I’m often asked by friends and people who learn what I do for a living what their club is worth. At member-owned clubs in particular, there always seems to be an interest in what each member might realize if the club were sold. With more clubs trading from members to investors, not only is this a legitimate question, but also an ever evolving answer.
Focusing on member-owned, not-for-profit clubs, a key element in any valuation exercise is understanding that the concept of market value assumes a sale. That sale is also assumed to be between a “willing buyer and a willing seller, neither being unduly motivated”. Accordingly, to measure value one needs to examine recent sales of member-owned, not-for-profit private clubs. Abundantly clear in recent years is that the vast majority of these transactions follow the pattern of members selling to investors. Often, these investors are golf and club management firms seeking to add to their portfolio. While many of the clubs that transfer are in some level of distress, it’s not always the case and clearly there is a market for the trading of private clubs. All this is despite the fact that many perceive member-owned clubs to have little or no value because they are managed to achieve “zero” cash flow and are often perceived as being unlikely to sell.
As a result, members and tax assessors in particular (among others) will suggest that the only method to value a private club is by focusing on the cost approach to value, which measures the cost to develop and build the facility, and often results in value estimates far greater than what is achievable in the market. More relevant are the income and sales comparison approaches which in different ways measure the club’s economics and more accurately reflect how market participants (buyers and sellers) might act. A property is only worth what someone will pay for it.
For members this is sometimes a dose of reality that drowns expectations of financial windfall when a buyer comes along. Knowing what your club is realistically worth is key to making decisions whether they be to sell or not, to renovate or not and maybe most importantly to avoid having the vultures circle and create a stigma that will potentially force a sale. Additionally, knowing what your club is worth, understanding the value of the liabilities as well as the assets may enable the club to reduce some costs, like real estate taxes which are based on market value (value in a sale). Conversely, maybe the clubs seeks to make improvements and pursue bank financing for same. The bank will require an appraisal to support collateral value for the loan. Knowing the value of the club before investing the time and money necessary for planning most improvement projects can be a big asset. Understanding the true value of the club will enable club leadership to make informed decisions about future possible sale of the club, should that become an option.
Private clubs do have value. They are often purchased and operated for profit and most definitely have an economic value based on income potential.
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