May 28, 2009

Signs Your Club Might Be In Financial Trouble

The last thing a club member wants to hear is that their club is going bankrupt, but unfortunately it is happening with increasing frequency as the United States meanders through the current economic recession. Currently, more courses are closing than opening in the US, and a slump has been negatively affecting golf clubs across the country for roughly nine years.

Not too long ago, golf was the hot new “it” sport for many people inspired by Tiger Woods' great success in the PGA. People were crowding courses, making tee times difficult to obtain for many courses as these new players wanted to "play like Tiger."

Unfortunately for many of those new players, they discovered how difficult, expensive, and time-consuming the game is, and how getting really good at it requires a large investment of time and a lot of money in good equipment, lessons, and of course, in greens fees or club memberships. From 2001 to 2005, the number of rounds played in the U.S. declined nearly 4 percent, from 518.1 million to 499.6 million. On top of that, in 2008, the reality of the recession worsened the golfing market, as expensive leisure activities are usually the first thing to go when personal budgets are trimmed, in some cases drastically when jobs are lost.

As a result, golf has suffered across the board, with equipment sales, PGA teaching pros and most other aspects of the game seeing reduced sales. Public and semi-private golf courses and even equity membership private golf clubs are definitely experiencing lean times as well. For that latter group, many clubs are seeing membership rosters decline as their members trim their belts in order to stay afloat financially. Naturally, when it comes to keeping the house or the club membership, the membership goes.

Your club is a small business, and as such has three dimensions like any other business:
  • operational
  • financial
  • marketing
and problems with one, two or all three can set off warning bells.

But is your club in trouble? Here are a few things you may want to keep an eye on:

  • New membership initiations are free or drastically reduced
    If your club suddenly wants to bring in a bunch of new members at rates far below what most members paid, that's probably a sign that the bottom line on their monthly income is not rosy.

  • Maintenance is drastically reduced, especially on the course.
    Let's face it, you probably joined because you liked the course. If your club is progressively getting more and more shabby, that probably means that they've reduced their maintenance budget and that members need to pay attention and ask what's going on.

  • If you belong to a private club, you get a proposal to go semi-private
    A real no-brainer, this, your club is not making enough money off of its current membership and wants to boost its income by having daily fee players supplement the bottom line. That might not be a bad thing, because things can go back to fully private once times improve, but it does mean increased competition for tee times and more wear and tear on the course as a whole.

  • Minor expansion or renovations are can canceled suddenly
    If your club was planning on fixing up the bunkers or replace the old roof on the clubhouse but suddenly changes its mind, that can mean that things are tight and that the members should pay probably attention, for two reasons: one, the club could indeed be in trouble, but secondly, it could mean some assessments are coming later when things can no longer be procrastinated.

  • If your club is semi-private, they quit marketing themselves to outside players
    In today's US, advertising=life and a business that can't advertise probably has cash-flow problems. Don't confuse a change in marketing strategy with disappearing from the media, however. Sometimes a marketing strategy is ineffective and a business will quit wasting money on it and use their marketing budget elsewhere. That's only common sense. But if they go stealth, go hmmmm.

  • If you live in a golf neighborhood, the developer(s) pull out before the development is almost completed.
    Most golf communities don't start breaking even on their course investment until the last 20% of the lots are filled with homes. From the club's standpoint, more homes in the neighborhood means more members, and of course more members means more income.

    If the developers pull up roots and head elsewhere before they're done selling all of the lots they've invested in, it can only mean one thing: they can't make enough money to stay or are in financial trouble somewhere else and can't continue with the project, i.e., your neighborhood.

    Be careful to distinguish between the developer(s) slowing down spec builds and pulling out, however. Even though the real estate market is ticking upward a little bit these days, things are not so hot that builders can afford to carry a lot of unsold inventory, so naturally they will be careful in adding to it. That doesn't mean they've folded up their tents and headed to greener pastures, it means that they are simply not being foolish.

Be sure not to confuse normal fiscal prudence with imminent failure, however. Even private clubs are a business, and its natural to tighten up the belt a notch or two when things get lean. And it never hurts to ask someone, either the General Manager or the finances committee if you have one. If they're not straight with you, of course that's another bad sign, but most folks will tell it like it is when asked direct but polite questions.

1 comment:

  1. Charles,

    You hit about four nails right on the head. Great article and very, very accurate, in my mind.

    Two comments only.

    1. If you are allowing your board to actually run your club during these times and are using your GM as glorified dining room manager - wake up. Most club board members are as qualified to pilot space shuttles as they are to handle club business. I don't care what business they own and are successful at. It is not the private club industry. Let the GM run the club or get one that can.

    2. One hundred year old private golf club fiscal policy states initiation fees are used for capital projects and dues are used for operating the club day by day. Fortunately, enlightened clubs realized they were two pockets in the same suit. We have not lowered our initiation fee this time around, but have in the past with great success. We are however being more 'creative' and allowing initiations to be paid out over 24-36 months.

    Even with reduced membership, our GM (Operating Partner, Chief Operating Officer, etc.) has increased operating income by $150,000 as compared to last year.


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