Rising Oil Prices Affect So Much More Than Gas At The Pump

 As seen in Golf Business May/June 2022 

By Steve Eubanks:

Early on the morning of Good Friday, a 60-year-old banker named Scott Tucker signed a contract to replace the irrigation system at Coosa Country Club, the top private club in the small industrial town of Rome, Georgia, northwest of Atlanta. Tucker was the president of the club, a job that came with more headaches than he’d expected but one he also cherished because of the goodwill he’d discovered among his members. When he started the fundraising campaign for the new irrigation and a redesign of the greens, which were built by George Cobb in 1961, Tucker had members open their wallets in ways he never thought possible.

That was the good news. The bad news lies ahead. The irrigation project at Coosa CC is budgeted at $1.129 million, which includes the latest Toro heads and regulators – pretty standard pricing for that part of the country. But there’s a catch. A clause in the contract allows for overages based on the cost of materials. And with inflation at its highest point in two generations, those overages could alter the club’s plans dramatically. 

As of Easter weekend in 2022, the inflation rate nationwide was reported at 8.4%, the highest it has been since 1981. But that number is deceiving. If the 1981 methodology were applied to today’s goods, inflation would be close to 13%, the highest in U.S. history.

All areas of life are impacted by inflation and golf is no exception. But one area in particular, oil prices, could kill the gains our industry has experienced in the last four years. In 2020, for example, crude oil averaged $43 a barrel. Today it hovers around $113. That has driven the price of gasoline to record highs, with the national average of a gallon of regulation exceeding $4 for the first time in history.

But in golf, it’s so much more than the price your customer pays at the pump. Tim Moraghan, the principal of Aspire Golf Consulting and former head of the USGA Green Section, summed it up this way. “Let’s say you’re rebuilding bunkers or the putting green or something like that. There’s a shipping cost for 25 tons of sand and 25 tons of gravel. But now there’s also a surcharge for fuel to transport the items there. And if that truck is going back empty, you’ve got a freight-on-board cost that goes with it as well as the upcharge you’re paying. The cost of diesel is $9 or so a gallon, so you’re putting in 150 gallons of diesel fuel for your delivery guy’s ride back home.

“Plus, it’s not just gas and diesel. The cost of lubricants, hydraulic fluid, grease, it’s all on the rise. People look at the price of gas and think they can build that into a budget. Well, no, most of your heavy equipment runs on diesel, which is even more expensive. If you have a fixed budget – you’re a moderate, middle-of-the-road club – and you have a $1-million budget – then, suddenly, fuel goes from $2.50 a gallon to $5.50 a gallon, what do you do? If you’re a daily fee operation, do you pass those costs on the consumer, and at what cost in terms of rounds? If you’re private, do you add some kind of surcharge to the monthly bill? And if so, what sort of pushback do you get from your members? It’s a really bad situation.”  

Running equipment is only part of the equation. All those machines need servicing, and everything on the service-technician’s materials list – oil, fluids, cleaners – are petroleum-based. So are all the plastics in a golf operation, including but not limited to flags, cups, hole liners, bunker rakes, trash cans, even many of the boots and uniforms worn by maintenance staff come from petroleum products. And all have skyrocketed in price.

“Every superintendent worth his salt is going to make it work by saying, ‘OK, what area of the golf course can we cut back on so that other areas can be maintained in the condition members are accustomed to?’” Moraghan said. “But then players see declining conditioning, and people who don’t know the first thing about it start complaining. People call me and say, ‘Hey, Tim, our superintendent has lost his edge. The course looks like crap.’ And I say, ‘Maybe, but have you delved into the reasons it might look that way?’”

Gas prices also have a deleterious impact on labor. In most cases, the grounds crew does not live in the same neighborhood as the golf course, which means they drive themselves to work. Sometimes that’s a mile or two; sometimes it’s half an hour or more. Employees on the grounds crew at Pebble Beach, for example, don’t live in Carmel-by-the-Sea. But they still have to be on site at 3:30 a.m. to get most of the work done before the tee sheet opens. If you are paying an employee $15 to $18 an hour, and a third of that hourly wage will only buy one gallon of gas, that employee is going to look for work closer to home. 

“You go through the whole thing – chemicals, fertilizer, labor, on top of the cost of fuel, and getting the supplies from point A to point B – it’s squeezing the industry and it’s a real problem,” Moraghan said. “Think about every aspect of the operation. You’re in the golf shop and you can’t get your merchandise delivered. You are trying to get range balls because the balls you have are three seasons old and no longer have dimples. You’re trying to get parts for your carts. Yes, you’ve had increased numbers of people playing golf because of COVID, which is great, good for the game, but once that range picker goes down, you can’t get a part or fix it so you’re out there picking by hand. All of those added costs and problems trickle down. It certainly hurts the golf industry.  

“It’s different if you’re at a club like Baltusrol, which has a big and affluent membership. But if you’re the daily-fee club across the street and you’re relying on someone paying $40 for a round of golf with a cart and a bag of range balls, your budget is tight. And as costs go up, you have to sacrifice. The problem is, if you sacrifice too much, you don’t have any customers.

“I have seven client-clubs that are in the process of renovating, and they’re coming to me and asking if they should put it off a year,” Moraghan said. “One client, at the time the budget was created, put in $1.7 million for an irrigation project, which was pretty average. Now, I’m talking to the architect who is saying, ‘There’s no way. You’re looking at $2.5 to $3 million.’ But if you mention that number in the meeting you get your head knocked off.

“That’s what we’re dealing with. You have to get pipe; you have to get parts; you have to get labor and you have to close the club if you want to do it right, so you’re not getting any revenue during that time.

“It’s tough. And it’s going to be tough for some time to come.”