How golf courses make (or lose) money

We’ve had a few comments that readers don’t understand all the financial details we’re sharing or why we say that the golf courses should be run as semi-private. That’s great feedback, so we’ll try to help you out here.

As always, if readers see any inaccuracies, please let us know and we will fix them. 

Please keep in mind that the following is somewhat simplified, so there are exceptions but they aren’t important to gaining a basic understanding of how a golf club works. We’ll write about golf courses, but the same principles apply to a tennis facility and fitness facility.

In general, the large majority of a golf club’s expenses are “fixed”. It costs a large amount of money to have and maintain the course. It doesn’t matter whether a golf course is packed with people or barely anyone plays, the same fixed costs will be incurred. Examples of these fixed costs:

• The pro shop has to be staffed to receive golfers and take payments
• Mowing and maintaining all the fairways, greens, and bunkers
• Having a fleet of carts available to use, and staff to prepare them

The course then has to generate as much revenue as possible by attracting players. Every player it attracts adds revenue, but does not increase costs. That revenue is 100% profit. Whether that revenue comes from membership dues, cart fees or green fees, it is all 100% profit.

A golf course’s product (“tee times”) is 100% perishable. If today’s tee time isn’t sold, it is gone. They can’t sell it tomorrow. The challenge is to find the balance of charging as much as you can for the tee times, and selling as many tee times as you can. Classic price vs volume decision. When course’s sell memberships they are essentially selling tee times in bulk, probably accepting a lower price per round, but guaranteeing a sales volume.

A not-for-profit (or tax-exempt) organization, like our courses, needs to charge enough to cover its costs, both day-to-day and over the long-term (to purchase replacement equipment and other assets).

There are 3 basic golf club models:

• Private: Membership only. Most revenues come from fixed membership fees.
• Public: All green fee revenue
• Semi-private: Has membership and green fee revenue.

A private club will generally choose a model with higher membership fees and lower number of players so its tee sheet isn’t packed and members can often play at their leisure. But they need to pay for this luxury (their higher fees paid by a smaller number of people covers their fixed costs). When TMCC went private in 1990 it probably accomplished this. If a club is able to have enough members to generate the revenues it needs, this is a low-risk model. But if it does not have enough members, it has very limited capacity to generate additional revenues. In this situation it is high-risk.

A public course generates all its revenues through green fees. This is a higher risk/return model as bad weather or any golf course quality problems can negatively impact revenues. However, if the course is able to fill their tee sheet, it can generate high revenues and make a profit.

A semi-private course has members who typically have advantages such as early access to make tee times, club storage and other benefits. Members usually play a fair amount and pay less per round to make sense of their membership. But the course gets a solid base of revenue which it can rely on for funding their operations. Green fee packs are a type of small membership. This model also has green fee revenue to fill in the gaps and generate more revenue.

TMCC is currently using 2 models:

• Private for the Meadows/Members course
• Public for the Highlands and Groves courses. (TMCC’s members also can play these courses under their membership but there are no memberships offered for these courses).

Sometimes TMCC is referred to as semi-private, but it is not.

• there is no green fee access to the Meadows/Members course, so they do not sell unused tee times after members have selected their tee times. They all go unused.
• There is no membership for the Highlands and Groves courses (it would likely be challenging for TMCC to create a secondary level of membership to these courses).

As noted above, a golf course’s expenses are primarily fixed. When revenues are not sufficient to cover expenses, there are limited choices on where they can reduce expenses. You still need to pay your bills to keep going (staff, property taxes, insurance, equipment leases, utility bills, loan payments). The thing that gets cut back is: maintenance. It doesn’t show up in the short term, but eventually it catches up with you and creates a vicious cycle where course conditions decline, so green fees (or memberships the next year) decline, and less revenue means less money to spend on maintenance expenses.

That last paragraph describes what has happened to the Highlands course in (at least) 2022 and 2023. At its 2023 Annual Meeting, TMCC reported that the one expense category that it came under budget was…..maintenance. It was under budget by $109,000. In 2021 TMCC spent $966,998 on Golf Course Maintenance, so $109,000 is a LOT of their golf course maintenance (we acknowledge that we are comparing different years but it will still be representative of the orders of magnitude). In 2023 the Highlands greens were absolutely horrible and it showed in player reviews on GolfNow.com. The greens are better this year but still not good. Turning around a bad reputation is very challenging and will be a long-term effort once the greens are good (but that is of course difficult if you don’t have the dollars to spend on maintenance).

TMCC is not generating enough revenue to cover the fixed costs of the private club experience their members are enjoying or to keep the public courses in appropriate condition, even with MCA Homeowners heavily subsidizing them. The golf courses have to generate more revenue to reduce the subsidy from MCA Homeowners.

SOMETHING HAS TO CHANGE

MCA HOMEOWNERS SUBSIDIZING A PRIVATE CLUB IS NOT RIGHT