We're going to make the opening assumption that all of you read the last issue and made it at least through the first sentence which provided a definition of bifurcation (for those who didn't, www.m-w.com). In that issue we outlined that the golf consumer group has historically been bifurcated in terms of involvement (committeds vs. casuals) but that significant societal changes in recent history on time and activity levels pose a threat to golf's importance among the casual golfers. The result of this societal change is more pressure on golf participation and frequency among the casual group potentially inhibiting upside growth in the game.

In this second part of the series, we'll build on our previous OTR thinking proposing that the dogmatic and universal application of rules across both competitive and recreational golf is probably not helping us in the current struggle to grow golf. Let's look at how current equipment standards regulations and the insistence on a common, complex set of rules for competitive and recreational golf may be impacting the industry:

1. Given that less than 20% of golfers have a USGA handicap, it's safe to say that the vast majority of golfers play the game for something other than competitive or self-improvement reasons. Might we suggest enjoyment would be high on the list for the remaining 80%?
   


2. Enjoyment comes from a combination of factors including the outdoor setting, the social environment of time with friends and, usually, some fundamental ability to play good shots, entire holes or even assemble memorable rounds
   


3. Most golfers initially, and many golfers subsequently, are challenged to consistently move the ball down the course in an orderly manner. As in any other sport, equipment improvements designed to make the game easier to the skill-challenged population can help create enjoyment early in the experience as well as accelerating skill improvements
   


4. We would propose that heightened enjoyment brought on by an improved ability level causes two things to happen, both of which fuel growth in golf: First, it tends to increase frequency among the existing players (who doesn't want to go right back out and play after breaking 90 for the first time?) and second, it lowers the hurdle for incoming golfers to get to an acceptable play level which should foster retention
   


5. Importantly, increasing the enjoyment level of the majority of the golfing population by recognizing a recreational component of golf doesn't have to sacrifice the tradition, skill and honor of competitive golf. Recreational golfers who advance to the level of competitive golf will have to embrace the new restrictions placed upon them at that level (like equipment and rules conformance)
   

The impetus for this issue was the convergence of Pellucid's previous writings on the flaws in the "one game" theory and Casey Alexander's recent forwarding of his "Shoe Report" (no one quite knows why it's called that) recapping the state of the industry coinciding with his annual Orlando pilgrimage to the PGA Merchandising Show. What follows is our combined thinking on this topic while scratching our heads wondering why such a simple concept has been so difficult to advance? What Pellucid is also suggesting is not a bifurcation of the Rules of Golf, but rather for the industry organizations to acknowledge and accept the existence of more than one game.

Equipment standardization, is uniform conformity a universal benefit?
OK, let's imagine we abolished the rules of golf for recreational play and envision a future scenario. A guy shows up on the first tee of Happy Acres public golf course one day with only a Coke bottle on a stick in his bag (Lee Trevino would love this story, he actually lived something similar to it by all public accounts). He plunks down his $35 for an 18-hole round and goes out and plays in a foursome. Let's say the other guys wanted to bet and he said, "I think I'll shoot 100 today with this Coke bottle on a stick." The other guys reason that's a fair wager and they take him up. He ends up shooting 95, beating 2 guys and losing to another. They settle the bets and head off to the bar. What happened here? The golf course got their $35, the player had an enjoyable round with whatever equipment he chose, the rest of the foursome made the choice to bet or not to bet with him, they agreed on a system and played a round. Who lost in this equation? But, you say, he now wants to enter the occasional charity outing. He has two choices. Don't compete in the charity outing (who made the rule that charity outings were about competition and gambling?) or go play enough rounds before the outing to establish a handicap and compete with that assumed skill level. Let's say he gets really good and wants to compete in the Club Championship or a local amateur tournament. Here he doesn't have the option to not compete so he has to go get himself regulation equipment, post scores etc. and do it that way. One of two things happen, either he's got incredible hand-eye coordination from hitting with that Coke bottle on a stick and he makes a successful transition to conforming equipment or he's a complete disaster with anything but a Coke bottle and teams up with Peter Johncke "The Trick Shot Master" and goes on tour. Again, who's hurt here?

Mr. Alexander adds his opinion to the equipment side of the story. "Golf is a sport but it's also a business. Any business that does not embrace technological change is doomed to fail. Well, the USGA not only doesn't embrace technological change, they are considering rolling the technology back. And that will be the death knell for the game. In our opinion, any potential change that rolls the ball back is un-implementable." He continues to offer his thoughts on the downside risk of recognizing the multiple games of golf being played by allowing recreational golf to be played with more "friendly" equipment: "As it relates to recreational golfers, why not allow them greater latitude in terms of the equipment they use? After all, the handicap itself is self adjusting. So, if their performance improves relative to other players, their handicap will quickly adjust for that improvement and the playing field will still be level. More golfers will gather greater enjoyment from the game, the retention of new golfers will be higher, and perhaps the game and the business will begin to grow again. The alternative is shorten the ball, make the game even harder for a larger number of people, reduce retention of new golfers even further, and seriously damage the future health of golf as a game and as a business. But hey, at least it'll be that much easier for me to get a tee time." As an unrealized side benefit, recognizing the multiple games being played and allowing recreational players to use the equipment of their choice might actually encourage more golfers to have a handicap (that and advances being made in making handicap maintenance easier and providing more benefit than just "having a number," stay tuned for a future OTR issue on this topic as well).

Mr. Alexander's final point on the equipment front points out that the recognition of multiple games is not revolutionary thinking nor is it without precedent in sports: "This mindset is directly evident in the ruling related to COR limitations and the USGA's position on non-conforming clubs. Several sports have different sets of rules for recreational play versus professional play, and the USGA should be sensitive to that issue. When Major League Baseball saw the growth of their game at risk, they intentionally changed the ball (despite protestations to the contrary). I defy the ruling bodies to identify someone who quit golf because it was too easy, or because the courses were too short."

In the above scenarios, we're failing to see the "harm" to golf in allowing the multiple existing games to exist side-by-side from an equipment standpoint. It begs two important questions which need to be answered eventually (the first by the USGA and the second by the majority of golfers): Why does the USGA not recognize the recreational game of golf but rather attempts to subvert it by aggressively attacking equipment changes that are designed to appeal to the 20+MM golfers playing this game of golf? The second, and perhaps more important question, is why the golf consumer cares what the USGA thinks about their personal equipment bought and used for their personal enjoyment of the game? While these are not easy answers and the solutions won't change overnight, we believe there will eventually come a "dictatorship of the proletariat" just by the overwhelming power of 20MM golfers as independent consumers and the industry of golf wanting to meet consumers' needs which is how they make money. Wikipedia offers a basic definition of the power inversion as, "the original meaning was a workers' democracy where the working class would be in power, rather than the capitalist class." Our analogy to golf is that somehow the opinions and choices of 20MM+ golfers being controlled by fewer than 15 people will eventually topple under the weight of common sense and enlightened self-interest. Next let's discuss the rules and their impact on the "other" games of golf.

Rules are a helpful construct, they are not however the "essence" of golf.
Let's start with the USGA's perception of the Rules of Golf from two official comments and then compare against the average golfer's perception of those same rules. The first quote comes from a recent Chicago Tribune insert called Golf Source which is published each spring in advance of the pent-up demand about this time of year to go out and start playing. The article is titled "The Long Arm of Golf's Law" and the arresting subhead they use to get us into the story is, "The first rules of golf were a mere 338 words. Now the book totals more than 40,000. The USGA says the game isn't that complicated. A nation of dumbfounded players might argue otherwise." Within the article, Tom Meeks (Sr. Director of Rules and Competition for the USGA) puts forth his opinion that, "The rules are very straightforward. The reason why people have trouble with the rules is that they have a negative attitude." We think it's safe to say, while respecting Mr. Meeks' opinion, that we could probably find 20MM+ golfers who might disagree. Perhaps what's missing in this somewhat antiquated opinion is the fact that the consumer perception of golf and the array of recreational opportunities has shifted significantly and to which golf's associations and ruling bodies are, by and large, either resistant or unaware. In our opinion, for golf to grow it needs to move beyond the old Camelot of it being a game that people aspire to be associated with and embrace a mindset of welcoming people who have no aspirational motives beyond a fun recreational opportunity.

Mr. Alexander offers further support for this position by opining, "Despite representation to the contrary, the USGA is not committed to the growth of the game, but rather its preservation. Therefore, the recreational golfer is a non-entity to the USGA, and the financial health of the game suffers. This is evident in the first line of the cover article of the USGA's member publication issued this past December: "The USGA and the PGA of America, partners and allies for over 80 years, are strengthening their relationship to jointly promote golf and the qualities that make it special: Rules, etiquette and fair play."1 So, by the USGA's own admission (and the PGA of America's by association), the first quality that makes golf special is the rules? Perhaps they are not aware that the majority of golfers actually play to have fun!"

1 Inside the USGA, December, 2004, "Teaming Up To Help America Play Golf", Craig Ammerman.

Could the answer be deceptively simple?
As Mr. Alexander and we have already pointed out, we don't have to create multiple games of golf, they already exist both in consumers' minds and in their behavior on the course. So the potential first simple step is the golf industry's recognition and acknowledgement that different groups of golfers play different games (we're not talking about taking out full-page ads proclaiming their newfound awareness of multiple games, just get off the "one game" kick and the recurring media propaganda put out to maintain its perception as utopia for the game and industry of golf). Next, we'd propose that there are three basic components to three different games being played currently: Equipment, Rules Enforcement and Handicaps. What we would suggest (and borrowing from Mr. Alexander's thinking as well) is that participants could have options regarding what level of the game they'd like to play. As you can see below, we've created a visualization of how the levels and controls might work together to create a more welcoming environment for new participants (and low-ability level current participants regardless of their frequency) while protecting the challenge for more accomplished golfers and not attempting to alter competitive golf one iota.

Type of Golf	Equipment	Rules Enforcement	Handicap	% of Golfers
Competitive	Conforming	Complete	N/A	<5%
Sport	Conforming & Non-Conforming	Complete	Required	10%
Recreational	Conforming & Non-Conforming	Discretionary	Not Required	85%

So, how does it work in practice? What it suggests is that recreational golfers should be able to play with any equipment they deem suitable and they only need a basic understanding of the rules (like where to tee off, basic etiquette in navigating the course and a cognizance of the fact that their speed of play impacts every foursome behind them on the golf course etc.) to participate in golf and enjoy it. If a ball goes into a lateral hazard, we'd suggest they just watch where it goes in, go up, drop a ball there and keep playing. Does it matter at this level whether you take a one-stroke penalty? No. Do you care whether it's OB or not? No. The recreational game is about having fun, hitting some good shots and being in the ballpark on your score as some directional measure of whether you did better or worse than your last round (if you weren't counting those penalty strokes last round it should be a fair comparison). This is done however with the knowledge that the moment the recreational golfer enters an organized event (like the previous charity outing example), those strokes will be counted (this round now becomes a Sport game). We understand that we're perhaps oversimplifying a very complex implementation of this type program but we believe that directionally it's hard to argue with the basic logic of it (but, then again, few things in our industry have defied logic for longer periods of time than this issue).

Looking at the flipside of the equation, does what we're suggesting here harm the USGA and their mission to protect the history and tradition of the game? We don't believe so. The gold standard of complete and thorough rules and their enforcement still exists for two levels of the game (Sport and Competitive). As golfers advance in the game and their desire to test their skill and game against higher standards, handicapping is introduced (at the Sport level) and equipment standards narrowed (at the Competitive level). The only two sacrifices we see in the above scenario is that the USGA has given up their perceived influence over 20MM+ golfers and they've had to finally abandon the insistence that golf can only exist as "one game."

Much like Napster unleashed pent up consumer frustration over the music distribution model, something will eventually trigger the vast majority of consumers' preference to play golf for fun more than anything else with rules and regulations becoming a backdrop for intent as well as a goal for golfers moving up in skill and competitiveness. In other words, the USGA sets the framework for the game of golf and governs the competitive game but allows the recreational game to be the "farm system" for attracting, nurturing and growing the appeal and economic base of golf. In closing, astute observers will recognize the uncomfortable recurring industry theme of our stubborn refusal to acknowledge the changing consumer environment and its belief that, by holding fast to the game's roots, the consumer will eventually see the error in their ways and accept the sport as it was meant to be. One might make a final parallel between this belief system and how we lovingly referred to our alma mater at The Citadel: "Unmarred by progress since 1842."

The Pellucid file...

Reader feedback:
We had only a few, but very interesting, notes of feedback from the last issue. One subscriber half-jokingly suggested that we had recently learned the word bifurcation and were so enamored with it that we created an OTR issue to simply highlight our vocabulary power (we pointed out that bifurcation of The Rules of Golf has been a public discussion since pre-2000 so we're unable to take appropriate credit for inventing either the term or the issue).

Product News:
In general, things have been relatively quiet recently on the product development front as we're more engaged now in selling and servicing the solid product portfolio we've built over the past 18 months. Our recent work has focused on improving and updating those existing products as highlighted in the sections below:

Golf Local Market Analyzer (GLMA): Ad hoc project work is beginning to pull ahead of annual licensees in revenue generation as we continue to see increasing demand for completely outsourced screening of local geographies. We believe this is driven by the relatively small number of clients who have a need to be able to analyze 5+ locations across disparate markets in the space of any one year as well as the continuing cash crunch in the industry where service providers, much like the owner/operators, prefer to incur expenses aligned with revenue vs. gambling that the upfront fixed cost will provide a value at the end of the year based on the number of applications. Two big upcoming developments on the GLMA however are the 2004 consumer survey which will be back in June of this year and incorporated in the GLMA in time for Q4 planning for '06. The other enhancement is a complete refresh of the facility database which will also be completed by Q3 of this year and in place for Q4 planning as well.

Weather Impact Analysis (WIA): At the suggestion of our "early adopter" facility owner/operator clients on this product, we've reviewed the rules for Playable Hours and are in process to slightly "relaxing" the rules on precipitation as well as throughput (capacity rounds per hour using a constant tee time spacing) which will have the combined effect of lowering Playable Hours and Capacity Rounds. At a macro level, we anticipate that it will revise our call in the Orlando presentation of US Utilization between 40-45% increasing it to between 45-55% as a result of these changes. That said, most of our clients continue to suggest to us that they need to be minimally above 55% to make money and most of their annual revenue targets and acceptable returns are pegged at between 65-75% utilization.

Customer Franchise Analysis (CFA): We recently completed a fascinating and compelling analysis of a portfolio of courses within a local geography using the CFA. What the analysis showed us was that underperforming revenue courses clearly stood out in their customer dynamics (i.e. significantly lower number of unique golfers, much lower golfer retention rates, decreasing spending among retained golfers etc.). Combining it with our weather capability, we were able to show that the weather impact on the underperforming facilities was very similar (and negligible) to that on the performing facilities. It was also the first analysis we've conducted that allowed us to create "benchmarks" within the client's portfolio across all their courses and measure the individual facilities vs. the peer group which provided targets for the underperforming facilities going forward. We continue to expand our work primarily with facilities running the FORE! Reservations and Fairway Systems point-of-sale platforms and will shortly have an announcement on the first integration of Pellucid's CFA within a major POS provider's existing software (i.e. operator touches a button on their POS system, out comes a CFA and it notifies Pellucid to make a follow-up call to discuss the highlights of the report with the facility).

Sharper Edge Marketing : We now have 2 multi-facility operators who will be employing Pellucid to do outsourced marketing for their facilities for the upcoming season. To briefly review, the Sharper Edge Marketing program consists of Pellucid doing an initial screening of the facility's local area and competitive set (GLMA) including supply dilution and weather variance's impact on historical rounds. Combined with an initial CFA, this provides the foundation for a recommendation on a basic marketing plan for the upcoming season (could be as simple as a golfer reacquisition program or run the gamut of an acquisition program, an ongoing communication program to valuable current customers or a more sophisticated way to increase the level of contact information across their customer base). Importantly, the Sharper Edge Marketing program includes monthly updates of the CFA as well as the Weather Impact report allowing us to document the progress (or lack thereof) of our marketing efforts throughout the season and make mid-course corrections as needed (it also helps us avoid hiding behind "weather" as an excuse for non-performance on our or the facility's part).

Pellucid speaking/news articles
After 5 pre-season conferences and 3 separate trips to Orlando this first quarter, Jim feels he's about worn out his welcome and will be spending the remainder of the year delivering vs. preaching. OTR subscribers will continue to be plugged into the latest thinking but the remainder of the world attending conferences and reading publications will probably not see much of Jim in the near-term future. Jim's had to decline invitations to the upcoming ING conference (at World Golf Village in May, an excellent gathering primarily for writers and observers of the golf industry, if you're interested go to http://inggolf.com for more details) as well as the fall Golf Inc. Conference in Pinehurst.

For more information on or to order any of Pellucid's products, please contact Jim Koppenhaver at 847.808.7651 or jimk@pellucidcorp.com or visit our website at www.pellucidcorp.com (complete overhaul coming soon, stay tuned for details). We can also accommodate more OTR subscribers so feel free to pass along selected issues which you believe might be of interest to your non-subscribing friends and associates.

www.pellucidcorp.com
Pellucid provides independent, unbiased, fact-based information and insight on the industry of golf. As a privately-held company with a client base of over 100 of golf's leading organizations such as Acushnet, Nike, American Golf, KemperSports Management, Billy Casper Golf, PricewaterhouseCoopers, KPMG's Golf Practice, CB Richard Ellis, GE Capital and EZ-GO, we help progressive thinkers make better-informed business decisions.

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