Many clubs in today’s ultra-competitive environment are challenged with debt and the need for capital improvements, often combined with declining membership and frustrated member boards wondering how they can climb out of the hole.
There are basically four (4) options available to these clubs:
- Close the club and repurpose the property, if possible;
- Convert to semi-private or daily fee
- Develop and commit to a turnaround plan, which will likely involve member assessments;
- Sell the club to a for-profit operator who will invest in the club
At the root of these challenges, there is usually a debt component which complicates matters. Along with the traditional market and property considerations, the choice of which alternative may be best for any particular club requires an honest assessment of the club’s culture.
Is the club populated by “owners” or “customers”? If the club culture is one where the membership has pride in the club, and more important is willing to foot the bill for the necessary changes to turn the club around, the chances for such a turnaround increase. Conversely, if the club culture is “customer” oriented, an assessment or dues increase may result in a member exodus. An understanding of the club’s culture is critical to leadership making the right decisions in encountering the issues many clubs face.
Repurposing the property, if an alternative use is possible may be a financial windfall for the club, however though the highest and best use of some clubs is for alternative redevelopment, many are restricted from further development and those that aren’t can take years to realize the proceeds from any potential sale. To those who regularly use the club, this is often the least desirable option.
Conversion to semi-private or daily fee is almost always met with resistance by the membership and a mass exodus of those seeking a truly private experience. Budgets get cut, conditions decline and satisfaction declines as the property is allowed to deteriorate.
On the more positive side of these decisions, is the choice of committing to reinvesting in the club and turning it around or selling the club to a for-profit operator with financial incentive to reinvest. Let’s explore these options in detail.
Few, if any member-owned clubs aspire to give up the dream. However, the reality is that many boards struggle to reach consensus and few include professionals in the club or hospitality industries. Despite the normal, high success and intelligence levels of most boards, many are unable to make timely decisions that preserve the club’s future, especially when member assessments are involved.
Selling the club to a for-profit operator has advantages and disadvantages. Members give up control of their club in return for professional management, promised reinvestment (usually), and often the retirement of the debt load that contributed to their challenges to begin with. In today’s market this can be an area of strength for the club as there are several operators seeking opportunities and if the club meets certain criteria, it can entertain multiple suitors.
Engaging an independent advisor can help make the right decisions for your club. These decisions are not without emotion and engaging someone who is unattached to assist can be helpful. Not only are there big decisions to be made, but also there is the implementation of those decisions. Will the club embark on a major renovation program? Is there a plan (if necessary) to market the club for sale and ensure that the proper objectives are achieved?
With the return of buyers to the marketplace for private clubs, often with a willingness to invest in the clubs they purchase, opportunities exist for clubs that may be worth exploring.