Why investors see opportunity in the golf industry

High participation, recurring membership revenue and under-optimized assets are drawing sophisticated capital to golf at an unprecedented pace.

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Investors consider several metrics when identifying industries that can boost their financial gains and the golf industry is teed up to be an attractive wager.

With the rise in popularity of the game, there is currently a steady stream of customers eager for new ways to play. Expansive golf course properties mean appreciating real estate values and private equity firms are finding they can increase profitability with some operational improvements.

Steve Ekovich, executive managing director and partner of Leisure Investment Properties Group, said most investors — private equity, institutional equity and family office — are looking for the same thing and would love to have at least a $5 million top line.

“They want to find something that’s mismanaged, where they can go in and manage it and create accretive revenue immediately. Everybody wants the low-hanging fruit,” Ekovich said. “Mainly, they’re chasing yield, and they’re chasing a product type that seems to have a good 10-year run at a minimum and there are not any major storm clouds on the horizon.”

Industry watchers like David Hyland at The Business of Golf newsletter estimate private equity firms have put more than $5.5 billion into the golf industry in the past two years. One such example is Leonard Green & Partners, L.P.’s recent deal to buy a 60% stake in Topgolf and Toptracer from Callaway Golf Company (formerly Topgolf Callaway Brands Corp.).

The transaction values Topgolf at about $1.1 billion, with Callaway Golf Company to receive about $770 million in net proceeds.

The overall golf industry has proven itself to be an economic driver on par with many major industries. The National Golf Foundation and the American Golf Industry Coalition put golf’s United States economic activity at $101.7 billion annually. For comparison’s sake, the golf organizations report that the U.S. grain farming industry market is about $102.8 billion, and the global running shoe market is estimated at $48.4 billion.

Ekovich said volatility in the core commercial real estate market is driving investors to consider golf course properties. He said golf continues to offer compelling risk-adjusted returns relative to core CRE, with cap rates of 10% to 16% versus 5% to 9% for traditional core assets, and it doesn’t hurt that golf is a more fun…