning scores are a reflection of that. Over the years, the PGA Tour event at Disney World has gone from a top event to an afterthought. Some may recall that the LPGA had an event at the LBV course in years past (the HealthSouth, which moved to the Grand Cypress). Let’s face it, the Disney PGA Tour event is now the last event of the PGA Tour regular season. It is after the FedEx Cup, meaning there is less incentive for top name players to play at Disney. The only players that really need to play at Disney now are those looking to get into or stay in the top 125 players in winnings in order to retain their Tour card for the following year. This shift in the field at the Disney event also has economic impact to Disney in that crowds for the event are clearly less, in turn reducing revenues at the hotels and parks and the associated spending by Guests. Presumably media coverage based revenues are also down. It is reasonable to infer that the shifting primary sponsorship of the event over the years is also a consequence of the change in the relevance of the event for marketing purposes, notwithstanding the shifting general economics, which has also affected sponsorships at other PGA Tour events.
So, if I were to take a forward looking perspective, I would love to see Disney and Palmer redo each of the courses over the next 5 to 10 years and sell all three primary pro tours (PGA, LPGA and Champions) on attracting new events to Walt Disney World. That includes moving the PGA Tour event to earlier in the season, perhaps to be part of the so-called “Florida Swing” in the Spring, even though there is already an event at Arnie’s Bay Hill Club, just up the road from Disney World, during that part of the Tour. Have two PGA Tour events in Orlando, within a short time frame? Sound crazy? Why, there are two events, the Colonial and the Byron Nelson in the Dallas/Fort Worth area, scheduled back to back. There are a lot of professional golfers living in the Orlando area and I suspect that they would not mind having a couple of weeks at home in the midst of an arduous weekly travel season.
Having pro events of relevance at Disney World would attract better paying sponsors, increase the visibility of the parks and resorts via increased media coverage, increase attendance, increase rounds played at the courses and increase revenues. At the end of the day, that is what this is all about.
So, there you have it. That’s my dissertation on this announcement. I hope that you find it of value, whether you agree or disagree with my viewpoint. Feel free to comment here or contact me directly. Needless to say, as more details come out, hopefully over the next few weeks as we approach the September 25 transition, I will post that information on the site. Thanks again for taking the time to read this post!