Club Talk

It is hard to believe that Conference starts in less than a week.  I am looking forward to seeing all of you in San Diego.  The last time that the Conference was in San Diego, we had back to back major snow storms on the East Coast.  I was stuck in San Diego for a couple of extra days.  It was really tough to take!  However, I was not a really popular person back home.  When I finally did get home, it was obvious that only half the driveway was shoveled…… and it was not my half;-)

Please join Robyn Stowell and me in a legal and financial roundtable on Sunday February 10, at 4:45.   We will be in Marriott Hall -1.  As with any roundtable, its success is based on your participation.  Last year’s received rave reviews.  One of the comments was that the session should be mandatory because it covered so many issues of importance to managers.   The purpose is to provide a forum for you to discuss legal and financial issues both with your peers as well as seasoned professionals.  Bring any questions and concerns but more importantly, ideas and solutions.  Tax issues, dues increases, budgeting, bylaws, membership issues and other legal and governance issues are all fair game.  We will cover as many issues as we can in 90 minutes. 

I will be around from Thursday to Monday if any one would like to meet with me.  I am staying at the Marriott so just give me a call or send me an email and we can arrange to get together.   See you soon.

In my last blog post, I discussed the state of the industry. While there are many challenges, we also know that there are adjustments that can be made and steps clubs can take to address the issues they are facing. Knowing and understanding the financial aspect will help when trying to ensure financial viability.  

To start, let’s look at what the income and expenses look like, on average, for a private club. From 2002 to 2011, total revenue only increased 10 percent. Both other sales and income and food and beverage revenue stayed consistent while dues increased by 30 percent over that period. On a positive note, unlike seven of the last 10 years, operating income exceeded operating expenses.

Obviously, clubs rely on dues as their main source of income, so it should be no surprise that on average, 56 percent of country club income came from dues in 2011. In that same year, dues increased three percent and sales increased three-and-a-half percent.  Additionally, capital spending plans are at a two-year high. These shifts in revenue signal a positive upswing for the industry.  And while menu prices have seen a moderate five percent increase this is tempered with the fact that food costs are expected to increase four percent as a result of the mid-western drought.

While the economy remains the top challenge facing country clubs, it is safe to say some clubs are changing with the times and seeing positive results for their efforts. What is your club doing to stay relevant? How has your club weathered the economic storm?

When you take a look at the current economy, there is still a lot left to be desired – particularly as it relates to the clubs industry. Even before the Great Recession, clubs were facing a variety of issues, from an increase in competition to declining corporate support. Those challenges are still present. 

Today we see that people are traveling more, using their homes as entertainment centers, and overall there is less free time for individuals as they continue to do more with less. Unemployment is still high throughout the country and we see that within business as a whole 23 percent of workers took a pay cut while another 23 percent were forced to go from a full time position to part time.

For those individuals who continue to enjoy the benefits of a club, it has become apparent that they pay for membership out of their own pockets. No longer does a corporation sponsor on behalf of employees. As a result, members now look to use and receive value out of their club throughout the entire year – not just during warm weather months.

I know this comes across as gloom and doom for the club industry but this is the reality we are facing. And it’s better to face it head on than to bury our collective heads in the sand. While 2012 may see the start of a recovery, membership at country clubs has dropped more than 10% over the last 5 years.  What can each club do to stay relevant and keep members happy and continuing to come back year after year? The clubs that change and evolve with the times will do well; those that want to keep operating the same way they always have will slowly disappear. We will tackle some of these issues in future blog posts.

This is an important topic and we want to hear from you! What are you doing to change with the times? Have you added new membership categories?  How has your club been impacted by the economy – and what are you doing to address those issues?

Obtaining new debt is almost inevitable for major renovations. In the past, clubs were able to avoid or limit the debt by planning in advance and setting aside initiation fees for capital expenditures.  Today, however, members have a different mindset and the low interest rates associated with accessing cash encourage members to consider borrowing.

Banks are more eager to lend than two or three years ago, but not as willing as in the early 2000s.  However, they want collateral, positive cash flow and the club to meet very vague and demanding loan covenants.

When financing a project, consider the following:

• Is the project a necessity for the club or is it the desire of a handful of influential members? In the latter case, offer to make a special class of membership who will finance the project in its entirety through capital assessment.   
• The average age of the club’s full members. This will help to assess whether the current members who want the facility will be paying on the debt.
• The annual maintenance cost of the new facility or whether there will be any savings in maintenance cost after the renovation or a building/golf course makeover.

A strategic management team will think of a few other things to consider before diving into the pool of debt.

Be creative in your thought process for obtaining financing.  For example, consider borrowing from members. Loans from members are attractive to both parties. The club does not pay enormous closing costs and in turn can increase the interest rate to make the note more attractive to members. Members obtain a greater sense of ownership in the club and earn a higher rate on the money than they would at a bank.

But if you do go with a traditional secured loan from a bank, consider the following in evaluating the terms:

• Calculate the loan covenants under the worst reasonable scenario (for example, reduction in membership by 20%, no new members joining the club in a given year, etc.). Negotiate for less demanding loan covenants.  Often it is easier to negotiate up front than try to get a waiver at the time of crisis. With the economy going in and out of recession, many clubs may face such problems.
• Optimism about the future does not pay off when borrowing from the bank. Do not assume that by building a new facility or improving the golf course the club will attract new members. When agreeing to the bank’s terms, avoid loan covenants with reduced ratios in the future and negotiate a longer initial term with extensions that are tied to a reasonable financial performance of the club, and not the bank’s desire to extend.
• Know the bank’s formula and calculate the ratios before asking for bids. It will help you to avoid terms that protect only the bank’s interests.
• Consider all leases in place as capital leases, when calculating the ratios.  Pending new pronouncements may require the club to record most operating leases on the statement of financial position (balance sheet)

Have you found the banks more or less cooperative than in the past?  Are they requiring stronger guarantees?  What roadblocks are you encountering?  And finally, the question that comes up all the time……………Do you have any creative forms of financing?

Part one of this series provided some suggestions on communicating with members in the event of a disaster. In the second part of this series on emergency planning, I wanted to address communicating with employees in the face of a disaster. Without an organized plan in place for those who work at the club, chaos can ensue.

While members are the lifeblood of any club, internal staff – from the grounds crew to the event managers – are the first line of defense in an emergency. Included in the overall plan should be a section on communicating with employees. An integral part to keeping any club running, they need to be kept in the loop and informed as well. The amount of information provided might vary depending on the emergency, but if they feel like they are respected by – and important to – the club, they will take pride in their work and the club. Keeping them informed also will prevent false or inaccurate information from circulating, which could potentially reach members or the public. Inaccurate information reaching members or media could snowball, making matters much worse.

Another benefit of having an emergency plan in place is that it provides the club with a way to think about situations and prepare employees for the special demands of emergency situations. By rehearsing, discussing, and training staff, you can feel confidant that they will know how to handle any emergency that comes their way. Most importantly, it ensures that the members feel confident in the club’s ability to handle any issues that arise.

In my July 6 post, “Powerless Week,” I discussed an unexpected storm that hit the Mid-Atlantic region and left many in the dark – including many clubs. Several clubs commented on the post and explained some of their issues. So it seemed appropriate to talk about the importance of an emergency plan in the event of a disaster, which could be something manageable, such as the full or partial loss of electricity, or something on a much larger scale, such as a massive hurricane or club fire.

All clubs should have an emergency plan and incorporate it into routine training. Part of the emergency plan should address communications, particularly with respect to members. Whether large or small, if the emergency affects the club and its ability to function as normal, members should be notified. Part of the plan should also clearly state who is authorized to contact and communicate with members.

While social media can serve as a method of communications to members, it should not be the only method of reaching them since many are not regular social media users. For this reason, a variety of tactics should be employed – including posts to the website, direct email communications, and personal phone calls to members if appropriate.

Additional tips include:
• Document your plan for various scenarios;
• Hold a “dry run” practice session;
• Keep a list of key personnel’s names and numbers laminated in your wallet and on your mobile phone;
• Identify a chain of command.

With a well-developed plan, emergencies can be handled much more effectively and efficiently, which ultimately serves to benefit the members. How has your club effectively handled emergencies? What types of emergencies have you had to face?

Yearly, I publish the Clubs in Town and Country publication. It has been around almost 60 years and the last five have been the most volatile for the club industry. Last week, I spoke before club managers and controllers in Hilton Head and Atlanta and a month before that in Philadelphia. While 2012 does seem to be improving, a number of issues seem common among the clubs.

The first is that the recovery is uneven both in the economy and in clubs specifically. The first tier clubs have recovered and are close to where they were five years ago. However, too many private clubs still exist. The second tier clubs have not been so lucky. In many ways, they are their own worst enemies. They reduce the initiation fees dramatically and try to poach members from each other. There is a finite number of potential members and it seems that all the clubs want them.

Second, a trend seems to be developing that members are joining the club as social, or some other limited category, members rather than as full. Even more alarming is that existing full members are looking to drop back to a lower category. While it is nice to have new members, dues revenue suffers.

Finally, cost cutting is reaching its limit. Boards do not want to raise dues sufficiently to cover the cost of providing the services that members say they want. Add to this, the increased cost of fuel and food and the anticipated additional increases because of nationwide droughts and you have the potential for further pressures.

However, on the bright side, most clubs have seen an improvement over the last few years.

What are you seeing at your club? Are you getting more members that are paying less in dues? What great ideas do you have to control cost and still provide superior service?

Remember all the excitement when Facebook went public and the share price was more than $40 per share?  As of the date of this post, it was below $20, Facebook reported record losses and key members of the management team continue to bail.  So is this the end of the love affair with social media? Not a chance.  People still communicate and at some point, someone will figure out how to make money on it.  From 1.5 billion users of the web in 2009 to an expected 5.8 billion by 2016, the growth continues to be exponential.  So how does the growth in social media impact clubs?

It was not that long ago that clubs were concerned about web sites and whether to have one.  The club industry was not the quickest to adopt the use of web sites to its business.  Now, almost everybody has one.  They are being used to correspond with members and to the public at large.  Members communicate at home, in business and in the community so why cannot clubs take advantage of another method to reach out to the public?  They can and do.  As long as common sense is used, you should be okay.  How far down the road is your club?  Are you on social media?  How has the experience been?  Do your members use it, like it, avoid it?  Lets us know of any great ideas you have in the area.

It has been quite a week in the Mid-Atlantic region and really throughout the country.  I learned a new word “derecho”, which is a widespread straight line windstorm associated with a fast moving band of severe thunderstorms (also called a land hurricane during news reports).  More than 5 million people lost power from Chicago to the east coast and 1.5 million in the Washington region alone.  Trees were uprooted, we had a golf tournament at Congressional with no spectators and we are in the midst of a heat wave which will continue throughout the weekend.

Among those that lost power were a number of clubs.  Those that had power were packed with members that did not have any in their homes.   Those that lost power scrambled to get back on line as soon as possible, particularly with July 4^th coming up.  One of my favorite stories occurred at Springfield Golf and Country Club on Saturday.  They had a wedding scheduled for that night and no power.  When the manager spoke with the bride that morning he assured her that it could be handled.  If the electricity came back on, they had no problem but if it did not, they would go to plan B.  When the bride asked what plan B was, the manager said they had not come up with it yet.  Well Plan B was needed.  The staff pulled it off, the bride (and the bride’s mother) was pleased and the couple has some great stories going forward.

I am sure that many clubs have stories like this.  How did your club survive and what did the lost power cost you?   What kind of damage did you suffer?  We all saw the number of trees down at Congressional and I am sure others in the region were hit just as hard.  And more importantly, what type of disaster relief program do you have in place and was it effective?  We will look at this issue in particular going forward.

Memorial Day has just passed and the unofficial start of summer for much of the country is underway.  At least in the Mid–Atlantic region, the weather was beautiful but very hot.  The pools at the clubs were packed and all the activities are now in full swing.  Plans are underway for family activities, camps, swim teams etc. as the season progresses.  Unfortunately, the economy is still limping along.  Consumer confidence is still not very solid.  The recovery is much more piecemeal than others have been in the past.  The club industry’s recovery has been uneven.  At a recent roundtable I facilitated, the health of the clubs attending was all over the place.  Some were very healthy with waiting lists and others were still making deals on initiation fees.

Budgets are still tight and many were put together before the spike in oil and gas fees and the continued unexpected increase in food costs.  However, the increase in gas prices particularly may help clubs as many members have decided to forgo long vacations and will be around most of the summer.  How is your club taking advantage of the new trend in “staycations”?  Are you offering more camps, more activities and more ways to keep your members happy at the club?  As the entertainment dollar is reduced, is your club getting more of its share?  Our Clubs in Town & Country publication has shown a disturbing trend over the last few years.  Total spending per member (including dues) at the club was the lowest it has been in more than five years.  What is your club doing to address this issue?