[noonan]

Patrick,

I think you are 1000% correct.

Patrick is spot on

[Mike_Trenham]

Pat is 100 % correct about the cycle but member with big egos or that are not hard core golfers like fancy clubhouses too and justify their need with the outside event rationalization.  Also a nice clubhouse will attract members but nothing replells existing members more than a weak cluture where you feel like an intrusion on the place.

[Jon Wiggett]

Jon,

I don't know any of the details of the purchase, but my understanding is that the conservation group purchased the property for the purpose of preventing the land from being developed. The city was adamantly opposed to any sale that would not result in development (they wanted the tax dollars), but the group that ultimately bought the property wanted to prevent the loss of green space.

So, I very much doubt any piecemeal development.

I hope you are right Brian, though only time will tell.

Jon

[Jonathan Decker]

Patrick,

I will second the notion that you are 1000% correct, as this may be your finest work.

The analogy of serving two masters is quite and I have had the unfortunate displeasure of witnessing a club in a death spiral.  Perhaps the late 90s and early 00s provided the perfect setting for so many clubs to begin their course toward closure.

1980-1990s: the number of upscale public and new private courses began to soar, giving many more options to golfers everywhere.

Late 90s-early 00s: many older clubs were noticing a steady decline in memberships, and what better way to drive the membership tolls than to build a new massive clubhouse.  Avoiding the sinful tactic of assessing the shrinking membership, simply borrow from the bank, after all this great nation lives on credit.

2000s:  as the economy slowed, so did the interest in playing.  Combine this with an excess of courses and tee times, and soon golf became a buyer's market.  Many private clubs seemed to start falling in the cycle of; operate at a loss, assess, fire GM, raise dues, capital expenditures to improve facility and drive memberships.  As this repeats for a couple years, it was common for those just interested in golf to bail and go play one of the many public courses that are now half the price they were ten years prior.

2010-present:  Clubs on life-support, bank notes being called, courses closing with many going public or being developed.  Gone are many great classics and the commradre shared on the parkland layouts.

[Ville Nurmi]

who finances these kind of purchases?
Is it local people? local municipality?
14 M?
Ville

[BHoover]

who finances these kind of purchases?
Is it local people? local municipality?
14 M?
Ville

I have to imagine that the money for the purchase of Acacia, and many other courses, comes from private donors. in this case, the local mayor was absolutely opposed to selling to a conservation group.  The city, no doubt influenced by developers, was claiming that the lost tax revenue could have dire consequences for the city. The mayor even threatened legal action at one point (although I'm not sure what grounds the city would have had to oppose the sale of private property to a non-governmental entity).

Certainly there are instances where a municipality has purchased a former private club. But in this case, the money came from private sources.

[Patrick_Mucci]

Ville,

Local banks.

Don't forget, many of the members are probably existing customers and in some cases the bank's officers are members.
In addition, the bank feels it may obtain additional customers from the membership

As I was shopping for my wife on Saturday I ran into an old friend who serves on the board of a nearby club.

This club had entered the death spiral stage with $ 5,000,000 of debt.
With membership down below 200 members, that's $ 25,000 per ,member @ 200.
Debt service would be between $ 200,000 and $ 300,000 at 4 % to 6 % interest.

If membership goes to 150, debt per member climbs to $ 33,333 and servicing the 200K to 300K goes to $ 1,333 to $ 2,000 per year.

Now, here's the kicker.  They just discovered that they own 9 acres of non-golf related land, zoned for development.
Interested parties are offering in the neighborhood of $ 5,000,000, which would wipe out their debt and reduce their dues by $, 1,000 per member just in interest payments.  It would further reduce dues, vis a vis principal re-payment and eliminate all debt, making the club far, far more attractive, financially, to current members (retention) and future members.

I told him that if anyone wants to divert any portion of the potential purchase price for other projects, they should be shot or thrown off the board, whichever is easier.

This will be an interesting case study as the course has previously sold off parcels of adjacent land.
And, in spite of that, still incurred $ 5,000,000 in current debt.

And these are supposed to be smart businessmen.

Never forget the advice I was given at age 22 by a wise older member.

[Joe Leenheer]

Interesting Note:

Westwood CC on the west side of Cleveland built a new clubhouse in 2009. Lakewood CC (also on the west side) is building a new clubhouse as we speak.

I'm not sure of the specifics but I'm certain neither club had the cash flow to finance either project. However, both clubs are considered to be healthy.

Slippery step? Only time will tell. In the club world it's not the strong who survive. It's the strong and smart.

[Bill McKinley]

Brian,

Unfortunately I see more clubs going in that direction.

It's an interesting debate at the board meetings.

Factions within the club see easy revenue from these outside event.
They look at them as "dues lowering" activities.

But in reality here's what's happening.

The club's operation is getting more expensive, so the choices are:

Analyze operations and reduce costs and/or services.
Increase dues to meet increased expenses.
Generate non-member revenue to offset increased operational expenses

Invariably most clubs in that situation opt for the third choice, and once initiated, it almost becomes a focal point.

As an example, initially some clubs only permitted outside events at certain dates, usually off season, and certain times, so as not to conflict with member activities.   But, as the easy money rolled in, the desire for more money led to removing the restrictions, to the degree that the outside functions often became more important than member activities, often leading to restrictions being placed on member activities as the club moved closer to catering hall status.

Interestingly, other factions within the club opposed accepting outside events, as they felt that the club should remain member centric and that the rising operational expenses should be dealt with by either increasing dues or curbing/cutting services.

Once clubs chose the third option the die was cast, AND, operational costs continued to increase unabated, hence the need for more outside revenue.

So now you have two spirals, escalating operational expenses and increased outside events.
As operational expenses increased unchecked, the thirst for outside events increased.
And, as this was occurring the culture of the club was changing.
Members were feeling disenfranchised, almost like second class citizens, hence their loyalty, their connection to the club was being strained, resulting in diminished utilization patterns, resulting in lower revenues for the club, whose operational expenses continued to rise.

Now, another issue arises.
Certain factions favor expanding the clubhouse or building a new clubhouse to be able to accommodate larger outside functions to be able to generate more revenue. 

The members, already facing rising dues to meet increasing expenses don't want to pay an assessment.
The solution............ Go to the bank and borrow the millions needed.
After all, the increased revenues from the new facility will pay for the cost to carry the loan and pay off the principal.

Sound familiar ?

What's next ?

Members leave.
With fewer members, dues increase, resulting in more members leaving, ergo higher dues and the death spiral has begun.

Only a few clubs can be full service clubs at reasonable costs.

Clubs that continue to focus on outside events will continue to be challenged by the dilemma of serving two masters.

Clubs that return to basics, to what made them popular to begin with, will have a better chance at survival in the difficult times ahead

Patrick,

I love your thoughts here and I'm interested to hear what you think of a club that opts for scenario #2. Higher dues to try and maintain the same service while a smaller number of members are splitting up the costs. I definitely agree with you that going after outside revenues is not the answer.
Thanks and Merry Christmas.

Bill

[Mike Hendren]

Three truths:

1.  OPM (Other People's Money) is like a gateway drug - it seems so harmless yet leads to much greater problems.

2.  Debt is an unforgiving and inflexible master.

3.  Bankers love to give you an umbrella on a sunny day, but will want it back when it begins to rain. 

Bogey

[Sean Remington (SBR)]

When you look at the Conservation Fund website,  http://www.conservationfund.org/who_we_are  , they wouldn't appear to be interested in a urban location???

Sounds like a front group for Agenda 21 to me

[Jonathan Decker]

Interesting Note:

Westwood CC on the west side of Cleveland built a new clubhouse in 2009. Lakewood CC (also on the west side) is building a new clubhouse as we speak.

I'm not sure of the specifics but I'm certain neither club had the cash flow to finance either project. However, both clubs are considered to be healthy.

Slippery step? Only time will tell. In the club world it's not the strong who survive. It's the strong and smart.

Joe,

I Played Lakewood this fall with someone in an executive position at the club, and they too sold off land in order to finance their new club house.  I also was informed that the new clubhouse will be much smaller, as the lack of use and rising maintenance costs made the prior clubhouse a financial drain.

Jon

[Patrick_Mucci]

I love your thoughts here and I'm interested to hear what you think of a club that opts for scenario #2.
Higher dues to try and maintain the same service while a smaller number of members are splitting up the costs.


Bill,

I'll try to give you MY thoughts.
Faced with option # 1 and option # 2, I've always favored analysis prior to the formulation of any plan or course of action.

I have favored option # 2 for the following reason.

I felt that choosing that option didn't dilute the quality of the membership, nor the services, and, it made the club more attractive to existing and potential members..

No starting times adds an element of exclusivity.

When you see people gamble substantial sums, go on expensive vacations or buy expensive jewelry and/or cars, you have to ask yourself....
What's the return on paying additional dues to preserve a lifestyle and club that's part of your fabric ?
Is it worth it ?
I think it is, so I'd opt to pay a little more.
However, that's in the context and with the caveat that the club will exercise due diligence in terms of looking to control expenses.

I think you also have to examine the changing demographic and the changing culture at the same time you're conducting your financial analysis.

A number of clubs have done away with breakfast, others have done away with dinners, save for specialty nights.

So, I think each club has to examine their circumstances in an attempt to construct a plan that will allow them to prosper in the future.

While services or hours may be curtailed, that doesn't mean that quality has to be compromised.


I definitely agree with you that going after outside revenues is not the answer.

Thanks and Merry Christmas.

And, a Happy and Healthy New Year to you and your family

Bill

[Bill McKinley]

Patrick,

Very well said and I agree with that sediment. The trouble I feel is getting the existing membership to, by in large, buy into that philosophy. If you have factions of your club promoting different ideals and plans on how to make it though the tough times, then you have issues.

Thanks again for your thoughts and response!
Bill

[Patrick_Mucci]

Bill,

In my limited experience, it's the negative factions that are the most vocal.

If the balance of the membership,listens to them it usually results in catering to the lowest common denominator, and that often kick starts the downward spiral.

Maintaining quality is critical, and if that costs a little more, it's worth it in the long run.

A number of years ago, a club that i'm familiar with was going to embark on a clubhouse and golf course project.
I think the total was $ 3,000,000, 2M on the clubhouse and 1M on the golf course.
A vocal and active minority of about six members made such a fuss that the board reconsidered the proposed project,
and ended up eliminating the golf course work and scaling down the clubhouse work, with ONLY one dissenting vote.
The only dissenting vote was from obstreperous long time board member who insisted that the board present the $ 3,000,000 project to the membership, and if they rejected it, then present the scaled down version as an alternative.
Unfortunately,  the President was influenced by the vocal minority and lobbied for the scaled down version..  Result, a watered down program was passed for presentation to the membership.  The membership voted to accept the proposed plan as recommended by the board.
Ironically, Within a year, all six members who opposed the original project left the club.
Afterward, an inordinate number of members expressed surprise that the President and Board didn't champion the original plan which they had heard about.

Lesson to be learned, if you don't put an issue to the vote, you'll never know if it would have passed or rejected.

It's always interesting to study/compare clubs in close proximity to one another, understanding their inherent cultural or historical differences

[Malcolm Mckinnon]

Once upon a midnight dreary as I pondered weak and weary
Over many a quaint and curious volume of accounting lore,
Seeking gimmicks (without scruple) to squeeze through
Some new tax loophole,
Suddenly I heard a knock upon my door,
Only this, and nothing more.

Then I felt a queasy tingling and I heard the cash a-jingling
As a fearsome banker entered whom I’d often seen before.
His face was money-green and in his eyes there could be seen
Dollar-signs that seemed to glitter as he reckoned up the score.
“Cash flow,” the banker said, and nothing more.

I had always thought it fine to show a jet black bottom line.
But the banker sounded a resounding, “No.
Your receivables are high, mounting upward toward the sky;
Write-offs loom.  What matters is cash flow.”
He repeated, “Watch cash flow.”

Then I tried to tell the story of our lovely inventory
Which, though large, is full of most delightful stuff.
But the banker saw its growth, and with a might oath
He waved his arms and shouted, “Stop!  Enough!
Pay the interest, and don’t give me any guff!”

Next I looked for noncash items which could add ad infinitum
To replace the ever-outward flow of cash,
But to keep my statement black I’d held depreciation back,
And my banker said that I’d done something rash.
He quivered, and his teeth began to gnash.

When I asked him for a loan, he responded, with a groan,
That the interest rate would be just prime plus eight,
And to guarantee my purity he’d insist on some security—
All my assets plus the scalp upon my pate.
Only this, a standard rate.

Though my bottom line is black, I am flat upon my back,
My cash flows out and customers pay slow.
The growth of my receivables is almost unbelievable:
The result is certain—unremitting woe!
And I hear the banker utter an ominous low mutter,
“Watch cash flow.”
Herbert S. Bailey, Jr.

[JMEvensky]

In my limited experience, it's the negative factions that are the most vocal.


Ironically, Within a year, all six members who opposed the original project left the club.

The first line is absolute gospel.But,IMO,there's no irony in those guys leaving--it happens all the time.

Once a club allows a small vocal minority to have outsized influence,bad things start to happen.They're a cancer.Eventually,if a club is lucky,this group is exposed as being in it for themselves as opposed to being in favor of what's good (long term) for the club.

When they lose their "veto power",they leave the club.

[Dean DiBerardino]

I found an image of a routing map/drawing from the new Tufts Archives' Donald Ross Web Library that I had seen a few years back while working at Acacia (Thanks for the link Dunlop White!). The image is below (with an aerial image from 1954 below to compare). Most of what was in the drawing was built at Acacia and looked to be pretty special back in Acacia's early days. Contrary to some of the other opinions on this site, the bones of the golf course are still there. All but two of the greens are pretty much intact and the routing is essentially the same as it was back in the early 1920's. The greens had some of the finest internal contours of ANY course in the area (I'm guessing that Walter Hatch was mostly responsible for that.) and a green expansion project would have really brought them back to life. A restoration/renovation of Acacia, IMO, could have made the golf course pretty special today as well (not that it was that bad to begin with). Too bad we'll never find out though.

To me, Acacia was a fine golf course. It was the kind of golf course that could challenge the expert golfer and keep them interested, but could also provide a very enjoyable and challenging (not impossible) round for the average to below average golfer. We need more courses like this, not less.....

[Jason Connor]

There is so much good golf and so many good clubs on just the east side of Cleveland.

I lived very near Shaker Heights CC and it got ridiculously little play. You could drive by on a 72 degree Saturday morning and not see anyone in the 5 visible holes to the road.

The Acacia land is extremely valuable given it's proximity to retail there. I'm sorry to see if go, but there are at least other Ross courses around.

One question I have:

It seems so many country clubs build club houses hoping to do weddings and events to make extra money.  Why not just open up to non-member play for additional income?

[BHoover]

One question I have:

It seems so many country clubs build club houses hoping to do weddings and events to make extra money.  Why not just open up to non-member play for additional income?

Jason, it's not necessarily as simple as just opening the club up to non-member play to generate additional income.  If a club is organized as a non-profit entity for US federal tax purposes, it risks losing that status if it were to open up to non-member play and generate "excessive" income from non-members (not to mention that income generated from non-members is subject to tax as unrelated business income).  

Aside from the potential tax issues, there obviously are club politics, by-laws, etc.

[Jason Connor]

One question I have:

It seems so many country clubs build club houses hoping to do weddings and events to make extra money.  Why not just open up to non-member play for additional income?

Jason, it's not necessarily as simple as just opening the club up to non-member play to generate additional income.  If a club is organized as a non-profit entity for US federal tax purposes, it risks losing that status if it were to open up to non-member play and generate "excessive" income from non-members (not to mention that income generated from non-members is subject to tax as unrelated business income).  

Aside from the potential tax issues, there obviously are club politics, by-laws, etc.

I've always heard that explanation, but is that revenue somehow different than revenue from weddings, events and catering that new clubhouses are supposed to bring?

And it seems (I'm no accoutant or lawyer) that one could limit the tee sheet to meet the "non-profit" criteria yet pay the bills (with a zero balance).

Plus additional golf play uses the existing course and golf-related personel vs requiring additional capital expenditures for clubhouse/catering facilities and personel to sporadically staff those areas.

[Dan Byrnes]

This is just the way things will continue to head.  With the exception of some large metro area where clubs still have waiting lists there will continue to be clubs likes this closing because they can't attract a membership willing to pay for the debt and upkeep.

I went through this at my old club.  People had no clue and years and years of making poor decisions adds up.  Suddenly you start to struggle and soon after the membership crumbles further and there are no choices.  Club will restructure, change ownership or just cease to exist.

I live in Albany, NY and almost all the clubs are experiencing pressure.  Mine changed owners who bought it at a significant discount to the debt and are running it as a semi private and I believe are doing well.  There are more clubs struggling than doing well and the next 10 years will see others fold.  There is no membership growth.  There is NO reason to expect that trend to change.  There is some occasional shuffling of members from A to B but that is it.  Membership age is growing much faster than new members are joining so its just a matter of time.  Survival will be the strongest financially on the high end and the best value on the low end there will be many more casualties to come.

There are far more places like Albany and Cleveland than Chicago, Metro NY, Bay Area, LA ect.  These places that at one time may have had some wealth and built these Ross and other famous courses with huge amenities well before it was difficult to sustain them, these places are going to keep disappearing sadly.

Dan

[Joe Leenheer]

I found an image of a routing map/drawing from the new Tufts Archives' Donald Ross Web Library that I had seen a few years back while working at Acacia (Thanks for the link Dunlop White!). The image is below (with an aerial image from 1954 below to compare). Most of what was in the drawing was built at Acacia and looked to be pretty special back in Acacia's early days. Contrary to some of the other opinions on this site, the bones of the golf course are still there. All but two of the greens are pretty much intact and the routing is essentially the same as it was back in the early 1920's. The greens had some of the finest internal contours of ANY course in the area (I'm guessing that Walter Hatch was mostly responsible for that.) and a green expansion project would have really brought them back to life. A restoration/renovation of Acacia, IMO, could have made the golf course pretty special today as well (not that it was that bad to begin with). Too bad we'll never find out though.

To me, Acacia was a fine golf course. It was the kind of golf course that could challenge the expert golfer and keep them interested, but could also provide a very enjoyable and challenging (not impossible) round for the average to below average golfer. We need more courses like this, not less.....

Great stuff Dean! (you still have your hat I gave you?)

On the map the 9's are flipped.  Any thought on when they did this?  Personally I think 6-9 would be a great finish!

[Jon Wiggett]

Looking at the b/w photo does 18 have two greens or is that a practice green in the corner?

On another point, if a club is considered 'non profit making' would it risk losing this status in the US if it had a decent amount of non member's guest greenfees? Certainly, here in the UK a private member's club just have to show that a majority of their income is generated through the members as far a I am aware.

Jon

[BHoover]

On another point, if a club is considered 'non profit making' would it risk losing this status in the US if it had a decent amount of non member's guest greenfees? Certainly, here in the UK a private member's club just have to show that a majority of their income is generated through the members as far a I am aware.

Jon

Jon,

I think that member's guest greenfees generally would be permitted because the fees would be related to providing services to the member.  The tax law is confusing (no surprise), but generally speaking (very generally), a non-profit social club (a 501(c)(7) organization), such as a country club, must have the purpose of providing recreational services to its members.  The club is required to dervive "substantially all" of its income from membership fees, dues and assessments.  The club can derive 35% of its gross receipts from non-membership sources without jeopardizing its exempt status, but within that 35%, only 15% of gross receipts can come from non-member uses of club facilities and services.  However, a social cluib can generate "exempt function income" that is related to providing members, their families and their guests goods, facilities and services in furtherance of the purpose of the club.  So, if a club generates greenfees from guests of a member, those fees should be treated as being derived in furtherance of the club's purpose of serving its members.  From a legal standpoint, a member's guests are different than deriving fees from opening the club up to non-member use.

It seems convoluted and archane if you ask me, but the rules are the rules.  On another note, my tax law background finally came in handy for something related to golf.   

[Tags:]

Tags:

[Tags:]

Tags:

Call to undefined function theme_linktree()