U.S. Firm's Deft Play Helps Japanese Golf Out of Rough

By Blaine Harden
Washington Post Foreign Service
Sunday, June 15, 2008

KISARAZU CITY, Japan -- Strangled by exclusivity, speculation and greed, golf nearly died in Japan in the 1990s, when the bubble economy burst.

The game, though, has been hauled back from the graveyard. It's become cheaper, easier and more accessible to the average hacker. The number of rounds is up and the cost is down, as more women and young people demonstrate that golf is not just for older men with money.

The unlikely savior of golf in Japan is Goldman Sachs, the Manhattan-based investment banking and securities firm known for mega-mergers, managing rich people's money and minting U.S. Treasury secretaries such as Robert E. Rubin and Henry M. Paulson Jr.

The story of how and why Goldman Sachs rescued Japanese golf is not exactly warm and fuzzy.

"We buy things cheap and sell them high," said Shigeki Kiritani, managing director of Goldman's strategic investment group in Tokyo and the man behind the company's unusual play on bankrupt links.

But golf's revival here does demonstrate the sometimes-salvific power of bottom-feeding capitalism. It also shows how American marketing gimmicks have goosed the fussy style and glacial pace of the game in Japan.

And it explains how Japanese golfers, tens of thousands of whom squandered billions of dollars in the country's great golf-course bust, have gotten over their losses and gotten their groove back out on the course.

Consider the costly fall and contented rise that mark the golfing life of Hiroshi Asami, 69, an architect and construction company owner who plays these days at the Aqualine Golf Club here in Kisarazu, about an hour's drive southeast of Tokyo.

Asami joined the club 15 years ago when it was still under construction, paying $135,000 for the privilege. At the time, he belonged to five other expensive golf clubs.

When Asami joined Aqualine, the "first objective of the club was to have very few members and make the course as luxurious as possible," he said.

Like nearly all of the 2,000 or so golf courses that sprang up across Japan during the bubble years, the course was for the exclusive use of business executives, their clients and their chums.

A weekend round of golf was slow, boozy, expensive and strictly regimented, Asami said. The day began around 8 a.m. with breakfast at the club, followed by nine holes of golf (always with caddies), followed by a lunch with lots of wine, beer and sake, followed by nine more holes and coffee or tea to finish up before a long drive home.

The round cost between $350 and $400 for nonmembers, and it kept a golfer away from home and family for at least 12 hours. "That was how you played," Asami said. "We did not know another way."

Joining a golf club, though, was also about the desire of the already rich to get even richer -- and do it quickly. Golfers like Asami -- and a great many non-golfing speculators -- bought club memberships as investments and traded them like stocks in a booming secondary market.

The Nikkei daily, Japan's leading business newspaper, created a golf club membership national index. That index grew nine-fold and then collapsed around the time Asami bought his Aqualine membership. The index has been crawling upward in recent years but is still at less than 10 percent of its 1990 peak.

"All my memberships are worth far less than what I bought them for," Asami said. "It is beyond a loss. They are close to worthless."

'We Saw Bargains'

Kiritani, the Goldman Sachs executive, smelled money in Japan's floundering golf business when he moved back home in 1998 after several years abroad. A golfer, Kiritani quickly learned that hundreds of golf courses were headed toward bankruptcy. He noticed, too, that lots of Japanese were still playing golf.

"Even though they were heavily leveraged, these courses, on average, were producing $1 million a year in positive cash flow," he said. "We saw bargains."

During the 1986-1990 bubble, most of Japan's exclusive golf courses were built with money from hefty upfront membership fees. A typical course would cost about $100 million to build, Kiritani said, and owners were often able to raise about $200 million in advance.

Course owners were obligated to pay back the fees, without interest, after 10 years. But that proved to be a largely theoretical obligation. "Almost no golf owner had enough money after 10 years to deal with the debt," Kiritani said.

So Goldman Sachs, beginning in 2000, swooped in to buy golf courses sinking under mountains of debt. Its first purchase was of well-known Nitto Kogyo Corp., which operated 30 courses across Japan.

The courses produced $35 million a year in positive cash flow, Kiritani said, but the company was $5.5 billion in debt. "We purchased the equity for a nominal price and then negotiated with debt holders," he said.

First to be repaid were banks, who often received 20 to 30 cents on the dollar. Last to be repaid were golfers and speculators who had invested in golf memberships.

"Members got 2.5 percent of their original investment," Kiritani said, if they chose to cash out. "They were not very happy."

Goldman purchased more than 120 golf courses this way. To manage them all, it launched Accordia Golf Co., now the largest golf operator in Japan.

Several other foreign companies also decided to play the bottom-fishing golf game that Goldman Sachs invented here. Together, they now own about 35 percent of Japan's 2,400 golf courses, focusing on the profitable ones closest to Tokyo and Osaka.

These companies have given disgruntled golf club members the same choice: Cash out your all-but-worthless club membership and walk away, or swallow the loss, keep your membership and continue playing golf.

At Aqualine Golf Club, which Goldman Sachs purchased in 2005, about half the members did cash out and walk away. But many of those who decided to hang on have found, to their surprise, that they are not disgruntled.

"We didn't realize that there is an alternative to everyone arriving at the same time, playing at the same time and having lunch together," said Asami, the architect.

To make the course attractive to a potentially huge market in nearby Tokyo, Aqualine has halved the cost of a game for nonmembers. It is now about $135 for 18 holes. At the same time, course maintenance has improved markedly, members say. The food has improved. Out on the fairways, Asami said, there has been an American-style revolution in etiquette.

Golfers no longer must hire caddies. They can drive carts onto fairways. They can start play early in the morning or late in the afternoon. They don't have to stop play to have lunch. A time marshal scolds dawdlers.

Groundskeepers are cutting the fairway rough so it plays easier, according to Accordia's management. Greens, too, are mowed in a way that slow putts and improves scores.

"Japanese golf has changed drastically," said Shinobu Haruna, a well-known golf journalist and author. "The merits of being a club member have declined for sure, but nonmembers can play at reasonable prices almost everywhere."

Luring the Boomers

Japan has by far the world's oldest population, but that is not a bad thing when it comes to making money from the game of golf, at least for a while.

The country's postwar baby-boom generation is beginning to move into its 60s -- which happens to be prime time for spending lots of time and money at the golf course. "We have an unusually good market for the next 10 years," said Michihiro Chikubu, president of Accordia Golf.

The number of golf rounds played in Japan bottomed out in 2004 and is expected to rise steadily until 2020. "Unfortunately, it is not forever," Chikubu said.

When the baby boomers hit their late 70s and 80s, golf in Japan could again be in deep trouble. To hook the younger generation, Accordia and other golf course operators are quietly infiltrating Japan's 4,000 or so driving ranges, most of which are located in cities.

The urban ranges are packed on weekend nights with single men and women and teenage couples out on dates. Many of those swinging clubs know golf only as a driving-range sport. They have rarely, if ever, set foot on an actual course.

With the help of driving-range instructors who steer such people out to play discounted rounds at rural golf courses, Accordia hopes to find a future customer base.

"When they see the beautiful hills and grass, we hope they will be overwhelmed," said Ichiro Sekiya, manager at Aqualine. "Then we will get them."

Special correspondent Akiko Yamamoto contributed to this report.

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