Golf management companies are typically retained by clubs/courses requiring professional assistance in enhancing the performance of the club. In most cases, they’re retained because they possess knowledge and expertise that ownership or club members don’t have in the area of operations, which includes marketing, agronomy, food & beverage and the other elements of successfully running a golf course or club. Accordingly, it’s not unusual to observe a blind allegiance to the management company retained, often because of a good marketing job by the management firm in developing a relationship.
Don’t get me wrong, there are plenty of good, high quality management companies in all segments of the market willing to compete for most management assignments. However, it is still incumbent upon ownership, or in the case of member-owned private clubs (MOPC’s), club leadership to ensure that the management firm hired is doing the job they were hired for and understands the goals. How does a club accomplish this?
Management firms market their services generally on one or more of the following promises:
- Enhanced marketing & membership development
- Improved staff management
- Improved golf course maintenance
- Improved property maintenance
- Cost control and expense management
- Theft avoidance
- Enhanced revenue generation
- Improved bottom line
- Resources to draw on
Evaluating the performance of a management company can be difficult. Maybe they’ve improved performance in all or some of the areas listed above. Maybe they’ve simply taken the job off the back of ownership or leadership. Does that mean they get a good grade?
The measurement is different for member-owned private clubs (MOPC’s) than with for-profit facilities. In most cases, the member owned club is NOT FOR PROFIT which alters the scope of services. The Board of Directors retains all control over policy, spending and pricing decisions. Decision making which directly impacts the operating results of the club is often made in opposition to the recommendations of the professionals. The management company can’t be asked to improve operating results when the Board makes decisions and policies which lose money. Most Boards recognize this conflict and don’t equate management company “success” to financial performance. Often, individual department performance is improved only for those savings to be moved and spent in other departments. While it is always the goal for management companies to “pay for themselves”, in the case of MOPCs, the Board ultimately is responsible for the financial performance of the club. Most clubs retain professional management to generate more new members and retain existing members. Both can be directly influenced by the management company and are usually the basis for key benchmark items to be measured. At some MOPC’s, turnover in board/leadership is too frequent and the management company should be able to provide some stability to the process.
At FOR PROFIT courses, it may be a reasonable expectation by the owner for management companies to “cover their fee”. However, in a competitive market environment, it is up to the management company to avoid “over-selling” their abilities to improve financial performance. Often, expenses have already been “cut to the bone”. So it is a Revenue Growth game. It, therefore, gets to be a numbers game. If a course is doing $2M in Revenue, and the management fee is $100K, can the management company grow Revenues 5% or more to pay for themselves? The owner must also ask, if my Revenues have been declining annually for 3 years, can the management company stabilize my property. Sometimes, simply stabilizing revenues is mission accomplished.
When we evaluate a club’s performance, improvement is important but how do we grade a management company’s success or failure?
In recent years, rounds, membership and other metrics in the broader golf industry have declined. Financial performance always has to be viewed within the context of the club’s market dynamics, including competition, market depth, the recent history of the club and the realistic potential of the club, given factors like location, reputation, quality and condition of facilities and enthusiasm for golf in the market. All of this is considered in the context of the club’s realistic goals.
First and foremost, any management company should be able to improve a club’s performance at least in an amount equal to or exceeding its fees. There are numerous management deals in the marketplace with some structured as flat monthly fees, some as percentage of gross or net revenues and some as a combination of both. How fees are structured is often a result of negotiations, which often depend on the management company’s level of interest in the project, the perceived upside potential and the club’s level of revenues. It’s important to note that most management firms have specific expertise or focus in one market segment or another. Some focus on private clubs, some resorts and others the daily-fee segment, often with a concentration in submarket segments (affordable, value or upscale). In most situations, it would seem that a grade of “Average/Good” would be earned by the management firm improving the club’s performance enough to pay for the management fee and in the process relieving ownership or leadership of those functions and maintaining an equal footing on patron/membership satisfaction, course conditioning and quality of food and beverage.
A grade of “Very Good” could be earned by either erasing an operating deficit or improving profitability and improving the experiences described above while maintaining the club’s position in the market with an equal or improved market share or improvement in rates. A grade of “Excellent” might be achieved by all of the above in the “Very Good” category plus enhancing the club’s market position, market share and generating revenues available for capital improvements.
On the down side of the grading process, a “Poor” would be designated for clubs showing little or no improvement and a decline in the satisfaction level while an “Unacceptable” would be assigned to those clubs that went backwards financially and lost market share.
A significant issue is theft. Employee theft can be a big issue at some clubs and there are sometimes issues with irregularities with the management companies. Often, one of a management company’s advantages is the ability to take advantage of volume buying discounts. These discounts should accrue to the club, since that is what the management company is being paid for. Unfortunately, that isn’t always the case and there have been management companies known to keep some of those discounts for themselves in the form of what are typically called “rebates”. Any management company demanding rebates and not disclosing same automatically gets an “Unacceptable”. I’ve observed several situations where this has occurred and it usually results in an early (and not pleasant) exit of the management company.
From at least one management company’s perspective, in the current market environment, if they cover their fee while improving operational efficiency and stabilizing financial results, it’s considered at least an “average” if not “good” result, depending on where they started from.
It is impossible to evaluate the performance of any management company without a comprehensive and objective analysis of the market. It is that market analysis which enables a club to first compare its performance and determine its fair share of rounds/members to evaluate performance, potential and identify areas where improvement is both available and necessary. Many clubs, especially in the private segment often ignore the competitive marketplace and have blinders on that limit their perspective to that of just their own club. This is dangerous because even the most stable clubs have significant turnover. For instance, one very established, desirable and successful club I’m familiar with reports 27% of its members joined in the past 5 years, 48% in the past 10 years and 63% in the past 15 years. Just last year that same club had about 5% of the membership resign or take leave last year while new membership and rejoining members resulted in about a 1% increase in overall membership. And that’s a strong, stable club! A club that ignores the market dynamics can easily get caught “sleeping”.
Clubs should establish benchmarks before retaining professional management, if possible, and all clubs should evaluate their management performance – objectively – on a regular basis. Some clubs make changes when they’re not needed simply because leadership changes and someone wants their own people. This is unnecessary and sometimes destructive. Change for the right reasons is warranted, if they’re made with sound knowledge of and reliance on the facts and quality analysis.