This report is based on a 2003 phone survey of every stand alone range in the USA. Questions included facilities available, pricing, volume of business and much more. One surprise finding is that there are less ranges out there than commonly thought. This survey presents the findings of this complete census of US range performance.
Range Market Overview and Recent Trends
The range market experienced the same 90’s boom as the golf market. In 1990 the number of stand-alone ranges in the US was increasing at the rate of about 11% per annum, which rose to about 13% per annum in 1993, falling back to about 6% per annum by 1996.
The prevailing view at the time was that the US was so under-supplied with courses and ranges that if you built a new facility virtually anywhere, it would almost certainly be a success. Sadly, the lessons learned from yesteryear are still being felt today. Golf is a very location driven industry – very few customers regularly travel more than 20 minutes to use a golf facility. Unfortunately, much of the recent course and range construction was not built within a 20-minute drive time of large population areas, and many developments went bust, or are today still struggling to cover costs or make a small profit.
Today’s net development is flat. Around 50 new ranges are built each year, but around 50 ranges disappear. The majority of those that disappear do so for financial reason – i.e. they are inefficient operations (mostly due to poor location). The remaining ranges that disappear do so because they are bought out by a developer who has a more profitable use for the land, and who makes an offer to the range owner which simply cannot be refused!
In fact, “landbanking” highlights the range irony. Landbanking is where an urban landowner is holding out for a more profitable use for the land, and in the meantime is earning some income from the construction of a driving range. The irony is that whereas most ranges are not financially successful due to the rural or semi-rural location, for the relatively few urban ranges that are very successful, the range use there is usually not the most profitable use for the land. Many urban range owners are simply waiting for that “unrefusable offer” to come along.
The overwhelming message from this report is that due to poor location, existence for most ranges is a financial struggle. However, where a range is a success, it really works. The top 200 performing ranges are turning over excellent profits. However, these ranges seldom come on to the market. Opportunities for investment in this profitable sub-sector are therefore confined to new range construction. A well-located urban range, with access to large population levels within a 20-minute drive time, and relatively few other ranges within the local market catchment, should be a profitable development. But remember, urban land prices might be expensive, and a range use might not be the most profitable use for the land.
Cents per Ball Analysis
The cents per ball method is the usual way that range prices are analysed within the industry (since bucket sizes and hence bucket prices vary enormously from range to range). Our last comprehensive range survey in 1997 showed that the average price was 7 cents per ball compared with 10 cents today. This shows a healthy average rise of 6% per annum since then.
Investment Performance – Analysis of Range Sales and Returns
The previous table shows the values achieved from the auction of Family Golf Centre’s Golf properties back in 2001 when the company went bankrupt and it’s entire golf stock was sold. It should be remembered that each sale was therefore a distress sale, and MAY have resulted in prices being lower than would normally have been achieved on the open market.
Family Golf Centres was the largest chain operator of ranges in the US prior to the bankruptcy. Other properties were also owned by the company, such as ice rinks, but we have only included those properties that contained a driving range. Where a range and an ice rink were together on the same property, these sales have been excluded since the ice rink element gave rise to an inflated price.
Open market sales of stand-alone driving ranges are very rare, and difficult to track. The very best ranges (the top 200 performers) are rarely put up for sale by their owners because they are so profitable, and there isn’t really a market for the less profitable ones. In the case of the latter, the landowner is very often just filling in time whilst considering a possible alternative use for the land.
The most striking observation from the previous table is the huge variation in prices achieved. Whilst some ranges sold for several million dollars, many struggled to reach five hundred thousand. There is only one reason for this – LOCATION. Each range is unique in terms of how many residents live within a 20 minute drive of the range, and how many other ranges are also serving the local market. True, other factors such as quality, access, pricing etc will play a part, but location is by far the key factor. In other words, a range in a densely populated urban location which benefits from low levels of competition will produce higher levels of annual income and hence achieve higher capital values. A poorly located rural range will produce low annual income and hence low capital values.
Therefore, at the end of the day, the capital values of the ranges are very closely linked to how many buckets of balls are sold to customers and hence how much annual income is achieved. A few other factors will also affect the capital value, and these include:
1) Pro Shop – A pro shop is, in effect, another income line item in addition to range ball sales. If the pro shop produces a large net income this will increase the capital value over a similar range that produces little or no net pro shop income.