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

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?

The Pellucid Perspective - September 2015