Source: The Desert Sun (Palm Springs, Calif.)
Can there be too much of a good thing in the golf-crazy Coachella Valley, where the area's signature sport - an economic staple - draws tens of thousands of tourists each year? A Los Angeles consultant thinks so, finding the valley's market glutted with too many high-end golf courses.
Conditions have gotten so tough that some high-end golf courses have seen revenue declines of 10 to 20 percent from the peak year of 1998 to 1999, according to the report by Economics Research Associates. The Los Angeles golf consulting firm was hired by the city of La Quinta to help determine when to build its second course and hotel at the SilverRock Resort at Avenue 52.
"There is a lot of golf in this market," Gene P. Krekorian, senior vice president of the firm, said of the Coachella Valley.
"Given market conditions today, you can't build a golf course and expect it to be self-supporting. You've got to have some indirect benefits to make it work, like a housing development or some resort that generates (transient occupancy taxes)," or TOT, Krekorian said.
The report provides a rare look at the complete golf picture in the Coachella Valley, where the construction of high-end golf courses over the past decade has exploded.
The report was delivered to the City Council of La Quinta about a week ago, according to Mark Weiss, the city's assistant city manager.
Some in La Quinta believed that the second golf course planned for the resort should be built first - not the high-end hotel. However, the ERA report pointed out that the hotel should be built before the second golf course. That's because the additional operating expenses of running a second course would be difficult in the current soft golf market in the Coachella Valley without the revenue and customer attraction of a hotel.
The findings of the report don't mean that course production in the valley will necessarily slow down. It means that courses are being ever more vigilant in creating resorts and experiences that bring in customers. And, some say, it may mean some readjustment in the price of a round of golf.
118 courses and counting
There are 118 golf courses in the valley, making this corner of Southern California one of the hottest golfing markets in the country on a course-per-capita basis. A handful of courses are to open later this year and more are on the drawing board. By early 2006, it's estimated we'll have 124 courses dotting the desert landscape.
But a number of factors, including the Sept. 11 terror attacks, have brought changes to the high-end golf market - with peak season rates of $165-$235 a round. The number of rounds per year at high-end courses has softened considerably over the last three years, Krekorian said.
The study surveyed the entire market and made recommendations about how the city should proceed on SilverRock.
Weiss said that the city will share the report with prospective hotel developers and make it part of the overall analysis on how to proceed with the next phase of the SilverRock development - which includes the hotel, some retail and "resort-rentals," such as casitas or condominiums. He would not elaborate beyond this.
The report highlights that more "draws" are needed to make new courses profitable. In this case, this means that a four- or five-star hotel is needed to attract golfers to the course, Weiss said.
It is unlikely in the current golf environment that an additional 25,000 rounds - a key number in meeting operating expenses - can be generated with the second course, particularly without the hotel, Krekorian said.
Weiss also said that the city wants to prove that the first golf course is a world-class facility. "We feel we did that. Time will tell," he said. "We built the first course to attract the proper hotel developer."
As has been recommended by the consultant, the city is moving in the direction of building the hotel first, as a draw for the second golf course.
The Desert Operations of Destination Development Corp., a unit of Lowe Enterprises of Los Angeles, is in discussions with the city to become the "master developer" on the entire project. Weiss wouldn't confirm that the city is in talks with Destination Development, but he did confirm that having a single master developer on all of SilverRock - including development of the second course, makes sense.
A parade of new courses
The market softness, the consultant's report says, is due primarily to the entry of numerous high-end public facilities since 1997, including:
the two Desert Willow courses in Palm Desert in 1997 and 1998;
the 36-hole Landmark Golf Club in Indio, PGA West Norman Course in La Quinta, Cimarron in Palm Springs and Del Webb Sun City's nine-hole expansion in Palm Desert in 1999;
Shadow Ridge Resort course in Palm Desert in 2000; Del Webb's Sun City - San Gorgonio in 2001;
Trilogy in La Quinta in 2003; and
redevelopment of the Indian Canyon Golf Course in Palm Springs in 2004.
Soft market conditions also resulted from fallout from the Sept. 11, 2001, terrorist attacks, and the ensuing recessionary times in Southern California and the country between 2001 and 2003, Krekorian added.
Looking forward, the Coachella Valley public and resort golf market is expected to remain soft over "the next several years" despite the recovery in the local tourism industry and growing public golf course inventory.
Major courses scheduled for opening over the next year include SilverRock; the Classic Course at NorthStar near Palm Desert; The Enscena Palm Springs, formerly the Palm Springs Classic; Desert Cove in Cathedral City; and expansion of Del Webb's Sun City Shadow Hills.
Price, quality experiences
"There's a lot for the market to absorb," said Desert Willow General Manager Rodney Young. "There'll be some readjustment" in pricing, he added.
Even at The Golf Resort at Indian Wells, the leading luxury course in the valley, annual rounds played last year are 15.2 percent below its record peak of 104,000 rounds played six years ago, according to Michael F. Pease, general manager of The Golf Resort.
From four years ago, revenue has fallen 10.3 percent to $7.1 million for the fiscal year ended June 30, 2004, according to financial records provided by the city of Indian Wells. Net income from operations dropped 60.2 percent to $778,465 over the same period.
This nearly 20-year-old course has maintained its glitz among golfers because of its location. It is situated in a richly landscaped complex in Indian Wells with four resorts nearby, including the Hyatt Grand Champions Resort and Spa, Indian Wells Resort Hotel, Miramonte Resort and Spa and Renaissance Esmeralda Resort & Spa.
Other selling points: The Callaway Golf Performance Center, one of six in the world where players refine their games with state-of-the-art technology; fountains; 6,500 trees; and golf carts with global-positioning satellite screens that let you know where you are on the course and how far you are away from the green.
"Give guests something they'll remember," Pease said.
Desert Willow, which is the second most used course in the valley, reported 80,200 rounds played by golfers in 2004, up 5.7 percent over the previous year. "A product has to be built and designed correctly, maintained correctly, and have services," said Young of a course's success in drawing players.
Fighting the other deserts
Still, the valley has a tough fight on its hands to attract golfers from rival regions.
Phoenix and Scottsdale, with a total population of more than 1.5 million, is directly challenging regions like the Coachella Valley.
With a population of 340,000, the valley needs to get organized, said Gary Sherwin, vice president of market development for the Palm Springs Desert Resorts Convention and Visitors Authority.
He maintains that 34 percent of the 3.4 million visitors to the valley annually play golf. "It's been pretty consistent over the last 10 years. The golf market is not growing in terms of the number of visitors," he explained. "What is happening is that more courses are coming and spreading the golf base a little thinner. What the golf community needs to do is unify and put its competitive interests aside and make this a golf destination."
This means hotels and courses should pool resources - maybe assess players a buck or so - then throw the money into a kitty where advertising and marketing to the world-at-large can be done jointly, he said. "You are losing market share and adding more product. The biggest thing is price integrity. You can't continue to do this because the golf wholesalers are coming in and sweeping up excess inventory and turning around to sell it," Sherwin added.
Orange County's California Golf Coast may be the model for the valley, he observed.
About six courses and a dozen hotels have pooled their resources to market their brand worldwide and have set up a call center where visitors can phone for prices at local clubs. "This allows the courses to maintain their pricing," said Robert Fullerton, who runs the call center for the golf marketing group. "We don't give it away."
The golf market has been soft across the United States since Sept. 11, forcing a slowdown in travel to the valley. But signs of a turnaround in the $1 billion tourism industry have emerged in the past year, as hotel bed taxes for the first 11 months of 2004 stood at more than $34.6 million. That's nearly 3 percent more than the $33.6 million collected in hotel bed taxes over the same period in 2000, considered the banner tourism year for the valley.
But as airline flight numbers reach pre-Sept. 11 heights, there are more factors in play in the equation.
What dug this bunker?
Scandals involving Adelphia Communications Corp., Enron Corp., Martha Stewart and others have led to tightened spending at once lavish conventions that had picked up - without question - the tab on golf rounds for attendees. Shareholders no longer tolerate free-wheeling ways, say golf industry observers.
Not helping matters in the valley is the emergence of middlemen, or wholesale discounters that sell tee-time reservations. These middle guys are booking tee times for groups and individuals flying in for a few days, for instance, who want prime tee times on their favorite course at a discount. They also are willing to pay for afternoon tee times at a substantial price break on a high-end course.
The courses have a love-hate relationship with these middle guys.
The courses are willing to negotiate the discount because it's better than receiving nothing, and many want to meet their operating budgets.
Dozens of these middlemen are running businesses in the valley. Instead of a player calling the concierge at a resort and asking for help in getting a tee time, he'll call someone like Paul Fleszar, general manager of Standby Golf, a wholesale discounter in Palm Springs who works with 41 public courses in the valley.
"In our business, we love more golf courses out there because that means more tee times that can't be filled," said Fleszar "If the course is in good shape, then it is full."
Fleszar may be right.
Golf, high and low
Ted Thompson, visiting from Waupaca, Wis., was thrilled to be golfing this past week in his shorts and T-shirt at the well-manicured Golf Resort at Indian Wells.
His family and friends were stuck in 20-degree weather in Wisconsin's Chain O' Lakes region, where pickup campers park on frozen lakes to fish through sawed-out holes in the ice.
"It's a joy to be here. It's awesome," said Thompson of the Coachella Valley's most-played luxury course, which is planning a $21 million overhaul this summer to keep up its high-brow attractiveness.
But a different story is being told just a few miles to the east at the Palm Desert Country Club. On Wednesday, Tony Schwartz and his buddies were pounding beers and smoking outside the lounge, closed down last year by the Riverside County Health Department.
"It went from a beautiful course to almost unplayable," Schwartz said.
Now locked, vandals have cleaned out the clubhouse of a big-screen TV and some furniture.
Few people - if anyone - wants to play at this course anymore, considered one of the valley's oldest links. Golf carts are sometimes driven into ponds, the flag has been taken from its pole, the restrooms are torn up, the fairways have dirt patches, and the greens are brown.
The irrigation system is manually controlled, so groundskeepers sometimes forget to turn off the water in the night, causing pools to form in the sand traps. No rye grass was planted in the fall - the first time ever - so the Bermuda grass is what's left, and it's dormant.
The course is seeking an equity partner to help revitalize its operations, and add a 95-home development, said Los Angeles realtor Larry Kosmont, a part-owner of the Palm Desert Country Club Development LLC.
"Is there a demand for high-priced courses? Yes, but I think baby boomers will want a better cost value," said Kosmont, who is part of an investment team trying to infuse more than $25 million into the course's environs. "This is a value-oriented generation. They want to shop at Costco and Wal-Mart."
