Family Golf Centers, Inc.
Family Golf Centers, Inc.
538 Broadhollow Road
Melville, New York 11747
Fax: (516) 694-0918
Web site: http://www.familygolf.com
Sales: $122.2 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: FGCI
NAIC: 71391 Golf Courses & Country Clubs; 71399 All Other Amusement & Recreation Industries
Only six years after its founding in 1992, Family Golf Centers, Inc. is the leading consolidator and operator of golf centers (driving ranges) in North America, with 109 courses in operation at the end of 1998. The company also operates eight stand-alone ice rinks and manages 16 additional ice-rink facilities. Family Golf also operates three “Family Sports Supercenters,” which included at least one golf center or ice rink and might include another sports-related attraction, such as a bowling center, soccer facilities, and batting cages, as well as a variety of family entertainment activities. The company was founded by Dominic Chang, a native of Taiwan and a Long Island resident who worked for a New York City bank for 18 years before starting his own business.
The Concept: Family Oriented Driving Ranges
Chang left Taiwan in the mid-1960s to attend college in New York and eventually settled into a career at Irving Trust Co., which later merged with the Bank of New York, where Chang rose to the rank of senior vice-president, entrusted with managing more than seven million square feet of real estate and overseeing a staff of 1,000.
By the 1990s, however, he felt he had advanced as far as possible at the bank and yearned to satisfy a long-time desire to own his own company. Because he was a self-confessed compulsive golfer who was neglecting his wife and children to play the game on weekends and practice on weeknights, his idea was to open a golf facility for the whole family. Children, he realized, didn’t have the patience to play an entire course, but a driving range and other attractions, he believed, would hold their interest.
Chang got nowhere in turning to U.S. banks for financing, but after he offered to put up $1 million of his own and family money, one Taiwanese bank—China Trust—that had previously invested in Japanese golf centers, extended him about a quarter of the $2.7 million that he calculated he needed to open his first driving range. He then received a $750,000 loan from the Small Business Administration through the Long Island Development Corp. “He had done his homework,” the corporation’s executive director later told James Bernstein of Newsday, adding, “He backed up everything with research and statistics and material we could independently verify.” The research confirmed, for example, that many driving ranges had been converted into shopping malls and condominiums in recent years, leaving golfers desperate for space to practice their shots.
Chang opened the first driving range near his home, in the Long Island community of Farmingdale, in March 1992. Included in the dual level, climate-controlled facility was a miniature golf course and other amenities. Originally called Sky Drive, this facility was renamed the Golden Bear Golf Center when Chang negotiated a license agreement with a company owned by Jack Nicklaus, the famed “Golden Bear” of golf. Chang eschewed the term “driving range,” preferring “golf center” to emphasize the family aspect. He planned to build one new center each year, but the Farmingdale facility was such a hit that by early 1995 cash flow had enabled him to open four more Golden Bear Golf Centers: in Douglaston (a community in New York City’s borough of Queens); Wayne, New Jersey; Elmsford, Long Island; and Clay, New York, as well as a non-Golden Bear in Utica, New York. All of these centers included miniature golf courses.
Although there were some 2,100 driving ranges in the United States in 1996, most were little or nothing more than caged-in plots of open ground. Chang’s facilities offered much more. The Elmsford center had 80 driving stalls—half warmed by infrared heaters—a practice area including a sand trap, a chipping area, a putting green, a video training studio, instructors certified by the Professional Golf Association, and two miniature-golf courses. Children too young even for, or uninterested in, miniature golf could spend time in a small videogame center.
Selling Stock to Finance Acquisitions
In November 1994 Chang took his enterprise, which he had incorporated as Family Golf Centers, public, raising $5.4 million by selling 24 percent of the stock at $5 a share. Revenues rose from $2 million in 1993, when the company lost $763,000, to $6.4 million in 1994, with net income of $488,000. Chang used the money to buy open ten more centers, mostly from existing driving range owner-operators, but including an 18 hole championship golf course in Queensbury, New York. He generally paid a figure four times cash flow, plus the appraised value of the underlying real estate. Chang also became the exclusive licensee for Golden Bear in New York, New Jersey, Connecticut, California, and the Pittsburgh and Philadelphia areas. Although he had hired 12 former bank colleagues to help him run the business, Chang personally selected every site. In Bernstein’s 1996 Newsday story, he lamented, “I don’t call myself a golfer anymore. I don’t practice enough. I don’t get time to hit the ball.”
Family Golf Centers’s 15 facilities garnered net income of $1.1 million on revenues of $12.4 million in 1995. A second stock offering at $15 a share raised nearly $42 million for the company in December 1995. Only seven months later, the company received $81 million for yet another offering, at $27 a share. Now trading at 135 times earnings, Family Golf Centers seemed a bit too pricey to some investors, but one stock analyst told Bernstein that Chang “was the guy who really brought a business view to an industry where this didn’t exist.” The founder still held one-quarter of the publicly traded stock, shares worth $83 million on paper.
By this time Family Golf Centers consisted of 25 facilities. Seventeen were essentially driving ranges but most had such additions as miniature golf, practice putting and chipping areas, video games, snack bars or restaurants, clubhouses with locker rooms and meeting rooms, and pro shops with a variety of apparel and personnel who offered clinics and private lessons. Seven included par 3 golf courses. The company also opened a summer golf camp catering to children. Seven units continued to be Golden Bear licensees, but Family Golf had lost the right to open new ones, and Golden Bear had reclaimed the right to open or license facilities in competition with Family Golfs own units.
Family Golf Centers acquired 11 more facilities in September 1996. The company posted revenues of $28.1 million and net income of $4.3 million for the year. It was running 35 centers at the end of 1996 and 44 by May 1997. After reaching a peak of $32 a share in November 1996, the company’s stock dropped to $17 a share in April 1997, following disappointing quarterly earnings. A new surge of investor support, however, followed the victory of Tiger Woods that month in the Masters Tournament. “Since the Tiger Woods explosion, the drivingrange business has been off the charts,” a money manager told Business Week.
There were 51 Family Golf Centers in August 1997, when the company acquired Leisure Complexes Inc. for $46 million in cash and stock. Leisure Complexes was the owner of a Sports Plus entertainment complex including bowling alleys, ice rinks, and indoor game arcades; an 18 hole golf course; and seven bowling centers (six of them subsequently sold), all on Long Island. The company became a subsidiary of Family Golf, run—at least initially—by the current management.
The Leisure Complexes acquisition indicated that Family Golf Centers was moving to raise its revenues in the comparatively fallow fall and winter seasons. A month later, the company purchased the Long Island Skating Academy (practice home of hockey’s New York Islanders), renamed it Ice Works, and affiliated it with the Sports Plus complex. Family Golf recorded revenues of $73 million and net income of $3.3 million in 1997. It was operating 57 golf-related facilities in 18 states at the end of the year.
Further Expansion in 1998
In February 1998 Family Golf Centers acquired Metro Golf Inc., operators of eight facilities in five states. Family Golf was the nation’s largest operator of golf facilities in April 1998, when it acquired Eagle Quest Golf Center Inc., the second-largest owner, operator, and manager of driving ranges in North America, for stock valued at about $46.1 million. Eagle Quest’s locations in Texas, Washington, and western Canada geographically expanded Family Golfs own network, which by this time extended to 19 states.
Two months later, Family Golf purchased Golden Bear Golf Centers Inc. from parent Golden Bear Golf Inc., a company controlled by Nicklaus, for $32 million in cash and the assumption of debt, thereby adding 14 more golf facilities in ten states. With this acquisition Family Golf gained entry into three more large markets: Detroit, Pittsburgh, and Portland, Oregon, raising its roster to 81 facilities in 23 states and 25 of the nation’s 30 largest markets. The company also signed a new ten-year licensing agreement with Golden Bear Golf for its existing seven Golden Bear Golf Centers as well as the 14 acquired ones.
Chang and his associates saw no end to the golf boom. According to a Newsday article, the number of driving ranges being built each year was growing by 100, all rapidly being filled with experienced players practicing their swings or beginners learning to play. “America is graying,” the company’s chief financial officer told Bernstein in 1998, explaining that “People have more disposable income. They’re getting out and whacking golf balls more and more and more as they get older.” Chang observed, “Women want to play the game now. Kids want to play the game.” He said he had hired 200 professionals to work at the ranges and added “If we do our job and train them, the opportunities will be unbelievable.” In a 1997 New York Times interview, Chang said his ranges were averaging 800 customers every weekday, and 1,200 on Saturdays and Sundays.
To finance its continuing expansion, Family Golf Centers made its fourth public offering in July 1998, raising $105 million in net proceeds by selling 4.6 million shares. Shortly before the year ended, the company closed on a previously announced $100 million line of credit from a bank syndicate led by Chase Manhattan Bank. At about the same time, Family Golf acquired Skate Nation Inc. for $17 million in cash and the assumption of a $12 million debt. This company was operating six ice rinks and managing 17 additional facilities in 11 states.
In November 1998 Alpha-BET Entertainment signed a contract to provide games and games operations on an exclusive basis to Family Golf Centers’ three Sports Plus supercenters: the one in Lake Grove, Long Island, and two others, in Evandale, Ohio (near Cincinnati) and Denver. Another Sports Plus facility was to open in New Rochelle, New York, in May 1999. Alpha-BET, a joint venture partnership between Betson Enterprises and Alpha-Omega Amusements, had been operating and servicing the more than 225 games at Lake Grove since that facility opened in 1996.
Family Golf Centers ended 1998 with 119 golf facilities, including ten under construction. It also was operating eight stand-alone ice rink facilities, managing 16 additional ice rink facilities, and operating three Family Sports Plus Supercenters. Two more ice and family entertainment centers were under construction. Family Golf Centers was operation four regulation 18-hole golf courses and 26 par 3 or executive golf courses. The company was a presence in 25 states, three Canadian provinces, and 28 of the top metropolitan areas in the United States.
In general, Family Golf Centers’ ranges were lighted to permit night play, and the hitting tees were enclosed or sheltered from above and from the rear in a climate-controlled environment. In certain cases, all or a portion of the range was enclosed under an air-inflated dome to allow all-weather play. Two-tier ranges had about 80 to 100 hitting tees and smaller golf centers about 30 to 60. The company’s pro shops were stocked with clubs, bags, shoes, apparel, videos, and golf-related accessories from a number of suppliers. It was also selling private label products at these shops, including balls, gloves, and other merchandise bearing the company’s logo. Family Golf Centers’ instructional facilities included the Colbert-Ballard Golf School and the Golf Academy of Hilton Head Island, Inc. Similarly, the company’s ice rinks included such amenities as pro shops, video games, and restaurants and snack bars.
Family Golf Centers’ revenues reached $122.2 million in 1998—a 67 percent increase for the year—though the company lost nearly $5 million, which included a $2 million accounting change. As a result, its stock price fell to $7 a share in the spring of 1999, compared to a high of more than $32 the previous spring. Chief Financial Officer Jeffrey Key said the company would continue to build driving ranges under construction but had postponed further acquisitions. Its long term debt had climbed from $22 million at the end of 1996 to $249.6 million at the end of 1998. Chang remained the largest stockholder, with 14.3 percent of the shares of common stock in March 1999. Despite the financial challenges it faced as the century drew to a close, following rapid growth through acquisition, golf appeared to maintaining its hold on the American leisure seeker and Family Golf occupied a unique niche in providing quality facilities for all ages and skill levels.
Orient Associates International, Inc.; Sky drive Alley Pond Company, Inc.; Skycon Construction Co., Inc.; Skydrive Co., Inc.; The Practice Tee, Inc.; Rivarization Plus, Inc.; The Seven Iron, Inc.; Skate Nation Inc.; Eagle Quest Golf Centers, Inc.
Barkow, Al, “The Driving Range Becomes Big Business,” New York Times, September 4, 1997, p. B15.
Bernstein, James, “Driving Force,” Newsday, July 22, 1996, pp. Cl, C5.
_____, “Family Golf: Above Par,” Newsday, June 8, 1998, p. C7.
Hadad, Herbert, “Golf Centers Start on L.L and Grow,” New York Times, January 1, 1995, Long Island Weekly, p. 13.
Hayes, John R., “The Guilty Golfer,” Forbes, June 17, 1996, pp. 90, 93, 95.
Marcial, Gene G., “Tiger’s Power at the Driving Range,” Business Week, May 5, 1997, p. 126.
O’Brien, Tim, “Alpha-BET to Operate Games at Family Golf Centers,” Amusement Business, November 16, 1998, p. 30.
Stapleton, Tara, “Skating Academy Gets New Name, New Owner,” Newsday, October 28, 1997, p. A44.
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Wax, Alan J., “Family Golf Buys Golden Bear Units,” Newsday, June 18, 1998, p. A60.
_____, “Family Golf Closes on Line of Credit,” Newsday, December 4, 1998, p. A74.
_____, “Family Golf Expands, Acquires Eagle Quest,” Newsday, April 3, 1998, p. A68.
_____, “Indoor and Outdoor Merge on LI,” Newsday, August 1, 1997, p. A55.
Welling, Kathryn M., “Maximum Frustration,” Barron’s, July 29, 1996, pp. 3-4.