Trump’s $550M golf empire may be in the weeds: Experts

Most golfers who like to fib just shave a few strokes off their handicap or ask for an occasional mulligan.

Most golfers are not Donald J. Trump.

The Donald's financial-disclosure paperwork, released Wednesday by federal election officials, claim that Trump's 16 golf-related businesses are worth $550 million to more than $675 million. That's a big chunk of his net worth, which the filing said was at least $1.15 billion and which Trump himself says is about $10 billion.

Experts say there could be good reason to disqualify the Republican presidential hopeful's scorecard math when it comes to the way he values his golf courses, based on standard valuation measures in the golf sector.

Donald Trump plays a round of golf after the opening of The Trump International Golf Links Course in Balmedie, Scotland.
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Donald Trump plays a round of golf after the opening of The Trump International Golf Links Course in Balmedie, Scotland.

The financial disclosure form values many of Trump's courses at two to four times the multiples of annual revenue other courses command, in an industry where most operators struggle to make profits, according to golf course appraisers. An industry rule of thumb is that courses are worth 1 to 1.5 times their annual revenue.

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Trump reported combined revenue of less than $160 million, excluding the Miami resort, which doesn't break out golf-related revenue, and land sales at the Los Angeles property. Based on the industry standard valuation metric, that would put the value of Trump's golf empire closer to $160 million to $250 million.

Buddie Johnson, a Phoenix, Arizona-based golf course developer and appraiser who wrote the book, "Analysis and Evaluation of Golf Courses and Country Clubs", said of Trump's golf course valuations, "Stacking it up against the universe of other golf course sales he is kind of off the charts. Anyone can say anything ... such is his verbosity that when he talks about the valuation of his golf clubs he talks louder than anyone else, and he thinks that makes it true."

In 2014, the average multiple of golf course sales was 1.4 times revenue, according to a recent survey from the Society of Golf Appraisers.

"Everyone thinks they can do better than the other guy, and people buy [golf courses] for ego," said Jeff Dugas, who has appraised 2,000 courses and is a partner at Cheshire, Connecticut-based Wellspeak, Dugas & Kane.

The Trump campaign and Trump Organization did not immediately respond to a CNBC request for comment.

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The common element in many of Trump's golf valuations is that he assumes he has multiplied the value of his clubs once he has poured money into renovations, appraisers said.

But that is a common fallacy in the golf business, where the price of capital improvements rarely, if ever, carries through to the bottom line.

"Golf courses are like new cars," said Larry Hirsh, a founder of the Society of Golf Appraisers and president of Golf Property Analysts in Conshohocken, Pennsylvania. "You drive them off the lot and they're worth half as much."

The experts would not comment on Trump's course valuations specifically because the disclosures were not complete enough to estimate an exact value—revenue helped provide a ballpark but is not precise enough.

By The Donald's reckoning, he has at least nine golf clubs worth $50 million or more each—10 if you count Mar-a-Lago, his Palm Beach, Florida, plutocrat playground whose members can play at Trump's club in nearby West Palm Beach. They are Mar-a-Lago; Trump Jupiter in Jupiter, Florida; Trump National in Bedminster, New Jersey; Trump National Westchester in Briarcliff Manor, New York; Trump National Doral in Miami; Trump National Washington D.C. in northern Virginia; Trump National Los Angeles; Trump National in Colts Neck, New Jersey; and two courses in Scotland.

Trump puts the value of his West Palm Beach club at $25 million to $50 million, and values clubs in Ireland, Charlotte, North Carolina; Pine Hill, New Jersey, and Hopewell Junction, New York, at $5 million to $25 million.

Together, the clubs are valued at least $550 million, and as much as $675 million if all 10 of the most highly valued clubs are worth exactly $50 million each.

No golf course in America sold for as much as $50 million in 2013, according to a report last year by the Society of Golf Appraisers.

"I've valued 3,000 courses in 45 states, Canada and beyond and I can only remember one that was worth $50 million," Hirsh said. "It had four courses at an extraordinarily well known facility."

In the financial weeds

Trump's penchant for grandiose valuation appears most pronounced when he appraises his most valuable courses.

The Trump International Golf Links in Aberdeen, Scotland, is worth more than $50 million even though it had golf-related revenue of $4.3 million last year, according to the filing. Trump Jupiter had $12.4 million in revenue, the Bedminster club had $16.1 million, Trump Westchester brought in $9.4 million and the Washington-area club generated revenue of about $14 million. Mar-a-Lago generated $15.6 million in revenue, and the Colts Neck club produced $6.6 million in revenue. The Turnberry, Scotland, club generated $20.4 million.

Trump's course valuations range from roughly 2.5 times annual revenue for Turnberry to 8 times for Colts Neck, with an average of roughly 4 times revenue.

The courses also look overvalued by other measures. Trump paid a reported $13 million for the Washington club and put $25 million more into renovations, with the revitalized course opening last month. The Bedminster course is valued at about twice its tax-assessment value of $27.8 million, most of which reflects $20 million worth of improvements, according to public records in Somerset County, New Jersey. Beaver Brook Country Club in Clinton, New Jersey, 14 miles away, is on the market for an asking price of $2.5 million.

Trump did not report profits or losses for any of the courses.

Hirsh said courses can be valuable if they're not profitable, but if they're not, they are likely to sell at a level equal to their annual sales—in other words, in line with the industry rule of thumb of 1 to 1.5 times annual revenue.

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Trump's less-exalted courses have more-appropriate multiples, at least at the low end of Trump's estimates of their valuations. The Charlotte club, which Trump bought for $3 million, had $10 million in revenue, while courses in Pine Hill and Hudson Valley brought in $4 million to $5 million each.

Courses in Los Angeles and Miami have revenue streams other than golf. The Miami course is part of a larger resort and the California business reported $8.2 million in land sales on top of its $13 million in golf revenue.

Golf is becoming a game of scale as larger players and private-equity funds snap up courses, Dugas said. But Trump's self-evaluation is much higher than that of Dallas-based Clubcorp Holdings, a publicly traded owner or operator of 208 clubs that reported second-quarter earnings Thursday morning.

Clubcorp's stock market value of $1.6 billion is almost exactly 1½ times its expected 2015 revenue of $1.06 billion, according to a company forecast. On its balance sheet, Clubcorp valued its property and equipment even lower, at $1.53 billion. The company reported a loss of $4.4 million for the first half of the year, but had positive free cash flow of about $10 million.

Clubcorp bought 50 clubs last year in a $265 million deal and added six more in April in a deal valued at $44 million. The larger deal valued the target company at 2.6 times revenue. That deal value would actually be in line with Trump's valuation of his own courses. However, in 2014, the range of multiples paid for golf courses was 0.4 to three times annual revenue, according to the recent survey from the Society of Golf Appraisers. No course sold for higher than three times annual revenue.