As one who spends considerable time estimating the market value of golf and club properties, among the things I’ve learned is that a club’s size, prestige, history or status don’t necessarily provide an accurate barometer of the club’s health, financial or otherwise.
As I’ve previously written in “What Makes a Great Club“, “One fundamental that may have been lost at many clubs in favor of the traditional “buzzwords” of “member experience”, “leadership”, “greatness”, “stewardship” and more, even though I agree wholeheartedly with those elements is HAPPY MEMBERS.” To some a club’s financial characteristics (entrance fees, dues, revenues, etc.) define a club’s quality. While only one measure, clubs need to be financially secure.
Financially, measuring a club’s health is a more complex analysis with many different ways of doing so. Some advocate a simple comparison of members’ equity in the club to the club’s debt. Since this process often utilizes a depreciated book value of the assets as an element of the calculation, this can be confusing because the book value changes both each year as depreciation accrues, and each time capital investment is made in the club. Simply estimating the club’s market value and comparing to debt isn’t relevant unless the club is being sold.
From my perspective, the true measure of a club’s financial health requires consideration of depth of the competitive market and that club’s share of same, the club’s revenue history and potential, the club’s physical condition and required capital expenditures (deferred maintenance and needed improvements), and last but certainly not least the club’s debt load.
A club’s competitive market and the depth of that market determine what its “fair share” of the market might be. Since some clubs cater to a resident market and others to a wider geographical area, defining a given club’s market accurately is critical. With some, competition may simply be limited to those clubs within a short drive. For others the competitive market can be regional or national in scope. If garnering a fair share of the market at appropriate rates of dues/fees won’t produce sufficient revenues that could be a “red flag”. Any club should be able to price itself within its market parameters. A club’s operating revenues and operating expenses are obviously a significant measure of its financial health.
One of the biggest factors in a club’s financial well-being is its physical condition, especially the infrastructure. Deferred maintenance can only be deferred for so long and when an irrigation system has reached the end of its useful life, the superintendent can only put band-aids on it for so long before an unacceptable level of risk is incurred. Irrigation systems can cost as much as $6 million and $3 million these days is not unusual. Combined with cart paths, bunkers and greens that may require attention along with roofing, HVAC and other infrastructure, some clubs find themselves in a bad spot, even if membership is full and cash flow is positive, especially if they haven’t kept up with anticipated capital needs.
Therefore, from my perspective, regardless of a club’s level of gross revenues I’d measure club health only after analyzing each of these factors in a way that considers a club’s unique characteristics, the culture of its membership (including resiliency to dues increases), the club’s finances and its physical condition. Accordingly, simply determining a club’s health (financial or otherwise) with a ratio between two indicators (debt to equity, debt to revenue, revenue to expenses, etc.) seems to come up short of showing the whole picture. “Rules of thumb” rarely tell the whole story and IMHO measuring the health of a private club (or any business) calls for more in-depth and complex analysis.
