When it comes to surf parks, what’s the best way to maximize the business and develop a thriving economic ecosystem?
By Dave Likins
Ski resorts found a need to consolidate because there are fixed operating costs always present at every resort, and it is possible to leverage what you learn at one location across multiple locations. The most successful businesses in the ski space have become platforms that own multiple resorts. Like Six Flags and Disney in the amusement space, they take what they have learned from one location and apply it to another location.
If you look at current status of surf parks, you find all these one-off operators who raise their hand to say, “I want to build a resort here. I want to build a resort there. I want to use technology x or technology y.”
I think that what Beach Street recognizes is that the best and most enduring operators are going to be ones that have the opportunity to operate platforms in multiple locations so that they can take the learning from one experience and leverage it to another experience. The best example of why this is critical is sustaining engineering. Surf parks are built on technology so new that nobody can look forward and understand how that technology might evolve in the next three to five years. How do you keep the experience you deliver relevant, and be on top of and in front the evolving technology curve after three to five years of operation? I think you have to have a platform that operates multiple locations, in good geographies, that follows a script, and deploys it in as many areas as it makes sense to deploy.
Beach Street recognizes the learning curve we’re on because we are developing and producing a surf park in Palm Desert. What we’re learning through the process allows us to go look at other geographies that have the same fundamentals as Palm Desert: a large metropolitan area within a certain amount of drive time; an international airport with a certain amount of air lift; a core base of keen surfers; and a base of potential new entrants to the sport. Palm Desert is an obvious geography, but so are other parts of Southern California, Northern California, parts of Nevada, Arizona, Texas, Florida. Even in the North East where you have opportunities to leverage a large base of the population where surfing is becoming more and more popular, and where the surf lifestyle is something that is coveted.
Our perspective at Beach Street is that we leverage the technology available today, and build our capacity to put facilities together using all the pieces of the value system that we need to make these places successful. This requires hospitality expertise, real estate expertise, operating expertise, and it requires good relationships with the technology providers. It requires sharing a vision with the capital markets that you’ll bring along on the journey and showing them business models that make fundamental sense and that have parallels in other industries that they can understand. The concept behind Beach Street is to build the leading surf destination company with muscle in all these areas of expertise. To get the first one done and then leverage that muscle to, at a lower cost and a higher level of efficiency, get the next two, three, four, six, ten built.
As the technology changes, we need tolet’s be sure that we have the engineering capacity to figure out how to deploy best of breed technology in future locations. We will continue to not just be buyers of technology, but we’ll also be people that influence the growth of that technology because we’re the ones getting guest feedback that tells us what it has to do to work best. When you’re out building more and more of these, you’re so invested in that feedback loop because you want to make sure you’re next one is the best one. We want to touch all technologies and be designers of next generation technology, not designers in the technical term, but shapers of how the technology evolves based on the user experience as we offer it to our clients. That, to me, is where Beach Street really differentiates itself. Nobody has taken the high ground on this space yet. Our perspective is we want to be the Vail or the Alterra of surf parks.
I think there’s two levels of involvement: involvement as the principal, which means that it’s our money, our capital, our land, our project. We own it. We have the at-risk developer approach. By definition, when you’re talking about that, there’s only a certain number of geographies where you want to be the primary developer with your capital at risk. I think that’s roughly speaking 8 to 12 US markets where you’d want to own and operate and you could feel super comfortable that you have balanced the risk in those situations. You’ve got to be really selective about the projects you put on your own balance sheet. They should be locations where you can participate in multiple parts of the value system including surf operations, hospitality, and potentially affiliated real estate development.
There are many more situations where you could bring operating expertise, and help the industry as a whole by creating successful operating businesses across other people’s balance sheets. For example, Marriott does own hotels in some situations, but the vast majority of Marriot hotels are owned by others and branded and/or operated by Marriot. If you are building a platform with the ownership or operation of multiple locations in mind, the upside is that you can offer your expertise to anybody who is geographically accretive to your story but, to draw a ski industry parallel, you don’t really want to buy a bunch of ski resorts that are next to each other because you might just be competing with yourself. If you have a hole in your geography, in say the Midwest, you’d want to be the operator of a Midwestern opportunity because it will give you the chance to pull together marketing synergies. Maybe you have a season pass that covers multiple locations. Beyond the 8 to 12 that you might want to be the owner-operator of domestically there are probably another 10 to 12 that you might want to operate.
Additionally, you want to be a selective participant in international opportunities in the form of operating them or in the form of affiliate relationships like a shared learning pool where our guests and their guests could crosspollinate. Ultimately, if you’re touching 30 of these around the world, you’re hitting the scale that’s required. Top Golfgolf is a good example of this. They decided how many they wanted to have, went out and found appropriate geographies, and built the ones they wanted to build. In some cases, they decided to license internationally and now they have partners in different parts of the world. I think we can learn from how they built a model, capitalized it with the right partners, then grew the business as much as they wanted to organically within their own owned and operated facilities. The next step is to go out and find the right set of partners who meet your value system and culture, who you think you can work with, and who you think you can add value to, and ultimately get paid to add that value. You don’t do that for free because you’re bringing all that sustaining engineering and those models and that core infrastructure that you’ve developed. You share that expertise in noncompetitive situations.