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IS THE ASIAN GOLF MODEL HEADED INTO THE ROUGH?

The Sentosa Leisure Group is jubilant. Following an aggressive courtship, the Singapore island will play permanent host to the Forbes Global CEO Conference from next year. "We're going to make it the Davos of Asia," says Darrell Metzger, chief executive of Sentosa Leisure Group.

Sentosa has also given the Singapore Open a permanent home on its Serapong golf course, and from 2006, the event will run a
longside the think-tank in a "unique blend of business and golf".

The Sentosa Leisure Group stumped up US$5 million to stage the Singapore Open earlier this month, of which US$2 million went in prize money. "It's not just a golf tournament, it's part of an aggressive business strategy," says Graham Bell, board member of the Sentosa Leisure Group, which reports to the trade and industry ministry.

It is all part of the island's US$5 billion renaissance to become a world-class destination drawing eight million visitors and annual revenue of US$1 billion by 2010. Plans for a resort with one of the city's first two casinos also include a theme park, a 250,000 sq ft conference facility, hotels and housing.

Amid all this, golf looms large. When it came to rebranding Sentosa, the group decided golf and business made the ideal marriage. Multimillion-dollar deals are done on golf courses and that is not apocryphal, says Mr Bell, who is also chairman of the Singapore Open. The old concept of corporate sponsorship is changing, says Louis Martin, chief executive of the Asian Tour. "The days when a company sponsoring an event simply meant the chairman liked golf are finished," he says. "Now it's a business decision to get into golf."

He adds that golf is one of only a few sports from a branding, television and corporate hospitality point of view that allows you to market your product. And, he adds, it beats tennis. "You can't go three sets with Andre Agassi, but you can walk around a course with a professional golfer in a pro-am."

The Asian Tour is growing fast, from 18 events in 2003 with US$9 million in prize money, to 28 this year with US$20 million up for grabs. New tournaments are planned in Thailand and India, and next year, Mr Martin expects 32 events with prize money of US$25 million, with big names like Volvo and Johnnie Walker digging deep and inquiries coming in from would-be sponsors, mainly property developers and insurers.

A company can get involved in an Asian Tour event with US$300,000 of prize money for a total cost of US$600,000 to US$700,000, says Mr Martin.

When companies tell him they have no budget for golf, he asks them how much they spend on entertaining clients to clinch a big deal. They don't realise they could be out for an afternoon in an air-conditioned hospitality tent with ambience, great sport and television coverage for a reasonable amount, he adds.

Yet, away from the glamour and television cameras, the golf business is in the rough in many Asian countries. China has built 200 courses in 20 years, with the risk of a bubble effect from overbuilding, says golf architect Ronald Fream, who has been providing golf course planning and design services worldwide since 1972.

"Golf memberships are expanding faster than wealth. Too many Chinese developers who want quick profits get in and out, and selling one-off memberships is one of their favourite games."

The China recipe is simple: a big designer name like Jack Nicklaus, a big clubhouse, big fees and big profits from the associated housing development. Often no monthly subscriptions are charged to cover the annual US$400,000 to US$1 million maintenance bill.

In China, golf courses themselves are frequently secondary to their housing component. In the case of the Shanghai Hong Qiao course, the only course in the central city area, the developer had rights for a golf course on 60 acres with villas down one side. That was 10 years ago. Then another builder built high-rise flats along the opposite side of the golf course, which has never been completed.

Ironically, this "green belt" has been a magnet for construction and its surrounding tower blocks are all angled to have course views. The original developer eventually got even by building more flats on the course itself, inside the towers opposite, blocking their view of the greenery. "Corners are cut off the course every time he gets more housing approval," says Mr Fream. "But the guy has made so much money he doesn't care if it never opens as a golf course."

Mr Fream possesses a wealth of such anecdotes, collected during a 40-year career of designing golf courses all over the world, including Singapore's Serapong course on Sentosa.

He believes the days of the popular Asia model of exclusive, members-only golf courses are numbered. As one of the game's most respected and successful course builders, he says the problem with golf in Asia is that it's highly ego-driven, citing the Mission Hills development as a prime example. Built 10 years ago with a bevy of big-name designers such as Nick Faldo and Greg Norman, it cannot succeed in the long term, he says.

"It will never make enough money to get their investment back. It may make money day to day, operationally, but it's the classic, ego-driven situation - and I use the term with due respect. The methods of construction used were very expensive," he says.

With 10 courses, it needs 2,000 rounds a day to be profitable. The big names probably received US$1 million each, he adds, and Jack Nicklaus may charge US$2 milllion to put his name to a project. "I can build a whole course for that," he says.

"If you're spending more than US$4 million to build a course in Asia, it's too much. But Nicklaus can't start for less than US$10 million for construction, plus his fee, plus US$15,000 a day reimbursement for his jet - that's if he is personally involved."

In many cases, the ego behind the golf course may have such deep pockets that profit is secondary. Take Jay Lee (right), grandson of the founder of the Samsung empire, who is understood to have spent US$100 million building Nine Bridges in South Korea. When told the annual maintenance shortfall was US$5 million, he smiled ruefully and said: "It's an expensive hobby, golf." But Nine Bridges has been rated one of the world's top 100 golf courses after only four years, so he's happy, says Mr Fream.

But in the United States and Europe, the pay-for-play model combines popularity and profitability. It would work in Asia, too, Mr Fream says, with a user-friendly course costing a fraction of a famous-name design. But it is no panacea. Land supply, for example, will restrict golf in a place like Hong Kong.

Elsewhere in Asia, economies are easily made. Instead of a splendid clubhouse, you build a modest facility serving noodles and tea instead of dinners for 300. The lower start-up costs mean daily green fees can cover operational costs and debt repayments.

He cites the Long Thanh course (right) in Ho Chi Minh City, which charges daily green fees of US$54 and after three years hosts 3,000 rounds a month. The fees paid by the members in three months covered the whole of this year's maintenance bill. The first 18 holes cost US$3 million to build and an extra nine have been added, funded by cash flow. Payback in two years' time is guaranteed, says Mr Fream. "And they are still sitting on 500 house sites."

As half of the members are locals who never played golf before, the course has created its market, which is sustained by affordable fees and repeat visits.

Mr Fream has been trying to persuade a developer on the east side of Beijing to forsake his exclusive membership club plan and take the daily fees route, but without success. When it's a matter of ego it's an uphill battle, he says.

But golf magnates should remember what happened when Japan's golf bubble burst in 1990. Half of the courses went bankrupt due to speculation in memberships. "All the inflated fees were supporting untold bank loans." Now they are being bought up and converted into daily fee courses.

Until the rest of Asia starts to see golf as a profit centre in its own right, not as part of a hotel or housing project, it cannot grow as a business, he says. With the exception of Vietnam, many have yet to grasp the tourism potential from northern hemisphere players seeking warm winter weather, he says, adding that this group of players has tired of Thailand.

"Some of my smartest operators are running four-star hotels with good courses." He cites the 18-hole Bangi Golf Resort (right) outside Kuala Lumpur at Putrajaya. Modest facilities, a good course, good weather, night lighting until 11pm and reasonable fees generate 60,000 rounds a year.

The golf business faces a tough time in China, says Mr Fream. Even if developers built accessible, affordable facilities, they would still be thwarted by problems such as lack of land and water.

Golf courses are phenomenally thirsty, and in drought-plagued China, water is at a premium. Until the mainland installs modern sewerage systems that provide recovered water, the demands of industry, housing, roads and farms will take precedence over the 150 to 175 acres needed for a golf course.

Anna Healy Fenton
Clive Carpenter
September 2005