“We’re gaining scale and the industry has turned around,” John McConnell said in assessing the state of his 12-club portfolio.
In a wide-ranging feature published by The News & Observer of Raleigh, N.C., former software mogul John McConnell offered frank assessments of the portfolio of a dozen country club and golf course properties that he has acquired since first buying Raleigh (N.C.) Country Club on a whim in 2003. In The News & Observer profile, McConnell also provided insights into his game plan for turning around some of the financially struggling country clubs he has added to Raleigh-based McConnell Golf.
McConnell bought Raleigh Country Club because he wanted to ensure the preservation of the last course designed by renowned architect Donald Ross, The News & Observer reported. Since then, he’s made additional acquisitions “in defiance of what has been a challenging market for golf course owners” as part of “a bold strategy to convert his passion for golf into a thriving business by creating a larger operation that is more cost-efficient,” The News & Observer reported.
That effort remains a work in progress, McConnell told The News & Observer. “We’re gaining scale and we see the light at the end of the tunnel, because the industry has turned around,” he said when interview in the Raleigh Country Club dining room that overlooks the 10th hole.
Although McConnell is committed to making McConnell Golf a winning business venture, he’s not intent on making a fortune from it, he told The News & Observer. He’s already made a fortune, twice, The News & Observer noted.
The 65-year-old McConnell is the co-founder and former CEO of publicly traded Medic Computer, and when Medic was sold for $923 million in 1997, he made more than $60 million on the deal, The News & Observer reported.
After leaving Medic, McConnell invested in and subsequently became CEO of A4 Health Systems, which fetched $272 million when it was sold in 2006.
Now, as the sole owner of McConnell Golf, McConnell told The News & Observer that if he really wanted to make a lot of money, he would still be running a software company.
“It’s a different stage in my life,” he said. “Once you have financial independence, there isn’t much more additional money is going to buy you.”
To date, McConnell Golf has paid about $25 million to purchase a dozen golf clubs with courses designed by name-brand architects such as Ross, Tom Fazio, Pete Dye and Arnold Palmer, The News & Observer reported. The purchases were all-cash deals, except for two in which the company assumed existing loans.
But that was just for starters. The company, which now has more than 900 employees, has plowed even more money—about $30 million—into capital improvements in the courses and facilities it acquired, The News & Observer reported, with the goal of boosting membership and enticing members to spend more money at the clubs.
That investment is part of a turnaround formula, The News & Observer reported, that also includes marketing and reducing costs by centralizing back-office functions, which are handled by the company’s 10-person headquarters staff at Raleigh Country Club.
A centerpiece of the marketing effort, The News & Observer reported, is a one-fee-fits-all deal: Members who pay the initiation fee at any one of the company’s clubs can play all of its courses. Depending on the club, the initiation fees range from $3,500 to $33,000.
McConnell admitted to The News & Observer that early on when building McConnell Golf, he was dazzled by great courses and didn’t focus as much as he should have on the local markets.
“One thing I can say today that I have learned: It’s all about rooftops,” McConnell said. “I made two or three acquisitions that, if they came to me today, I wouldn’t buy them. They’re just not in the right areas.”
Of the dozen courses that McConnell Golf has acquired, 10 of them had negative operating income when they were purchased, McConnell told The News & Observer. Today, by contrast, 8 of the 12 courses are profitable, and the overall business is making money, he said.
“I call it a venture-capital model,” McConnell explained. “You make 10 investments and two are home runs, maybe five are average, and you have three dogs. We have to look at the portfolio.”
McConnell anticipates that McConnell Golf will generate about $45 million in revenue this year from its golfing operations, The News & Observer reported. “We anticipate same-store growth of three percent,” plus additional revenue growth from acquisitions, he said.
McConnell Golf also has a 35 percent ownership stake in a Cincinnati, Ohio-based software company, Clubessential, that caters to private clubs and resorts.
Although one-third of the golf clubs McConnell Golf owns are unprofitable, McConnell stressed to The News & Observer that they are a valuable part of the overall mix, because they help to defray overhead expenses and because members of other clubs get to play them under the one-fee-fits-all policy.
McConnell Golf targets people who are serious about golf, The News & Observer reported. That focus started with the acquisition of Raleigh Country Club, when McConnell let it be known that the club was implementing a 15-handicap rule—meaning that anyone who wanted to join had to have a 15 handicap, or better.
The rule was never enforced, “but it created such a buzz in the community,” McConnell said.
McConnell himself is an avid golfer with a 9 handicap, The News & Observer reported, although he was quick to add that his game is “going downhill.” His best score ever was a 73 at Raleigh County Club.
At McConnell Golf, McConnell is the big-picture guy who believes in delegating, The News & Observer reported. “If a guy wants to make every decision,” he said, “he is always going to have a small business. You have to empower people to make decisions and hire the right people. Often they make a much better decision than I would have.”
Christian Anastasiadis, McConnell Golf’s Chief Operating Officer, has been with the company from the beginning. He was brought in to run the Raleigh Country Club when it was in bankruptcy, The News & Observer reported, and McConnell asked him to stay on.
McConnell told him at the outset, Anastasiadis told The News & Observer, that he needn’t be concerned about skimping on the improvements that Raleigh CC needed. “Don’t worry, I’ve got money,” McConnell told him.
McConnell, Anastasiadis added, “challenges us every day to think differently.” And the latest challenge for McConnell Golf, The News & Observer noted, will be the company’s first foray into public golf courses with its 10-year deal to operate the Raleigh Golf Association.
McConnell told The News & Observer that he sees the arrangement as an “experiment.”
“It will be interesting to see whether we can create growth in golf in this market with a low-end, low-cost product that is maintained in good condition—hopefully with better service than other public golf courses provide,” he said.