How did the Las Vegas golf business get in a bunker?

When Las Vegas and Tiger Woods collided, all hell broke loose.

Woods had been the king of golf for more than a decade, but that all came crashing down in November 2009 when he backed out of his driveway into a fire hydrant. When all the pieces of his marriage and career started to unravel, all roads led back to Las Vegas, where Woods hooked up with many of the women who would be his undoing. Whereas Las Vegas is a place where Woods won his first professional tournament in 1996, to the outside world the city connotes a connection to his hedonistic lifestyle. But golf in Las Vegas runs deeper than the superficial lifestyle evidenced by Woods’ exploits here. Golf in Las Vegas is much more of a love story than a salacious weekend tryst.

Golf isn’t gaming, exactly, but it’s one of the many world-class attractions the city has to offer alongside four-star restaurants, legendary spas and second-to-none shopping, all beckoning tourists and convention goers to come to Las Vegas and stay awhile.

“I think golf is very significant for Las Vegas because we wouldn’t be a resort market; we’d only be a hotel-casino market,” says Keith Cubba, a senior consultant with the golf and investment group for Colliers International.

For the local business community, golf has been a way to build relationships that often critical in getting deals done. The sport also served as a driving force behind Las Vegas’ housing development in the late 1990s and through the housing boom that lasted through 2006.

But, alas, golf has followed the rest of the local real estate industry down the tank, with courses going through bankruptcy as play and revenues decrease.

A sport that’s expensive, difficult to play and can take more than five hours has undoubtedly lost players because of the down economy. The younger generation isn’t playing golf at the rate or frequency of its predecessors, which has some folks predicting doom for golf’s long-term future in our fair city.

For now, the marriage remains intact because for its participants, golf is more than a passion: It’s a calling. Golf is an addiction that dilutes otherwise intelligent people into willingly battling triple-digit temperatures and high winds all for the frustration that comes with hitting a poor shot or missing a short putt because they believe—no, they feel—that the golf round of their life is coming.

“If people are honest with themselves, 90 percent play golf because it’s an opportunity for self-improvement,” says Larry Murphy, president of housing research firm SalesTraq, who plays twice a week. “I’m 67 but I refuse to believe my best golf is behind me. Golfers are optimistic. They always think their best golf is ahead of them because they can study, practice and get smarter.”

That’s some of the optimism that Las Vegas needs as it recovers from the Great Recession, the same economic disaster that has caused the housing and commercial real estate industries to collapse, prompted many companies to go out of business, raised the unemployment rate to the worst in the nation and stopped economic growth dead in its tracks.

“Golf is a humbling game and when you see someone else fail, you empathize with them,” Murphy says. “I’ve gone in the water before or knocked the ball out of bounds, and it can happen to you in the world of business. A misfortune can befall anybody at any time. Disaster is always possible right around the corner, and you must remain humble and a student of the game.”

Golf has long been part of the business landscape in Las Vegas. Many a deal has been worked out on the links and top executives have used golf outings to build financially important relationships. Charities rely on them, too.

The Southern Nevada Chapter of NAIOP, the Commercial Real Estate Development Association, has been holding golf outings for nearly two decades to raise money.

“It’s a four-and-a-half-hour power lunch,” says Katrina Bruce, the chapter’s executive director. “People who spend that amount of time together get more relaxed and open up and get to know each other better. Business is about developing relationships, and golf helps them do that.”

But the bad economy has had an undeniable impact on golf, Bruce says. NAIOP membership has dropped, and so has participation in the golf outings, which two years ago were trimmed from twice to once a year. During its tournament in May, the group had only 80 players instead of the full field of 144 despite cutting the price by more than half. Murphy, who has a membership at Silverstone Golf Club that costs him $300 a month, says the economy has caused him and many of his friends to cut back on how much they play and seek out the best rates. While they may play less often than before, golf continues to be an integral part of the business community in Las Vegas. Executives aren’t giving it up.

“The camaraderie you build on the golf course can definitely enhance your business,” Murphy says. “Selling is about relationships, and there’s no magic quote you can say to get people to sign on the dotted line. But this is a relationship town and the old adage that you have to know somebody to break into show business applies to construction or sales and other industries, too.”

You can’t talk golf in Las Vegas without talking about professional tournaments that date back more than a quarter-century with the Las Vegas Invitational, which exists today as the Justin Timberlake Shriners Hospitals for Children Open at TPC Summerlin. The tournament lures businesses as event sponsors who host clients and executives and even participate in the Pro-Am portion with professionals.

“There’s something about golf that’s separate from other professional sports we all play,” says Adam Sperling, the tournament’s director. “You don’t go to a Super Bowl or NBA All-Star game and talk about how you played last Saturday, but golf is different. Golf has an allure in that when you see a player hit a great shot or hit in the water, you can relate to it.”

Since Las Vegas is nothing if not a convention city, it’s only natural that golf is an important aspect of not only leisure visitors but business guests as well. The Las Vegas Convention and Visitors Authority uses golf as a backdrop in its national advertising campaign depicting Las Vegas along with dining, nightclubs and other activities. The LVCVA has a link to major golf courses on its website as well.

“Golf is a key amenity we have that positions us as an all-encompassing entertainment destination versus a gaming destination,” says Kevin Bagger, senior director of marketing for the LCVA. Visitor profiles show that two percent of visitors play golf, Bagger says. It may sound like a small percentage but when there are 37 million visitors a year, that’s 750,000 people, he says. “If you’re trying to promote Las Vegas as a destination, you want as many experiences as possible and golf helps sway travel decisions,” Bagger says.

That could be helped if the city’s only professional golf tournament—which is now held in the fall after the completion of the PGA playoffs—could be moved to the spring when many big names would be available to play. The hope is that by the time a new television contract kicks in sometime in 2013, the Las Vegas PGA Tour event will move to a spring date that would place it on network television and, with it, receive tons of free exposure, thus helping Las Vegas tourism.

“I think that that would be important,” Sperling says. “We’re a golf destination, and to have a course host a PGA Tour event helps build on that. You can come play, catch a show—it’s one of the reasons why Las Vegas is so diverse. Some people have the misconception that Las Vegas is all gambling and ‘what happens here, stays here.’ But we have world-class dining, shows, shopping and golf.”

Golf in Las Vegas, however, can’t be separated from the economy.

Revenue is down 25 to 30 percent since 2008 and courses are making up for it by cutting expenses—using less water, keeping less staff, not overseeding when grasses go dormant or not doing as much maintenance on courses as they did in the past (such as trimming around the bunkers). Players get lower greens fees in return and are accepting some of the cutbacks, he said. In the recent past, tourists did 20 to 50 percent of all golf playing but today it’s closer to 10 to 30 percent, depending on the time of year, Cubba says. One of the unexpected problems are the airline baggage fees making bringing golf clubs on the plane cost-prohibitive, he says.

It costs about 60 percent more for nonresidents to play golf in Las Vegas, but some course operators are dramatically lowering the price for tourists, Cubba says. Boulder Creek golf course, ranked one of the top 100 municipal courses in the country, is dropping its tourist rates to $10 above local rates starting later this month, he says. In many cases, where locals would pay $65 to $70 for a round, they now pay $45. Tourists who were once paying $125 are now paying $60, Cubba said. Many courses also have agreements with hotels to provide guests with special rates. Because of these adjustments, many golf-loving tourists are now playing courses they couldn’t readily access previously. Courses that had 42,000 to 45,000 rounds of play per year have fallen to 35,000, and those with 60,000 rounds a year have fallen to 45,000 to 50,000, Cubba says. “I know of one case in the last two years where they increased rounds by 50 percent by dropping the greens fees by 50 percent, and it’s now profitable,” Cubba says.

Like gaming, tourism and real estate, the Las Vegas golf industry has suffered because of a loss of customers that has cut revenue at a time many faced large debt payments. Three courses have sold since December, the latest being the Stallion Mountain Golf Club on East Flamingo Road and Boulder Highway that sold for $3.8 million more than two years after it was shuttered by foreclosure. An investment group had acquired the course for $23.8 million before that. Its lender sold Silverstone Golf Club in December for $3.1 million to Par 4 Golf Management. In February, a Honolulu group purchased Southshore Golf Club in Las Vegas for $4.5 million.

Most developers used the courses to sell homes and then sold the courses when the project was completed. If you paid cash for something in the 1990s and don’t have debt, you’re OK, but those who are struggling are those with debt service who bought in the 2000s when the market was hot, Cubba says. “I know a number of courses that are making money and don’t have any debt,” Cubba said. “The hard thing is the profit margin in golf is 25 to 30 percent down right now. For the investor without debt who can adjust expenses and be creative in marketing to locals and tourists, there’s still money to be made.”

Then, there’s water.

Golf courses can pay between $1 and $3 per 1,000 gallons and can use up to one million gallons a day. They can spend anywhere from a couple hundred thousand dollars a year to more than $1 million, Cubba says. Most courses use treated sewage water but a few of them have access to wells. And a few more still that can’t get access to sewage or wells use drinking water, he says. The Las Vegas Valley has 49 golf courses, including two that were closed at Lake Las Vegas. “The perception is that a lot of courses have traded hands since the recession started in 2008, but that’s only six percent of the marketplace,” Cubba says. By contrast, 6.9 percent of industrial and retail properties have traded and 12.4 percent of office properties, he says. The best comparison is the retail market, where rental vacancy is up 300 percent during the downturn and rates have fallen 30 to 50 percent, Cubba says. Golf has fared much better in comparison.

“The industry is not worse off than retail, industrial or office. It’s better off,” Cubba says. “The only difference in all those other asset classes is the sales continue to come. With golf, it kind of leveled off. There might be a few more trades next year, but there won’t be another three.”

Of the 49 courses, nine are private clubs, nine are municipally owned, four are casino-owned by Wynn, MGM and Caesars and the rest are privately owned but available for public play. Many courses were built in the late 1990s and early 2000s at a time when no one knew that the golf industry was already in decline. Golf courses were viewed as a centerpiece of a gated community and behind the high-end home construction boom.

“It adds value to your home. It’s the same as being along an ocean or in the mountains. The course and your home are gated and there’s a feeling of security,” Cubba says. The last courses built were Boulder Creek and The Arroyo in 2003. Because of the cost of developing golf courses, homebuilders have learned that golf-centered developments don’t pay off like they once did, Cubba says. “I think moving forward, you’re going to see developers pick up golf courses in residential areas for $5 million that would have cost $20 million to build. “That $5 million investment is really going to help sell off lots. It doesn’t make sense financially to put $20 million to $30 million into an amenity because they found it doesn’t pencil. They don’t get the return on the homes to pay for the initial development. At one point they could but now the golf market is built out and one could say overbuilt. There’s too many choices and too many homes available along golf courses.” Even with Stallion Mountain reopening, that’s going take some rounds from other courses. “Las Vegas isn’t getting any new population to support those rounds, so they have to come from somewhere else,” Cubba says. The low home prices in the market could ultimately be a benefit to the industry because that will help lure retirees who like to play golf, Cubba says.

Although that will help improve the local golf industry, no one is predicting Las Vegas will turn into Arizona or the Carolinas, where golf is a driving force of tourism.

Keith Flatt, the president of Par 4 Golf, which acquired the Silverstone Golf Club and operates two other courses, says people don’t think about spending a winter playing golf in Las Vegas, and Arizona’s warmer temperatures help that state draw in golfers. “Because of gaming, when you mention Las Vegas, some people don’t think of it as a golf destination,” Flatt says. “But I don’t know that we want it to become a golf destination. Golf is an amenity. Vegas is built on gaming and we have great courses, but the main focus is getting them to come on the gaming end and then get them to play golf.”

But whether golf has enough interested players long-term to support what’s already in place in Las Vegas remains to be seen. One course, the Bali Hai Golf Club, is already set to disappear. Leased from Clark County by the Walters Group, it wants to turn the course into a two million square-foot industrial park development because it’s not making money as a golf course.

“I think the industry will be fine,” Flatt says. “We’re just going through a rough time. People in the golf business who watch their expenses will survive and when the economy comes back, golf as a business will flourish again. It’s just about weathering these times and when the economy comes back, we can come back on pricing.”

Cubba says Las Vegas’ golf industry will be aided in the future by the growth of golf in China and rest of Asia, but laments the decline of young golfers even in the era of Tiger Woods. During the past five years, the number of golfers ages 9 to 17 has decreased by 23 percent, while tennis among that age group has increased by a similar amount, he says. The problem is that golf courses are designed for adults, not children and families, and the difficulty in playing the game is driving away kids despite the national program “The First Tee,” which has been successful introducing children to the sport.

“It’s not a deathblow by any means, but it’s one of any number of factors that shows we don’t have any growth,” Cubba says. “We aren’t going backward. We just aren’t growing.”

But Cubba remains optimistic that those kids who moved to golf because of a certain Tiger will play the game as adults down the road. Woods has already inspired the next generation of great golfers, such as 22-year-old US Open winner Rory McIlroy from Northern Ireland and Las Vegas resident Rickie Fowler, who, in turn, can spark interest in golf among the next generation.

For now, the game relies on players like Murphy who admit they can’t get enough of it, to the point where he and his buddies will play 36 holes even when it’s 110 degrees in the shade. “The big appeal for me has always been being out there in God’s creation and looking at the blue skies, brown mountains, green grass and getting the fresh air—and, of course, turning off the cellphone.”

Is that what Tiger Woods loved about Vegas, too?