All UK member golf clubs will receive a massive windfall

[Adrian_Stiff]

Of course the majority of members clubs don't take hundreds of thousands a year in visitor income. The likelihood that HMG will pay out £3b is remote and would have zero public support.

Nothing to do with public support. Europe over ruled HMRC today. Phase 1, back to 1990 I think. In theory it could go back to 1971 and also commercial clubs might get paid out. I would think at least 5 of courses I have done would get a million each.

[Mark Chaplin]

And what if HMG refuse to pay? Will Europe start sanctions against the UK. My club will be due a few bob, but I'm not holding my breath until the cash hits the bank account and we can reduce some debt.

[David_Tepper]

"A neighbouring club that can offer pari passu at a discount to 14% will win the game.....<<<do you agree?"

Adrian S. -

Do you really think the member clubs will reduce their visitor green fees by the amount they were paying on in VAT? It would surprise me if they did. My guess is clubs will keep charging the same green fee rates for visitors and pocket the money they were paying on to the government for VAT.

Clearly commercial venues such as Kingsbarns and Castle Stuart are prospering charging green fees well above what the nearby member clubs are charging. Granted, they may be exceptions to the norm.

DT    

[Mark Bourgeois]

David,

It has been a loong time since I've done any economic tax incidence analysis but a general and simplistic guess would be clubs with courses regarded by foreign tourists as tippy-top will be able to hold prices and keep all or nearly all the benefit whereas clubs whose courses are regarded as second- and third-tier will reduce prices by some amount less than the VAT in order to stay competitive. How much the latter discounts probably depends on the perceived quality and choice of "relief" courses available to foreign tourists in that immediate area (as I think Adrian is saying).

[Adrian_Stiff]

"A neighbouring club that can offer pari passu at a discount to 14% will win the game.....<<<do you agree?"

Adrian S. -

Do you really think the member clubs will reduce their visitor green fees by the amount they were paying on in VAT? It would surprise me if they did. My guess is clubs will keep charging the same green fee rates for visitors and pocket the money they were paying on to the government for VAT.

Clearly commercial venues such as Kingsbarns and Castle Stuart are prospering charging green fees well above what the nearby member clubs are charging. Granted, they may be exceptions to the norm.

DT    

David - I think some clubs (majority) will maintain the green fees at the current price, that aside if they have extra money they can only spend it on the golf club so in spending money on the golf club that golf golf club by default will become better and therefore not pari-passu with the other. If you and I had shops next door selling golf balls and you could buy at 80p per ball and I could buy that same ball at 70p... I win the game.

The trading platform that has been created is obviously unfair. It may be that yesterdays EU ruling (remember the HMRC took it to Europe, not the other way around) is enough for the bright sparks in Whitehall to understand the distortion picture and do something about it.

I am not sold that Kingsbarns is doing as well as you might think. I have been there a couple of times in the last 15 months and its been   extremely quiet. I was 'told' that it is just too expensive now and the Castle Course has taken a lot of its business.

[Niall C]

Let's see how many clubs actually pass the savings on to their customers. My guess is the rates will remain the same and the clubs will just keep the 20% windfall.

Mike (and Brent)

The members are the club. For the vast majority of clubs this will be about the VAT paid on subs which will be much higher than the VAT paid on greenfees. Some might take the opportunity to reduce any debts they are currently carrying but I suspect in most instances there will be huge pressure from a section of the membership to reduce subs. A lot of clubs are also fairly competitive in trying to attract greenfees so I think something like this will entice quite a few of them to try and make further "offers".

Of course I'm talking about the average club and generally on here we talk about Dornoch and the like. Those types of clubs that have taken a huge amount of greenfees over the years are in for a double dunt in terms of payback so an already healthy position has just got a whole lot healthier. With a windfall like that I think you will see a rash of "substantial investment". So say hello to your new clubhouse at Dornoch. Incidentally I had coffee a couple of weeks ago with the captain of a well known club (addressed him by his christian name please note  ) that attracts a huge amount of greenfees and they are already spending a seven figure amount on their clubhouse and that decision was taken irrespective of this judgement.

Niall

[Adam Lawrence]

Let's see how many clubs actually pass the savings on to their customers. My guess is the rates will remain the same and the clubs will just keep the 20% windfall.

Mike (and Brent)

The members are the club. For the vast majority of clubs this will be about the VAT paid on subs which will be much higher than the VAT paid on greenfees.

Niall - we should note that this case DOES NOT affect subscriptions at member-owned clubs. These have always been free of VAT, while proprietary clubs have to charge the 20 per cent VAT.

[Niall C]

Adam,

Thanks, that knocks a huge hole in my analysis. I'd a vague recollection that golf clubs won a VAT battle with the Revenue a number of years ago and suspect that might have been it. I was basically basing my comment on a poor read through of one Adrians posts, not that I'm trying to deflect blame mind you  .

Niall

[Bruce Katona]

Adrian: Does this create a buying opportunity for you? If a proprieretary course goes belly-up, the opportunity to acquire the asset at a discount acceptable to service the debt on the acquisition plus a small return on the equity inversted exists, no?

[Adrian_Stiff]

Bruce : No. Yesterday was a pretty bleak day for golf course values in the UK. The value of a UK golf course is now only that of the land, buildings and machinery. The law as of yesterday would mean if you deem yourself commercial you basically set up to trade -14% to your competitor so no one in the right mind is going to buy a business like that, so the buisness value in a valuation is unlikely to be greater than NAV. You would need other add ons to make it work but effectively making money from a golf course is dead, unless you trade at a crazy high margin, ie charge a lot of money and have very little in overheads (I expect there are some). It could change if the government see the illegal position they have created and in time EU law would indicate a win for the commercial clubs, with easyiest route being to let all golf clubs trade on the same platform. I suspect it will take time.

In fairness many golf courses have been just land value plus buildings, plant for a while, yesterday would have taken a lot more to that level.

There might be a golden lining to end it all as it now creates a very genuine change of use situation to some and they might get housing which is 99% every UK golfcourse owners dream. 150 acres of land in the UK = 1500 homes which equals lots of noughts.

Adrian

[Brent Hutto]

What proportion of courses in the UK are member-owned and what proportion proprietary?

[Adrian_Stiff]

What proportion of courses in the UK are member-owned and what proportion proprietary?

Brett - I think its about 65% member owned, maybe low 30s proprietary, couple of municipals too though mainly they are leased out so count as commercial.

[David_Tepper]

"Yesterday was a pretty bleak day for golf course values in the UK. The value of a UK golf course is now only that of the land, buildings and machinery. The law as of yesterday would mean if you deem yourself commercial you basically set up to trade -14% to your competitor so no one in the right mind is going to buy a business like that, so the buisness value in a valuation is unlikely to be greater than NAV."

Adrian -

There is no doubt you know the UK golf market far, far, far better than I do. I certainly appreciate that commercial golf is your livelihood. I understand your concern. However, I do think you are overreacting to what has happened.  

Golf clubs and golf courses in the UK and around the world cover a wide variety of market segments and appeal to a wide variety of customers. I doubt the pricing competition you envision will materialize, at least in certain segments of the market.

Do you will think Troon will lower their visitor green fees to provide stiffer competition to Turnberry? Will Nairn do the same vs. Castle Stuart? Will Cruden Bay do the same vs. Trump Scotland?

In the world of golf, "all things being equal" rarely are. In my experience, golfers chose where to play based on a variety of factors. Certainly cost is one of them. But so are convenience, course conditioning, pace of play, staff attitude, status, reputation, etc.

I will be very surprised if the price wars/pressures you envision materialize.

DT    

P.S. While I am not a student of economic theory, I am a keen observer of economic outcomes. Economics is known as "the dismal science" for a very good reason.        

[Michael Latham]

It is not a matter of conjecture in these posts as to whether the differential in applicable VAT rates between UK Members Golf Clubs and their Proprietorial counterparts is material and significant in creating a distortion of trade. The Tribunal that heard the Chipping Sodbury case in October 2012 ruled that this differential was causing a "distortion in trade".
The Appeal ruling regarding Bridport can only make this distortion worse.

[Lou_Duran]

The fundamentals of European economic analysis baffle me.  The writer sees a "pretty bleak day" in a favorable tax decision enabling member-owned clubs to retain some of the income that previously was confiscated by the government.  Extending this line of thinking, had the decision been instead to double the tax, might this had been a bright day for property valuations?  Competitive analysis aside, I am unfamiliar with the math which has a larger income stream yielding a lower NPV (net present value).  But, I confess, that I am still trying to get my arms around how paying people not to work is "stimulus" or how "repealing" the demand function for healthcare will bend the cost curve (at a price approaching zero, demand approaches infinity).

I would think that anything which allows a golf club to keep more of its revenues is a good thing for the industry .  My bet is that if the decision stands, the govt. will find other ways to extract its pound of flesh, and that golf clubs will adapt their structures to their advantage.  I would expect that some will lower their fees to capture more market share, while others will keep their price structure intact and utilize the extra income to suit their individual needs (debt reduction, renovation, improvements, capital fund).    

[Sean_A]

Lou

It all depends on which side of the tracks you approach this issue from.  Its great for me as a guy who rarely frequents corporate clubs and is a member of a member club.  Its not so great for guys who own courses and are trying to make money.  In the end, I don't think it will matter much in the big picture of UK golf.  

Ciao

[Adrian_Stiff]

"Yesterday was a pretty bleak day for golf course values in the UK. The value of a UK golf course is now only that of the land, buildings and machinery. The law as of yesterday would mean if you deem yourself commercial you basically set up to trade -14% to your competitor so no one in the right mind is going to buy a business like that, so the buisness value in a valuation is unlikely to be greater than NAV."

Adrian -

There is no doubt you know the UK golf market far, far, far better than I do. I certainly appreciate that commercial golf is your livelihood. I understand your concern. However, I do think you are overreacting to what has happened.  

Golf clubs and golf courses in the UK and around the world cover a wide variety of market segments and appeal to a wide variety of customers. I doubt the pricing competition you envision will materialize, at least in certain segments of the market.

Do you will think Troon will lower their visitor green fees to provide stiffer competition to Turnberry? Will Nairn do the same vs. Castle Stuart? Will Cruden Bay do the same vs. Trump Scotland?


I will be very surprised if the price wars/pressures you envision materialize.

DT    
  

David - The price wars started about 2 years ago. This wars are not between the elite clubs, its the section of clubs below top 100. The price wars are hitting lots of different sections, the magazines are littered with hot deals, my email box is full of tasty away days at crazy prices, there are groupons, daily golf deals and first living all giving their goods away.
I think Nairn will benefit from CS and Cruden will benift from Trump. What you are not understanding is there is very little profit in golf as it is, so to trade at -14% to the one next door is hard. Our aim and b/plan is to make 7.5%. This board is minor opinion in the scheme of how golf really works, we on here are golf nuts with a strong passion for architecture and best product, many golfers see £12 golf winning over £13 golf. What also happens is the people play golf in groups perhaps 4 but sometimes 16 and 20. Whilst 19 might be happy to play better courses and pay a bit more what happens is good old Johnny Jones does not have the money to pay more so the group go to the one Johnny can afford. They want to play with their mate, they don't want to leave him at home. I book tours for people in the Cotswolds and I might book a group of 16 into a course and then they say can you reserve a buggy for us, I say they don't have buggies, the organiser says we cant go there then...I can guarantee you its not easy at all..but if you sat at my desk for a year you would recogonise many of the patterns that I talk about.

[Jon Wiggett]

Well, as a golf course owner I do not see this will have any effect on my course or any of the other commercial courses around me. You can bet this ruling will be challenged which will take years and if it is upheld the figures paid out will be much lower than being thrown about on this thread and likely the government will change the rules to claw it back.

Jon

[Adrian_Stiff]

Well, as a golf course owner I do not see this will have any effect on my course or any of the other commercial courses around me. You can bet this ruling will be challenged which will take years and if it is upheld the figures paid out will be much lower than being thrown about on this thread and likely the government will change the rules to claw it back.

Jon

Jon - Thursdays ruling was the challenge. HMRC lost. It is now the law. Commercial clubs pay Vat on memberships and Green fees. Member clubs are vat exempt for memberships (which we already knew) and now for green fees.
I think the government taking the Vat exemptions away entirely from members clubs is the most likely route. That then means two thirds of UK golf clubs would need to increase their subscriptions by about 14%, which in a dire market is not good either, though it is fair to ALL golf clubs and the route Viv is taking.

[Adam Lawrence]

Well, as a golf course owner I do not see this will have any effect on my course or any of the other commercial courses around me. You can bet this ruling will be challenged which will take years and if it is upheld the figures paid out will be much lower than being thrown about on this thread and likely the government will change the rules to claw it back.

Jon

Jon - I suspect you may be right suggesting that HMRC will attempt to tweak the rules to limit the impact of this judgement. But you're wrong to say it will be challenged - it already has been repeatedly challenged. The ECJ is the ultimate court of appeal in this context - there is no higher court to which it could be appealed.

[Niall C]

The fundamentals of European economic analysis baffle me.  The writer sees a "pretty bleak day" in a favorable tax decision enabling member-owned clubs to retain some of the income that previously was confiscated by the government.  Extending this line of thinking, had the decision been instead to double the tax, might this had been a bright day for property valuations?  Competitive analysis aside, I am unfamiliar with the math which has a larger income stream yielding a lower NPV (net present value).  But, I confess, that I am still trying to get my arms around how paying people not to work is "stimulus" or how "repealing" the demand function for healthcare will bend the cost curve (at a price approaching zero, demand approaches infinity).

I would think that anything which allows a golf club to keep more of its revenues is a good thing for the industry .  My bet is that if the decision stands, the govt. will find other ways to extract its pound of flesh, and that golf clubs will adapt their structures to their advantage.  I would expect that some will lower their fees to capture more market share, while others will keep their price structure intact and utilize the extra income to suit their individual needs (debt reduction, renovation, improvements, capital fund).    

Lou

I think you are failing to make the distinction between golf industry and golf clubs. The point is, that from a commercial golf operators perspective (ie. golf industry), his main competition (ie. golf clubs) has just received a commercial edge that they could use to undercut the commercial operator thereby leading to loss of revenue. The commercial operator might not be able to cut their costs accordingly, hence less profit if any and therefore the value of the business goes down.

Now the question that DT poses is whether in fact the members clubs will reduce their greenfees to undercut their rivals, including the commercial operators, or will they keep them pegged at where they are at at the moment and hope to keep the same number of visitors thereby giving them a bigger profit. In the examples that DT gives, Turnberry to Troon, Castle Stuart to Nairn and Trump to Cruden Bay, I would imagine they will happily keep greenfees the same since ironically making a profit isn't necessarily the main consideration. Being a members club, keeping enough tee-times for members is probably a greater priority.

Niall

[Brent Hutto]

Like anything, it's a matter of "how much".

Qualitatively, of course this relatively advantages the 2/3 of clubs which are member owned over the 1/3 which do not receive this break. It is bad news for proprietary clubs as competitors of member clubs.

But the instant and immediate total collapse of the proprietary golf-course industry segment that Adrian predicts is a specific and very overblown claim for "how much" the effect will be. Maybe he's right but on the face of it, a rather extreme and unconvincing claim.

[Adrian_Stiff]

Like anything, it's a matter of "how much".

Qualitatively, of course this relatively advantages the 2/3 of clubs which are member owned over the 1/3 which do not receive this break. It is bad news for proprietary clubs as competitors of member clubs.

But the instant and immediate total collapse of the proprietary golf-course industry segment that Adrian predicts is a specific and very overblown claim for "how much" the effect will be. Maybe he's right but on the face of it, a rather extreme and unconvincing claim.

Brett - With all due respect (the polite way of calling you a ****) I did not say instant and immediate total collapse.

[Brent Hutto]

With due respect I apologize for mischaracterizing your assessment of the situation.

[Adrian_Stiff]

Apology accepted.