Russian golf industry overview 2011
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Contents Introduction.................................................................. 1 Russia’s golf industry: Key trend..................................... 2 Supply..................................................................... 2 Current supply.................................................... 2 Building the concept........................................... 4 Demand............................................................. 5 Golf club returns................................................. 6 Findings............................................................. 7 Statistical information (2010)........................................ 8 Supply of golf services.............................................. 8 Returns................................................................... 9 Overview of existing and projected golf clubs................10 Golf club location maps................................................15 Services of Ernst & Young in the golf industry...............17 Contacts.....................................................................17
Introduction This is an overview of the findings of our first survey to explore key trends in Russia’s golf industry and its prospects for growth. Our analysis identified that new golf courses are built in Russia each year. The operating performance of Russian golf clubs is moving back towards levels existing prior to the recent economic crisis . We thank the management of the golf clubs Tseleevo, Don, Dunes, Moscow Golf Club in Krylatskoye and Stary Oskol for their cooperation in providing information for this overview. We hope that this summary will be of interest and use to you. Should you wish to participate in a future survey, or have suggestions for improvement or other information you would like to see included, we invite you to contact Anastasia Stepanenko or Olga Fazullina at +7 (495) 755.9700 by telephone or E-mail: Anastasia.Stepanenko@ru.ey.com; Olga.Fazullina@ru.ey.com. Olga Arkhangelskaya Anastasia Stepanenko Partner, Head of the Real Manager, Hospitality and Estate Group in the CIS Leisure Advisory Services Russian golf industry overview 2011 1
Russia’s golf industry: Key trends Golf has not yet become a common leisure and sporting In recent years, the domestic golf industry has seen activity in Russia and the domestic golf industry is still at its a positive trend, receiving a stronger backing from the early stages. Due to hefty membership fees and additional Russian Ministry of Sports, Tourism and Youth Policy, which spending on golf equipment and gear, golf remains an has worked closely with the Russian Ministry of Education expensive, elite sport. Consequently, most golf clubs are and Science to promote children’s and youth golf in Russia. located in the vicinity of Moscow where the most solvent Golf business is greatly dependent on the overall economic demand exists, represented by individuals and companies growth of the host region and country. The global liquidity with sufficient disposable time and income to enjoy this crunch caused a slowdown in business activity resulting in leisure sport. a decrease in corporate events held on the premises of golf The availability of quality golf services remains resorts. At the same time, the golf industry is less underdeveloped in Russia, the demand exceeding the supply. susceptible to market fluctuations regarding capital intensity As a result, a significant portion of Russian golfers prefer and ultimate returns. major international golf resorts in Spain, Portugal, Finland, Poland, China and Korea. A world-class golf industry means eight to ten courses available within reach. Supply Current supply Where a golf club is part of a major residential development (estate), it is often perceived as an image component contributing to the overall prestige of the estate and the Based on the most recent information, a total of 18 golf value of residential properties within it, while not being the clubs totaling 216 holes operate in eight of Russia’s 83 highest-return component. regions. As opposed to private clubs, in semi-private clubs one-off According to public sources and interviews with developers, guests are allowed to play for a ‘green fee’1. Members are another 30 clubs (483 holes) are currently on the agenda for entitled to play an unlimited number of games on the course development. Most of them are elite clubs with champion and have priority over non-member guests. Any new golf courses of 18 holes. Major projects are described in the member wishing to join a private club must be proposed by table beginning on page 12. existing members. Generally, golf clubs are segmented according to the degree The fundamental difference between public clubs and of access (open/ limited ) and available infrastructure (see private/semi-private elite clubs is their public accessibility as graphical outline on page 3). public facilities use no membership schemes. he amount of money a club charges a one-off visitor T 1 to play the golf course. 2 Russian golf industry overview 2011
Growth of the golf industry is driven by: Constraints to growth: • High returns on diversified assets • A land plot of an adequate size is difficult to find • Growing popularity of golf as a sport • Comprehensive golf facilities require considerable investment • Growing demand for golf clubs as a venue for corporate events • There are regulatory limitations on construction and use of water resources Key parameters of golf clubs Golf clubs Access Infrastructure Golf resort and Golf Golf club within Private Semi-private Public Golf club residencial resort residential estate estate Source: Ernst & Young All private clubs have complex selection • Priority registration for club tournaments procedures. Sometimes, the application has • Access to a variety of events held for members by to be reviewed by the general council and the club and its partners approved by the chairman before one can • Priority use of the club’s premises and infrastructure become a member. Member benefits may for private (corporate) events or tournaments free of rent vary from club to club. • The ability to store golf equipment on the club’s Key benefits may include premises the following: • Free parking on the club’s premises • Free use of the golf course • Access to the club’s premises and services for the member’s guests (no advance registration is required • Free use of the practice course and an unlimited for three or fewer guests) number of balls • Special prices for the member’s guests. • The ability to pre-book game start times Russian golf industry overview 2011 3
Building the concept The following factors contribute to a successful golf club: A golf resort would normally offer quality conference facilities to clients who desire to hold their corporate events and • Sufficient area (at least 30 hectares) business negotiations in a relaxed atmosphere. • Diverse landscape Spa centers of various sizes can also be a good addition to • A course of 18 holes suitable for international a golf club. Importantly, experts believe that spa centers are championships more attractive to investors when they operate within a hotel, and their rate of return can be 15% higher compared with • Convenient transport access: a stand-alone scenario. A spa facility may contribute 10-12% —— location in proximity to a big city will secure corporate or more to overall income. demand; Based on domestic and international practices, combining the —— close to main thoroughfares; golf club with a hospitality component is also a good idea. In —— convenient access to airports and railway stations; such a scenario, a significant portion of demand will be for —— relatively close to other golf courses (within one-hour hotel rooms and suites with kitchenettes. Long-stay hotels, drive or less); aparthotels and serviced apartments can also be feasible within a golf resort. Most golf clubs (77%) are independently • Additional services (conference rooms, restaurants/bars, managed by their owners and form a separate operating unit, equestrian facility, spa, hotel, etc). while the remaining components of the resort are managed by international hotel operators. Key components of a golf resort Apartments/ Golf course Specialty Casino detached Trout farm store houses Golf resort Tennis Hotel infrastructure Restaurant Helipad courts Miniature Fitness Aparthotel SPA center Stalls golf center Source: Ernst & Young 4 Russian golf industry overview 2011
Demand Golf is becoming more popular each year. However, entrance Key criteria for golfers choosing a golf club are t he quality and membership fees are high and many golfers would of the course and services, additional offerings and rather pay a one-off green fee instead of joining the club. infrastructure, convenient location and transport access. According to the Russian Golf Association, there are roughly Local demand for golf services is of a variable, seasonal 2,000 registered golfers in Russia. Another 5,000 guests nature. With the climatic diversity of Russia’s regions, the play golf three times a year or more on a green-fee basis. average playing season is 180-190 days (180 days in The business elite accounts for the major part of the clients Moscow and the Moscow Region). of international golf clubs. A similar trend is seen in Russia. The following are the major annual golf • Ronald McDonald House tournaments in Russia: • Deloviye Ludy Cup • Women’s Golf Championship • Russia’s Open Professional Championship (part of the Professional Golf Association Tournament) • Golf Style Cup • President’s Cup • Golf Digest Cup Structure of demand for golf resort services2 Clients Demand Business demand Golf demand Leisure demand for events Roughly 35% Roughly 10% (15% actually Roughly 30% Roughly 25% play golf) Source: Ernst & Young Business demand is generated by visitors seeking a certain business environment in order to discuss business issues. Golf demand means demand for golf 2 as a sport. Leisure demand primarily relates to demand for recreation and leisure on the club’s premises. Demand for events is represented by corporate or private clients holding conferences, meetings, trainings and functions on the club’s premises. Russian golf industry overview 2011 5
Golf club returns In Russia, golf is associated with the prestige and high social Additional services, such as stores selling golf equipment standing of players, reflected in the size and structure of and supplies, restaurants, bars, hotels, and detached entrance and membership fees. Such fees are significantly houses, can help increase the profit margin. higher in Moscow and adjacent areas compared with other Comparing costs and expenses of stand-alone golf clubs and regions. comprehensive resorts, the latter are much better positioned Green fees paid for single rounds, tournament fees, annual owing to the synergy of all components and amenities. membership fees and fees for the use of practice areas form Before the 2008 financial crisis, golf resort projects were the basis of a golf club’s revenue sources. funded by selling houses and apartments at the earliest Longer payback periods are typical of the golf industry stage of construction. In the time of crisis and in the compared with other types of commercial real estate, following years, it has become feasible, in the first place, to resulting in lower rates of return on investment. The reasons invest in the construction of the core component, normally are the significant cost of the creation, maintenance, design the golf club and relevant infrastructure. Moving forward and architecture of golf courses and specialized and auxiliary with an aggressive schedule to construct the main image staff (up to 70 staff members; 40 staff members on component can enhance the sale of the residential average). component. The image factor has contributed to the value of residential properties in the vicinity of a golf course both before and after the crisis. Income and expense structure Income Expenses Profit margin Golf club 66% — golf 27% — golf 30% 34% — other income 73% — other expenses Golf resort 77% — infrastructure utilization 78% — infrastructure utilization 75% 23% — golf 22% — golf A golf club can help increase the value of residential properties by an average of 15-20% Potential implementation scheme of a golf resort Before the crisis After the crisis project Sale of off-plan residential Construction of golf club and hotel properties (min. infrastructure*) Construction financed from the sale of residential Sale of residential properties properties * minimum sufficient infrastructure Source: Ernst & Young 6 Russian golf industry overview 2011
Findings Driven by the growing popularity of golf as a sport, the potential steady return from a golf club helps promote Russia’s golf industry. With potential buyers of country properties becoming more interested in this sport and active rest, developers increasingly build golf courses in luxury housing communities. In the meantime, there are also constraints to the growth of the golf industry in Russia such as difficulties in finding a land plot of adequate size, the high capital intensity of golf projects, regulatory limitations on construction and use of water resources, lack of experienced and qualified staff and red tape. Although these issues are factors for golf facilities in all markets, in Russia they are particularly acute because of the early stage of development of golf as a leisure sport. It can be a time and money consuming process to obtain all resources and documents required for the construction of a golf resort. Russian golf industry overview 2011 7
Statistical information (2010) Supply of golf services in Russia Breakdown of golf courses Breakdown of golf courses by membership type by number of holes 18 holes 50% Private Public 56% 22% 9 holes 3 holes 38% 6% Semi-private 6 holes 22% 6% Golf courses in the Russian federal districts (FD) Central FD 13% 17% North-Western FD 1% 8% Volga FD 2% 3% Far-Eastern FD 3% Southern FD 1% 4% Urals FD 1% Siberian FD North Caucasus FD 0 5 10 15 20 25 30 Existing Projected 8 Russian golf industry overview 2011
The number of golf courses in Russia Club number Hole number 35 800 30 700 600 25 500 20 400 15 300 10 200 5 100 0 0 1987 1990 2000 2010 2015 Clubs at the beginning of the year New clubs Total hole number on the market Returns Average green fee Average entrance fee Average membership US$ US$ fee per annum US$ 160 120,000 12,000 11,254 134 104 936 140 100,000 10,000 120 80,000 8,000 100 80 64 60,000 6,000 60 38 034 40,000 4,000 3,279 40 20,000 2,000 20 0 0 0 Moscow Other regions Moscow Other regions Moscow Other regions Russian golf industry overview 2011 9
Overview of existing and projected golf clubs Major golf clubs in Russia Name No. on Nearest Address Number Total area Area of Infrastructure Since the map city of holes (hectares) golf course (hectares) Le Meridien Moscow Moscow Region, 18 120 N/A Hotel, detached houses, 1993 Moscow 1 Krasnogorsk club house, restaurants, Country Club District, Nakhabino bars, conference room, business center, swimming pool, sauna, spa, equestrian facility, beach Pestovo golf Moscow Moscow Region, 18 200 76,53 Restaurant, club house, 2006 and yacht club 2 Mytishchy District, yacht club, swimming Rumyantsevo, pool, shopping area, Nikolskaya street, fitness center, equestrian estate 1, building 1 facility Tseleevo golf Moscow Moscow Region, 18 400 N/A Detached houses, 2008 and polo club 3 Dmitrovskoye club house, restaurant, Highway, 47th km equestrian facility, of Moscow Ring ski facility, helipad Road Moscow Golf Club Moscow Moscow, 18 N/A 55 Swimming pool, bath, 2004 in Krylatskoye 4 Krylatskaya str., 2 sauna, fitness center, billiards, tennis courts, club house, massage room, tanning bed Agalarov Golf & Moscow Moscow Region, 18 320 70 Hotel, restaurant, bar, 2010 Country Club 5 Istra District, fishing, spa, club house, Obushkovo business center, Country District, swimming pool, hamam, villages of sauna, gym, billiards, Voronino and bowling alley, beach, Zakharovo, tennis courts, helipad, Novorizhskoye mooring for boats, Highway, 24th km guarded parking area, of Moscow Ring shopping area Road Pirogovo Moscow Moscow Region, 9 100 N/A Ownership residences, 2007 6 Ostashkovskoye restaurant, club house, Highway, beach, hockey pitch, mini Klyazminskoye soccer pitch, tennis Reservoir courts, mini farm, yacht club, mooring for motor boats and yachts, sailing school, boat house for winter storage with an adjacent dock and slipway for launching boats Tiger Moscow Moscow, 5 N/A 2.5 Guarded parking area, 2008 7 Proektiruemy lane car wash, office and 5217, 2 warehouse facilities, cafés 10 Russian golf industry overview 2011
Name No. on Nearest Address Number Total area Area of Infrastructure Since the map city of holes (hectares) golf course (hectares) Moscow City Moscow Moscow, 9 N/A 22 Restaurant, bar, 1987 Golf Club 8 Dovzhenko str., 1 conference facility, fitness center, beauty salon, ice stock rink Golf club Moscow Moscow, 9 N/A 27,4 Golf academy, children’s 2010 in Kurkino 9 Kurkino, sports school, fitness (Devyatka) Yurovskaya str., center, shopping area, 41 golf school, club house, swimming pool, sauna, restaurant, bar, conference room, parking area. A hotel and apartments are projected. Dunes St. St. Petersburg, 18 N/A 18 Hotel, detached houses, 1997 10 Petersburg Primorskoye club house, restaurants, Highway, 38th km bars, health resort, equestrian facility, beach, rink, tennis courts, volleyball court, badminton, skateboards, bikes, inline skates, crossbow and airgun shooting, beauty salon, gym, swimming pool, sauna, bath Don Rostov- Rostov-on-Don, 18 500 110 Restaurant, club house, 2008 11 on-Don Starocherkasskaya shopping area Imenie Togliatti Togliatti, 6 N/A N/A Club house, conference 2008 12 Komzin str., 6 (v) facility, sauna, restaurant, bar, shopping area Stary Oskol Stary Oskol Stary Oskol, 9 N/A 10 Hotel, parking area, 2005 13 Molodiozhny miniature golf course, prospect, 6 fitness center, swimming pool, club house, restaurant Kazan Kazan Kazan, 30km 9 420 54 Detached houses, club 2006 14 house, restaurant, tennis courts, gym, spa, sauna Pine Creek Ekaterinburg Sverdlovsk Region, 18 147.2 81.5 Golf academy, practice 2009 Golf Club 15 Sysert District field, club house, golf villas, private residences, guest houses Russian golf industry overview 2011 11
Projected golf clubs Name No. on Nearest Address Number Total area Area of Infrastructure Since the map city of holes (hectares) golf course (hectares) Links National Moscow Moscow Region, 18 500 N/A Golf academy, practice 2011 (Teleshovo 1 Dmitrov District, field, club house, Links) 60th km of residential community Moscow Ring Road Forest Hills Moscow Moscow Region, 18 450 N/A Golf academy, practice 2011 Resort and 2 Dmitrov District, field, hotel, club house, Golf Club 45th km of golf villas, private Moscow Ring Road residences, swimming pool, spa, tennis courts, equestrian facility Sorochany Moscow Sorochany, 9 N/A N/A Hotel, swimming pool, 2012 3 Dmitrovskoye spa, sauna, gym, tennis Highway courts, biking and jogging paths, volleyball court, swimming pool, sauna Nick Faldo Moscow Leningradskoye 27 244 244 Tennis courts, N/A International 4 Highway, estate restaurants, bars, fitness 170-288 center, indoor golf center, volleyball court, fitness club, beauty salons, swimming pool, sauna Top Golf Moscow Troparevskaya str. 9 38.85 N/A Hotel, business center, N/A 5 cafés, bars, restaurants, conference room, Internet café, slot machine parlors, parking area, fitness center, bowling alley, billiards, swimming pool, tennis courts, jogging and strolling paths, skiing runs, club house Putilkovo Moscow Putilkovo District N/A 300 N/A N/A N/A 6 Skolkovo Moscow Skolkovo N/A 26 N/A Business school Skolkovo, N/A 7 Innograd Nizhniye Moscow Nizhniye Mnevniki 18 35 35 Detached houses, club N/A Mnevniki 8 str., Teplichny farm house Golf City Moscow Moscow Region, 27 968 272 Hotel, business center, 2015 9 Kievskoye restaurants, bars, Highway, 80th km swimming pool, fitness center, spa, tennis courts, movies, childcare facility, school, curling, snowmobiles Akatovo Moscow Novorizhskoye 18 9 250 53 Hotel, guest houses, N/A (Blagodatnaya 10 Highway, 100th fitness centers with gyms, Ruza) km swimming pools and spa facilities, equestrian facility, pistol club, yacht club, football ground, tennis courts, paintball, volleyball and basketball facilities, restaurants, cafés, supermarkets, school, childcare facility, farm, parking areas 12 Russian golf industry overview 2011
Name No. on Nearest Address Number Total area Area of Infrastructure Since the map city of holes (hectares) golf course (hectares) Bunino Moscow Novorizhskoye 36 27 750 157 Hotel, guest houses, N/A (Blagodatnaya 11 Highway, fitness center with a gym, Ruza) 100th km swimming pool and spa, equestrian facility, pistol club, yacht club with a boat house and station, tennis courts, restaurants, cafés, supermarkets, parking facilities Dunes, St. Primorskoye 27 130 200 Detached houses, 2014 extension 12 Petersburg Highway, 38th km swimming pool Tsarskoselsky St. Pushkin, 18 274 80 Hotel, detached houses, 2014 (Babolovsky 13 Petersburg Catherine’s Palace club house Park) Peterhof Lakes St. Peter’s Palace 18 86 76 Hotel, golf academy, 2015 Course 14 Petersburg District practice field, club house Gatchina St. Gatchina N/A 560 160 N/A N/A 15 Petersburg Bolshoye Moscow/ Tver Region, 27 1313 50 Radisson Hotel, detached 2012 Zavidovo 16 Tver Konakovo District, houses, residential Novozavidovo community, yacht club, rural area, village beach, equestrian facility, of Shosha, 117th tennis court km of Moscow Ring Road (Name pending) Kaliningrad Gagarin str. 18 569 N/A Detached houses 2015 17 Chkalovsky Kaliningrad Ring road district N/A N/A 24 Hotel, restaurant, spa N/A 18 Bagrationovsky Kaliningrad Ladushkin 18 160 160 N/A N/A 19 Amber Valley Svetlogorsk Svetlogorsk 18 250 N/A Hotel, detached houses, N/A 20 club house, equestrian facility Vinogradnaya Anapa Anapa, Vityazevo 18 1600 200 Detached houses, spa, 2014 Dolina 21 grape valley, sports and fitness center, restaurants, shopping area Rayevsky Anapa Novorossiysk, 18 N/A 178 Hotel, detached houses, 2010 22 Rayevskaya, Lenin club house, winery, str., 27 tasting room, shopping center Russian golf industry overview 2011 13
Name No. on Nearest Address Number Total area Area of Infrastructure Since the map city of holes (hectares) golf course (hectares) Black See Gelendzhik Krasnodar Region, 9 148.5 135 Ownership residences, 2011 Mountain 23 Gelendzhik yacht parking lot, hotel, Golf Resort District, village of business center, Mikhailovsky conference room, Pereval equestrian facility, restaurants, bars, swimming pool, bridge club, library, spa, fitness club, tennis courts, bike tracks, billiards, beach Chudo-Dolina Goryachy Goryachy Klyuch, 18 200 200 Hotel, detached houses, N/A 24 Klyuch village of equestrian facility, Bezymyanny hunting lodges, sport shooting Samarsky Samara Samara Region, 90 735 445 Hotel, detached houses, 2011 25 village of Syreyka club house, polo, fishing, restaurant, tennis courts, bank, dental services, business center Saratov Saratov Saratov 18 N/A N/A Hotel, restaurant, parking N/A 26 areas for motor boats, snowmobiles and PWCs (Name pending) Vladivostok Russky Island N/A 10,298 N/A Island Sky winter sport 2013 27 park, beach, diving center Ples Ples Ples 18 125 N/A Hotel, detached houses, N/A 28 tennis courts, swimming pool, health center, beauty salon, beach, club house, spa, helipad, fitness club, playground, volleyball courts, yacht dock, parking area, shopping area Uglich Uglich On the bank of the 27 143 143 Hotel, detached houses, N/A 29 Volga, between equestrian facility, the villages of restaurant, yacht club, Derevenky and tennis courts Cherkasovo Golf Kazan, Kazan 30 km away from 18 N/A 420 Hotel, detached houses, N/A extension 30 Kazan, Highway club house, restaurants, М7, village of tennis courts, gym, spa, Savinovo swimming pool, sauna, mooring for yachts, ski facility Source: media 14 Russian golf industry overview 2011
Golf club location maps Golf clubs in the vicinity of Moscow 1 3 2 3 2 4 6 9 1 6 10 11 5 4 7 8 7 5 8 7 9 7 Existing golf clubs 10 Projected golf clubs Source: golf clubs and media Russian golf industry overview 2011 15
Golf clubs in the vicinity of St. Petersburg 10 12 14 13 10 Existing golf clubs 15 12 Projected golf clubs Source: golf clubs and media Golf clubs in other regions of Russia 19 20 18 17 29 16 28 13 14 21 30 11 12 22 26 23 25 15 24 27 11 Existing golf clubs 16 Projected golf clubs Source: golf clubs and media 16 Russian golf industry overview 2011
Services of Ernst & Young in the golf industry • Planning clubs and recreation facilities: feasibility studies for golf, hospitality, spa and other amenity components • Investments: forecasting operating performance including residential and commercial development • Fundraising: valuation and advisory • Legal and tax advisory Contacts Olga Arkhangelskaya Anastasia Stepanenko Partner, Head of the Manager Real Estate Group in the CIS Tel: +7 (495) 662 9381 Tel: +7 (495) 755 9854 Anastasia.Stepanenko@ru.ey.com Olga.Arkhangelskaya@ru.ey.com Angelika Normann Senior manager Tel: +7 (495) 648 9667 Angelika.Normann@ru.ey.com Russian golf industry overview 2011 17
Ernst & Young Assurance | Tax | Transactions | Advisory About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 141,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. Ernst & Young expands its services and resources in accordance with clients’ needs throughout the CIS. 3,500 professionals work at 17 offices in Moscow, St. Petersburg, Novosibirsk, Ekaterinburg, Kazan, Togliatti, Yuzhno-Sakhalinsk, Almaty, Astana, Atyrau, Baku, Kyiv, Donetsk, Tashkent, Tbilisi, Yerevan, and Minsk. For more information about our organization, please visit www.ey.com. Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. © 2011 Ernst & Young (CIS) B.V. All Rights Reserved. This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Ernst & Young can accept no responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate adviser.
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