Tuesday, May 26, 2009

The Implosion Of High-End Golf Communities - Implications For The Entertainment & Leisure Business

Obviously, this is happening everywhere. In fact, it is an utter disaster from where I sit. I am familiar with quite a few golf clubs and communities that have waived membership fees of $30,000 or more and are now offering minimal per-month membership fees or even opening to the public. Many are going bankrupt. Local to me is a Georgian-style residential and golf development with dozens of million dollar plus homes sitting empty. Homes that were once filled unlike some of the newer communities where overbuilding has led to properties that have never been occupied. Even if prices drop substantially in many of these high end developments, property taxes are off the charts so buyers are likely to steer clear. That means municipalities are going to have to re-appraise homes lower at some point for tax purposes. This is happening everywhere but it is really at crisis levels in high-end communities. The high-end residential municipalities, often shielded from economic downturns, are obviously fraught with incredible risk.

The implications for the leisure lifestyle go well beyond golf communities to auto racing, professional golf, major league sports, vacation communities, gambling, tourism, the film industry, etc. While it is not evident today, we could easily see salaries drop very, very substantially for the entertainment business. And I do mean very substantially. Before we had this runaway train, professional athletes made a great living but it wasn't at the obscene levels we see today. As an example, many of the best paid athletes in the NBA were making a few hundred thousand dollars a year in the seventies. That was a lot of money at the time but nothing compared to the insanity today. Today the Yankees paid about $160 million for pitcher CC Sabathia. Given our writings anticipating the ad bubble will pop (major source of sponsorship and funding for entertainment events.) and the erasure of cheap credit in the economy, we are almost surely on the cusp of salaries at the high end of society imploding. Forever. In fact to return to trend, while it may seem like a wild impossibility today, salaries could drop 90% in some extreme cases.

By the way, as an aside, we have harped incessantly about ridiculous executive pay going from 25 times to about 525 times the average American's salary over the last 30 years. You might construe the same outcomes above developing around future compensation for business executives. Executives have been unwilling to address this issue so the market is now doing it for them. These incredibly rich compensation packages are going away even though know one yet seems to realize it.

When companies are no longer minting bubble profits, CEOs aren't going to be getting money for nothing as they are today. The market is going to punish society's leaders for their insidious behavior. And I do mean insidious. For what we have witnessed with executive pay is a transfer of wealth that has contributed to the destabilization of the economy.

For this reason, you should eschew the insider-selling data as we have pointed to. Many are citing insider selling today as bearish for stocks. There are dozens of reasons to be bearish on stocks but insiders will still be selling when I become bullish on stocks. The reality is the most successful people in this country are headed for a major unwinding as they witness their wealth and compensation collapse. The rich always don't get richer. And, that is one data point that is different this time.
posted by TimingLogic at 10:35 AM