Determinants

of the Value Formation in Membership Golf Course

Hyun-Sook , Mo

Department of Real Estate

Graduate School of Gangwon National University

Abstract

Since 2009 as the peak, the decrease of guests and increase of newly built golf courses in Korea have added up to decrease of their profitability and depreciation of their membership value. This has caused serious management aggravation, and golf courses which are being offered for sale or are going into receivership are increasing. Accordingly, it is necessary that methods for appraisal of the value of golf courses should be reconsidered. This study intends to contribute to advanced research in this field, which remains limited in analysis of actual proofs, and to establish an improved appraisal model of golf courses that are “going concerns”.

For this study, a survey was conducted of financial data and individual characteristics for 239 private golf courses nationwide as of the end of 2013, and analysis of the actual proofs was made by both the profit determinant factor model and the market value determinant analysis model, separately. This study also constructed data upon explanatory variables which are divided into location factors, operation factors and financial factors, considering the availability of golf course related data in Korea that has been compiled, according to the existing study methods.

For location factor, this study utilized data on each homepage or provided by the golf course membership exchange market; and for financial factor, It used five-year corporation rating data from December 31, 2009 to December 31, 2013 that was provided by DART and CRETOP of the Financial Supervisory Service (FSS).

The dependent variables of market value determinant factors of golf courses were chosen by total sales volume per hole, guests per hole, total return-rate over total sales, and dependent variables of market value determinant factors were chosen by the total market value of memberships (price of membership×number of members).

Independent variables that explain dependent variables are the distance from Seoul City Hall, location within the capital area, distance population modulus, total number of holes, area per member, ownership by major companies, chainization, history, number of guests, M&A, annexation to a public golf course, comprehensive resort, land, cost of equipment, total enrollment fee, expiry time of returning enrollment fee, and return rate over total sales.

The result of analysis shows that in profit determinant factors in the model, number of members, total number of holes, ownership by major companies, chainization, annexation to a public golf course, total amount of enrollment fees and expiry of payback of enrollment fee are significant factors. Ownership by a major company, chainization, history, land, and the cost of equipment affect positive (＋) impact on sales per hole, and factors affecting negative (－) impact are proved to be annexation to a public golf course, and expiry date of payback of enrollment fees.

The factors affecting the number of guests are area per member, ownership by major company, annexation to a public golf course and expiry date of payback of enrollment fees were proved to give negative (－) impacts. The factors affecting positive (＋) impact were proved to be the number of members and area per-member and factors causing negative (－) impacts are proved to be total number of holes, ownership by a major company and total enrollment fee.

Also in market value determinant factors, it was proved that the distance from Seoul City Hall, location within the capital area, distance population modulus, total number of holes, area per-person, ownership by a major company, chainization, number of guests, annexation to a public golf course, land, the cost of equipment, difference of enrollment fee and expiry date of enrollment fee are significant variables.

In particular, the model to adopt an independent variable that deducts total enrollment fee out of membership market value proves to be an excellent explanation, and this model is the one that reflects the increase of market value of golf course membership in positive verification. According to this model, in golf course market value, the nearer the golf course is from the capital area, the lesser number of holes it has, the larger its land-size per-person is, the more it is owned by a major company, the more the chainization factor of it is, and the more the limitation of use by non-members factor is, then the golf course is appraised to be higher.

In conclusion, the factors that affect the formation of membership golf course value show a big difference between stock value and flow value. In profit determinant factors, golf course operation factor and financial factor have high powers of explanation for market value determination, while location factor has a low power of explanation. In common, operation factor should be considered highly in golf course evaluation. It proves that stock value and flow value should be considered as multiplying factors in golf course appraisal.

The meaning of this study to suggest research methods from a different perspective in golf course appraisal. However, the analyzed objects have been limited to membership golf courses from a micro perspective, and it is limited to time serial transition analysis and value changes of already sold-out golf courses. Further study will be expected for improvement in the future.

Keywords : Membership-based golf course, Value-formation, profit, market-value, location factor, operation factor, financial factor, enrollment fee