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Patrick_Mucci

Are clubs taking their financial eye off the ball ?
« on: October 09, 2012, 04:56:45 PM »
I've noticed a number of clubs, clubs under financial stress, upgrading their facilities in an attempt to retain and attract new members.

But, these projects cost money and seem tantamount to betting on the come.

In addition, very little in the way of capital is finding it's way into the golf course.

Most that I've observed are directing the capital to their physical plant, their clubhouse, pool and tennis facilities.
Some are emphasizing dining and social events.
Rarely do I see them emphasizing the golf course.

This puzzles me because most members, new and prospective, seem to indicate that they're not joining for the chicken salad, decor or social calendar.

It would seem that you could get far more for your buck by spending a million dollars on the golf course than you can in the clubhouse.

Am I missing something ?

Bill Seitz

  • Karma: +0/-0
Re: Are clubs taking their financial eye off the ball ?
« Reply #1 on: October 09, 2012, 05:03:22 PM »
I'm a member at a club with a modest clubhouse, no pool, no tennis courts, so I can't really answer your question.  But I am a bit amazed that you put the entire question in the subject line.  ;D

Patrick_Mucci

Re: Are clubs taking their financial eye off the ball ?
« Reply #2 on: October 09, 2012, 05:16:42 PM »
I'm a member at a club with a modest clubhouse, no pool, no tennis courts, so I can't really answer your question.  But I am a bit amazed that you put the entire question in the subject line.  ;D

Bill,

There are times when you have to cater to the whiners just to silence their shrill tone ;D.


JMEvensky

  • Karma: +0/-0
Re: Are clubs taking their financial eye off the ball ?
« Reply #3 on: October 09, 2012, 05:30:22 PM »
Yes--but you already knew the answer.

However,this time might be different. I think the newest influx of members is substantially less discerning with regard to the golf course.These are social golfers--they neither care about nor know about improving drainage,improving turf,recapturing lost fairway width or green surfaces.

For them,the golf course is static--it's a pretty park.

Why not spend the money on the tennis courts when the golfers don't have sense enough to know things could be improved?

It's a lot easier for a President/Board to congratulate themselves on new dining room improvements than firmer,tighter fairways.

And this is something you failed to mention on the Green Chairman thread.If a Green Chairman allows capital to be spent all over the club without making certain the golf course gets what it needs first,he's a poor excuse for a Green Chairman.

Jason Topp

  • Karma: +0/-0
Re: Are clubs taking their financial eye off the ball ?
« Reply #4 on: October 09, 2012, 05:33:30 PM »
I am seeing clubs struggling over those types of expenditures made around 2005.  I don't think many are spending money on those projects now - at least around here.

Patrick_Mucci

Re: Are clubs taking their financial eye off the ball ?
« Reply #5 on: October 09, 2012, 05:37:03 PM »
JME,

As only one of either 13 to 25 Board members, the Green Chairman can cast but one vote.

He doesn't control the Board or the priorities of the Board.

In addition, each Chairman, Green and others, inherits a budget from their predecessor and the Board.

If last year's operating budget was $ 1,000,000 there's no way that this year's budget is going to be $ 1,500,000.

In fact, chances are, he's being told to cut his budget by 5 to 10 %.

The Green Budget, is only one of many budgets that comprise the overall general budget for a club.

Patrick_Mucci

Re: Are clubs taking their financial eye off the ball ?
« Reply #6 on: October 09, 2012, 05:39:29 PM »

I am seeing clubs struggling over those types of expenditures made around 2005. 

If they incurred debt to finance those projects, it's certainly becoming more of a burden.


I don't think many are spending money on those projects now - at least around here.

Jason,

A club less than 10 minutes away from me is about to spend $ 4,000,000 on what I think is already a very nice facility.

And, they're not the only club embarking upon "improvements"


JMEvensky

  • Karma: +0/-0
Re: Are clubs taking their financial eye off the ball ?
« Reply #7 on: October 09, 2012, 05:40:58 PM »
Pat,there's budget money and there's cap ex money.

Your original post seemed to be about cap ex.That's what I was referring to.

Tommy Williamsen

  • Karma: +0/-0
Re: Are clubs taking their financial eye off the ball ?
« Reply #8 on: October 09, 2012, 05:49:20 PM »
I will never understand how clubs can lose money each year and still stay afloat.  One of my clubs carries a $7,000,000 note.  We upgraded the clubhouse, pool, regrassed the fairways and redesigned the 18th hole.  There were, of course, two significant assessments in the last five years.  We are paying only the interest on the loan.  Yet, the course has never been in better condition and many projects have been completed both on the course and in the clubhouse and pool.  I know a few of the guys are trying to buy the note but I am amazed that we are still operating. 
Where there is no love, put love; there you will find love.
St. John of the Cross

"Deep within your soul-space is a magnificent cathedral where you are sweet beyond telling." Rumi

Jonathan Decker

  • Karma: +0/-0
Re: Are clubs taking their financial eye off the ball ?
« Reply #9 on: October 09, 2012, 06:27:30 PM »
Pat,

I have come to the conclusion that memberships are market driven, NOT amenity driven, but hey why not take on a ton of debt to upgrade the clubhouse, pool, snack bar, dining room, fitness center!  A good board knows best!

From my years in the Detroit area, the clubs that upgraded/rebuilt their clubhouses in the late 1990's early 2000's, via debt are the ones that have struggled the mightiest the past decade.  While some clubs in perhaps less desirable neighborhoods have been able to weather the storm a little better, as they are not burden with huge mortgage payments, but must adjust expenses, primarily labor.


JD

Ken Moum

  • Karma: +0/-0
Re: Are clubs taking their financial eye off the ball ?
« Reply #10 on: October 09, 2012, 07:23:49 PM »
Virtually every club I have personal knowledge of has had trouble with this issue.

Where I play now, a loan taken out for clubhouse renovation in 1988 finally sunk the club in 2010.  During that time, the course slowly deteriorated due to the drag of the mortgage payments.

One other CC here went under many years ago... after spending a bucketload of cash on a new clubhouse.

In my hometown the nine-hole course that I learned the game on did a nice new clubhouse and probably only survived it due to the support of several individuals with deep pockets who didn't want to see it fail.

The other remaining club where I live recently spent something like 3.5 million on their clubhouse.

A club that's about an hour away spent $5 million on their clubhouse.

My mother's club in AZ spend more than $3 million about 10 years ago, and now they are talking about doing a major remodel again.

One of the clubs my cousin was  a member of has remodeled their clubhouse two to three times during a period when flooding has reduced the course to 15 holes about every other summer.  He quit the club the last time.

The only other Donald Ross course around here is now a daily fee--on it's second set of operators I believe.  I talked to a gentleman there last summer who had been an employee since the 1960s and he told me that the board came to the employees  and said, "WE can't pay the mortgage anymore."  I asked him if it was the MASSIVE clubhouse that did them in.  He said he thought they might have survived except for the loan they took out to build a new, ultra-special pool.

But none of those clubs has done anything significant to make the golf course more attractive.

NO ONE I have ever talked to has joined a country club because the clubhouse was nice, yet clubs all over the country continue to make this mistake.

I am convinced it's a product of the fact that clubs almost never do rational cost accounting.  Several years ago I had an argument with my club's long-time recording secretary over the issue. She insisted that F&B was subsidizing the golf course maintenance. She said, "Bob (several times president) and I proved once and for all several years ago. Matt (super) and his guys are great, but they are just a drag on the budget."

Here, like many other clubs, all the dues income goes into a admin fund, golf course operations has ZERO income, and F&B have no costs other than labor and materials.

I cannot understand why the boards can't see that failing to charge F&B for mortgage, utilities, building maintenence, etc., etc., is giving the operation a false image of making money.

Lately, I keep hearing, We need a pool, or tennis courts, or banquet facilities, or .... to bring in the new members that are going to "save" the club.

I'm not buying it.

K
Over time, the guy in the ideal position derives an advantage, and delivering him further  advantage is not worth making the rest of the players suffer at the expense of fun, variety, and ultimately cost -- Jeff Warne, 12-08-2010

Patrick_Mucci

Re: Are clubs taking their financial eye off the ball ?
« Reply #11 on: October 09, 2012, 07:55:13 PM »
I will never understand how clubs can lose money each year and still stay afloat.  One of my clubs carries a $7,000,000 note.  We upgraded the clubhouse, pool, regrassed the fairways and redesigned the 18th hole.  There were, of course, two significant assessments in the last five years.  We are paying only the interest on the loan.  Yet, the course has never been in better condition and many projects have been completed both on the course and in the clubhouse and pool.  I know a few of the guys are trying to buy the note but I am amazed that we are still operating. 


$ 7,000,000   WOW

That's what drove Shackamaxon to be lost to the members.

And, if interest rates go up, then what ?

Terry Lavin

  • Karma: +0/-0
Re: Are clubs taking their financial eye off the ball ?
« Reply #12 on: October 09, 2012, 08:03:28 PM »
The country club life is on life support. Any club with more than a couple million in debt is asking for real trouble because there are very few memberships willing to pay assessments to retire debt. I'd be more inclined to join a club that was bulldozing the pool, razing the tennis courts and getting out of the banquet business. That's a much more solid model than the expansion model, IMHO.
Nobody ever went broke underestimating the intelligence of the American people.  H.L. Mencken

mike_beene

  • Karma: +0/-0
Re: Are clubs taking their financial eye off the ball ?
« Reply #13 on: October 09, 2012, 08:10:14 PM »
I don't keep up with our finances but I do know that our expensive redo of the clubhouse has the Saturday morning breakfast buffet costing 15 dollars.Of the 10 or so people I play with,no one is eating it anymore.

Patrick_Mucci

Re: Are clubs taking their financial eye off the ball ?
« Reply #14 on: October 09, 2012, 08:10:33 PM »
Ken,

Woodcrest in NJ rebuilt a Taj Mahal like clubhouse which put the club in dire straits.

Shackamaxon accumulated about $ 6,000,000 in debt for the clubhouse.

I see a number of clubs taking on debt with no sound long range plan on how to repay it.
Debt is often the death knell for any club.
And more and more, clubs that incurred significant debt are in trouble today.

I believe that Bob Huntley told me that MPCC embarked on several significant projects and didn't incur a dime in debt.

Paying as you go is the only practical method for financing projects at clubs.

And, it seems that the great majority of projects are focused on the clubhouse, not the golf course.

A tour of GCGC, Kitanssett and others should be mandatory for Boards considering huge clubhouse projects.

JME,

Cap Ex or Oper Ex, it doesn't make a difference, the GC only has one vote at the Board, which is usually comprised of 13 to 25 fellow Board members.

Ken Moum

  • Karma: +0/-0
Re: Are clubs taking their financial eye off the ball ?
« Reply #15 on: October 09, 2012, 08:19:10 PM »
I will never understand how clubs can lose money each year and still stay afloat.  One of my clubs carries a $7,000,000 note.  We upgraded the clubhouse, pool, regrassed the fairways and redesigned the 18th hole.  There were, of course, two significant assessments in the last five years.  We are paying only the interest on the loan.  Yet, the course has never been in better condition and many projects have been completed both on the course and in the clubhouse and pool.  I know a few of the guys are trying to buy the note but I am amazed that we are still operating. 


$ 7,000,000   WOW

That's what drove Shackamaxon to be lost to the members.

And, if interest rates go up, then what ?


That's not a whole lot different than a course in a town of 50,000 carrying $4.3 million in debt.

Go look up some of the courses you are familiar with here, you'll be astounded at some of the mortgages http://foundationcenter.org/findfunders/990finder/

Hell, Medinah was carrying a $12.3 million mortgage at the end of 2010.  I hope the Ryder Cup was profitable.

K
Over time, the guy in the ideal position derives an advantage, and delivering him further  advantage is not worth making the rest of the players suffer at the expense of fun, variety, and ultimately cost -- Jeff Warne, 12-08-2010

Patrick_Mucci

Re: Are clubs taking their financial eye off the ball ?
« Reply #16 on: October 09, 2012, 08:26:16 PM »
Terry Lavin,

Agreed, but, more and more I see clubs spending money to expand their facilities in order to host outside events.

I don't get it.

David_Elvins

  • Karma: +0/-0
Re: Are clubs taking their financial eye off the ball ?
« Reply #17 on: October 09, 2012, 08:33:28 PM »
Patrick,

I think that people on this website focus a bit too much on clubhouse expenses.  Golf course expenditure can, in some cases, be just as detrimental. 

I heard of a club recently that costed their golf course masterplan at $20mil+.  :o

Ask not what GolfClubAtlas can do for you; ask what you can do for GolfClubAtlas.

Patrick_Mucci

Re: Are clubs taking their financial eye off the ball ?
« Reply #18 on: October 09, 2012, 08:39:49 PM »
Patrick,

I think that people on this website focus a bit too much on clubhouse expenses.  Golf course expenditure can, in some cases, be just as detrimental. 

I heard of a club recently that costed their golf course masterplan at $20mil+.  :o


Those tend to be fantasy, 20 year wish lists.

The ratio of clubs that spend millions on their clubhouse facilities versus millions on their golf course is heavily weighted toward the clubhouse facilities.

Can you think of five (5) local clubs that spent $ 5,000,000 on their golf course



Tim Martin

  • Karma: +0/-0
Re: Are clubs taking their financial eye off the ball ?
« Reply #19 on: October 09, 2012, 08:45:39 PM »
This has been a persistent problem in New Haven and Hartford Counties in Connecticut with a lot of old line established clubs that have mortgaged their financial health with clubhouse, pool and other non golf course related capital projects. Some have made deals with the devil in the form of extended management contracts and others have gone from private equity to the public model. Additionally an old well established club in a New Haven superb was bought by the town in which it is located and would have been unthinkable even five years ago. With the cost of money so cheap some have been lucky to refinance and have been able to keep things afloat but their long term viability is at best uncertain. Pat's mantra of pay as you go is the only sensible approach in this environment yet the same mistake is repeated perpetually.
« Last Edit: October 09, 2012, 08:49:15 PM by Tim Martin »

Bill_McBride

  • Karma: +0/-0
Re: Are clubs taking their financial eye off the ball ?
« Reply #20 on: October 09, 2012, 08:54:26 PM »
Yes--but you already knew the answer.

However,this time might be different. I think the newest influx of members is substantially less discerning with regard to the golf course.These are social golfers--they neither care about nor know about improving drainage,improving turf,recapturing lost fairway width or green surfaces.

For them,the golf course is static--it's a pretty park.

Why not spend the money on the tennis courts when the golfers don't have sense enough to know things could be improved?

It's a lot easier for a President/Board to congratulate themselves on new dining room improvements than firmer,tighter fairways.

And this is something you failed to mention on the Green Chairman thread.If a Green Chairman allows capital to be spent all over the club without making certain the golf course gets what it needs first,he's a poor excuse for a Green Chairman.

I'm confused.  How does the Green Chair get to make those calls, which should be the board's responsibility?

Tim Martin

  • Karma: +0/-0
Re: Are clubs taking their financial eye off the ball ?
« Reply #21 on: October 09, 2012, 09:04:09 PM »
Yes--but you already knew the answer.

However,this time might be different. I think the newest influx of members is substantially less discerning with regard to the golf course.These are social golfers--they neither care about nor know about improving drainage,improving turf,recapturing lost fairway width or green surfaces.

For them,the golf course is static--it's a pretty park.

Why not spend the money on the tennis courts when the golfers don't have sense enough to know things could be improved?

It's a lot easier for a President/Board to congratulate themselves on new dining room improvements than firmer,tighter fairways.

And this is something you failed to mention on the Green Chairman thread.If a Green Chairman allows capital to be spent all over the club without making certain the golf course gets what it needs first,he's a poor excuse for a Green Chairman.

I'm confused.  How does the Green Chair get to make those calls, which should be the board's responsibility?

Bill- Agreed and on a committee level wouldn't these allocations be under the purview of the House Chairman after being vetted and voted on by the full board?

Terry Lavin

  • Karma: +0/-0
Re: Are clubs taking their financial eye off the ball ?
« Reply #22 on: October 09, 2012, 09:21:49 PM »
Terry Lavin,

Agreed, but, more and more I see clubs spending money to expand their facilities in order to host outside events.

I don't get it.

As we say here in Chicago, they're "axin" for it! 
Nobody ever went broke underestimating the intelligence of the American people.  H.L. Mencken

Dan Byrnes

  • Karma: +0/-0
Re: Are clubs taking their financial eye off the ball ?
« Reply #23 on: October 09, 2012, 09:34:26 PM »
I would say from my personal club experiences and those observed the biggest threat to a club is the build it and they will come plan.  I think it fails just about all the time.  However, for the next owner it is often a major bonus.

Like so many of the club aspects we discuss here this issue is very geographical, With clubs in higher rent districts and those still getting initiation fess different from those that are not.

I think perhaps debt per member or debt as a % of dues is a better indicator of the risk than a plain debt number.  When my old club failed we had about 200-250 members and debt of 3.8 million.  So almost 20k per member or 4x annual dues, way too much.  The problem was it wasn't a build it and they will come so we had nothing but refinanced old upgrades to offer for the debt.  The club management kept dues low for their own benefit and used credit lines which were transformed into long term debt to offset operating short falls.  Club had the chance to buy the debt for 900k but couldn't attract enough interest and it eventually sold for 1.65 million to a new owner. Another local club failed because of the build it and they will come and several million In upgrades was purchased by new owners for penny's on the dollar.

Another local club recently did a 500k+ bunker restoration with a group of members donating approx 250k and the club matching them.  Certainly isn't going to happen this way everywhere but this and  assessments is how this stuff must be done.  Very hard sell in this environment with club life in many places struggling.

Often members in board positions or those in influential positions tend to be old.  By taking on debt that can enjoy the benefits without really having to pay for them as their membership life expectancy is already low.  Keep my dues low and by the time it explodes I'll be gone.  Pretty much Seems to be our Nations philosophy as well.

I assume a club like Medinha has 1000 members?  So the debt per member isn't outrageous nor is it relative to annual dues I assume.

I also may be guessing but if Shinnecock needs a 5 million dollar maintence building they just assess for it?  Certainly any member who doesn't want to pay thier 20k or whatever share can easily be replaced by one who is more than happy for the opportunity?  I Amy be way off on this.

Dan



« Last Edit: October 09, 2012, 09:47:25 PM by Dan Byrnes »

William_G

  • Karma: +0/-0
Re: Are clubs taking their financial eye off the ball ?
« Reply #24 on: October 09, 2012, 09:37:33 PM »
I'm a member at a club with a modest clubhouse, no pool, no tennis courts, so I can't really answer your question.  But I am a bit amazed that you put the entire question in the subject line.  ;D

+1

A club does need a clubhouse that is functional and attractive.

20+ million is a lot, but if your clubhouse is old and expensive to maintain...do you go with a trailer after the tear down w/ D8s?

What is affordable for a clubhouse?
It's all about the golf!

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