Free Golf Might Be Profitable

Can courses make money by giving away golf? Making a profit on free golf is counter-intuitive, but it may be exactly what one Ann Arbor course is doing.

The thought came to mind because I recently finished reading Chris Anderson’s Free: The Future of a Radical Price. Anderson’s fascinating premise is that in our current economy, the marginal cost (the cost of providing each additional unit) of many products and services has fallen so far that companies can actually afford to give them away for free.

Google is a classic example. The company gives away (among other things) free search, email (Gmail), office applications (Google Docs), photo software (Picasa), a phone operating system (Android), a web browser (Chrome) and soon, an entire PC operating system (also called Chrome). Google can do this for two reasons. First, each of these free products brings users back to Google’s core business—making money off search based advertising. Second, after development costs (which presumably are paid for by search advertising), the cost of distributing these to each user is so low that it effectively rounds down to zero. Online storage space, and the bandwidth for downloaders are so cheap as to be meaningless. Having to install the infrastructure to charge for these items would cost more than giving them away.

Another example is the medical software company that gives its $50,000 patient management program away to doctors for free. They make money by aggregating the medical information entered by the doctors and selling the anonymous data to medical researchers. It turns out that they can make more off the data ($250 million) than they could by selling the software ($100 million).

The book is full of examples of companies that have made money by giving away things of real value.

Back to the local course.

Last spring, Lake Forest Golf Club in Ann Arbor offered a two year, weekday pass for $200. Since the regular price for walking a round is $25, after the fourth round each year, you’re effectively playing free golf. It was a very popular program that was advertised as a limited offer, but every time I’ve played a round there, at least two of the players in my group had the card. The course is exceedingly busy—so much so that players I know say it is denuding other local tracks.

And everyone is wondering how Lake Forest makes any money. The topic comes up every time I play. Some even speculate that they took the $200 knowing they weren’t going to open next year.

A more reasonable line of thought is that the course makes up for the lack of greens fees with the extra usage of carts and sales of food and beverages. But a large percentage walk, I don’t see that many people buying from the cart girl; and the restaurant is not exactly full. Given that, how can carts and food make up for all the lost greens fees?

The key has to be in the marginal cost. If the course opens for just player each day, the greens and fairways must be mowed, the grass watered and fertilized; the course has to open the clubhouse, pay the groundskeepers, the pro, the guy behind the counter and the starter. In short, Lake Forest will incur all of its daily expenses for just one tee time. That means that the second, third, and fourth tee times don’t really impose any additional costs on the course. Those expenses have already been incurred.

So if the marginal cost of additional golfers is very low, any revenue at all is better than none. Being completely full with half the players paying is more profitable than being half full with everyone paying.

If being full was their goal, it’s working. A couple of years ago, it was relatively easy to get a weekday tee time at Lake Forest. It was on my list of courses I could just drop in on and reasonably expect to play. No more. It’s packed and you absolutely need to call a day or two ahead to get a slot. I used to be able to play as a single. Now, I’m always added to a group.

I don’t know whether Lake Forest stumbled on this formula by accident, or the owner has a degree in economics, or if they hired a consultant. But I think they’re on to something. If I were a competing club, I’d do the same thing.