Like I tell my kids, “every decision has a price”. For many member-owned and equity golf and country clubs the previously unheard of question of whether or not to sell the club to an investor-operator has become commonplace. How does a club make this often very difficult decision?
Selling to an investor versus continued member-management has its trade-offs. At many clubs, member ownership and management offers members the control to make their club’s critical decisions, such as key staff, dues, assessments, capital improvements and policies/procedures. It also burdens members with the responsibilities that go along with those decisions. along with the financial obligations should assessments or debt become necessary. It also potentially compromises the club leaders enjoyment of the club as dues increases and assessments can be so unpopular as to discourage their use and enjoyment of the club. Conversely, relinquishing control of the club to an investor operator results in the requirement of generating a profit, which means that services may be compromised, access may be hindered by the need for more members, and of course the loss of member input on day to day operations and policies occurs.
On the positive side for the club is that if sold, the very inefficient board governance model is no longer a “speed bump” and the members can enjoy their club with no responsibilities other than paying dues. Usually, the investor has or retains professional management and in most cases there is capital investment to bring the club up to speed (or beyond) with competing clubs.
These trade offs are fairly obvious. What isn’t often as clear is the culture of the club. The first question I try to answer when advising a club on whether or not to sell is whether there exists a culture of ownership among the members or if they are more inclined to be customers. Of course, no club is all of one or the other, but typically the character of a club can be determined based on the membership’s priorities. Those with an ownership culture are typically inclined to strive for excellence and most importantly, willing to pay the premium associated with the highest quality. The customer culture often resists increases in spending and seeks to maintain costs at the lowest possible level, often compromising the club functionally or financially. There’s no single way to determine a club’s culture, but rather multiple signs that come from discussion with staff, club leadership and rank & file members. Each and every club needs to establish its goals, almost like a kid determining what he/she wants to be when they grow up. Understanding those goals can be a critical determinant of whether the club should consider selling out or not.
The next step in this decision-making process is to do a complete (and preferably independent) assessment of the club. This would include a market analysis to identify and evaluate competition, a facilities analysis which will identify both potential enhancements and required upgrades and repairs, a financial analysis combining historical and projected performance based on market dynamics and a SWOT (Strengths, Weaknesses, Opportunities, Threats) Analysis. This analysis enables the club to see where it stands and before making the (very final) decision to sell, allows club membership to understand their needs, potential and most importantly the costs to achieve. If the membership is willing to pay the freight in order to retain control, they’re probably not inclined to sell. If, on the other hand either the members’ appetite for financial burden and operational responsibilities is limited, maybe selling is the best option to perpetuate the club for the long term. Of course, there is also the option in some cases to sell for an alternative use where the members’ decision is a trade off between the loss of their club with a financial windfall versus the prospects of long-term continued operation.
These, and other options should be clearly identified by every club with the assistance of independent counsel. Clubs tend to be very emotional communities and that emotion can interfere with sound decision making. With many clubs being targeted by investors for acquisition, and the potential for lifestyle changing decisions, it’s critical that club leaders and membership be objectively and fully informed to make sound decisions.