Dave Likins on why the ability to look forward and forecast is paramount in the surf park business.
I think we’ll be done with round one of global surf park development in five years. Round one will be characterized by a handful of competing technologies building really prototype-like facilities that will create a series of financial outcomes that will range from not successful to successful. In round one, certain technologies, business models, and capital structures will be weeded out. Round one will be dominated by the mom-and-pop side of the business, like ski was in 1980. In round two, you will now start to see the application of more institutional capital into this space. I think you’ll start to see a kind of capital investment that will allow for larger and more facilities to be built. I think it takes five years before there’s enough track record to understand the difference between a good project and a bad project
What we have now is this beautiful renaissance. If you build a new surf project, surfers from around the world want to go and check it out. It’s so novel and it’s so unique and almost science fictionesque that people will get on a plane and fly to Dalgarrog, Austin, Waco or Lemoore or fill in the blank. I think that all of a sudden we will get a point where you won’t have to fly across state lines to get to a wave. That’s when you’re going to force the early entrants to compete based on experience and how they position their technology and their experience, vis-a-vis, the guest.
I think that there is some early learning going on that only a very small handful of people understand. There is a thesis developing as to what the right guest experience needs to look like to create the business model that will be successful going into round two. I look with some level of trepidation at some of the plans out there. I wonder if they have the right geography. I wonder if they have the right technology. I wonder if they have right throughput model. I wonder if they have the right mixed-use orientation that might be beneficial in certain situations. I think we’re going to find out over the course of five years whether or not my suspicions are realized or if there’s a model that says, “Nope, that technology and that location with that revenue model actually worked.” There are some surprises already out there in my opinion. I think there are more surprises to come.
The challenge for surf park developers is figuring out the business model, and figuring out which technology has the opportunity to provide the basis of a sound business model. Because they’re so capital intensive and so new, they’re difficult to finance with debt and equity. You’ve really got to make sure that the business is driven by solid fundamentals. I think that’s where Wave Ggarden Cove technology comes into play. It produces great waves, and having great waves is fundamental to any surf park development. You can’t build this business on a mediocre wave. It would be like having an amusement park built around one semi-crappy rollercoaster. You have to have a wave that inspires beginners and that people at the highest levels of surfing want to surf. Beginners aspire to surf a six-foot barreling wave because that’s the appeal of this sport. You want to be able to rip, just like when you start skiing you want to be able say you skied a black diamond run. Whether they do or not is almost irrelevant, it’s the fact that they all want to.
Capacity is also crucial. A perfect wave with no capacity to handle high levels of demand is not a good business model. Volume should be driven by re-harnessing the water energy of the perfect wave to break other waves suitable for intermediate and beginner surfers. The ability to handle capacity allows a price point that reflects the experience and lowers barriers to entry for more people to experience the sport. I think that technologies like Wave Ggarden Cove allow you to demonstrate that, assuming you can meet the capacity need at a certain price point, your surf park can pay for a return on the capital. That will ultimately attract investment. Those are the fundamentals of a good surf park business model. You’ve got to get all those things working in concert to be able to win.
I think the industry is on the cusp of some really interesting transformation. When I walk into meetings with banks and capital investors, they all gravitate to the 1980s surf pool model. They all think Typhoon Lagoon. They haven’t really figured out that we’re talking about surf lifestyle being exported from the ocean into these environments. We are creating this segment and really redefining surf parks as these great beach destinations that just don’t happen to be located in the ocean. I think that we, as an industry, have to really work hard to differentiate between the surf destinations that we are proposing and the sheet waves and the standing waves and the Typhoon Lagoons. What we’re trying to do next is create great replications of a day at the beach and a high-quality ocean wave. This is where the industry is going and we should be working collectively to try to create the idea that this next generation of surf parks provide a very unique experience that are distinctly different from surf parks of the past. I’ve had the benefit of having been with Kelly Slater Wave Company, not even one time did somebody come out of the water and say, “that wasn’t very good.” The number of times I heard people call their experience the best day of their life was staggering. The number of times I heard people say “I’m not going to Tavarua anymore” is staggering. You can do that if you do it right. You can create this unbelievable passion for that surf park experience as a compliment to wherever else you spend your time surfing. To me, that’s the upside for all of us.