The Pellucid Perspective - September 2015 - (Page 8)
GOLF COURSE
FinanCE
Private clubs struggle to combat the
"equity club death spiral"
By Jeff Woolson
Editor's NotE: The following is another in a series of
guest articles by golf industry stakeholders designed to provide
increased perspective (pun intended) on a variety of industry issues. Jeff Woolson is an Executive VP for CB richard Ellis and
Managing director of the firm's Golf & resort Group.
T
he Great recession and subsequent recovery had a dramatic impact on the golf market. The latest chapter is the
demise of member owned private clubs or "equity clubs."
Although the recession didn't have as great an impact on highend equity clubs in major markets, countless middle market
equity clubs suffered devastating
effects. Many members suffered
personal financial hardship and
were forced to cut the private
club lifestyle out of their budget
and lives, greatly reducing the
number of dues paying members.
Those members that persevered
witnessed the atmosphere at their
club change, with more members
perceiving dues as a burden than
a privilege. once an honor to
serve on the Board of directors
of an equity club, directors soon
began to dread visits to the club
due to constant complaints by
members regarding the financial
stability and expenses of the club.
With fewer members, less
revenue and no room in memWoolson
bers' wallets for capital assessments, most clubs did their best
at the peak of the recession to hang on and hold out for better
days, ignoring deferred maintenance and needed capital expenditures. Low revenue exacerbated the existing financial challenges that clubs face every day, including exorbitant water costs,
drought conditions, rising labor costs, membership liability and
refundability. Food and beverage operations at a private club are
notorious money losers and operational payroll can creep well
north of 40% of revenue if not kept in check. The very nature
of private equity clubs is part of the problem. Almost all private
equity clubs are structured as non-profit 501-C7 entities, so the
board of directors is not accustomed to generating a profit like
a typical private club owner would.
As equity clubs struggle, they typically begin to take on non-
8 The Pellucid PersPecTive
equity members (through non-refundable memberships) who
pay dues but are not financially attached like an equity member
is. When clubs experience a significant decrease in revenue and
an increase in operating expenses, deferred maintenance begins
to increase and the trend can be difficult to reverse. As membership levels drop, often times the reaction is to increase dues, food
and beverage minimums, operating and capital assessments.
With fewer and fewer active members to shoulder the financial
load, the problem can begin to spiral out of control and evolve
into the dreaded "equity club death spiral." As a result of the
enormous hurdles that must be
overcome, equity club members
are now looking for solutions
that will allow them to get back
to enjoying their club instead of
running a difficult business.
Solutions
it is extremely important
for equity club members to get
out in front of the challenges
and address them immediately
before it's too late. A common
option for clubs that are headed
towards financial insolvency is
to seek professional, third-party
management as a way to restore
profitability. if caught in time,
professional management may
right the ship and take the board
off the hook as being "the bad
guys."
if third party management is
not an option or has failed, the
club may consider an outright sale of the club. However, when
evaluating the option of selling, it's important to understand
the challenges. The result is a forfeiture of members' equity in
order to save the club. That collective equity can be used to fund
necessary capital improvements and/or cure deferred maintenance. Also, if there is substantial deferred maintenance and/
or membership liability (as with many clubs), it may sour a potential sale.
if a club's revenue is in excess of $5 million, depending on
the size of the facility and amount of debt, there should be
enough time to execute a strategic plan to sell the club. once
revenue drops below a level that jeopardizes the club's ability to
pay expenses, the options become limited and time becomes the
September 2015
Table of Contents for the Digital Edition of The Pellucid Perspective - September 2015
TOC
EZLinks acquires GolfSwitch
Youth on Course provides win-win for golf and juniors
Breaking News: Golf is getting passed in technology and information use by...farming
Private clubs struggle to combat the “equity club death spiral”
Payment Processing: Are you confused?
August golf weather impact: Weather and stocks decline
Price is right, but demand still lags in Tampa
Is golf doomed to rely only on ‘aspirational’ golfers?
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