AL: You and I have been business friends for quite a few years and I have always been impressed with how you help clients determine if their idea for an amusement, entertainment or leisure recreation activity is a viable one. Miniature golf has been seeing a rise in popularity and its feasibility needs to be addressed by would-be builders. I would like to begin our discussion with some negatives about the business and then work on to more positive items. I think the most important job our firms can do is to help our clients avoid costly mistakes building a product that is not suitable in terms of type of course, size and levels of investment for a given site.

Adventure Golf Services receives many requests daily for information about the miniature golf business and I would guess only five or 10 out of 100 can be classified as prospects. Out of that group I would estimate that only 10 per cent know if their project is "doable." Is this common for the industry in general or is miniature golf unusual in that respect? Other than a full blown feasibility study is there any way these future owners can get a better handle on feasibility? Can a market study or financial analysis contain enough information for a future owner to make a decision?

 

WH: What you have observed about miniature golf is largely true of commercial recreation, in general. Someone gets an idea and runs with it before anybody asks if it will work. One of the problems with this industry is that decisions are made on emotion rather than reason, just because it's recreation. To answer your question, yes, there is a way to determine a project's feasibility. Our company does this all the time. Before we sign a contract to prepare a full-blown feasibility study, we ask the client for some information about his project. If we do not think the project has merit, we tell him so and advise that he find another  location or another project. We will do this for anyone who calls us.

If the project appears to have enough merit to proceed, we then prepare a full-blown study. Such a study should include an assessment of the proposed site, available markets, competition and weather. From this analysis, the study should generate projections of attendance, design period, capacity requirements for the project, recommended facilities (parking, building size, and mix of entertainment elements) and a financial analysis that includes projections of revenue, operating expenses, gross operating income and development estimates.

There is a way to determine 'do ability'

AL: In the miniature golf business we have had fairly good expansion with a large number of units built in the past few years. Even though, in my opinion, we are at the front end of an expansion period, we are starting to see a few of these ventures come up for sale or even face foreclosure. Is this a normal cycle for this kind of business, particularly in the front end of what might be termed a boom? And do you believe there is any correlation between failure and inadequate knowledge about the market?

 

WH: What you have described is not uncommon in a growth industry. People see something that looks hot and they want in on it. Unfortunately, their planning often consists of "looking over the fence" at someone else's project, without regard to the factors that can make or break a project. I have always believed that a successful project must have a good site, good market, good product and good management. However, we both know that some projects lack all of these. I agree with you that we are on the front end of a development cycle that could for on for some time, but   for  an   individual   project   to succeed, it has to be done right.

 

AL: You know failure can come for many reasons, much of it related to front end planning. For example, a golf course could be under or oversized in terms of investment hosed on the market, or the amount of investment might be right for the area but wrong for a particular site within that area. How can a feasibility study help avoid these problems?

 

 WH: The feasibility study should draw a relationship between income and investment. Typically, I will conduct a market study, project attendance and determine what level and mix of facilities are needed. Next, I do the financial analysis, which includes estimates of revenue, operating expenses and gross operating income. At this point, I compare income to the estimated cost of the project to determine, preliminarily, pretax return on investment. I then discuss what I have found with my client, since only the client can say whether the return on investment is satisfactory. If he says no, then we have to see if there is any room to maneuver. We may have to cut back on our investment level to make the deal work, or maybe it just won't work.

 

AL: So, after feasibility and financial analysis, you compare the estimated cost of the project to gross operating income. There is a certain irony in that statement. Shouldn't the estimated cost of the project be a result of these studies based on client goals? This is a chicken and egg situation. I know I am just as guilty as anyone about this subject. When I talk with potential prospects I try to ascertain how much market analysis has been done and what level of investment is contemplated. Most of the time there is no market analysis yet there is a probable budget in mind. It seems to me that you need to start with some idea of capital investment based on the type of course desired but it also seems appropriate that the studies would dictate the level of investment. How do you resolve this issue?

 

 WH: It depends on the level of sophistication of the client and the "givens" stipulated by the client I recently worked for a client who told me to show him what he could do with $400,000, since that was the amount he was prepared to spend. Period. However, most clients are not that specific, in which case we determine what we believe is the optimum level of investment based on the most appropriate scale and mix of development. I might also add that, in most cases, even if the client has a development programmed in mind at the outset, it is usually changed for some reason before the feasibility study is completed.

 

AL: Getting back to failures, do you think they are equally common in tourist and residential markets⁷ I think the residential market needs a more sophisticated approach to size and scope of operations but I do have a few concerns about tourist markets as well. We have all seen the proliferation of miniature golf and other attractions in tourist markets particularly in Florida and Myrtle Beach. I can show you very small tourist markets that are successfully supporting four or five courses. And of course Myrtle Beach with 30-odd courses is beyond belief and they are still building!

However, there is a saturation point somewhere and many think it has happened in certain areas of Florida. I am not totally convinced because I believe there have been mistakes made in location, type of course, under-capitalization, too much investment for the area, too little investment for the area, design or trying to hold too much land while funding it out of operations. All of these affect the viability of the project, but I believe the few that are having problems are not a result of lack of market. Would you give us your opinion here?

 'Decisions are made on emotion rather than reason'

WH: I think there are two levels from which you can look at a miniature golf market. First, there is the big picture, which is the overall supply and demand for miniature golf. If demand greatly exceeds supply, then everybody can do OK. at least until new facilities fill the void. The other level is the individual facility and how it stacks up against the competition. In a competitive market, the facility that has the four factors mentioned above is likely to come out on top. Regarding the residential versus tourist market issue. I think it is more important that a miniature golf course in a residential market be well planned, because that course needs repeat visits from the surrounding population to optimize its performance. However, regardless of location in a residential or tourist market, there is always a need for good planning and a quality product.

 

AL: This all relates back to market feasibility and size of investment and so on. I have three specific questions for you. If you were to do a study in Myrtle Beach do you ever think you would come to the conclusion that another course could be supported'' If so, what would you be looking at to determine a favorable recommendation? And how would you determine the point of market saturation in any market?

 

 WH: Yes, I do think there could be a situation in which I could recommend another course in Myrtle Beach. First, I would have to look at the supply and demand equation, and, then, I would have to know what my client has in mind. One of the key indicators of the market situation, and whether the market is saturated or not. is. very simply, the amount of time that is required to gain access to the existing courses in the area. A couple of years ago I was asked the same question about the Branson. Missouri, market, so we put people on the streets to count cars and observe the length of lines at our competition.

An important point that everyone in the miniature golf business understands is that an 18-hole miniature golf course has a throughput capacity of about KM) players per hour. Thus, if a course were to operate at full capacity for 8 hours per day throughout the summer, it could only accommodate about 75 to 80 thousand players per season. I make this point to illustrate that the 30 courses at Myrtle Beach may seem like overkill of the market. However, if each of these courses were to generate attendance of 80 thousand, their combined total attendance of 2.4 million would equate to less than 10 per cent of the 28 million tourist days that we estimated for Myrtle Beach a couple of years ago.

 

AL: I have been accused of being ion negative about the industry in relation to future failures but it bothers me immensely to work for clients that may be planning a project that may not fit the needs of the market. So I try to refer these potential clients to someone like yourself that has the credentials to assist or even other golf course builders who build a different product. I know what I look for in a market but I don't want the responsibility of moving the prospect in a particular direction if I am designing and building his or her course. This is a sensitive question, but is there any success rate than can be attributed to the investment in a feasibility study and could you elaborate? Also is this just a feasibility question or does it also relate to highest and best use and if so please explain?

 

WH: To answer your last question first. I strongly believe that the issue of highest and best use of the land is a critical consideration. Anyone contemplating the development of a miniature golf course should know that recreation does not represent the highest and best use of the land in many instances. If a site is suitable for retail or offices and there is a market for these uses, a recreation project cannot and should not compete for that site. Fortunately. miniature golf does not need the same site as these higher uses; it can function quite well on a site that might otherwise go to a use such as light industrial.

With regard to the first part of the question, I'll start with the observation that no-one has a monopoly on knowledge and there are. no doubt, a number of ways that a would-be developer can get into the miniature golf business without a feasibility study. The important thing is that he makes the right decisions in the planning and development process. The problem. however, is that if miniature golf developers begin by skipping the feasibility process, what other omissions do they have in mind, in their rush to get the course up and running?

 

AL. I agree; I am certain there could be many omissions. I would like to follow up on your statement about miniature golf not being the highest and best use for retail type locations and should not compete for these sites where other less expensive land is available. I have reservations about the location of a free-standing miniature golf facility that is not on a main thoroughfare among shopping, restaurants and other attractions. I feel that a warehouse district may be good for multiple activities that have a greater drawing power but that a miniature golf course located there will have less attendance and will have to spend more advertising dollars to get people there. I realize that one of your later remarks expresses the need for visibility but I would be happy to be proven wrong here. Can you take another stab at this question? I also have a follow-up question.

 

WH: When I refer to a light industrial site, I am envisioning a site that has frontage on a controlled access highway, good visibility but not the best ingress and egress. In such a situation, the traffic passing the site may have to drive a quarter to half mile in order to gain access to the frontage road that serves the property. I am not saying that this is the only type of property that is suitable for miniature golf; however. it usually represents the best buy.

 

AL: Following up on the highest and investors in miniature golf get into the business for several reasons—to start a new business; to establish a new career; to create a new investment opportunity with some satisfactory level of return on investment; to find a use for an existing piece of land that is owned; to develop a cash flow business to support a relative in a job; or to use the cash flow strictly as a means to hold on to valuable land without making an end commitment to the land use. In the case of the owner with an existing piece of land that he wants to do something with or the owner with land that he just wants to hold while waiting for a better opportunity, how does the highest and best use concept weigh in these situations?

 

WH: Miniature golf can be developed on high priced land as an interim use. In fact, that happens all the time. It is not uncommon for the land under miniature golf courses to be a medium to long term leasehold. The highest and best use of land is a function of two factors—location and market. A piece of land may

 

'The best use of the land is a critical consideration'

 

have a great location but, if the real estate market is depressed, its development opportunities are limited, in which case the highest and best use might be miniature golf—at least for a while. I have a client that is developing a fun centre on land appraised at $25 per square foot. That client recognizes that some income is better than none; however, what do you think the long term future holds for that project?

 

AL: There are many persons out there who do not know, nor ever will see, the need for a feasibility study. I might point out that many of these people are successful business persons while many others have never been in business. For those that are successful without an in-depth study, how do you account for their success? Is the need equal for experienced business persons versus those with no experience, to participate in a feasibility study?

 

WH: I know it is no surprise to you when I tell you that some of my most valued clients have been in the amusement industry for years, but they seek an outside opinion before undertaking a new endeavor. Some of these clients have a wealth of experience and knowledge about their particular business, but they recognize the need to get someone else's perspective before plunging into something new. I think there is a greater need for newcomers to the business to get as much from the feasibility study as possible. However, they are often the ones who skip the feasibility process.

 

AL: Some persons believe they have a good handle on a market because of sheer size or location. I believe that is true in a number of circumstances such as heavy tourist or very dense population. Is there a line of demarcation beyond which even a good business person should not tread without a feasibility study?

 

 WH: Anyone contemplating entry into the miniature golf business should operate from a position of knowledge and, as I have previously stated, no one has a monopoly on knowledge—and certainly not me. The important thing is that the knowledge of the market and the industry be obtained somewhere. The reason that the feasibility study makes sense is that we are in business to provide the necessary information for planning a miniature golf course. The alternative is to try to get the information from the competition, to which I say, good luck.

 

AL: Let's talk about specifics. Are there any general guidelines that you can share with readers about market feasibility? First, take a look at a residential market in the northern climate where it is strictly a seasonal business. I always like to look at five, 10 and 15 mile circles to define the market perimeters of the miniature golf business. In fact, I believe miniature golf is a 15 mile business. I have heard some people indicate that the market can be much smaller than that and will support multiple locations almost like a fast food restaurant where there is a large population base. Would you care to offer some guidelines here just on residential markets?

 

 WH: I could not agree with you more in what you say about miniature golf being a 15 mile business. We have conducted visitor origin surveys that have shown that the highest market penetration is found within a five mile radius of a course. Beyond five-miles-out to 10 miles—the penetration rate drops to less than half of that within five miles. Beyond 10 miles, the penetration rate, again, drops by half of that of the five to 10 mile zone. These findings illustrate the need for a market analysis based on these zones. If we were to simply define the market as a 15 mile zone without further breakdown, we could not determine the pattern of population distribution in the market area nor the appropriate market penetration rates to employ in projecting attendance. I hesitate to cite specific penetration rates. because they are contingent on local factors, such as the demographics of the market area, competition and weather.