Industry news

R58-bn
SA golf market?

In a recent study conducted by IFM Sports Marketing Surveys for the Professional Golfers Association of SA (PGA) the economic impact of golf on the South African economy was estimated to be R58.4 billion. The study concluded that this is more than what the 2010 World Cup’s impact (R 55.7 billion) will be and more than double the impact of the Western Cape Wine industry (R 22.5 billion)!

But, before all you Capies rush off to pull out the vineyards and convert them to fairways, lets have a closer look at how this economic impact was calculated.

To calculate the total economic impact the golf industry was split into various segments and the direct economic impact of each segment was researched and estimated separately. They then used a multiplier of 2, based on IFM’s own research in the UK. The use of a multiplier in this type of research is common, but the report contains no explanation on how the multiplier was developed or why a multiplier developed in the UK, a developed economy, would be applicable to SA, with an economy still in the developing stage.

Golf Equipment

Although it is not the most significant economic segment, the golf equipment segment will probably be of most interest to our readers.

In terms of this report golf equipment includes the whole spectrum of golf-related goods, including apparel, shoes and accessories. The report states that in 2008 equipment sales amounted to R 1.2 billion. It also states that the average golfer spends R 3 787 per annum on equipment. When this is multiplied by their estimated number of 340 000 golfers (see concerns regarding this number and the expenses of affiliated and non affiliated golfers below), total equipment sales in 2008 amounted to about R 1.288 billion.

The difference between equipment sales and the stated economic impact of R 1.788 billion is the amount of salaries and wages, taxes and marketing spend in the trading sector.

The survey makes a distinction between types of retailers. On-course retailers need no further clarification, but with “retailers” they refer to golf retailers, mainly The Pro Shop and The Golfers Club. It seems that a significant portion of golf goods sold through sports outlets, department stores, outfitters, fashion outlets and the corporate and promotional clothing sector, were ignored.

The survey estimate the margins of the different trading groups as follows:

The R808 million golfers’ contribution is said to represent the actual value of the goods transferred, presumably the cost of the goods to the wholesalers, excluding the margins from the various traders. But if this is added to the total margin above, total sales should then be R 1.474 billion, which is significantly different from the R 1.2 billion mentioned previously. This difference is not explained.

The report estimates that the golf wholesale margin is 44% and retail margin 45%. It is not mentioned whether this is measured on sales or on cost of sales, but is nevertheless surprising in terms of the rest of the industry where wholesale margins are significantly less in percentage terms than those of retailers. These figures therefor seem suspect.

The figures also do not make sense if applied to the Rand margins above. For instance, the wholesale margin of R 114.8 million is 14% on the cost of sales of R 808 million, or 12% on sales — significatly different to the 44% mentioned in the report. On the retail side of the equation, according to the figure mentioned above, the cost to the retailer was R 922.8 million (808 + 114.8) and the retail margin was R 551.2 million (381.8 + 169.4). The margin on cost of sales should therefore be 60% or 37% on sales – again significatly different to the 44% mentioned in the report.

Of interest is the size of the margins of the two retail groups surveyed. Assuming their margin percentages are similar, it seems that the report indicates that the on-course outlets sell about 31% of the equipment. Although this is not entirely surprising to knowledgable insiders, it will nevertheless come as a surprise to many traders who believed that the industry was totally dominated by the two major chains.

This point was underlined even more strongly by a survey included in the report, conducted amongst affiliated golfers, which concluded that golfers’ shopping preferences are as follows:

The report concludes that in terms of market share The Pro Shop has 45%, 0n-Course Retailers 31%,The Golfers Club 19%, Mass Market 4% & Others 1%.

Existing Facilities

Golfers’ expenditure, which makes up the biggest portion of the economic impact of existing facilities, is based on an online survey of affiliated golfers. This is then applied to a total of 340 000 golfers (214 000 affiliated and 126 000 non-affiliated).

There is unfortunately no explanation of how the non-affiliated number was estimated and it therefore appears to the reader as total guesswork. The number of affiliated golfers was obtained from the National Golf Network (NGN), but Sports Trader’s enquiries directed both at the NGN and the two organisations responsible for the affiliation of members (SA Golf Association and Women’s Golf: SA), indicates that the affiliated number should be closer to 160 000. This could indicate a serious overestimation of numbers throughout the report. Furthermore, one would expect the affiliated and non-affiliated golfers’ expenses to be very different from each other.

According to the survey conducted on affiliated golfers the average golfer spends his/her money as follows:

Taxes paid

The study also claims that golf contributes to the creation of about 50 000 jobs, amounting to a total salary and wage bill of R1.58 billion, R215 million in tax to the government and R40 million to charities. The report does not state whether the tax refers to income tax or value added tax, but it seems extremely low at less than 1% of the total economic impact. If this research is used to lobby government, wily government negotiators might well use this low tax contribution to show how little this game for the rich is contributing to the community.

Golf Events

It is interesting to note the healthy economic contribution of corporate golf events. The survey estimates that the average golf course accommodates 48 corporate golf days per annum and generates an income of R11 692 per day for the course itself. Professional golf events is the second biggest contributor to this segment. This consists of the Sunshine tour, which is the fifth biggest golf tour in the world, together with the two major ‘special events’ held annually, being the Nedbank Golf Challenge and the Women’s World Cup of Golf.

Local manufacturers or distributors who import golf branded shirts usually receive orders for corporate golf days, which would further significantly increase the contribution of the golf equipment section.

New Course Development

The average cost of developing a golf course was estimated at R280 million. This excludes the value of stands, houses and additional services, which is covered under the golf estate property component. New golf course construction expenses are typically incurred over a number of years, but this estimate was based on the six courses completed during 2008, being Euphoria Golf Estate and Hydro, Vaal de Grace Golf Estate, Ebotse Golf and Country Estate, Blair Atholl Golf and Equestrian Estate, Gardener Ross Golf Estate and Hermanus Golf Estate. No comment is made whether 2008 was a typical year in terms of the number of courses completed, or not.

Golf Estate Property Component

The estimate for this sector is also based on the six courses completed last year and mentioned above. It is estimated that 3 521 stands were brought on the market by these developments and that the sales value of those properties amounted to R3 957 million.

It is debatable whether this segment should form part of this study. Surely only people who bought a holiday house on such an estate, or people who would not have bought another property somewhere else, can be considered to be part of the impact of golf. It can be argued that a substantial proportion of people living on golf estates were attracted to the property by factors other than golf, such as security, a nice environment, etc. Furthermore, is it correct to include properties developed during the year or should properties sold during the year be considered?

Even if this segment should be removed in its entirety, the economic impact of golf is still significant and should be brought to the attention of policy makers. And although there might be some flaws in the study, or at least some items that are debatable and others that contradict each other, the PGA of SA should be congratulated for their initiative in commissioning such a study and making it available to the trade and other role players. Market information is very hard to come by in SA and studies such as these are very important for future planning for all involved. We can only hope that this survey is repeated periodically so that the future growth of the industry can be measured and used as guidelines by all the institutions involved.