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Saturday, Feb. 4, 2006

Aces High

Steve Johnston holds the Canadian record for holes in one.
That's one way to build a golf consulting practice

Friday, July 26, 2002
Michael Grange

Steve Johnston never thought his working life (accounting) would mesh with his lifelong passion for golf. But the two worlds collided in 1988, when he joined the executive board at Beacon Hall Golf Club, north of Toronto. At around the same time, his firm, KPMG, began expanding its consulting business. Johnston identified the golf industry as an untapped area, and the country's leading golf consultancy was born. He still plays, too-and even holds Canada's record for holes in one, with 47 aces to his credit. That makes him No. 3 in the world.

Q. Is building a golf course a good investment?

A. You have to [consider] what kind of cash the golf course will throw off. Normally, the multiples are based on a six- to seven-time mature projected cash flow. If the projection for year five was that the golf course would make $1 million in cash EBITDA, then the course, today, is worth $6.5 million. If, in five years' time, it was actually making the $1 million, then its value goes up to roughly $9 million. Most people don't build a golf course unless the cost of building equals the $6.5 million.

Q. Can I build a high-end public golf course in the Toronto area for $6.5 million?

A. The cost of building is $5 to $7 million. The land is $1.5 to $1.7 million. A clubhouse is roughly $200 a square foot, and you need between 8,000 and 12,000 square feet, so you're at $1.5 to $2 million for the clubhouse. Then you have your soft costs-architecture fees, environmental consulting and zoning issues, which run from $500,000 to $1 million. You need infrastructure-a parking lot and road into your course. The total cost would be $10 to $12 million. That's why green fees are so high. You need to make about $1.2 million a year just to cover principle and interest.

Q. What trends do you see?

A. I think there's growth opportunity for mid-market private golf courses. Public golfers are used to a $40 to $60 ticket. [It's $120 to $220 at a higher-end public course.] Since their expectations are lower, you can have more people belong to a mid-market private club than a high-end club. The more members you have, the cheaper the annual dues.

Q. Is golf still a hot industry?

A. In the U.S., it's an industry that has grown too fast. It's not booming-it's status quo. As a result of a building boom, it's going to take a while for demand to catch up with supply. We're still a little behind that in Canada, but [a similar situation] could happen here.

Q. You have had 47 holes-in-one since you started playing. How do you explain that?

A. I just have a knack for it. I've had two holes-in-one in a round. I've had one on a par-four.

Q. When was your last one?

A. About a year-and-a-half ago at Beacon Hall. I hit a 4-iron on the 16th hole. I'm going to lose my bet though.

Q. What bet is that?

A. I'm going to be 50 soon, and I've had a bet with some partners at KPMG that I would have 50 [aces] by the time I was 50. I need three more or I lose $500. If I can do it, they pay me $5,000. The problem is, I don't have much time to play between now and then.

Q. This must be your dream job. Is there anything you don't like about it?

A. My pet peeve is that in the golf business, people think they know more than they do. Potential and current owners don't do enough due diligence when it comes to the people they take advice from. This is one of the weakest industries when it comes to management expertise. Golf courses have been around since the early 1800s, but most people never looked on them as a business. And everyone believes it's easy to run a course.

Q. As the golfing accountant, do you keep track of the score when you play?

A. I hate to keep track of the scorecard or the bets. I'll play any game you want, just don't make me keep score.

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