Putting a Price on Great Design
By Tom Doak
Originally printed in Golf Course Architecture Magazine, Europe, January 2006
When I first got the opportunity to work alongside Pete Dye, I would have worked for free just for the experience -- but back in the summer of 1981, I was paid the princely sum of $4.50 per hour to work on the crew at Long Cove. As skinny as I was back then, I probably wasn’t worth it.
To this day, I seldom think about the money when I’m actually working on a routing or out on a site. (I told my son when he was small that I design courses for free, but I get paid to travel.) I certainly never thought about it when I had the chance to work on my first solo design, or any day I spent on site at Pacific Dunes in Oregon; I felt like it would have paid for me to design those courses for free, because of the recognition they might bring and the opportunities they would create. Yet, I’ve got eight associates doing outstanding work who deserve to be rewarded for it; and as a more informed business person today, I now understand that we brought much more value to those jobs than I would have dared to ask for back then.
The pricing of design services is one of the most complex problems I have tried to puzzle out. We all know that golf architecture is a very competitive business, yet the designers who charge the highest fees are by far the busiest, and everyone else scrambles for the leftovers. Prices vary tremendously from one region to the next because of local competition and local costs: for example, designers in the western USA tend to charge higher fees than those in the east or midwest, because those projects tend to entail bigger irrigation systems and more engineering and overall higher costs, and it only seems fair that designers are paid more to put in the time to deal with more details.
In early days, some of the great designers were amateurs who refused to take a fee for their labors, while others based their fees on a percentage of construction costs. The latter method makes sense from some perspectives, but since it also creates an incentive for the designer to add frills to the design and drive up his own fees, it is frowned upon by the professional societies and by some clients.
Today, a select few designers are paid fees amounting to more than a million dollars, not all of which is directly attributable to their design work. Part of their fees are justified by the value of their reputation toward selling memberships or real estate, and we should all be grateful, because their high prices have enabled the rest of us to make a healthy living while still appearing to be reasonably priced. (The irony is that the big names are priced out of competing to design on the best land for golf, because their name brand is of little value if the property is good enough to attract golfers without it.)
For the rest, fees are decided in a relatively uninformed open market, and competition from other designers ensures that few really get what their efforts are worth. Design fees are based vaguely on name reputation, but not really on value.
My first solo design, High Pointe in Michigan, provided a great lesson about the realities of the business of golf course development. My client at High Pointe was a novice in the golf business [or he probably wouldn’t have hired a rookie designer!], and when we talked dreamily about building a high-quality but affordable public golf course, I was enthralled with his good intentions. However, by the time the project was growing in, he was more of a realist about all the non-golf costs of getting a course opened, and he was being told by outside observers that his course would be better than those down the road. So, in the run-up to opening, the business plan changed from $45 green fees to $80, simply because it was thought that was what the market would bear. That price wasn’t sustainable in what is now a very competitive market, but because the costs of construction were not high, the original client still owns it 18 years later. My lesson was that golf course architects are not the only ones whose fees are determined by a competitive market; our clients are equally at the mercy of their competitors, because green fees and membership fees are determined not by cost of construction, but by the course’s place in the market and by the price the golfer will bear, which are hard to predict.
Ultimately, none of the pricing systems in place are good for the game of golf. In America, most developers now choose a high-end private-club model so they can sell out sooner and minimize their risk, instead of keeping the course public and taking a long-term chance on its economic future. By insisting on our fees up front, we designers share the responsibility for that trend.
Surely, our clients assume most of the risk and so they ought to reap most of the reward. The client has a hand in how the course is run and how it is marketed, and it is enormously important to make good decisions on what property to build on, and how much to invest in an appropriately-sized clubhouse. What we as designers bring to the table is experience – more specifically, our perspective on the cost vs. benefit of the decisions we make in our designs. If golfers are willing to pay more because they love a course, and the cost of construction was relatively low, the client makes a windfall; but if the course is only perceived as average and the cost of construction was higher than the competition, then the owner will eventually sell the course at a loss, or go through bankruptcy.
From that perspective, the current lump-sum fee structure used by most modern designers is poorly designed. I am now experimenting with a different protocol, whereby some part of the fee would be made as royalty payments, based on the success and profitability of my courses. It’s a perfect model for a project in a remote location, where the client has to be pessimistic about the potential for profits because success depends on people coming from afar. If the course isn’t critically successful, it won’t be commercially successful either, and I won’t get paid extra for the design; but if it is very successful, the client will owe me more, and he’ll be happy to pay because it will come out of the profits of operation.
To make such an agreement, you have to have enough faith in your ability to bet on yourself, and you have to trust the client to live up to his end faithfully. But the potential reward is substantial: annual royalty payments from a handful of courses would be enough to fund one’s retirement. In the process, you just might help to make a great project happen which would otherwise never get built.
I urge everyone to think about the real value of a great design. We all know that a golf course raises property values, but a great golf course raises them more. We’ve recently done projects where the land costs far exceeded the cost of golf course construction… but the client’s ability to charge sky-high membership fees to pay for the land still rests in large part on the success of our design. There is a big picture here, and we are the ones who are painting it.
Why am I telling you all of this? As someone once said, “a rising tide floats all boats.” The more other designers make for their creative efforts, the more we will make for our own.