Links to Profit

Links to Profit

Golf clubs are notorious money losers, but one entrepreneur believes he's found a profitable way to run such a club.

entrepreneurs by Jean Gruss | Editor/Lee-Collier

The scramble is on.

With home values and investment portfolios declining, many golfers are itching to get out of expensive private clubs to conserve cash.

It's not easy. Golf clubs are known for breaking even at best, which is one reason why they're usually built by developers as a draw to sell more-profitable homes. During the boom, new residents paid big initiation fees to join a club where they lived and in return they got an equity stake. The only way out is to sell that stake to another owner, which was fine during the real estate boom.

Now that the recession is upon us, there are more sellers than buyers. Golf-club equity owners are stuck paying thousands of dollars in annual dues while they wait for elusive buyers. Some are simply walking away, forgoing their equity shares so they don't have to pay dues anymore.

Franz Rosinus hopes they'll walk right into his club.

The German-born entrepreneur's Old Corkscrew Golf Club in Estero charges no annual dues or special assessments. Instead, it sells one-, five- and 10-year memberships for $3,000 to $15,0000 that let players pay for golf for 50% off the published rate at the semi-private club. (Estero is halfway between Fort Myers and Naples). It also allows non-members to play at the full rate, hoping they'll buy a membership.

The business plan appears sound. Since it opened in February 2007, the club is breaking even with 24,000 rounds of golf annually.

It has sold 150 memberships and it's selling about two per week today. Rosinus, the managing partner, says he expects to sell another 100 in the next two years. "We are not in the business of losing money," he says with a smile.

That's not to say selling golf-club memberships is easy in this economy. "Nothing is an easy sell right now," Rosinus says. Still, he's counting on the fact that players can get the same golf-club experience at Old Corkscrew that they do at other more-exclusive clubs, but at a lower cost.

Taken from the nest

Like many Gulf Coast residents, Rosinus had vacationed here and in 1991 decided move to the area. The former life-insurance salesman started a lucrative travel company that rented homes to vacationers from Germany, his home country.

Pretty soon, Rosinus was helping visiting Germans buy and invest in real estate in the region. He bought lots, built homes on them and managed them for their distant German owners.

Rosinus became a developer in 1996, developing a small 66-home residential community called Brendan Cove in Bonita Springs. He sold out in three years and used the proceeds to buy and sell larger tracts of land, including a large 1,365-acre parcel in Estero that he eventually sold to Bonita Bay Group, a Bonita Springs-based residential developer.

In the meantime, Rosinus bought a house in Pelican's Landing in Naples and was impressed with how well the community's golf course, Pelican's Nest, was operating. "It was a cash cow," Rosinus recalls.

Because it was open to the public, it sold 40,000 rounds a year. "We believed in the concept of Pelican's Nest," he says.

Then, the members of Pelican's Nest closed the course to the public and Rosinus says it has struggled ever since. Still, it was a learning experience because it formed Rosinus' idea for Old Corkscrew and showed that a semi-private course could be profitable on its own.

Selling the private placement

Rosinus bought 275 acres in Estero from Bonita Bay Group in 2005. The smaller parcel was located across the road from the larger one he had sold to the same developer earlier.

Originally, Rosinus says, Bonita Bay Group was going to develop the smaller parcel as a golf course for one of its communities, but it decided not to break ground shortly after the terror attacks of September 2001. So the company sold the parcel to Rosinus for $6 million in February 2005.

Bonita Bay had been working with famed golfer and course designer Jack Nicklaus and Rosinus hired him to complete the work. Old Corkscrew recently was named one of the top five new courses by Golf Digest magazine.

That year was at the height of the real estate boom and Rosinus says he had no trouble persuading 75 investors to part with $250,000 to $300,000 each for an ownership stake to build the new club. In total, the private placement raised $20 million, with Rosinus retaining 25% ownership. "We just wanted to do it with as little debt as possible," Rosinus explains.

Each owner and one guest can play free golf as long as he remains an owner and also receives 1% of any profits annually. "We just broke even now," Rosinus says.

Despite the quick success, Rosinus says there's no way he would have been able to raise the money to build it today because of the financial turmoil. "Forget it," he says. "People wouldn't do it."

Only two owners wanted out recently: one for health reasons and the other for financial reasons. They can sell their ownership stakes with Rosinus' blessing.

Attracting new members

In an interesting twist, the real-estate bust is helping Rosinus attract new members, he says. That's because members at Old Corkscrew won't be stuck in an equity-membership kind of deal and they can better estimate how much it will cost them to play golf.

"People didn't pay much heed to what they were paying out," says Mark Iwinski, the club's manager of golf operations. "They really get it now."

A 10-year membership fee costs $15,000 at Old Corkscrew and members pay between $35 and $90 for a round of golf, cart included, depending on when they play. Besides not charging a cart fee, the club doesn't charge special assessments or require members to consume a minimum amount of food or beverages. Golfers can book a tee time up to three months in advance.

Old Corkscrew is semi-private, which means non-members can play there too. For example, the club works with area hotels to bring players. That helps defray the course's expenses, which run $3 million annually.

By contrast, many other private golf clubs charge $40,000 to $160,000 for an equity stake plus annual dues that can cost more than $10,000 a year. If there are no buyers, that stake is worth little. Because they're private, all members bear the full cost of maintaining the course.

Rosinus is confident that he can attract another 100 members in the next two years, including many who have had bad experiences at private clubs.

Many people are anxious about the economic uncertainty, but he says they have the money to spend. Besides, there are very few new golf-course communities in development now.

"I don't think real estate development and the homebuilding business will be profitable for five to 10 years," he says.

REVIEW SUMMARY

Industry. Golf

Trend. Golf clubs are struggling to remain financially viable.

Key. Semi-private courses are more likely to be profitable than those that are closed to the public.