John McConnell bought his first golf property, the Raleigh Country Club, on a whim in 2003 because he wanted to ensure the preservation of the last course designed by renowned architect Donald Ross.
Since then he’s bought 11 additional private golf clubs – in defiance of what has been a challenging market for golf course owners – as part of a bold strategy to convert his passion for golf into a thriving business by creating a larger operation that is more cost-efficient.
To hear McConnell tell it, that remains a work in progress at his Raleigh company, McConnell Golf, which has mostly bought clubs in the Carolinas that were struggling financially. Its latest purchase, unveiled in February, was the Providence Country Club in Charlotte.
“We’re gaining scale and we see the light at the end of the tunnel because the industry has turned around,” McConnell said during a recent interview in the Raleigh Country Club’s dining room overlooking the 10th hole.
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In addition to Raleigh Country Club, McConnell Golf owns two other Triangle clubs: Treyburn Country Club and TPC Wakefield Plantation, which is hosting the Rex Hospital Open that concludes Sunday. The company also operates two courses owned by others, including a deal announced last month to manage the 27-hole Raleigh Golf Association course on Tryon Road, the only public golf course in its portfolio.
Although McConnell is committed to making McConnell Golf a winning business venture, he’s not intent on making a fortune from it. He’s already made a fortune – twice.
McConnell, 65, is the co-founder and former CEO of publicly traded Medic Computer. When Medic was sold for $923 million in 1997, he made more than $60 million on the deal. After leaving Medic, he invested in and subsequently became CEO of A4 Health Systems, which fetched $272 million when it was sold in 2006.
McConnell, the sole owner of McConnell Golf, said that if he really wanted to make a lot of money, he would still be running a software company.
“It’s a different stage in my life,” he said. “Once you have financial independence, there isn’t much more additional money is going to buy you.”
To date McConnell Golf has paid about $25 million to purchase a dozen golf clubs with courses designed by name-brand architects such as Ross, Tom Fazio, Pete Dye and Arnold Palmer. The purchases were all-cash deals except for two in which the company assumed existing loans.
But that was just for starters. The company, which now has more than 900 employees, has plowed even more money – about $30 million – into capital improvements in the courses and facilities it acquired. The goal is to boost membership and entice members to spend more money at the clubs.
That investment is part of a turnaround formula that also includes savvy marketing and reducing costs by centralizing back-office functions, which are handled by the company’s 10-person headquarters staff ensconced at the Raleigh Country Club.
A centerpiece of the marketing effort is a one-fee-fits-all deal: Members who pay the initiation fee at any one of the company’s clubs can play all of its courses. Depending on the club, the initiation fees range from $3,500 to $33,000.
McConnell has gone on a buying spree at the same time that the golf course industry is dealing with a number of issues.
“Golf is a great game but a lousy business,” said Bradley S. Klein, architecture editor of Golfweek and the author of a Donald Ross biography.
Or, as Jay Karen, CEO of the National Golf Course Owners Association, puts it, “golf is very healthy as an industry overall, but we are seeing a market correction as far as courses going out of business because of inflated supply.”
Beginning in the late 1990s, booming golf course construction started to outstrip demand. Much of that explosion had nothing to do with the realities of the golf market.
“A lot of it was tied to homebuilding and residential communities that had golf courses as the centerpiece of selling the housing developments,” Karen said.
Consequently, the number of private clubs nationwide has declined in recent years, with hundreds of courses either closing or converting to public courses.
“For operators like McConnell, that makes it a more favorable category because there’s less oversupply,” said Henry DeLozier, a partner at consulting firm Global Golf Advisors.
At the same time, the number of rounds played annually, after declining during the recession, has stabilized over the past few years, according to data from the golf course owners association. Last year the number of rounds played, which can be impacted by weather as well as golfer demand, rose 1.8 percent, according to a coalition of golfing organizations that collect the data.
The number of golfers under age 18 has also risen from 2.4 million in 2011 to 3 million last year – auguring well for the future, said Steve Mona, CEO of the World Golf Foundation.
Today McConnell Golf is among a handful of companies acquiring private country clubs, which are seen as “a distressed asset category,” said DeLozier. He calls these acquisitive companies “savvy buyers” because they tend to be selective, limiting their purchases to courses located in growing, prosperous markets.
To John McConnell’s chagrin, he wasn’t always so picky. Early on, he was dazzled by great courses and didn’t focus so much on the local market.
“One thing I can say today that I have learned: It’s all about rooftops,” McConnell said. “I made two or three acquisitions that, if they came to me today, I wouldn’t buy them. ... They’re just not in the right areas.”
Of the dozen courses that McConnell Golf has acquired, 10 of them had negative operating income when they were purchased, McConnell said. Today, by contrast, 8 of the 12 courses are profitable and the overall business is making money.
“I call it a venture capital model,” McConnell said. “You make 10 investments and two are home runs, maybe five are average and you have three dogs. We have to look at the portfolio.”
McConnell anticipates the business will generate about $45 million in revenue this year from its golfing operations.
“We anticipate same-store growth of three percent,” plus additional revenue growth from acquisitions, he said. McConnell Golf also has a 35 percent ownership stake in a Cincinnati-based software company, Clubessential, that caters to private clubs and resorts.
Although one-third of the golf clubs McConnell Golf owns are unprofitable, McConnell stresses they are a valuable part of the overall mix because they help defray overhead expenses and because members of other clubs get to play them under the one-fee-fits-all policy.
Golfweek’s Klein credits McConnell Golf with filling a market niche.
“They have identified a segment of the target club market that is avid, that is dedicated to golf and is willing to be managed by an outside owner that steps in,” Klein said. He added that he has played a number of the company’s courses and “they are doing a very good job of running these properties in a way that respects the design integrity of the golf course.”
McConnell Golf targets people who are serious about golf. That started with the acquisition of Raleigh Country Club, when McConnell let it be known that the club was implementing a 15-handicap rule – meaning that anyone who wanted to join had to have a 15 handicap, or better.
The rule was never enforced, “but it created such a buzz in the community,” McConnell said.
McConnell himself is an avid golfer with a 9 handicap, although he’s quick to add that his game is “going downhill.” His best score ever: a 73 at Raleigh County Club.
At McConnell Golf, McConnell is the big-picture guy who believes in delegating.
“If a guy wants to make every decision,” he said, “he is always going to have a small business. You have to empower people to make decisions and hire the right people. ... Oftentimes, they make a much better decision than I would have.”
Christian Anastasiadis, chief operating officer, has been with McConnell Golf from the beginning. He was brought in to run the Raleigh Country Club when it was in bankruptcy and McConnell asked him to stay on.
Anastasiadis recalled that McConnell told him at the outset that he needn’t be concerned about skimping on the improvements that RCC needed.
“Don’t worry, I’ve got money,” McConnell told him.
McConnell, said Anastasiadis, “challenges us every day to think differently.”
The latest challenge is the company’s first foray into public golf courses with its 10-year deal to operate the Raleigh Golf Association. McConnell sees it as an experiment.
“It will be interesting to see whether wan can create growth in golf in this market with a low-end, low-cost product that is maintained in good condition, hopefully with better service than other public golf courses provide,” he said.