Cypress Response to "Online Tee Times: Is Barter Really Better?”

Our first posting is in response to a recent article titled “Online Tee Times: Is Barter Really Better?” printed in the April 3, 2006 edition of Outside The Ropes, Volume 5, Number 7, published by Pellucid Corporation. For a complete copy visit their website www.pellucidcorp.com.

We are responding to two of the main discussion points in the article:

1. The GolfSwitch Patent

2. The “Real Cost” of Tee Time Barter

The GolfSwitch Patent

The author makes several statements about the recently awarded GolfSwitch patent and the effects it may have in the marketplace:

“… it is our opinion that this is a major development and will fundamentally alter at least some processes of booking tee times over the Internet.”

“The patent award to GolfSwitch (or affiliates) may change the process for the better in terms of ease of use …”

“It is our opinion that the recent patent award to GolfSwitch will help clarify the position of 3rd Party Tee Time distribution …”

“How GolfSwitch decides to deploy its now patented application for use by golf courses will probably re-engineer the pricing examples in this analysis…”

The author, however, does not make any attempt to support these statements with an explanation of how the patent would have those effects.

The GolfSwitch patent, in our opinion, protects a very specific way of connecting users with golf course inventory through a real-time, multi-threaded (concurrent) communication approach; an approach not used by many competitors (including Cypress) because it is ultimately inefficient and less functional for the end user. The patent was originally filed in 1999 and, in our opinion, is an attempt by GolfSwitch to protect what is now aging technology; which has already been leapfrogged by Cypress and others.

The Real Cost of Tee Time Barter

The author starts by laying out the three major ways 3rd party distributors charge courses for their services:

1. Commission (up to 15% based on the inventory being sold)

2. Convenience Fee/ Booking Fee (usually $1 to $2 per round)

3. Barter (usually 1 Foursome per day)

The author discusses current golf course utilization rates stating that, “Utilization is about 52.3%, which means that the average golf course theoretically has about 48% unsold inventory”.

The author then estimates the annual operating cost of a golf course and divides it by the number of available rounds (adjusted for weather), to arrive at a per round cost of $11.65. It is basically another way to think about operating costs by assigning them to each round of golf.

What the author does next we find particularly surprising. He compares the three different charge models (1 through 3 above) and assigns the per round operating cost of $11.65 to only the barter times:

“If our average golf course trades tee space at the usual 1 Tee Time per day rate, this means they are trading 1,100 rounds (March - November); which make the cost of barter 1,100 X $11.65 = $12,818”

We strongly disagree with the author’s assertion that $12,818 represents the cost of barter. It represents the operating costs associated with 1,100 rounds of golf, regardless of whether they are bartered away, sold by the course (or any 3rd party) or not sold at all.

He further states that “Clearly, our cost methodology shows that the ‘barter option’ is the most expensive.” The author has compared apples with oranges by mixing variable commission costs with mostly fixed operational costs.

The costs associated with commission and convenience fees are variable; they will change depending on how many tee times are sold by the 3rd party distributor. In addition, those variable costs can be assigned to the sale of those specific tee times.

The cost the author assigns to the barter time is a fixed cost that applies to ALL tee times whether they are sold or unsold. It is not a cost that can be assigned only to the barter times. Comparing these different costs in the same frame of reference is inaccurate to say the least.

Consider the following example with one golf course using the 'Commission' model, one golf course using the 'Convenience Fee' model and one golf course using the 'Barter Times' model:

• If the 'Commission' model golf course stops using their 3rd party distributor could their costs change? Yes, they could save up to 15% in commission fees.
  

  
  

• If the 'Convenience Fee' golf course stops using their 3rd party distributor could their costs change? Yes, they could save $1 to $2 per round.
  

  
  

• If the 'Barter Times' model golf course stops using their 3rd party distributor do their costs change? No. Their cost is still $11.65 per round for every tee time sold or unsold.
  

So what does matter? The real question to ask is, ‘Would the golf course have sold the barter round without the benefit of the 3rd party distributor?’. To answer that question you should consider the following points:

1. As the author stated, golf courses are 48% vacant. So, if you used no method for selecting a barter time (other than random selection) you would start with almost a 50/50 chance of selecting a time the course would not have sold.

2. The golf course's tee time history can be reviewed to find tee times that are rarely, if ever, sold by the golf course. Unsold times are not usually sporadic in nature; they are usually grouped together and be can be easily, and repeatedly identified.

3. Just because a barter tee time gets sold by a 3rd party distributor, does NOT mean the golf course would have sold that time without them. The reason courses work with 3rd party distributors is because they have distribution and marketing expertise that the course does not.

In addition to the points mentioned above, Cypress employs the additional guidelines listed below to help ensure barter times would not have been sold by the course:

1. Cypress places no requirement on the barter time, other than it must an 18-hole tee time. The course selects the time and is expected to give Cypress the worst time of the day; meaning the hardest to sell and historically shown to rarely, if ever, be sold by the course.

2. The golf courses can change the designated barter tee time from day to day or week to week if they choose. They are not locked-in to a specific time.

3. Course utilization can be monitored and if it appears that the course may be able to sell the barter time, it can be moved to another, less utilized day.

4. On interfaced courses the barter time can be automatically reassigned if the golf course has an immediate opportunity to sell it.

Cypress barter times are sold through private channels, either through email clubs, membership pages or used as promotions to motivate and/or reward golfers for booking course times. They are not available for general public consumption.

If the golf course is concerned about the sale price on barter times, Cypress will set a mutually agreed to floor that the tee time will not be sold below. Keep in mind, a single barter tee time per day represents about 2% of the golf courses available inventory (weather adjusted). Overall price integrity cannot be eroded by price adjustments that affect only 2% of inventory.

In closing, let’s use the author’s numbers to talk about the real crisis that is going on in the golf industry, a 48% vacancy rate. Using the author’s numbers, that is a cost of almost $360,000 annually per course; in terms of lost sales, it is almost $940,000. Cypress believes golf courses should be working with anyone and everyone that can responsibly help them solve that problem. Discussing the specific form of payment at this point is secondary.

Cypress is not the only solution and we believe there are lots of distribution partners that can help golf courses increase rounds and revenue. The Cypress platform is wide-open; using our technology, the golf course can distribute inventory to any partner they choose. We are willing to work with anyone the course requests and we do not charge transaction fees for our service.

Our recommendation; golf course operators should start listening to the people that actually help them sell tee times, not the people who only sell them information.

For a free Cypress whitepaper please visit our website and complete the online form www.cypgolf.com

We welcome any and all feedback right here on our blog. However, we are very busy growing our business and helping golf courses throughout the country increase their rounds and revenue, so we will probably not have time respond to every comment in a timely manner.