Wrangling Some Thoughts on Austin Pickle Ranch

The Quick Points

🏀 NBA tidbits. The Phoenix Suns announced a new downtown Phoenix training headquarters which will feature a pickleball court. Heat guard Tyler Herro said last month “he was the best pickleball player in the world.” 🙂 Trae Young invested in the Atlanta Bouncers and was courtside at MLP Atlanta. And now the Spurs are the latest franchise to host a paddle night coming up on November 10th. It feels like pickle is becoming the best hand-eye, non-contact way for teammates and staff to have fun off the court.

🇮🇳 470 players in Mumbai tournament. The Ultimate Pickleball Championship in Mumbai wrapped up this week and we were very impressed from afar. During the last few weeks, we had seen quite a few social media mentions of it and from the looks of it, it seemed like a first-class event. High ceilings with Pickleball United courts indoors and plenty of major brand sponsors (Sketchers, Franklin, Selkirk) made this a very encouraging development. The quality of play felt a good notch higher than the recent APP English Open.

⏳ The longest pickleball rally - Surprisingly slow news day around here. Today we learned the longest continuous pickleball rally stands at 16,046 hits. Two years ago this week two Connecticut brothers spent 6 hours and 11 minutes hitting (attackable) dinks and set this official Guinness World record.

What’s on our mind

🅿️ Garage courts park themselves as a new way to get supply to market. As we highlighted on Tuesday, Austin Pickle Ranch (APR) opened on Oct. 1st. First, props to Tim, Dan, and Conor, as getting courts up and running in Austin is no easy feat due to a myriad of complexities with the city and/or a generally cost-prohibitive environment for new construction in close proximity to downtown. The new facility is built on top of a parking garage in downtown Austin…for reference…

We wanted to quickly highlight some of the unique high-level attributes of this model:

Speed to market
Everyone has heard us speak ad nauseam about the massive undersupply of courts relative to demand in nearly every city, particularly in Austin. Industrial capacity is extremely low, making it very difficult to make the math work on leasing an existing structure and doing a buildout. Then if you want to build from the ground up, there are extremely time-intensive and onerous requirements to get properly zoned and permitted from the city. This approach isn’t a complete cakewalk when it comes to city permitting, but some of the largest hurdles are mitigated and often allow for your timeline to shrink to the order of a few months, rather than close to 12+. And naturally, a big component is whether you want to open in a staggered fashion; i.e. start with the most important amenity, the courts, or get everything in place before you cut the ribbon. While we firmly believe that half the battle for facilities is knowing what to do after you cut the ribbon, being early to market with an offering that thousands of people desperately want allows you to capture the mindshare and wallet of countless players before alternatives inevitably come to market.

Less capital intensive
Without going into all the numbers, this model is more cost advantagous than many alternatives such as industrial buildouts and new builds from dirt up. The initial capex to get to ribbon cutting is lower, the maintenance capex to keep the facility running is more manageable, and the fixed & variable operating costs can be kept to a minimum with a more straightforward business model & customer demographic (more on this in a little). From an investment perspective, this improves the payback period, and helps get the project to positive cash flow more quickly. Cash can be reinvested into the business to bootstrap new amenities that support the core offering and membership base, but aren’t necessarily required from day 1 to fulfill the value prop to get players to sign up. While all this helps reduce the financial burden to get to market faster, that’s inherently a double-edged sword as it lowers the barrier to entry for alternatives to come to market.

For example…in the past 24 hours, a small popup installation of two courts were laid out in downtown Austin. We haven’t had a chance to speak with the team yet, but from what we’ve heard in the market, they’re targeting a small membership base to improve accessibility. However, expansion potential exists on that garage, and a relatively quick buildout could get another dozen courts up and running in short order to meet the demand.

Position to have a favorable relationship with the garage landlord
Let’s take a step back and quickly touch on why so many rooftops of parking garages have space for pickleball. First, the most ideal garage is one that’s attached to and owned by an office building landlord. Why office? Many office spaces across the country are facing modest to high levels of vacancy in their buildings, with an unclear timeline for when occupancy rates should return to ‘normal’ (or what normal looks like if a hybrid work environment is stickier for longer). And if the office spaces are vacant, then the parking garage almost always has low utilization. However, these landlords are highly incentivized to create more favorable conditions to draw tenants back into the office and sign new leases, as this is where the more lucrative economics lie for them (and their core business). So, offering one of the hottest growing trends as an amenity to tenants, while generating incremental revenue either through the lease of the garage space to an operator or through a rev share agreement is an attractive proposition. Show that you can actually make the model work and drive substantial traffic to your pickleball facility, and now the degree of leverage in the relationship becomes more favorable to the pickleball operator. If you can show how this works, then you may even have office landlords willing to make considerable concessions such as providing a tenant improvement budget to help with the buildout and bring this hot item to their office space and unutilized parking garage.

Fulfills the primary customer use case
Being candid with our opinion, the courts aren’t perfect. Even if Austin Pickle Ranch had the # of courts required to run a professional tournament, the court conditions alone would push us to advise against MLP or PPA running an event there. But, almost all of the investment opportunities in facilities don’t need to underwrite their model to host professional events in order to make the returns work. Most players are assessing a facility on whether it can deliver quality & available courts, with good, fair competition, at a reasonable price relative to the amenities it’s providing. While one of the key next steps for APR post-ribbon cutting is curating the right membership base and driving high-quality player traffic through the facility, APR meets the remaining criteria, and for one of the first times in Austin, is providing players with the true ability to book courts with their group. There are some slight imperfections with the court (remember many parking garages have very slight grades), it provides immediate value to players across the city in a convenient location. As we’ve written about in the past, it’s providing players with the money for time value trade, and from conversations with dozens of people out on the courts during their pre-launch phase, many are willing to make this trade and either become members or have the courts be their primary location to schedule matches amongst their friends.

Convenient location for corporate events
For facilities that don’t have the ability to block off 5-6 courts for corporate events while keeping the rest available for members & public drop-ins, there becomes a balancing act between how often you fill your calendar with corporate events, which utilize nearly all the facility space and bars others from playing during those hours. However, the higher dollars and higher margins associated with corporate events are difficult to completely forego for most clubs. This is particularly challenging when you’re in a highly convenient location such as downtown Austin, in close proximity to countless businesses that are frequently looking for a new, highly inclusive activity / venue to host team building, networking, and special events. Our forecast is this will be a lucrative revenue line item for APR, as it’s one of the few locations close to downtown to host larger-scale corporate events. Further, their lower membership rate helps reduce the friction with members who may not have full access to the courts at all times, compared to a facility charging $100+/month.

Economies of scale in a particular geography
Once the business model is proven out, this facility is more replicable than many others, as there is often a density of office space and associated parking space within relatively close proximity of one another (10-15 minutes). This allows greater court capacity to be built, while providing members access to other clubs under the same membership (assuming all else equal with the clubs). Further, given the expansion potential in the same geography, the club owner is in a better negotiating position with its suppliers to cut deals on the labor & materials in return for the contract to do the buildouts at these new locations. This further improves the unit economics per court and broader return profile.

Final Thoughts
Congrats to the team for getting the ribbon cut and leaning into a new, unproven, yet highly creative model to meet player demand. Yes, it’s no easy sailing to create a sticky membership model that retains customers and has high brand affinity regardless of how much court capacity comes online in the next 12-24 months. However, our estimation is that the APR team is off to a strong start in bringing a compelling offering to market early, and at a seemingly more reasonable cost basis than what it would typically require for comparable space in a high-density metro like Austin. If they can get a playbook down, it also feels like this model can be taken and replicated in other geographies across the country, creating an attractive investment opportunity that extends beyond the usual hyper-localized single-location facility, or ‘franchise’ model. We look forward to seeing what comes next for the team and further evaluating the investment potential of taking the format beyond Austin.

🏓 Paddles on paddles on paddles. That’s a common refrain we hear these days and we get it, there are definitely a lot of paddle brands and hundreds of SKUs available. So it’s interesting when a brand breaks through the noise and for us recently that’s been Bread & Butter. The brand, and its fun, unabashed energy provide the tipping point for that reactive purchase. It is quite easy to source a thermoformed T700 raw carbon fiber paddle these days. It is much harder to consistently build a feeling and visual identity around it that speaks to a certain player base so differently and strongly. In our opinion, your fun-seeking friend who wears Chubbies or owns 4 Yetis and has never believed they can become a pro is the core B&B customer. For a more in-depth look into the source of this fun, erratic energy in what sometimes is a nerdy and technical spec-focused community, we highly recommend this recent interview from our friend Brian Lim and the founder Doug Sapusek. We’ve had the pleasure of meeting Doug when he was in Austin and participated in a fun, impromptu tournament held one evening. Great paddle and a better team building from the foundation of a differentiated brand. Look forward to bringing you more here as we go deeper.

Breaking Ground

The Reset tracks publicly available court construction data to better understand the locations, costs, and development priorities going into projects across the nation. Our tracker can be found here.

Featured Developments:
Interesting move to see another gym move towards pickleball as an additional fitness amenity, this time, coming from Rise Gym in Houston, TX, which plans to open an athletic center in November that will include pickleball courts.

Sounds like satire, but is real. The city of Walla Walla, WA built 8 new courts at Mill Creek Sportsplex for $1.8M.

The Houstonian club broke ground on a $6.2M pickleball complex which will include 4 covered and 4 uncovered courts. The facility plans to open by the spring of 2024.

Pickle in Pictures

Ryan had an inspiring and refreshing experience to play with Ray at Mitchell Park in Palo Alto, CA today. 92 years old and he was a gamer. We played with Antonio (69) and Ben (72). Two hundred and sixty four years of life on one court.