Why do some clubs do better than others? Of course, this is a question that has multiple answers. However, through years of appraising, advising, marketing and belonging to numerous clubs, I’ve observed several characteristics of successful clubs those not so successful don’t display.
Since each and every situation is different, these observations will be more more broad than specific, and should be applied to any one club with sensitivity to that club’s unique characteristics, culture and competition.
Recently, we were retained to provide appraisal services for two private clubs, one in the Northeastern US (Club “A”) and one in the Midwest (Club “B”). Both are investor-owned (as opposed to member-owned) and both sport high quality, signature architect golf courses maintained in excellent condition. Both clubs have excellent practice facilities, comfortable clubhouses and good food and beverage. Both clubs are about 25-30 years old and have had multiple owners. The differences in these two clubs are most telling.
Club A began life as a golf-only club developed by some wealthy golf enthusiasts in a densely populated, affluent area. Since purchase by the current owner, the club has added swimming, tennis, fitness, pickle-ball and enhanced the practice facilities. Onsite lodging has been developed and the clubhouse has been expanded to accommodate large functions as well as provide niche dining to members. They’ve attracted members from other nearby clubs that had experienced a variety of challenges, including unpopular ownership or leadership.
Club B began and is still a golf-only club, also developed local businessmen in a smaller market. It is now owned by wealthy brothers with a keen interest in traditional golf, despite the property being integrated with a residential development. Though the golf facilities are outstanding, no other activities exist.
The first and foremost difference in these two clubs is location. It’s often been said that the three most important elements of real estate value are location, location and location. While true in this case, there are certainly examples of successful clubs in economically challenged or sparsely populated areas. Club A benefits from a deeper affluent population base more willing to pay a premium for high quality club facilities.
The second, and possibly more telling difference between the two clubs is amenities. Club A has continued to broaden its appeal through timely reinvestment in the club by expanding its offerings to include the variety of non-golf and dining amenities often required to attract the diverse interests of modern families. Club A has recognized that being more competitive with family oriented activities like fitness and swimming, along with a robust banquet and wedding business has diversified their club and helped grow revenues and turn positive cash flows. Club B has stuck to its golf only focus and while continuing to provide a high quality product, has been cash flow negative, likely because of the lack of diversity in activities and the limited market. Ownership of Club B has been willing to fund the deficits. Could they be eliminated?
While the discussion above presumes that Club B could thrive simply by adding facilities, that’s not the case. Every situation differs and each requires property specific market analysis to determine the feasibility of any capital improvement project. Such market analysis should include an understanding of not only the competitive offerings, but also the subject club’s relative position in the marketplace and its realistic potential. Over-improvement can be as much of a mistake (if not more) than under-improvement. Simply suggesting that adding desired facilities without understanding the financial impact above and beyond the cost, along with member-reaction and the effect on membership development is shortsighted.
Club A has done an excellent job of understanding its market and tailoring the offerings to that market. Club B has limited itself to a golf only focus. In their limited market, one more family-oriented club dominates and is thriving with a wider variety of amenities. It is likely that were Club B in a market with greater population and potentially more affluence, it could thrive as a golf only focused club. The depth of market just isn’t there.
There are numerous examples of clubs that cling to a concept even though the market can’t support that concept sufficiently to generate positive cash flow. Often, this is simply because that’s what the ownership or membership desires, and most importantly is willing to pay for. Understanding the club’s culture – whether members perceive themselves as “owners” or “customers” (member or investor owned clubs) goes a long way toward determining if the club has the luxury to ignore market dynamics and “do its own thing”. There are such clubs, but it seems as though they’re fewer and farther between as members seek value for their recreational dollar.
Why do some clubs do better than others? It’s the same reason as any other business. They understand and respond to their market.