Why is Pasatiempo a successful semi-private?

[John Kirk]

Hi Pete,

Pasatiempo receives well over 50% of their revenue from public play.

The shareholder model has been explained.  The best tee times in mid-morning are reserved for members.

It's a helluva golf course - love that place.  Very nice town, too, though downtown Santa Cruz has a lot of transient people, and can be kind of intimidating.

[Michael George]

Excluding the legal reasons for maintaining a private club, the semi-private model has to provide sufficient incentive to have members.

My suggestion for clubs considering this option would be to open a course for public play on Tuesdays.  Die hard golfers will find a way to play on Tuesdays (when hardly any club is busy), but there is an obvious benefit to membership.  Just an idea to raise extra revenue for some clubs.

[Tim Gavrich]

Michael--

At least in the area where I'm from (Hartford County, CT), a lot of the private clubs use Mondays and Tuesdays for outings for this very reason.  I imagine they'd probably rather know that they're going to have to ramp up the operation for those days than just open the place up on those days and see what happens.

[Pete Lavallee]

Pete L:

Are you always in the business of telling private clubs how they should operate

Tom,

I only started the thread to try and understand why the Pasatiempo model works so well. Your explaination of the recovery from bankruptcy makes perfect sense; I guess its a shame more nice courses didn't befall the same fate in the 30's. 

It very interesting that as John K has mentioned, Pasatiempo gets 50% of their revenue from outside play; the point being that if the Membership has a desire to share their course, it can work. Surely there is a great saving realized by the membership at Pasatiempo; it's a shame that the tax code prevents other privates from going this route, should times get tough. Perhaps this is part of the difference between the UK and US clubs, the Brits feel a duty to share their treasure, on their own terms mind you, rather than keeping it exclusive. I do understand the fact that it is difficult to sell memberships when one could just cherry pick a few choice rounds during the year. I still have a hard time grasping why it all works so well in the UK and virtually not at all here?

[Steve_ Shaffer]

Brandywine CC in Wilmington, DE is one private club in the Philly metro area that is openly semi-private :

http://www.brandywinecountryclub.net/Tee-Times-for-Brandywine_d0c76d7.html

I don't know how they're doing. Due to the rainy weather here since August, I haven't made it there to see how they're doing with their new status.

[David Kelly]

Sankaty Head on Nantucket allows the public to play in the offseason from October to May.

http://www.sankatyheadgc.com/teetimes.html

[Pete Lavallee]

David,

 Sankaty Head has a long trdition of giving back to the game; their Summer Caddy Camp is legendary in New England. It may very well be an economic necessity to allow outside play during that season, just to justify keeping the course open for the few members who live year round.

[John Kirk]

It very interesting that as John K has mentioned, Pasatiempo gets 50% of their revenue from outside play; the point being that if the Membership has a desire to share their course, it can work.

To clarify, I said "over 50%", but felt I should be vague, as that may be proprietary data.  I have only heard friends throw numbers out, but I have high confidence in "over 50%".

Dues are reasonable, by the way.

[Sean_A]

Pete L:

Are you always in the business of telling private clubs how they should operate

Tom,

I only started the thread to try and understand why the Pasatiempo model works so well. Your explaination of the recovery from bankruptcy makes perfect sense; I guess its a shame more nice courses didn't befall the same fate in the 30's. 

It very interesting that as John K has mentioned, Pasatiempo gets 50% of their revenue from outside play; the point being that if the Membership has a desire to share their course, it can work. Surely there is a great saving realized by the membership at Pasatiempo; it's a shame that the tax code prevents other privates from going this route, should times get tough. Perhaps this is part of the difference between the UK and US clubs, the Brits feel a duty to share their treasure, on their own terms mind you, rather than keeping it exclusive. I do understand the fact that it is difficult to sell memberships when one could just cherry pick a few choice rounds during the year. I still have a hard time grasping why it all works so well in the UK and virtually not at all here?

Pete

You were told the reasons why the UK model works above, but for some reason you don't accept the explanations.

I also think US clubs can go more toward the UK model if they wish to lose their special tax status, but it would seem they do not want to do this.  Incidentally, in the UK, private members' clubs are on a partial VAT recovery system.  Members don't pay VAT on their yearly dues, but all monies earned by the kitchen/bar or by guest/visitor green fees is subject to 20% VAT.  So in fact, when you pay a £100 visitor fee £20 goes to the government.  Propietary clubs (those owned by an individual(s) rather than member owned) are subject to VAT on everything because they are deemed a proper business. 

Ciao

[Mike Benham]

I also think US clubs can go more toward the UK model if they wish to lose their special tax status, but it would seem they do not want to do this. 

What is this special tax status that the US clubs have?  Perhaps a tax expert should actually tell everyone what it is so we don't think it is some magical formula that lines the pockets of the members.

And with all the talk the past few years of clubs having difficulty, initiation fees dropping and the monthly dues increasing to near exorbitant rates, the tax advantage of being a non-profit is not needed as their operating results are not anywhere near a profit.

I'm not that expert and I didn't stay at a Holiday Inn Express last night but there are also many different ways that the club entity is formed and how the memberships are categorized, equity, non-equity, etc.


Ps:  I will almost guarantee you that AGNC pays income tax each year ...

[Tom_Doak]

Mike B:

I don't think Augusta National pays income tax, although they have to be either set up as a non-profit or contribute all net revenues to charity; after all, as the sole owners of The Masters, they make well over $10 million per year off TV rights and merchandising, and even Augusta can't figure out how to spend that much money on their golf course.  But, they give away millions to charity every year.

[Jud_T]

The Glen club outside Chicago is a higher end semi-private model that seems to do fairly well.  Probably a good thing they sold all those 30k corporate memberships as opposed to simply relying on folks ponying up $140 green fees.

[Mike Benham]

Mike B:

I don't think Augusta National pays income tax, although they have to be either set up as a non-profit or contribute all net revenues to charity; after all, as the sole owners of The Masters, they make well over $10 million per year off TV rights and merchandising, and even Augusta can't figure out how to spend that much money on their golf course.  But, they give away millions to charity every year.

Tom - You are probably right and it does matter how they are set-up, likely as a 501(c)(7) and then the toonamint is run via a 501(c)(3) or whatever the correct variations are.

[Lou_Duran]

David,

 Sankaty Head has a long trdition of giving back to the game; their Summer Caddy Camp is legendary in New England. It may very well be an economic necessity to allow outside play during that season, just to justify keeping the course open for the few members who live year round.

Please!  Providing a few hundred gca freaks access at $150 a pop (or whatever) is "giving back to the game"!  Many private clubs which allow unaccompanied guest play do so for a variety of reasons, most which have some economic basis- e.g. funding a bunker project without needing to assess members; allowing the caddies to make some "big" money so they'll stick around even when the members pay smaller fees and normal play is seasonal; as a way to showcase the course for marketing purposes (recruiting new members).

As to the so-called English vs. American models, might it be simply the laws of supply and demand touched a bit by cultural differences?  I can understand why the beautiful people of Santa Barbara might prefer to pay more so as to not countenance riff raff like me, while the good folks at Walton Heath tolerate my presence for $185 during restricted times when they're mostly absent.  Like playing foursomes, just different strokes, right?   
 

[Tim Leahy]

Palos Verdes Golf Club(George Thomas) in Los Angeles has had public tee times on certain days of the week at least since the 80's when I played there when I was in college. It was a pretty reasonable green fee then, but now I think it is around $200. Wonder how profitable it is for the memebers? It has been going on quite a while so something must be working.

http://www.pvgc.com/

[Bill_McBride]

David,

 Sankaty Head has a long trdition of giving back to the game; their Summer Caddy Camp is legendary in New England. It may very well be an economic necessity to allow outside play during that season, just to justify keeping the course open for the few members who live year round.

Please!  Providing a few hundred gca freaks access at $150 a pop (or whatever) is "giving back to the game"!  Many private clubs which allow unaccompanied guest play do so for a variety of reasons, most which have some economic basis- e.g. funding a bunker project without needing to assess members; allowing the caddies to make some "big" money so they'll stick around even when the members pay smaller fees and normal play is seasonal; as a way to showcase the course for marketing purposes (recruiting new members).

As to the so-called English vs. American models, might it be simply the laws of supply and demand touched a bit by cultural differences?  I can understand why the beautiful people of Santa Barbara might prefer to pay more so as to not countenance riff raff like me, while the good folks at Walton Heath tolerate my presence for $185 during restricted times when they're mostly absent.  Like playing foursomes, just different strokes, right?   
 

Two great countries divided by a common language - and culture.   

[Tiger_Bernhardt]

I am with Pete on the comparison to the Brit Private club discussion. There are 100 or so private clubs in America which are in great financial shape and can do as they please. The Valley Club is one of them. Ergo as Tom noted it is not the best private course for this discussion.

[Alex Miller]

Palos Verdes Golf Club(George Thomas) in Los Angeles has had public tee times on certain days of the week at least since the 80's when I played there when I was in college. It was a pretty reasonable green fee then, but now I think it is around $200. Wonder how profitable it is for the memebers? It has been going on quite a while so something must be working.

http://www.pvgc.com/

I do not know how profitable that option has been for Palos Verdes, however I can tell you they recently opened up membership for the first time ever to residents outside of their zip code (an odd rule which I could not begin to explain). I think they have been doing just fine, but opening up the membership like that is interesting...

[Pete Lavallee]

Palos Verdes Golf Club(George Thomas) in Los Angeles has had public tee times on certain days of the week at least since the 80's when I played there when I was in college. It was a pretty reasonable green fee then, but now I think it is around $200. Wonder how profitable it is for the memebers? It has been going on quite a while so something must be working.

Tim,

We used to play Palos Verdes CC for about $35 when I lived in La back in the 80's, a real bargain; I liked it so much I had my wedding recption there! I played there 2 years ago and it was about $225 during the week; still an outstanding opportunity to play a Golden Age course. The good news bad news there is that the place is infested with Kikuyu, but it has knitted the sand splash from the bunkers into some awsomely steep faces.

[Ken Moum]

Mike B:

I don't think Augusta National pays income tax, although they have to be either set up as a non-profit or contribute all net revenues to charity; after all, as the sole owners of The Masters, they make well over $10 million per year off TV rights and merchandising, and even Augusta can't figure out how to spend that much money on their golf course.  But, they give away millions to charity every year.

Tom - You are probably right and it does matter how they are set-up, likely as a 501(c)(7) and then the toonamint is run via a 501(c)(3) or whatever the correct variations are.

ANGC was incorporated in 1935 as Augusta National Golf Club, Inc., according to David Owen's book on the club. I have looked for a non-profit in Ga. by a name that could be related to the course and haven't been able to find one.

Back when Martha Burke was making news, one of the points made awas that Augusta National Inc. was registered in Ga. as a for-profit business, and that it owned the brand names Augusta National Golf Club and Masters Golf Tournament. And that it's main business was a for-profit golf tournament.

Based on this http://corp.sos.state.ga.us/corp/soskb/Corp.asp?443757 it appears she was right. FWIW, the USPTO online system confirms that Augusta National Inc. trademarked a bunch of stuff starting in the 1980s. One of my favorites is that they trademarked Berckmans Place in preparation for opening the VIP hospitality center of the same name next year. http://www.geoffshackelford.com/homepage/2011/10/10/augustas-new-good-ole-boys-hospitality-house-will-not-be-ove.html

What all this means is open to to discussion but one of the interesting things about the place--to me--is that it appears to not operate like a private club, except when it suits them.  

[Jeff Goldman]

Folks,

Time for the biennial spiel. The theory behind the tax exemption for private social clubs is that they ARE social clubs, not businesses open to the public, and support themselves by pooling the member's funds. There is therefore no income to tax. However, clubs do earn outside income, and the IRS has set a safe harbor that a social club can earn 15 percent of gross revenue from nonmembers. Any more, and it looks like a business that supports member activities from public money, and therefore is taxable.

There's a lot of technical stuff, but that's the theory (and not legal advice).

[Mike Benham]

Folks,

Time for the biennial spiel. The theory behind the tax exemption for private social clubs is that they ARE social clubs, not businesses open to the public, and support themselves by pooling the member's funds. There is therefore no income to tax. However, clubs do earn outside income, and the IRS has set a safe harbor that a social club can earn 15 percent of gross revenue from nonmembers. Any more, and it looks like a business that supports member activities from public money, and therefore is taxable.

There's a lot of technical stuff, but that's the theory (and not legal advice).

Don't forget the Unrelated Business Income and non-member related issue, in theory of course ...

[Jeff Goldman]

Mike,

And also the "nontraditional" income limitation.

[Pete Lavallee]

Jeff, 

Glad to see you still peak in to see what's going on in the treehouse. What would the approximate penalty be if a Private Club did excedd the 15% outside income threshold? Have you ever heard of this happening?

[Jeff Goldman]

Pete,

I hope to be back full time in May, once my current status expires (ie, I'm not prez any more). The penalty (though it is not automatic) is loss of tax exempt status. Looks like about 15-30 social clubs lose their exempt status each year, usually because of too much nonmember income, though there are other ways to get your ticket pulled.