Budgeting for 2019 requires a broader-than-usual alertness to changing times and impacts on golf-oriented businesses. Newfound elasticity on revenue sources, such as dues and fees, will allow many to plan for revenue increases. That’s the good news. More sobering is the fact that most courses and clubs will strain to cover the rapidly accelerating costs of operations.
While it’s helpful to know that costs are rising, budget planners benefit even more from understanding the factors driving cost increases. Here are five cost areas where knowledge of underlying trends and timing will lead to accurate projections.
The U.S. Department of Labor’s Employment Cost Index notes that wages and salaries for U.S. businesses increased 2.9 percent for the 12-month period ending in June 2018, following a 2.4 percent increase in June 2017. The cost of benefits rose 2.8 percent for the 12-month period ending in June 2018, after increasing 2.2 percent in June 2017. Employer costs for health benefits increased 1.6 percent for the same 12-month period.
The costs associated with insuring golf facilities are increasing. Willis Towers Watson’s insurance industry semi-annual report (2018 Insurance Marketplace Realities) projects increases in insured categories more vulnerable to natural catastrophe impacts.
- Property: Previous-loss history more than doubles premiums in most markets. Clubs located in markets exposed to catastrophic claims will increase as much as three times those of non-exposed clubs, while those clubs with catastrophic experience with losses may see increases from 15 to 20 percent.
- Casualty: WTW projections indicate that rates for casualty insurance will increase less than 4 percent.
- Auto Liability: For clubs with automobile insurance premiums, rates are expected to rise from 5 to 9 percent. Ongoing market challenges exist in this space, and two years of steady price increases have not kept pace with loss trends and adverse developments. Rates are expected to rise more steeply.
- Cyber: Golf clubs are vulnerable to cyber-risk. The WTW study notes a 15-fold increase in two years with claims near $5 billion. Organizations without claims can forecast increase of 5 percent or less.
“Over the past nine years, employee out-of-pocket spending for a family of four increased 69 percent in the form of higher co-pays and higher deductibles, along with 105 percent employee premium contribution growth,” Keith Lemer, CEO of WellNet Healthcare, said in an interview with CNBC earlier this year, noting that over the same period a year earlier employer premium contributions increased 62 percent.” Lemer added, “In 2008 more than 8 percent of a family’s income was spent on health care. In 2015 (last available data) it rose to 12 percent. This means people are making less money today as a direct result of the cost of health care.”
The costs of food consumed at home diverged a few years ago from the costs of food served away from home – in restaurants and clubs. The U.S. Department of Agriculture predicted grocery store price increases from 1 to 2 percent. Food consumed away from home is expected to increase from 2 to 3 percent. For menu planning purposes, be aware that beef and veal are projected to rise 2 to 3 percent, egg prices will increase 4 to 5 percent, while cereal and bakery prices will go up 3 to 4 percent. The USDA expects prices for fats, fruits and vegetables to drop.
Large consumers of fuel and oil by-products, including golf courses, will see some relief in fuel-related costs in 2019, according to an August 2018 J.P. Morgan forecast. “While geopolitical tensions and lingering risks of large supply disruptions remain an upside risk, we think that prices will be corrected downwards towards end of the year and remain capped in 2019,” J.P. Morgan analyst Abhishek Deshpande wrote in the note reported by CNBC. This is important for golf where oil prices and those of oil by-products, including fertilizer, have direct budgetary impacts. For budgeting purposes, managers should watch oil futures. One can expect higher gas prices about six weeks after an increase in oil futures.
GGA’s Henry DeLozier penned this article for Golf Course Industry Magazine.