A prominent trend of late has been the failure of many member-owned clubs and either closure or sale to for-profit operators. While there is no doubt that the professional management companies are experienced, capable and can turn around a club’s economics, their legitimate requirement for a profit impacts the club environment and the members experience changes that aren’t always to their liking. Where I live, in the Philadelphia Area alone, I can immediately think of a half dozen clubs that have sold from the membership to investor-owners in the past year or two.
These clubs, in most cases were experiencing some level of distress. In many of the cases I’ve observed, this distress was the result of dysfunctional leadership, poor management or both.
In order for a private club to thrive, it now has to provide value in membership. Prestige and status are no longer enough, even at the top clubs. That’s not to say that club should be cheap but rather it should provide high value. In many markets, the cheapest club is typically the club with the most distress. Clubs in distress seem to share the following characteristics:
- They’ve avoided performing some normal maintenance;
- They’ve avoided capital reinvestment in the club’s facilities;
- They’ve alienated members in one of the following ways:
- Poor playing conditions
- Lousy F & B
- Oppressive governance/leadership
- Archaic rules/policies
- Not family friendly
- Poor financial Management (excessive debt)
- Excessive Cost of membership
Don’t misunderstand, private clubs are a luxury. They’re not supposed to be “cheap”. As Warren Buffet says: “cost is what you pay and value is what you get”. But, when an cultural environment takes over where members no longer engage and take ownership in the club, things go downhill. Then they are forced to sell. How does a club avoid this fate? Can it be a good thing?
In recent years, especially considering the impact of the great recession, one common theme I’ve observed is that clubs which reinvested wisely have thrived while those that haven’t took a dive. Making that reinvestment wasn’t always an easy decision. Sometimes it involved additional debt, an assessment of members, or both. Almost always, it entailed the loss of some members who concluded it was either time to go elsewhere or simply give up golf and other club activities. If the club cultivated a culture of ownership in most cases the members supported the club and performance improved, with membership rebounding or growing to full capacity. In other cases, clubs avoided the reinvestment, often wishing for better times ahead and found that things only declined to where membership was depleted to the point that the club became too expensive for the value offered. In most cases, these clubs required considerable capital investment and were unable to borrow, assess or otherwise fund the improvements necessary to succeed.
Not to be ignored is the impact of club governance and leadership on the success of a club. While annual changes in club leadership are not recommended, staying too long creates animosity and often those leaders that stay on too long begin thinking they’re more entitled than others and abuse their authority, whether it be demanding preferential treatment, imposing their personal will on the club or simply creating rules, policies and solutions where there aren’t any need for same. Even at the best and most successful clubs it’s critical for time to be limited on boards and committees to get fresh thinking, new ideas and involvement by more of the membership. The animosity that can be created can bring a successful club down.
There are clubs for whom selling to a for-profit operator make sense, even if not distressed. Maybe the membership isn’t as passionate. Maybe they struggle to control costs. It could be a simple matter of the club not being that important. Cultures vary from club to club and professional management (and ownership) is often a positive option.
How does a club determine its course for the future? We like to start with an objective Strengths, Weaknesses, Opportunities, Threats (SWOT) analysis. Along with market, facilities and financial studies, options can be identified and recommendations made to take the club into the future. In some cases, selling the club is recommended, in others, it could be capital improvements and for other clubs possibly market repositioning. In any event, there is no “one size fits all” and an independent analysis removes the emotions that often cripple clubs from the equation and can lead to a bright future for the club.