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2017-18 TRENDS IN PRIVATE CLUBS

2 2017-18 Trends in Private Clubs

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Editors Philip Newman, [email protected] Tammy Tassitano, [email protected]

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Contributors Bob Salmore, [email protected] Frank Compiani, [email protected] Frank Lucas, [email protected]

2017-18 TRENDS IN PRIVATE CLUBS

*Cover image of Royal Palm Yacht & Country Club, Boca Raton, Fla.

Lauderdale Yacht Club, Fort Lauderdale, Fla.Frenchman’s Creek Beach and Country Club,

Palm Beach Gardens, Fla.

2017-18 Trends in Private Clubs 3

PREFACEKEEPING CLUBS RELEVANT—ENHANCING OUR REFUGE

With today’s seemingly endless national and international political turmoil, it is not surprising that many of our private club clients have sought more and more ways for their clubs to be refuges for their members. Taking Dedman’s thoughts and modernizing them for today’s lifestyles, clubs have steadily continued to expand their amenity and membership offerings.

For example, fitness facilities have grown to become wellness centers offering medical care or luxurious spas; tennis facilities now encompass many types of racquet sports; bocce, corn-hole and croquet have taken on a life of their own; and food and beverage outlets have rapidly moved from formal dining to casual eateries with spectacular bars or outdoor venues

replete with fire pits and breathtaking water features. Simply put, private clubs have sought to adopt a business concept long embraced by Starbucks: “the business of human connection and humanity, creating communities in a third place between work and home” (Howard Schultz, CEO of Starbucks).

Of course having excellent amenities alone does not make for a great club. As one industry commentator noted, what will set clubs apart is their people and culture of customer service. Certainly all businesses were forced to look in the mirror at their staff training and customer service philosophies following the recent incident concerning the removal of a passenger from a United Airlines flight. In a subsequent communication to members of United’s frequent flier program, the company’s CEO noted, “It happened because our corporate policies were placed ahead of our shared values. Our procedures got in the way of our employees doing what they know is right.”

Club management and boards need to ensure that their employees have the license, capabilities and motivation to act in the service of the club’s mission. Remember, we budget for the mission, we don’t change the mission to suit the budget.

Comments and questions on this publication and any aspect of club financial management are welcome.

Thank you to our professionals for their continued dedication to this industry, and thank you to the hundreds of clubs served by RSM for their continued support and for allowing our firm to have a role in their mission to create a meaningful experience for their members.

“A Club is a haven of refuge and accord in a world torn by strife and discord.

Is a place where kindred spirits gather to have fun and make friends.

Is a place of courtesy, good breeding and good manners.

Is a place expressly for camaraderie, merriment, good will and good cheer.

It humbles the mighty, draws out the timid and casts out the sorehead.

And is one of the noblest inventions of mankind.”

Robert Dedman, ClubCorp Founder, 1957


TABLE OF CONTENTS

Preface 3

Table of contents 4

Are the mailboxes all the same color? 7

Trends from the balance sheet 9

Is it a club or is it a community? 14

Full membership equivalents (FME), dues, joining fees, operating revenues and expenses 16

The perils of refunds 22

Ethics in action 23

Food and beverage 28

Do your bylaws reflect your governance structure? 38

Golf update 39

Measuring the cost of the dysfunctional private club board 48

Experience the power of being understood® 50

RSM Classic 51

Stonebridge Country Club, Naples, Fla.


The Country Club at Mirasol, Palm Beach Gardens, Fla.

Boca West Country Club, Boca Raton, Fla.


EXECUTIVE SUMMARY HIGHLIGHTS

Averages per club

Total membership level

Full member equivalent (FME)

Mandatory membership

Employees - in season

Memberships (FME) to employees

Full membership - dues (2017)

Full membership - joining fees

Full membership - refundable equity percentages

Full membership - total annual cost (including dues, assessments, minimums and service charges)

Full membership - % that had a dues rate increase

Entry membership - dues (2017)

Entry membership - joining fees

Entry membership - total annual cost (including dues and assessments)

Entry membership - % that had a dues rate increase

Clubs with an annual capital assessment

Clubs with an operating assessment

Third-party debt per FME

Combined revenues

Food and beverage (F&B) revenues

Food sales to $1.00 of beverage sales

F&B subsidy to combined F&B sales

F&B departmental subsidy

F&B departmental subsidy: total dues revenue

F&B departmental subsidy per FME

Golf Cource Maintenance (GCM) 18 holes - rounds

GCM 18 holes - cost per hole

GCM 18 holes - GCM cost: total club operating expense

GCM multiple course - rounds per 18 holes

GCM multiple course - cost per hole

GCM multiple course - GCM cost: total club operating expense

Yacht and beach clubs

750

660

21%

95

6.9

$5,800

$29,000

16%

$8,100

79%

$3,400

$11,400

$3,800

68%

68%

11%

$5,380

$6,955,000

$2,189,700

$2.31

19.8%

$435,200

12%

$660

n/a

n/a

n/a

n/a

n/a

n/a

North and Central

840

750

39%

151

5.0

$10,800

$67,200

39%

$13,600

83%

$5,700

$40,500

$6,500

74%

87%

4%

$5,310

$10,179,000

$2,266,300

$2.42

31.7%

$720,200

12%

$960

23,100

$82,800

22%

24,200

$75,900

24%

Southwest CIRAs

990

870

100%

99

8.8

$5,000

$3,100

0%

$7,900

79%

$3,700

$2,800

$5,200

79%

84%

5%

$1,890

$7,245,000

$1,415,600

$2.31

40.1%

$566,500

14%

$650

45,100

$81,400

23%

[1]

[1]

[1]

Southwest without CIRAs

660

500

41%

128

3.9

$11,200

$66,100

30%

$14,600

97%

$3,700

$21,700

$4,400

79%

79%

3%

$8,740

$9,301,000

$1,696,000

$2.42

36.5%

$619,300

12%

$1,240

26,700

$92,200

30%

22,800

$87,600

29%

Boca Raton area

980

820

94%

274

3.0

$17,800

$75,400

33%

$23,300

94%

$11,500

$51,700

$13,400

94%

76%

6%

$14,140

$20,501,000

$3,547,200

$5.80

87.4%

$3,100,500

23%

$3,780

22,300

$90,600

15%

23,000

$79,700

14%

Southeast without Boca

610

540

37%

167

3.2

$15,100

$99,500

30%

$19,100

74%

$6,900

$48,500

$7,500

63%

63%

0%

$10,030

$13,084,000

$2,354,300

$3.20

53.1%

$1,247,800

15%

$2,310

15,800

$107,800

26%

25,700

$85,700

21%

Florida statewide

790

670

57%

159

4.2

$13,400

$77,500

33%

$17,400

85%

$6,400

$39,100

$7,500

77%

76%

3%

$8,010

$11,680,000

$2,196,800

$3.09

52.4%

$1,152,900

16%

$1,720

27,900

$90,500

25%

24,500

$82,900

23%

Note: [1] The Southwest CIRA region has insufficient data for multiple courses


ARE THE MAILBOXES ALL THE SAME COLOR?Considerations in managing the residential homeowner association club

Residential homeowner association clubs are not a new development within the landscape of American clubs but they often do not get the same kind of coverage in industry periodicals and at conferences as traditional clubs. These clubs are typically found within gated residential communities where all of the club amenities are held within the corporate structure of the property owner association charged with governing the community. In other words, there is no separate club entity. In the accounting world, homeowner associations clubs are referred to as common interest realty associations (CIRAs).This article seeks to explain some of the key issues that club chief operating officers (COOs) need to consider if they move to such a club community. We will focus on three primary areas: governance, accounting and tax. While there are many similarities between traditional clubs and CIRAs, there can be

significant differences when it comes to these three areas.

Governance considerations In addition to the usual club bylaw requirements, state laws may dictate how board meetings are announced, conducted and reported on. Typically board meetings are open to all residents in the community and residents have certain document request rights under the law, with a not uncommon question being whether they can see salary information. Additionally, the same laws usually provide that any resident of the CIRA can run for the board, so instituting a best practice such as uncontested elections may not be an option. The COO needs to be able to work confidently at that level of transparency. Accordingly, developing a good working relationship with an experienced CIRA attorney should be a priority. In addition to these items, the COO may have to gain a specific state license to be able to manage the community. The COO also needs to have an extensive command of the CIRA’s organizing documents—its declarations, covenants and bylaws—and should be ready to deal with committees specific to a CIRA club such as the architectural review committee.

Accounting considerations While some of the terminology and formatting may be slightly different, both the CIRA and traditional private clubs report financial results in three or four basic financial statements:

Financial statement title

Presentation CIRA Private club

Financial position Balance sheet Statement of financial position

Results of operations

Statements of revenues and expenses

Statement of activity

Cash flows Statement of cash flows

Statement of cash flows

Fund balances or members’ equity

Statement of charges in fund balances or members’ equity

Generally included in the above statement of activities

Arguably the most controversial accounting issue for CIRA clubs is how they report common property. The accounting literature defines this as a CIRA’s real or personal property to which title, or other evidence of ownership, is held by the members in common, or the CIRA directly. There can be diversity in practice with regard to how to account for common property that is not directly associated with the homes or units in the community—principally the clubhouse, golf course and similar club amenities. This can mean that such assets are on the books for one CIRA, but not for another. COOs need to understand how their CIRA treats such items as it may have a significant impact on other items such as depreciation. For example, why bother funding depreciation if you don’t have all the assets recorded? This issue also can make benchmarking such clubs more art than science.

CIRAs are much more likely to have capital reserve studies conducted to predict their future capital needs and funding requirements. The CIRA COO should be familiar with the concepts in such studies including the assumptions used and the various funding methodologies deployed. Reserve studies often lead to CIRAs using fund accounting to strictly differentiate between operating and reserve funds. These funds, depending on how they were established. may also be governed by state statutes in terms of how they can be used and how they must be accounted for. The COO needs to be aware of such restrictions as they are often much more rigorous than those surrounding designated funds at traditional clubs.


Tax considerations Most discussions of tax issues for private clubs tend to focus on those clubs that are exempt from income tax—the 501(c)7 clubs. The common advice usually heard includes “limit your non-member income or don’t participate in non-traditional activities since these sources of income could jeopardize your club’s exempt status.” Other topics such as what constitutes inurement, poor record keeping and advertising to the public are equally as important for traditional club COOs to be aware of. However, CIRA clubs have different concerns from a tax perspective.

CIRA clubs are, effectively, property owner associations and, as such, might wonder if they can file federal Form 1120-H, which is the income tax form commonly filed by condominium and homeowner associations across the country. However, the rules for organizations to qualify to file Form 1120-H are fairly strict. The organization must generate 60 percent of its revenues and 90 percent of its expenses from exempt function activities. The definition of exempt functions for this area shares some similarities to 501(c)7 clubs with some notable differences. Exempt function revenue is limited to the assessments for the maintenance of the common areas. Member-related income could be considered non-exempt for the purposes of qualifying for Form 1120-H if it relates to service revenue, such as food and beverage or golf. Consequently amenity rich CIRA clubs will find they file the same income tax return as a corporation, which is a regular 1120.

CIRA clubs must still track non-member income and they have their own unique tax challenges and benefits. One of the biggest challenges relates to assessments and whether or not they should be treated as revenue or capital contributions. Some CIRA tax benefits relate to property taxes and income tax carryforwards, while certain dues may also qualify as exempt from sales tax in some states.

The bottom line for a CIRA COO to understand is that, as a general rule in an amenity rich environment, most CIRA clubs do not qualify to file form 1120-H.

Passions run high

While we all appreciate how passionate members can be about their clubs, and often have no qualms in voicing their opinions at town hall meetings or on the club’s social media outlets, passions at CIRA clubs arguably run even higher. The CIRA club member brings not only club issues to the COO’s attention, but also community and real estate issues. The primary mission of a CIRA is usually to preserve and enhance property values within the community. Consequently, members will voice concerns about their homes and neighborhood, in addition to the typical member concerns over service and quality levels. Budgets and financial results are often challenged aggressively as homeowner members try to balance their home economics with the financial challenges of their communities. COOs will ultimately find that they are just as much held responsible for making sure the sidewalks in the community are clean, as they are for the quality of the golf course or the tuna fish sandwich.

Club COOs new to the CIRA club industry, or those considering making the switch, need to ensure they invest the time and resources to be aware of the unique challenges and differences in this corner of the club industry and where necessary, seek out relevant financial, tax, legal and operational advice.


TRENDS FROM THE BALANCE SHEET

The past year has seen continued activity in the club redevelopment arena, with various projects either in process, or scheduled to break ground shortly after the end of the season.

When considering a significant capital project, clubs must take care to ensure the physical facilities under consideration, and the related capital budget and financing, are congruent with the overall strategic vision for the club. In doing so, a long-term view is essential, as is honesty with the members with regard to cost and the extent of individual cross-amenity utilization. Some members may not take fitness classes, but their neighbor may. Some may not play cards today, but may in the future. Some may never use a card room or the spa, but a future buyer may. If clubs had to achieve their voting threshold for the improvement of each amenity incrementally, they might never enhance anything.

Open dialogue with members is essential if a club wants to successfully move forward with a significant capital plan. How

does open dialogue manifest itself? For one club it involved 1,458 member surveys, focus groups covering 100 participants, 39 information sessions involving 900 members, followed by a further 28 information sessions attended by 600 members. When it comes to capital planning, members really want to be heard, perhaps more than on any other aspect of club life. And of course, members absolutely should be heard on such issues, with average club joining fees in Florida now in excess of $77,000 for 2016, an increase from approximately $73,000 last year.

Quality physical facilities are a critical component of member recruitment and retention efforts. However, they should not be the only component of member development. Clubs that do not have membership development plans will face a challenging future. And while the concept of “build it and they will come” may no longer hold true, clubs that do not have membership development plans and that are failing to maintain their facilities might as well set a formal timetable for turning out the lights.

Percentage of clubs with positive working capital

Yacht and beach

North and Central

Southwest CIRAs

Southwest w/o CIRAs

Boca Raton area

Southeast w/o Boca

Florida statewide

100%

80%

60%

40%

20%

0%

68% 50%62%54% 54%44% 56% 33%47% 79% 73%59%

0%

71% 63%48% 89% 74%63%

0% 0%

n 2016 n 2015 n 2014

84% 83%74%


Looking at capital spending trends in 2016, these now stand at $5,050 per FME on a statewide basis, or $12,270 per FME on a cumulative three-year basis. Capital spending is all part of the continuing process of meeting member expectations and remaining competitive. Capital improvement programs in clubs often involve much emotion, and occasionally heated discussion, since not all members agree on all matters all of the time. Clubs should bear in mind, however, that exercising fiduciary responsibility doesn’t just mean watching the nickels and dimes. Rather, fiduciary responsibility is the legal responsibility to act in the best interests of others, and in this context will involve spending significant dollars to maintain or enhance club facilities.

The questions then become ones of which facilities should we improve, how should we improve them and how much should we spend?

Clubhouse renovations, including enhancements of casual dining offerings, wellness centers and pool area expansions are all increasingly popular as clubs seek to broaden their appeal beyond being viewed solely as a golfing or yachting experience, and communities transform themselves into a resort-style living model.

When, and how much to spend are, of course, questions which need to be considered by each club pursuant to its mission as it is understood by the membership. However, based on our data, roughly 46 percent of the clubs included in this report are planning what they consider to be significant projects in within the next 12 months, the highest this percentage has been since we starting tracking this statistic back in 2011.

Shadow Wood Country Club, Bonita Springs, Fla.


The way in which clubs pay for these improvements is, again, a decision to be made by each club. However, the proportion of clubs carrying some form of third-party debt is generally trending upward, with 76 percent of clubs statewide carrying debt. Looking at this on a per-member basis, debt per FME has increased to $8,010 in 2016, from $7,220 in 2015. Bear in mind though that the debt per member number for an individual club will usually correlate with the life cycle of its physical assets. If a club has a higher-than-average debt-per-member figure, it could be because it has newer facilities. In the case of a more exclusive club with a smaller membership, the debt-per-member figure is generally higher as the cost of facilities renovations are spread over fewer members.

The important takeaway is that clubs need to carefully calculate cash flow needs of capital projects to ensure that the necessary member assessment is sufficient, and avoid any unpleasant financial surprises as projects move forward. As part of this process, clubs continue to reduce the refundable proportion of joining fees, now down to a statewide average of 33 percent from having been 50 percent in 2007.

In conclusion, capital planning and funding requirements form an essential component of a club’s strategic plan. Clubs are in the membership business, and physical facilities must serve to meet the expectations of both the current and prospective membership.

The Club at Mediterra, Naples, Fla.


Capital improvements per FME

Yacht and beach

$3,460

$2,380

$7,020

North and Central

$4,480

$3,650

$10,050

Southwest CIRAs

$820

$810

$3,160

Southwest w/o CIRAs

$6,990

$5,120

$16,240

Boca Raton area

$7,850

$4,460

$18,190

Southeast w/o Boca

$5,980

$6,050

$15,520

Florida Statewide

$5,050

$3,920

$12,270

n PP&E additions per FME 2016

n PP&E additions per FME 2015

n Cumulative three-year total n (2014-2016)

$20,000

$16,000

$12,000

$8,000

$4,000

$0

Routine capital improvements to depreciation expense (average 2012-2016)

Yacht and beach

North and Central

Southwest CIRAs

Southwest w/o CIRAs

Boca Raton area

Southeast w/o Boca

Florida statewide

170%

160%

150%

140%

130%

120%

110%

100%

149% 156% 142% 169% 130% 138% 165%


Percentage of clubs with third-party debt

Yacht and beach

North and Central

Southwest CIRAs

Southwest w/o CIRAs

Boca Raton area

Southeast w/o Boca

Florida statewide

100%

80%

60%

40%

20%

0%

75% 75%74%76% 81%70% 89% 94%88% 83% 67%83%

0%

67% 67%70% 56% 47%63%

0% 0%

n 2016 n 2015 n 2014

63% 67%68%

Third-party debt per FME

Yacht and beach

North and Central

Southwest CIRAs

Southwest w/o CIRAs

Boca Raton area

Southeast w/o Boca

Florida statewide

$15,000

$12,500

$10,000

$7,500

$5,000

$2,500

0%

$8,010

0% 0% 0%

n 2016 n 2015 n 2014

$7,220 $6,550 $10,030 $8,680$7,880 $14,140$12,070 $8,740 $6,860$6,590

$1,890 $2,490 $2,840 $5,310 $5,240 $2,830 $5,380 $3,530$3,940

$11,410

Significant planned projects

Yacht and beach

74%

$2,658

North and Central

48%

$2,781

Southwest CIRAs

37%

$3,266

Southwest w/o CIRAs

48%

$6,291

Boca Raton area

53%

$13,299

Southeast w/o Boca

44%

$6,174

Florida statewide

46%

$6,268

Percentage of clubs with significant planned projects in year ahead

Budgeted project amount (in thousands)


IS IT A CLUB OR IS IT A COMMUNITY?By Kurt Kuebler

Various definitions of community include:

• A group of people living in the same place or having a particular characteristic in common

• A group of people living together in one place, especially one practicing common ownership

• A particular area or place considered together with its inhabitants

• A feeling of fellowship with others, as a result of sharing common attitudes, interests and goals

A sense of community…isn’t this what the ideal club is trying to provide its member?

After a week of traveling around Florida with the folks from RSM and having the opportunity to listen in on and facilitate several panels filled with successful managers and leaders at clubs in various regions, I have come away with a heightened perspective of the many factors that lead to high levels of member satisfaction. The most prominent theme was how many of the managers referred to success at their clubs as being rooted in a foundation of camaraderie and through the consistent recognition of their need to create and consistently build on community within their clubs.

How is it that some clubs are able to create community while others never seem to achieve it, regardless of them offering the newest, flashiest or greatest amenities available?

Obviously, there is no simple or consistent answer. The only thing that is constant is the consistent inconsistencies present at so many clubs. How is that possible if the main objective of every club manager is to provide a sense of community; shouldn’t that come easy? From all of the clubs I visit each year, there seems to be a striking correlation between high membership satisfaction and great camaraderie, which in turn provides a sense of community.

How are these clubs able to achieve this sense of community? Again, there is no simple and consistent answer but most seem to start with the basic foundation of developing a common vision. Without that commonality, there seems to be a lack of focus; this in turn leads to the absence of a sense of camaraderie and community, which all leads back to a lack of member happiness, staff pride, quality of programming, financial outcomes, and so on.

This lack of community reminds me of a line from the movie “The Network” wherein the lead broadcaster of the network news organization opened and leaned out of a New York City high-rise window and shouted, “I’m mad as hell and I’m not gonna take it any more!” It surprises me that more of the consistently inconsistent clubs don’t have someone who, in essence, does just that.

In clubs that have or have had someone with great leadership ability (whether it’s a GM/COO, president or an outspoken member), they have seemingly stopped the madness or at least it seems to have abated. They have achieved a consistent foundational core—the vision and reason for being—that has solidified and is consistently in focus for nearly all decisions, directions and commitments. This core is one that the paid staff and well-intended volunteers of the club buy into as they take on and work in their respective roles for the betterment of the club.

Someone has to stand up and be the voice of reason at the club. Without a statesperson who is respected and regarded by the vast majority of members, changing the course of consistent inconsistency is difficult if not impossible. Then, there has to be a period of steadfast staying on the path, as those who don’t buy into the approach try to knock it off course. The number of unhappy members at any club is typically 3 percent and they’ll likely never be happy, regardless of the situation or the environment. Unfortunately, that 3 percent can sound like they represent 80 percent of the membership at most clubs, as many of those unhappy individuals are loud and outspoken. Letting them take the reins and control the agenda will likely result in continued inconsistency!

Setting standards and creating what is soon to be known as normal and expected is a great process for how to get a club back on track. This process should include how to accomplish the work that needs to be done and how to treat one another in the course of doing so. Self-reflection is imperative; it’s the only way to ensure that the work is being performed effectively and the plan is being adhered to. This self-reflection puts things into perspective in all areas of club management and leadership. An effective club culture has been developed in several clubs in recent years through the use of small focus group meetings, including both members and staff, created to help uphold attention to the tasks at hand. This accountability to others, combined with insightful surveys and input from other points of view, has proven to be a successful performance stabilizer.


At many clubs, lots of time and energy is spent talking about how to fix such things as food and beverage, a new fitness center, the type of grasses we must have on our greens, and so on. Most consistently inconsistent clubs and their leadership rarely discuss much else. The clubs with high satisfaction levels amongst members and staff seem to have focused on the foundation first. Without a secure foundation how can you build a strong community? These foundation-first clubs rarely deviate from doing what is right for the majority of the community and this leads to a heightened sense of camaraderie and respect throughout the organization.

Could this be because they understand that it starts with community?

Kurt D. Kuebler, CCM is a partner with Richard M. Kopplin and Thomas B. Wallace, CCM in the executive search firm of Kopplin Kuebler & Wallace, specializing in the placement of general managers and chief operating officers, directors of golf, golf course superintendents, executive chefs and strategic planning professionals in the club industry. He may be reached at +1 561 747 5213 or [email protected], or through www.kopplinandkuebler.com.

Quail West Golf & Country Club, Naples, Fla.


FULL MEMBERSHIP EQUIVALENTS, DUES, JOINING FEES, OPERATING REVENUES AND EXPENSES

Clubs are today, as they always have been and always will be, in the dues business. The demand, however, for different types of membership offerings and price points has led many clubs to create many different membership classifications. For this reason, many clubs have begun using FMEs as the metric for determining per-member revenue and expense data for budgetary purposes. FMEs are computed by dividing total dues revenue for a club (for any given period) by the dues rate for that period. We believe using FME allows for better club-to-club comparisons and analysis and have included a number of data points based on this metric in our report.

Dues revenue remains the financial lifeblood of every club and reliance on it has become more pronounced over the last 10 years. Clubs have realized that the need to have the dues-paying member is often more important than what that member pays to join the club. This has led to many joining fee programs being introduced at clubs. Many have moved away

from the refundable joining fee model, finally acknowledging that it is, by definition, the developer’s business model and thus not intended to sustain long-term financial viability.

While dues comparisons among competing clubs is an often-quoted statistic, many differences exist between the advertised dues price and the total cost that a member is required to pay each year before that member even sets foot in the club. Other fixed charges of membership, such as capital assessments, operating assessments, food and beverage minimums, and mandatory service charges, can lead to a very different conclusion being drawn as to which club offers the best value proposition. At $17,400, the statewide total annual cost of being a full member in 2016 increased approximately 3.6 percent from 2015.

Dues, as a percentage of total operating revenues, have remained around the 62 percent mark. Of every dollar of

Number of total memberships

Yacht and beach

750

770

740

810

840

North and Central

840

840

840

810

830

Southwest CIRAs

990

990

970

970

980

Southwest w/o CIRAs

660

670

640

650

660

Boca Raton area

980

980

980

990

940

Southeast w/o Boca

610

640

640

600

620

Florida statewide

790

800

790

780

780

n 2016

n 2015

n 2014

n 2013

n 2012

1,000

900

800

700

600

500


operating revenue received by a club, almost 62 cents comes from dues. It remains critical therefore to increase dues modestly each and every year. Dues for 2017 are increasing by 4.0 percent on average.

Payroll remains the largest component of the club operating expense at 53 percent of total operating expenses and

approximately 52 percent of total operating revenue. In terms of per FME cost, payroll and related expenses averaged $9,000 statewide, with one employee serving 4.2 memberships. Compare this with the corresponding 2015 levels of $8,700 and 4.3 and it can be seen that clubs are moving compensation upward while maintaining membership service levels upward. A club’s brand is its staff and its staff are the club’s brand.

Dues (full membership)

Yacht and beach

$5,800

$5,600

$200

4%

North and Central

$10,800

$10,500

$300

3%

Southwest CIRAs

$5,000

$4,900

$100

2%

Southwest w/o CIRAs

$11,200

$10,800

$400

4%

Boca Raton area

$17,800

$17,100

$700

4%

Southeast w/o Boca

$15,100

$14,600

$500

3%

Florida statewide

$13,400

$12,900

$500

4%

2017

2016

Change

Percent change

Membership dues and joining fees

Full member equivalent (FME)

Yacht and beach

660

670

640

690

730

North and Central

750

730

700

670

680

Southwest CIRAs

870

870

860

850

910

Southwest w/o CIRAs

500

510

490

530

510

Boca Raton area

820

810

800

780

750

Southeast w/o Boca

540

560

550

540

540

Florida statewide

670

670

660

660

660

n 2016

n 2015

n 2014

n 2013

n 2012

1,000

800

600

400

200

0


$13,400$12,900

Full membership dues statewide

$14,000

$13,000

$12,000

$11,000

$10,000

20162015201420132012

$11,500 $12,300$12,000$11,600

2017

Shadow Wood Country Club, Bonita Springs, Fla.

Full membership dues by region

Yacht and beach

$5,800

$5,600

$5,400

North and Central

$10,800

$10,500

$9,900

Southwest CIRAs

$5,000

$4,900

$4,800

Southwest w/o CIRAs

$11,200

$10,800

$10,500

Boca Raton area

$17,800

$17,100

$16,500

Southeast w/o Boca

$15,100

$14,600

$13,800

n 2017

n 2016

n 2015

$18,000

$16,000

$14,000

$12,000

$10,000

$8,000

$6,000

$4,000

S2,000

$0Florida

Statewide

$13,400

$12,900

$12,300


Full membership joining fees by region

Yacht and beach

$29,000

$25,800

$23,600

North and Central

$67,200

$61,000

$61,000

Southwest CIRAs

$3,100

$3,100

$2,900

Southwest w/o CIRAs

$66,100

$64,000

$59,600

Boca Raton area

$75,400

$70,300

$66,600

Southeast w/o Boca

$99,500

$98,500

$90,800

n 2017

n 2016

n 2015

$100,000

$80,000

$60,000

$40,000

$20,000

$0Florida

Statewide

$77,500

$73,300

$69,600

Joining fees (full membership)

Yacht and beach

$29,000

$25,800

$3,200

12%

North and Central

$67,200

$61,000

$6,200

10%

Southwest CIRAs

$3,100

$3,100

$0

0%

Southwest w/o CIRAs

$66,100

$64,000

$2,100

3%

Boca Raton area

$75,400

$70,300

$5,100

7%

Southeast w/o Boca

$99,500

$98,500

$1,000

1%

Florida statewide

$77,500

$73,300

$4,200

6%

2017

2016

Change

Percent change


Yacht and beach

$700

$500

North and Central

$1,300

$800

Southwest CIRAs

$900

$700

Southwest w/o CIRAs

$1,700

$800

Boca Raton area

$1,700

$1,400

Southeast w/o Boca

$1,800

$800

Florida statewide

$1,600

$900

Full membership

Entry membership

Annual capital assessment

Total annual membership costFull membership

Yacht and beach

$29,000

16%

$5,600

$8,100

North and Central

$67,200

39%

$10,500

$13,600

Southwest CIRAs

$3,100

0%

$4,900

$7,900

Southwest w/o CIRAs

$66,100

30%

$10,800

$14,600

Boca Raton area

$75,400

33%

$17,100

$23,300

Southeast w/o Boca

$99,500

30%

$14,600

$19,100

Florida statewide

$77,500

33%

$12,900

$17,400

Joining fees 2017

Refundable equity percentages

Dues 2016

Total cost in 2016**

** Includes capital assessment, operating assessment, food and beverage minimum and mandatory service charge if applicable

$77,500$73,300

Full membership joining fees statewide

$80,000

$70,000

$60,000

$50,000

$40,000

$30,00020162015201420132012

$65,000 $69,600$65,800$64,600

2017


Percentage of clubs increasing dues

Yacht and beach

79%

72%

68%

62%

North and Central

83%

79%

79%

56%

Southwest CIRAs

79%

74%

83%

88%

Southwest w/o CIRAs

97%

79%

83%

78%

Boca Raton area

94%

89%

100%

78%

Southeast w/o Boca

74%

71%

77%

80%

Florida statewide

85%

78%

84%

75%

n Full membership 2017




100%

90%

80%

70%

60%

50%

** Includes capital and operating assessment if applicable

Yacht and beach

$11,400

$3,300

$3,800

North and Central

$40,500

$5,500

$6,500

Southwest CIRAs

$2,800

$3,600

$5,200

Southwest w/o CIRAs

$21,700

$3,400

$4,400

Boca Raton area

$51,700

$11,000

$13,400

Southeast w/o Boca

$48,500

$6,700

$7,500

Florida statewide

$39,100

$6,200

$7,500

Joining fees 2017

Dues 2016

Total cost in 2016**

Entry membership

Pelican Marsh Golf Club, Naples, Fla.Talis Park Golf Club, Naples, Fla.


Refundable equity percentage (full membership) by region

Yacht and beach

North and Central

Southwest CIRAs

Southwest w/o CIRAs

Boca Raton area

Southeast w/o Boca

Florida statewide

60%

50%

40%

30%

20%

10%

0%

38% 31%50%33% 36%30% 39% 53%33% 38% 57%30% 53% 53%39% 18% 22%16%

N/A

n 2017 n 2010 n 2007

THE PERILS OF REFUNDS

Refundable equity could create problems on your club’s balance sheet and might make it difficult to sell new memberships, but did you also know it could also create issues with the IRS?

We have all heard that refundable equity is a concept created by developers to sell memberships. It was used to help ease the pain of buying a club membership at tens of thousands of dollars with the promise of getting some, or possibly all, of the money back after resignation. For most clubs, the largest headache related to refundable equity is making the payment to the outgoing member. However, something that crosses almost every club treasurer’s mind at some point is does this payment require reporting to the IRS?

In several court cases and rulings, the IRS has stated that they view equity certificates in the same way that they view stock in a corporation. Additionally, in recent IRS audit defense matters, the agents have requested to see Form 1099-Bs and matched them against all resigning members.

So in the same way that you receive a Form 1099-B at the end of the year for selling Amazon or Apple stock, you will also receive a 1099-B from selling your equity certificate. As with any stock, there is basis in an equity certificate. This basis could be used to offset most, if not all of the gain. Therefore, the fact that you are receiving a 1099-B doesn’t necessarily mean that

a tax payment is required, but it does mean that the transaction needs to be reported to the IRS.

There are a few common instances where a member can sell an equity certificate and can make a profit. The most common one usually occurs when the individual has been a member of the club for a very long time. Another less common instance is when the equity certificate was purchased during the time the club was developer-owned and was subsequently sold after the club had turned over to the members. The gain in this instance is due to the fair market value of the equity certificate significantly increasing after being turned over to the members. In the event members make a profit from the sale of equity certificates in any way, they would be subject to capital gains tax.

You might ask, what if my club has refundable equity and does not issue 1099-Bs?

Failure for the club to properly report the sale of equity certificates on a 1099-B could cause penalties on a “per instance missed” basis. The bottom line: If your club has refundable equity and is not currently issuing 1099-Bs, you should consult with your tax advisor to determine if a filing requirement exists.


ETHICS IN ACTIONDo you know fraud when you see it?

Consider the scene…

It’s a glorious summer day in Iowa and the audit of a premiere country club is going beautifully… until…

The club controller takes a call from a vendor asking when they should expect payment on some late invoices. The controller has no knowledge of these invoices and pays a visit to the department head who ordered the product. Sheepishly the department head produces the invoices, which by this point are sixty days past due. The controller is furious and embarrassed—he knows the invoices need to be accrued in the fiscal year under audit. He also realizes this will mean the club will blow its operating budget for the year and that the bonus available to every member of the senior management team will be negatively affected. In no uncertain terms the controller lets the department head know the consequences of her actions.

Fast forward to the next day when the controller is explaining what happened to the lead partner from the club’s audit firm. The department head interrupts the discussion to explain that all is saved! She proceeds to weave a tale of how the vendor had printed the wrong dates on the invoices and that they actually didn’t pertain to the year under audit. The partner listens as the department head produces identical invoices from the vendor, with the same amounts, description and invoice numbers, but dates that fell after the club’s fiscal year-end. Nodding with understanding, the partner closes the conversation with one question: “So are you telling me that this product had not been received by the club at the fiscal year-end?” “That is correct,” the department head eagerly agrees and walks away.

The audit partner has heard similar stories before and points to the delivery ticket numbers on the original and the new invoices—they have not changed. He asks the club controller to contact the vendor and request those delivery tickets. Can you guess the rest of the story? Indeed, the delivery tickets clearly

prove that the product had been received long before the club’s fiscal year-end. The partner explained what the controller already knew: the department head had committed financial statement fraud—possibly with the help of a vendor, possibly at the urging of others whose bonuses were being negatively affected.

After speaking with the general manager (GM), the club president and the club treasurer, the club controller met with all three and the department head, who admitted that she had forged the new invoices to cover up her budgeting error. While there were a number of avenues open to the club, they considered the fact that they now knew that someone in charge of a significant area of the club was willing to compromise her personal ethics, as well as the club’s written code of business ethics, and lie for a relatively small amount of money. What would she do if much greater amounts were on the line? They felt they had no choice but to terminate the department head.

Club employees are often faced with such ethical dilemmas. Club management and leaders need to routinely reinforce the fraud conscience of the club and clearly communicate that unethical behavior will not be tolerated. If club employees struggle with what to do in certain situations, such as those in our story, have them reflect on the CMAA test of ethical compliance:

• Could I announce my decision to the membership at the club’s annual meeting?

• Could I announce my decision to my fellow professionals from other clubs at our annual conference?

• Would my decision meet with the approval of business professionals?

Simple but effective—if employees can’t categorically answer yes to any of these questions, they probably are making the wrong decision. What would your employees do?


Operating revenues and expenses

Revenues Yacht and beach

51.4%

13.6%

22.0%

9.5%

3.5%

100.0%

$6,955,000

North and Central

58.2%

14.4%

15.1%

6.2%

6.1%

100.0%

$10,179,000

Southwest CIRAs

56.9%

19.0%

12.9%

5.6%

5.6%

100.0%

$7,245,000

Southwest w/o CIRAs

59.0%

19.9%

12.9%

5.3%

2.9%

100.0%

$9,301,000

Boca Raton area

67.5%

12.6%

14.8%

2.5%

2.6%

100.0%

$20,501,000

Southeast w/o Boca

63.1%

15.5%

13.4%

4.2%

3.8%

100.0%

$13,084,000

Florida statewide

61.9%

15.8%

13.9%

4.5%

3.9%

100.0%

$11,680,000

Dues

Sports

Food

Beverage

Other

Average operating revenues

Yacht and beach

50.2%

12.9%

31.4%

5.5%

100.0%

$6,859,000

$96,000

North and Central

52.7%

8.9%

33.9%

4.5%

100.0%

$10,091,000

$88,000

Southwest CIRAs

50.7%

7.9%

38.9%

2.5%

100.0%

$7,071,000

$174,000

Southwest w/o CIRAs

54.5%

7.6%

34.2%

3.7%

100.0%

$9,058,000

$243,000

Boca Raton area

54.1%

9.3%

33.0%

3.6%

100.0%

$20,015,000

$486,000

Southeast w/o Boca

50.8%

8.4%

35.9%

4.9%

100.0%

$12,980,000

$104,000

Florida statewide

52.7%

8.5%

34.8%

4.0%

100.0%

$11,477,000

$203,000

Payroll and related

Cost of sales - food & beverage

Operating

Taxes and insurance

Average operating expenses

Average surplus

Expenses

Woodfield Country Club, Boca Raton, Fla.


Operating revenues and expenses per FME

Revenues Yacht and beach

$5,400

1,400

2,300

1,000

400

$10,500

North and Central

$7,900

1,900

2,000

800

800

$13,400

Southwest CIRAs

$4,700

1,500

1,100

500

500

$8,300

Southwest w/o CIRAs

$10,900

3,600

2,400

1,000

600

$18,500

Boca Raton area

$16,800

3,200

3,700

600

700

$25,000

Southeast w/o Boca

$15,300

3,800

3,200

1,000

900

$24,200

Florida statewide

$10,800

2,700

2,400

800

700

$17,400

Dues

Sports

Food

Beverage

Other

Total operating revenues per member

Yacht and beach

$5,200

1,300

3,300

600

$10,400

$100

North and Central

$7,100

1,200

4,500

600

$13,400

$-

Southwest CIRAs

$4,100

600

3,200

200

$8,100

$200

Southwest w/o CIRAs

$9,900

1,400

6,200

700

$18,200

$300

Boca Raton area

$13,200

2,300

8,100

800

$24,400

$600

Southeast w/o Boca

$12,200

2,000

8,600

1,200

$24,000

$200

Florida statewide

$9,000

1,500

5,900

700

$17,100

$300

Payroll and related

Cost of sales - F&B

Operating

Taxes and insurance

Total operating expenses per FME

Average surplus per member

Expenses

Sea Oaks Beach & Tennis, Vero Beach, Fla. St. Andrews Country Club, Boca Raton, Fla.


North and Central

$7,100

$6,800

$6,800

Southwest CIRAs

$4,100

$4,000

$3,800

Southwest w/o CIRAs

$9,900

$9,300

$9,100

Boca Raton area

$13,200

$12,700

$12,200

Southeast w/o Boca

$12,200

$11,400

$10,900

Florida statewide

$9,000

$8,700

$8,300

n 2016

n 2015

n 2014

$14,000

$12,000

$10,000

$8,000

$6,000

$4,000

$2,000

$0

Payroll and related per FME

Yacht and beach

$5,200

$4,900

$4,600

Royal Palm Yacht & Country Club, Boca Raton, Fla.


Yacht and beach

16%

6

North and Central

13%

11

Southwest CIRAs

11%

19

Southwest w/o CIRAs

14%

29

Boca Raton area

76%

48

Southeast w/o Boca

33%

55

Florida statewide

27%

42

Percentage of clubs utilizing foreign labor

Average number employed

Percentage of clubs utilizing foreign labor

Memberships (FME) to employees

Yacht and beach

6.9

6.7

6.6

North and Central

5.0

5.1

4.9

Southwest CIRAs

8.8

8.7

8.3

Southwest w/o CIRAs

3.9

4.1

4.0

Boca Raton area

3.0

3.0

3.0

Southeast w/o Boca

3.2

3.3

3.3

Florida statewide

4.2

4.3

4.2

n 2016

n 2015

n 2014

10.0

8.0

6.0

4.0

2.0

0

The Country Club at Mirasol, Palm Beach Gardens, Fla.


FOOD AND BEVERAGE

Step into the circle of truth. A club is not a restaurant.

National surveys continue to show that club dining operations represent the most popular member amenity (an important term in this discussion) offered by clubs. This should not be terribly surprising given the simple fact that more people eat than swing a golf club or tennis racket. Dining operations also, however, remain the most discussed, analyzed, scrutinized, criticized, re-analyzed, controversial and ultimately misunderstood element of club operations.

Therefore, critics of the financial results of private club dining operations are invited to step inside the circle of truth and understand why a private club is a very different model from the steakhouse that made a close, personal friend a millionaire.

Private member club. The clue is in the name. Private clubs, and hence club dining outlets, are not open to the public. Privacy, or perhaps better expressed as exclusivity, is one of the primary reasons members join in the first place, and that privacy comes at a price. A club’s customer base is essentially capped by the number of memberships plus members’ guests. This differs from a restaurant that is open to anyone in the community who is prepared to pay the menu prices. If a club has 750 members, then its customer base is comprised more or less of those

750 families. Given that the number of customers for a club’s dining offering is essentially fixed, at least in the short term, the implications for revenue are fairly obvious. In a recent report of club food and beverage revenues, revenues were found to have been flat for the past five years.

Repetition. According to Mark Twain, “History does not repeat itself but it does rhyme.” Clubs are faced with the challenge of having to continuously resell the same dining experience to members. Compare for a moment a fine dining restaurant where approximately 50 percent of customers in a given evening are repeat customers to a club where 100 percent of diners are repeat customers. This helps explain the low capture rate of food expenditure by clubs from their members. Approximately fifty cents of every dollar spent on food and beverage is on product for preparation and consumption in the home (e.g., grocery shopping). Of the other fifty cents, which is spent in various types of restaurants, clubs capture the revenue from fewer than one out of four “dining out” experiences of 80 percent of their members. In other words, only 20 percent of club members eat at their club on more than one out of every four meals out. If that sounds disheartening, consider that, according to some estimates, a full half of club members eat at their club fewer than one in ten dining out experiences. This is in spite of the increasing prevalence of food and beverage minimums.

Competitive pricing. If activity or covers are essentially fixed, can revenue be grown by increasing menu prices? Not really. Clubs do operate in the same competitive marketplace as restaurants, and aggressive menu pricing will likely result in the club hemorrhaging revenue dollars to neighborhood restaurants or, more likely, cause an insurrection among the members. Like all consumers, even those in upper income brackets, club members tightened their belts throughout the 2007–2009 economic slowdown. Furthermore, they are conscious that they already pay sizable membership dues and generally expect the club’s menu prices to represent exceptional value. It is always worthwhile for clubs to compare their menu prices to

Privacy

Repetition

Quality and quantity

Club policies

Pricing

Capacity

Staffing and labor

The mix

A club is not a

restaurant!


those of a local restaurant offering a similar dining experience to confirm the value that club dining represents.

And don’t forget the greater the number of subsidized members-only events (New Year’s Eve, Valentine’s Day, End of Season, Beginning of Season, President’s Ball, Groundhog Day, etc.), the greater the dues subsidy. Food cost at some of these events can exceed 100 percent. What would your food and beverage results look like without them? Arguably the more important question is how many members would you lose if you didn’t host the event or charged a non-dues subsidized price? Member events are a priceless component of member participation at most clubs but their economic realities should not be used to blame management for food and beverage subsidies.

Quality and quantity. If a simple side-by-side menu comparison of a club dinner to a restaurant equivalent does not point out the value of club dining, then a tasting probably should. Clubs typically serve better quality products—fresh produce as opposed to frozen, baked rather than purchased bread—and serve more generous quantities. The concept of highest quality does not only apply to a la carte dining either. A typical club’s buffet carries high-quality products with a tendency to over prepare. As far as alcohol is concerned, just try to identify the last time a jigger was used in a club bar. Free pours from a heavy handed barman are more the norm and often cocktails are served in wine goblets or beer glasses. This situation presents clubs with unique challenges in protecting the bottom line. As mentioned above, aggressive pricing is not really an option and neither are some of the tricks used in the restaurant trade to maintain profitability. Members will be highly resistant to portion control, weaker drinks, cheaper ingredients or low-end consumables.

Capacity. Clubs tend to have excess capacity for a la carte dining but lack the capacity for large scale member events. Clubs will have multiple and competing dining outlets, such as a formal dining room, grill room and pool café, even though it is only possible for a member to utilize one at a time. Hence, fixed revenue dollars are spread across the outlets to cannibalize sales from one venue to another, and remember that each outlet has its own storage area, kitchen and staff which all carry a cost. Restaurants usually have a single dining room and kitchen and, of course, a larger customer base.

Staffing and labor. Club members expect a “creative kitchen” rather than a “manufacturing” kitchen. While restaurants tend to use hourly line cooks, clubs frequently employ highly trained executive and sous chefs plus specialized staff, such as sauciers, pastry chefs and sommeliers, all of whom are typically full-time, salaried employees who are carried through slower seasons. The staffing situation in the dining room is often challenged by prohibition on cash tipping. Clubs therefore find themselves having to pay a higher hourly rate or offer more overtime than competing restaurants in order to attract and retain service staff to offset the lack of tips. Members are rarely required to make reservations for lunch or dinner and hence the tendency to overstaff—just in case everyone turns up for Friday night dinner.

Club policies. If a member is willing to spend $200 on dinner for two while wearing jeans, he or she had better go to the local restaurant rather than the club. Amending club policies, particularly dress codes, is one of the few items likely to spark move lively debate in a board meeting than the subsidy in the food and beverage operation. However, in today’s time-constrained society, it is worth noting that formal dress codes and prohibitions on electronic devices often discourage members from frequenting the dining room.

In the mix. Neither the activity, nor the product mix at clubs is conducive to turning a profit in the food and beverage department. Clubs do more lunch business than dinner business and lunch menus are always more competitively priced than dinner ones. Because the mix is so lunch heavy, less beverage is consumed, which is unfortunate from a profitability standpoint as beverage carries a higher profit margin than food. While the most profitable meal for restaurants is breakfast, clubs typically have minimal breakfast traffic. To clarify, minimal breakfast traffic is more accurately described as few breakfast sales since free breakfast items are quite common. The mix again also includes member events. As we discussed previously with regard to pricing, if your club hosts a significant number of member events, consider your pricing philosophy with regards to those events and the impact that is has on food and beverage results overall.

So the next time a new candidate for the finance committee introduces himself as the guy who made his fortune owning a restaurant and who will “fix” the club’s food and beverage


operation, ask him these five questions:

1. Did your restaurant only serve 750 families?

2. Did you regularly throw lavish parties for those families and only charge them a fraction of what market price would be?

3. Were your alcohol pour sizes often double what other restaurants in your area gave?

4. Did you accommodate all diner requests for menu substitutions and customizations without charging for them for the extra work?

5. Did you have an executive chef, rather than a line cook, whose payroll you had to carry during the off season just to retain his or her talent?

If he can answer yes to all five, then he indeed has a unique set of skills.

The reality however is still that a club is not a restaurant. Unless critics of club food and beverage results are willing to step inside the circle of truth and accept the realities of the operation before attacking management, they do not deserve a seat at the table. This does not mean that management should not be held accountable for results or for seeking to continually improve. It does, however, mean that the budgets to which management are being held accountable are based in fact, not fiction, and deal with the operational realities of the club’s operation. Budgeting a flat 50 percent blended food cost for every month, when you know you are going to have member events with 80 percent, 90 percent or even higher food costs is,

simply, an exercise in futility. In a food and beverage operational audit we found that 20 percent of the club’s food revenue was related to member events and that the pricing philosophy was to achieve a food cost of 50 percent on those. However, when we reviewed 10 member events we found an aggregate food cost of 69 percent (19 percentage points higher than the documented pricing philosophy). Conclusion? The budget was a flawed, unrealistic fantasy of a document that did nothing more than quantify the wishful thinking of both club leadership and management.

To summarize, the reason clubs lose money in food and beverage is because the dining room is a member amenity. Just like the golf course, tennis courts, fitness center and swimming pool. How much money did the club lose on its golf course last month? Probably more than it did on food and beverage.

Rather than explaining why the club is losing money on food and beverage, the time has come to question the premise that money is even lost. All club amenities carry a cost, which is why clubs charge dues. On average, 16 cents of every dues dollar goes to subsidize the food and beverage operation. If you want to lower that number, start with taking away member events—that will not only lower your subsidy, but also no doubt lower the number of members at your club…

Goethe is attributed with saying that “the first sign we don’t know what we are doing is an obsession with numbers.” Worry less about the numbers and enjoy dinner.

Bon appétit!

Boca Woods Country Club, Boca Raton, Fla.


Restaurant sales per FME

Yacht and beach

$3,300

$3,200

$3,100

$2,700

$2,400

North and Central

$3,000

$2,900

$3,000

$2,800

$2,700

Southwest CIRAs

$1,600

$1,600

$1,500

$1,400

$1,200

Southwest w/o CIRAs

$3,400

$3,300

$3,100

$2,900

$2,700

Boca Raton area

$4,300

$4,300

$4,200

$4,100

$3,900

Southeast w/o Boca

$4,400

$4,100

$4,000

$3,800

$3,500

Florida statewide

$3,300

$3,200

$3,100

$3,000

$2,700

n 2016

n 2015

n 2014

n 2013

n 2012

$5,000

$4,000

$3,000

$2,000

$1,000

$0

Menu price increases

Yacht and beach

61%

4%

56%

5%

North and Central

42%

4%

42%

4%

Southwest CIRAs

63%

4%

37%

5%

Southwest w/o CIRAs

69%

4%

59%

4%

Boca Raton area

56%

3%

28%

4%

Southeast w/o Boca

33%

5%

33%

5%

Florida statewide

53%

4%

41%

4%

Increased menu prices

Average increase

Increased drink prices

Average increase

2015

Yacht & beach

37%

6%

26%

4%

North & Central

58%

4%

42%

5%

Southwest CIRAs

50%

4%

33%

5%

Southwest w/o CIRAs

67%

5%

50%

4%

Boca Raton area

50%

4%

28%

3%

Southeast w/o Boca

42%

5%

42%

4%

Florida statewide

54%

4%

41%

4%


Average increase


Average increase

2014

Yacht and beach

68%

4%

53%

4%

North and Central

57%

3%

43%

3%

Southwest CIRAs

58%

4%

47%

4%

Southwest w/o CIRAs

52%

3%

48%

3%

Boca Raton area

59%

3%

29%

4%

Southeast w/o Boca

22%

2%

15%

2%

Florida statewide

48%

3%

37%

3%


Average increase


Average increase

2016


Yacht and beach

100.0%

44.1%

55.9%

100.0%

32.4%

67.6%

100.0%

40.6%

59.4%

52.7%

14.4%

12.1%

79.2%

(19.8)%

$2.31

$2,190

660

$(435,200)

12%

$660

North and Central

100.0%

44.6%

55.4%

100.0%

33.4%

66.6%

100.0%

41.4%

58.6%

58.2%

16.7%

15.4%

90.3%

(31.7)%

$2.42

$2,267

750

$(720,200)

12%

$960

Southwest CIRAs

100.0%

45.3%

54.7%

100.0%

32.7%

67.3%

100.0%

41.5%

58.5%

63.8%

17.8%

17.0%

98.6%

(40.1)%

$2.31

$1,415

870

$(566,500)

14%

$650

Southwest w/o CIRAs

100.0%

43.6%

56.4%

100.0%

33.5%

66.5%

100.0%

40.7%

59.3%

62.8%

16.9%

16.1%

95.8%

(36.5)%

$2.42

$1,696

500

$(619,300)

12%

$1,240

Boca Raton area

100.0%

56.3%

43.7%

100.0%

31.4%

68.6%

100.0%

52.7%

47.3%

90.4%

23.3%

21.0%

134.7%

(87.4)%

$5.80

$3,548

820

$(3,100,500)

23%

$3,780

Southeast w/o Boca

100.0%

51.3%

48.7%

100.0%

36.6%

63.4%

100.0%

47.8%

52.2%

66.7%

18.2%

20.4%

105.3%

(53.1)%

$3.20

$2,355

540

$(1,247,800)

15%

$2,310

Florida statewide

100.0%

49.4%

50.6%

100.0%

33.8%

66.2%

100.0%

45.6%

54.4%

69.7%

18.8%

18.3%

106.8%

(52.4)%

$3.09

$2,197

670

$(1,152,900)

16%

$1,720

Food sales

Cost of food sold (net of employee meals)

Gross profit, food

Beverage sales

Cost of beverages sold

Gross profit, beverage

Combined food & beverage sales

Combined cost of sales

Gross profit, combined

Departmental expenses

Salaries and wages, net of gratuities

Payroll taxes and employee benefits

All other expenses

Total departmental expenses

Departmental (subsidy)

Dollars of food sales to $1.00 of beverage sales

Average volume (thousands)

Average FME

Average departmental subsidy

Departmental subsidy: total dues revenue

Average subsidy per FME

Restaurant operations

Yacht and beach

58%

$900

42%

$700

16%

North and Central

57%

$1,000

26%

$500

9%

Southwest CIRAs

58%

$700

11%

$500

0%

Southwest w/o CIRAs

59%

$1,200

21%

$600

10%

Boca Raton area

65%

$1,800

76%

$1,700

53%

Southeast w/o Boca

30%

$1,600

41%

$1,100

11%

Florida statewide

52%

$1,200

33%

$1,100

15%

Clubs with minimums

Annual minimum

Clubs with a mandatory service charge

Annual amount

Clubs with minimums and a mandatory service charge


Average food and beverage sales volume (thousands)

Yacht & beach

North & Central

Southwest CIRAs

Southwest w/o CIRAs

Boca Raton area

Southeast w/o Boca

Florida statewide

$4,000

$3,500

$3,000

$2,500

$2,000

$1,500

$1,000

$500

$0

$1,66075.6%

n Beverage n Food

$53724.4%

$2,197

$1,79476.2%

$56123.8%

$2,355

$3,02685.3%

$52214.7%

$3,548

$1,20070.8%

$49629.2%

$1,696

$98869.8%

$42730.2%

$1,415

$1,60370.7%

$66429.3%

$2,267

$1,52869.8%

$66230.2%

$2,190

Average covers by region

Yacht and beach

51,800

13,400

65,200

21%

North and Central

76,200

13,900

90,100

15%

Southwest CIRAs

54,200

5,700

59,900

10%

Southwest w/o CIRAs

47,500

8,600

56,100

15%

Boca Raton area

126,700

16,800

143,500

12%

Southeast w/o Boca

78,500

8,700

87,200

10%

Florida statewide

74,600

10,300

84,900

12%

Restaurant covers

Banquet or function covers

Total covers

Percentage of covers that are banquet or function


Restaurant salaries and benefits compared to revenue

Yacht and beach

67.1%

65.2%

63.4%

63.0%

64.1%

North and Central

74.9%

73.4%

73.2%

73.1%

74.1%

Southwest CIRAs

81.6%

80.2%

82.6%

82.4%

83.9%

Southwest w/o CIRAs

79.7%

77.2%

77.9%

79.9%

81.7%

Boca Raton area

113.7%

110.4%

110.5%

111.5%

111.4%

Southeast w/o Boca

84.9%

82.1%

82.2%

81.9%

84.8%

Florida statewide

88.5%

86.7%

87.1%

87.9%

89.3%

n 2016

n 2015

n 2014

n 2013

n 2012

120%

100%

80%

60%

40%

20%

0%

Food and beverage loss trend statewide country clubs

20162015201420132012

n Other departmental expenses n Salaries net of gratuities n Payroll taxes and employee benefits n Cost of food and beverage

18.5%

68.7%

18.4%

150.8%

17.9%

68.4%

18.3%

150.0%

18.9%

69.4%

18.5%

152.0%

18.5%

70.4%

18.9%

152.7%

45.2% 45.4%45.2%44.9%

18.3%

69.7%

18.8%

152.4%

45.6%

200%

150%

100%

50%

0%



Five-year trend restaurant operations2012

100.0%

42.7%

57.3%

100.0%

30.6%

69.4%

100.0%

39.3%

60.7%

50.1%

14.0%

14.7%

78.8%

(18.1)%

$2.56

2013

100.0%

41.7%

58.3%

100.0%

30.9%

69.1%

100.0%

38.6%

61.4%

49.3%

13.7%

13.8%

76.8%

(15.4)%

$2.44

2014

100.0%

43.9%

56.1%

100.0%

31.5%

68.5%

100.0%

40.2%

59.8%

49.2%

14.2%

13.0%

76.4%

(16.6)%

$2.34

2015

100.0%

44.7%

55.3%

100.0%

31.3%

68.7%

100.0%

40.7%

59.3%

51.0%

14.2%

12.6%

77.8%

(18.5)%

$2.35

2016

100.0%

44.1%

55.9%

100.0%

32.4%

67.6%

100.0%

40.6%

59.4%

52.7%

14.4%

12.1%

79.2%

(19.8)%

$2.31

Food sales


Gross profit, food

Beverage sales



Combined F&B sales



Departmental expenses:



Other departmental expenses




Note: Does not include entertainment, decorations or valet costs.

The Country Club of Naples, Naples, Fla.


Statewide country clubs

Five-year trend restaurant operations2012

100.0%

48.4%

51.6%

100.0%

32.4%

67.6%

100.0%

44.9%

55.1%

70.4%

18.9%

18.5%

107.8%

(52.7)%

$3.52

2013

100.0%

48.6%

51.4%

100.0%

33.8%

66.2%

100.0%

45.2%

54.8%

69.4%

18.5%

18.9%

106.8%

(52.0)%

$3.34

2014

100.0%

48.9%

51.1%

100.0%

33.2%

66.8%

100.0%

45.2%

54.8%

68.7%

18.4%

18.5%

105.6%

(50.8)%

$3.25

2015

100.0%

49.3%

50.7%

100.0%

33.2%

66.8%

100.0%

45.4%

54.6%

68.4%

18.3%

17.9%

104.6%

(50.0)%

$3.18

2016

100.0%

49.4%

50.6%

100.0%

33.8%

66.2%

100.0%

45.6%

54.4%

69.7%

18.8%

18.3%

106.8%

(52.4)%

$3.09

Food sales


Gross profit, food

Beverage sales



Combined F&B sales



Departmental expenses:



Other departmental expenses




Note: Does not include entertainment, decorations or valet costs.


Statewide country clubs

Food and beverage sales volume (thousands)

$2,500

$2,000

$1,500

$1,000

$500

$0

$1,56676.4%

n Beverage n Food

$51523.9%

$2,154

$1,63976.1%

$53724.4%

$2,197

$1,40277.9%

$39822.1%

$1,800

$1,66075.6%

$45123.1%

$1,955

$1,50476.9%

$48223.6%

$2,048

2015201420132012 2016


Food and beverage sales volume (thousands)

2015201420132012 2016

$2,400

$2,000

$1,600

$1,200

$800

$400

$0

$1,41870.9%

n Beverage n Food

$58229.1%

$2,000

$1,38170.1%

$58929.9%

$1,970

$1,49470.2%

$63529.8%

$2,129

$1,52869.8%

$66230.2%

$2,190

$1,36871.9%

$53428.1%

$1,902


DO YOUR BYLAWS REFLECT YOUR GOVERNANCE STRUCTURE?

As clubs have evolved in recent years and embraced a GM or COO structure where boards lead, managers manage and members enjoy, often one of the most important governance documents has not been updated accordingly—the club bylaws. One of the most obvious examples of this relates to contract approval processes.

Often the contract signing policy in the bylaws does not appear to reflect the practicalities of how the club operates. The bylaws often retain the language of a former governance age where the contract signing policy typically states something along the lines of “the president shall, with the secretary or treasurer, sign all obligations, contracts in excess of $5,000 or for a term in excess of one year, deeds, mortgages, promissory notes and other instruments as approved by the board unless otherwise provided by the bylaws.” However, in most clubs such a policy

would not reflect what actually happens on a daily basis where routine contracts are typically signed by the GM/COO, without reference to a board member.

While many clubs have a roles and responsibilities governance matrix which might state that the GM may “if authorized, sign and execute contracts,” it is recommended that the bylaws be reviewed and amended as necessary to align with current practices within the operation. Any amendments should be communicated to all management personnel and department heads who should, in return, provide written acknowledgement of the policy. The last thing any GM/COO or board member needs is a disgruntled member making accusations that club contracts or similar instruments are being signed by non-authorized personnel. Check your bylaws now and ensure they reflect operational realities of your club.


GOLF UPDATE

Golf continues to struggle against some of the perceptions—some real, some not—that the sport does not line up with the wants and needs of today’s consumer. Some of the data available in the market today however does suggest that some of the effort the game has made to attract more players is paying off.

National Golf Foundation statistics indicated that approximately 2.5 million people picked up clubs for the first time in 2016, the highest number since 2000 at the height of the Tiger Woods effect. Additionally, the continued popularity of alternative golfing experiences has no doubt helped people think about the game more.

Topgolf, now with 27 locations nationally, including one on the famed Vegas Strip, continues to lead with the way in golf entertainment. The company reportedly gave 60,000 lessons last year, with 90 percent of those participants new to golf. They also announced an initiative in which all junior programs

from high school teams to youth groups, can play for free. Perhaps not surprisingly, the success of Topgolf has driven others to enter the market. Flying Tee, a 53,000-square-foot venue is opening in Tulsa, Oklahoma. Fore!golf is scheduled to open in Texas with Troon managing the 60-bay facility, while TaylorMade is one of the companies behind the Drive Shack project in Lake Nona, Florida, a three-story, 66,000-square-foot dining and entertainment complex with 90 outdoor driving bays.

While some golf purists will argue that Topgolf is not really golf but something akin to visiting the batting cages, they are simply missing the point—it may not be golf as they know it, but it is golf and, more importantly, a lot of people that clubs would love to have as members think it’s fun! As Topgolf CEO Erik Anderson points out, “With the millions and millions of people who come in, engage in golf, have that fun experience, learn to hit at a target and enjoy some fun with their friends, it can have only one outcome—that people will play more golf.” While private clubs may not be installing Topgolf-style hitting bays, many are focusing more on their practice facilities, driving ranges and even considering par-three courses. Simply put, the game has to work harder finding more ways to get people to pick up a club.

“If you watch a game, it’s fun. If you play at it, it’s recreation. If you work at it, it’s golf.”

– Bob Hope

Golf pro shop operations

North & Central

23,100

1.8%

24,200

(5.5)%

83%

76%

Southwest CIRAs

45,100

7.4%

[1]

[1]

89%

82%

Southwest w/o CIRAs

26,700

1.9%

22,800

(5.0)%

83%

78%

Boca Raton area

22,300

(0.9)%

23,000

(6.9)%

94%

83%

Southeast w/o Boca

15,800

(12.7)%

25,700

(0.4)%

67%

76%

Florida statewide

27,900

2.6%

24,500

(2.0)%

82%

79%

Rounds (18 holes)

Percent change

Rounds (Multi, based on 18)

Percent change

Clubs owning in-house pro shop

Pro shop cost of sales

[1] The Southwest CIRA region has insufficient data for multiple courses


North and Central

$82,800

5.3%

100

$14,900

$65

$75,900

0.1%

219

$12,490

$56

Southwest CIRAs

$81,400

2.0%

94

$15,600

$32

[1]

[1]

[1]

[1]

[1]

Southwest w/o CIRAs

$92,200

2.6%

108

$15,400

$62

$87,600

1.5%

248

$12,720

$69

Boca Raton area

$90,600

4.3%

146

$11,200

$73

$79,700

0.3%

257

$11,150

$62

Southeast w/o Boca

$107,800

8.0%

132

$14,700

$123

$85,700

0.0%

271

$11,370

$60

Florida statewide

$90,500

4.7%

111

$14,700

$58

$82,900

(0.4)%

249

$11,970

$61

Cost per hole (18)

Percent change

Maintained acres (18)

Cost per acre (18)

Cost per round (18)

Cost per hole (multicourse)

Percent change

Maintained acres (36)

Cost per acre (multi)

Cost per round (multi)

Note: Does not include capital equipment replacement costs. [1] The Southwest CIRA region has insufficient data for multiple courses

Golf course maintenance costs per hole

Mizner Country Club, Delray Beach, Fla.


Golf course maintenance costs - 18 holes

North and Central

$39,300

8,900

17,800

6,100

3,600

7,100

$82,800

$1,490,400

47.5%

10.7%

21.5%

7.3%

4.4%

8.6%

100.0%

22%

Southwest CIRAs

$36,400

8,600

21,300

4,900

4,000

6,200

$81,400

$1,465,200

44.7%

10.5%

26.2%

5.9%

4.9%

7.8%

100.0%

23%

Southwest w/o CIRAs

$41,200

8,900

21,700

7,400

3,900

9,100

$92,200

$1,659,600

44.7%

9.6%

23.5%

8.1%

4.3%

9.8%

100.0%

30%

Boca Raton area

$44,700

9,000

19,200

6,800

400

10,500

$90,600

$1,630,800

49.3%

10.0%

21.2%

7.3%

0.4%

11.8%

100.0%

15%

Southeast w/o Boca

$51,100

10,700

23,700

7,000

1,700

13,600

$107,800

$1,940,400

47.4%

9.9%

22.0%

6.6%

1.5%

12.6%

100.0%

26%

Florida statewide

$41,900

9,200

20,900

6,400

3,100

9,000

$90,500

$1,629,000

46.3%

10.1%

23.1%

7.0%

3.4%

10.1%

100.0%

25%

Cost per hole:

Salaries and wages


Course supplies, fertilizers, chemicals, etc.

Repairs to equipment, course buildings, water drainage system, etc.

Leased equipment

All other expenses (including utilities)

Totals for 18 holes

Salaries and wages




Leased equipment


Total golf course maintenance costs as a percentage of total club operating expenses


Golf course maintenance costs - multiple courses

North and Central

$35,600

8,900

17,900

4,500

3,500

5,500

$75,900

47.0%

11.8%

23.6%

5.9%

4.7%

7.0%

100.0%

24%

Southwest CIRAs

[1]

[1]

[1]

[1]

[1]

[1]

[1]

[1]

[1]

[1]

[1]

[1]

[1]

[1]

[1]

Southwest w/o CIRAs

$40,000

9,100

21,200

6,700

2,800

7,800

$87,600

45.7%

10.4%

24.2%

7.6%

3.2%

8.9%

100.0%

29%

Boca Raton area

$40,200

8,700

17,600

6,000

2,000

5,200

$79,700

50.4%

10.9%

22.0%

7.5%

2.5%

6.7%

100.0%

14%

Southeast w/o Boca

$39,500

8,000

21,800

5,700

2,700

8,000

$85,700

46.1%

9.3%

25.4%

6.7%

3.2%

9.3%

100.0%

21%

Florida statewide

$38,900

8,700

20,000

5,800

2,700

6,800

$82,900

47.0%

10.5%

24.1%

7.0%

3.2%

8.2%

100.0%

23%

Cost per hole:

Salaries and wages




Leased equipment


Salaries and wages




Leased equipment


Total golf course maintenance costs as a percentage of total club operating expenses


Bay Colony Golf Club, Naples, Fla.


Golf course maintenance costs statewide trend

18-hole courses

20162015201420132012

$100,000

$80,000

$60,000

$40,000

$20,000

$0

$37,100

$8,100

$18,800

$1,600$6,100

$37,600

$6,000

$8,400

$19,300

$2,500

$41,900

$6,400

$9,200

$20,900

$3,100

$38,300

$6,300

$8,700

$20,300

$2,300

$40,000

$6,200

$9,000

$20,200

$2,400$8,400

$9,000$9,000

$8,300

n Total GCM costs per hole n Other (incl. utilities )n Leased equipment n Repairs

n Course supplies n PTEB n Salaries and wages

$80,000 $82,200 $90,500$84,900 $86,400

GCM costs statewide trend

Multiple courses

20162015201420132012

$100,000

$80,000

$60,000

$40,000

$20,000

$0

$35,000

$5,400

$7,700

$18,300

$2,400

$39,000

$5,700

$8,400

$20,100

$2,800

$36,000

$5,400

$7,800

$19,400

$2,300

$36,800

$5,400

$8,000

$19,500

$2,300$8,000

$7,200$6,900 $7,600

n Total GCM costs per hole n Other (incl. utilities )n Leased equipment n Repairs

n Course supplies n PTEB n Salaries and wages

$76,800 $83,200$77,800 $79,600

$8,600

$38,900

$5,800

$8,700

$20,000

$2,700$6,800

$82,900

Bear’s Paw Country Club, Naples, Fla.


Cost per hole by region:

18-hole courses

North and Central

$82,800

$78,600

$78,600

Southwest CIRAs

$81,400

$79,800

$78,000

Southwest w/o CIRAs

$92,200

$89,900

$87,300

Boca Raton area

$90,600

$86,900

$86,000

Southeast w/o Boca

$107,800

$99,800

$97,300

Florida statewide

$90,500

$86,400

$84,900

n 2016

n 2015

n 2014

$110,000

$100,000

$90,000

$80,000

$70,000

$60,000

Cost per hole by region:

Multiple courses

North and Central

$75,900

$75,800

$72,600

Southwest CIRAs

[1]

[1]

[1]

Southwest w/o CIRAs

$87,600

$86,300

$84,400

Boca Raton area

$79,700

$79,500

$78,900

Southeast w/o Boca

$85,700

$85,700

$80,700

Florida statewide

$82,900

$83,200

$79,600

n 2016

n 2015

n 2014

$110,000

$100,000

$90,000

$80,000

$70,000

$60,000



Payroll costs per hole – 18-hole courses

North and Central

$48,200

$45,500

$44,600

Southwest CIRAs

$45,000

$44,300

$42,100

Southwest w/o CIRAs

$50,100

$49,100

$47,300

Boca Raton area

$53,700

$50,700

$49,300

Southeast w/o Boca

$61,800

$58,000

$54,700

Florida statewide

$51,100

$49,000

$47,000

n 2016

n 2015

n 2014

$64,000

$60,000

$56,000

$52,000

$48,000

$44,000

$40,000

Significant costs per hole – 18-hole courses

Course supplies per hole

North and Central

$17,800

$17,400

$17,500

Southwest CIRAs

$21,300

$20,500

$20,800

Southwest w/o CIRAs

$21,700

$20,800

$20,100

Boca Raton area

$19,200

$20,300

$21,500

Southeast w/o Boca

$23,700

$22,200

$22,600

Florida statewide

$20,900

$20,200

$20,300

n 2016

n 2015

n 2014

$24,000

$22,000

$20,000

$18,000

$16,000

$14,000

$12,000

$10,000


Multiple courses

Course supplies per hole

North and Central

$17,900

$17,900

$18,300

Southwest CIRAs

[1]

[1]

[1]

Southwest w/o CIRAs

$21,200

$21,900

$21,400

Boca Raton area

$17,600

$17,600

$18,300

Southeast w/o Boca

$21,800

$21,200

$19,200

Florida statewide

$20,000

$20,100

$19,500

n 2016

n 2015

n 2014

$22,000

$20,000

$18,000

$16,000

$14,000

$12,000

$10,000


The Club at Admirals Cove, Jupiter, Fla.


Payroll costs per hole:

Multiple courses

North and Central

$44,500

$43,900

$41,700

Southwest CIRAs

[1]

[1]

[1]

Southwest w/o CIRAs

$49,100

$47,600

$45,900

Boca Raton area

$48,900

$48,500

$47,200

Southeast w/o Boca

$47,500

$47,300

$44,100

Florida statewide

$47,600

$47,400

$44,800

n 2016

n 2015

n 2014

$50,000

$48,000

$46,000

$44,000

$42,000

$40,000

Countryside Golf & Country Club, Naples, Fla.



MEASURING THE COST OF THE DYSFUNCTIONAL PRIVATE CLUB BOARD

As a firm with a lot of accountant types in our ranks, we often get the friendly descriptor “bean counters” lobbed at us. While we of course bring much more to the table than looking only at historical information, we have to admit to spending much time anguishing over something we can never quite put a cost on for our club clients—boardroom dysfunction.

To us, boardroom dysfunction is measured best by a term from the economics field—opportunity cost. The New Oxford American Dictionary defines it as “the loss of potential gain from other alternatives when one alternative is chosen.” So we ask, what is the opportunity cost of a board choosing—and it is a choice—a governance model that promotes micromanaging over leadership; that allows personal agendas to supersede the best interests of the club or community; that confuses boardroom conflict with balanced debate; and that ignores strategic planning in favor of flavor of the month decision-making?

Measuring opportunity cost due to such an all-too-common nightmare scenario, we reflect on who are the people or groups that are affected by the situation? Who are the stakeholders? For purposes of this discussion we will focus on those closest to the dysfunction: the members and staff.

What is the member share of this opportunity cost? Simply put, members have many choices for their disposable income dollars. They need to know that their club is being well-run by those charged with governance. They need to know that they are being listened to, not just heard. The club that cannot understand member desires, whether improved amenities or different services, because its board cannot make a decision—or makes the wrong one—will undoubtedly lose members and fail to recruit replacements.

Quantifying the immediate economic impact of losing a member is a relatively straightforward exercise. Consider the revenue received from a member, remove any direct costs such as food and beverage, and we have the amount with which any given member supports the overall cost of the club operations—whether they use them or not. Losing members is anti-dilutive for club operating costs…fewer members have to spend more on a per capita basis, and the cost per member goes up and affordability goes down.

And what about prospective members? As we spend most of

our time in club boardrooms, we are always fascinating when the board of Club A asks about the scuttlebutt at Club B. This fascination grows as we realize that the issues at Club B may only have blown up at a board meeting the previous day. But, in keeping with our 24 hour news cycle, the story has rapidly spread across town and the private club marketplace. With so much focus today on speed of communications and the increased speed of mobile devices, we maintain that Apple has yet to invent a device that moves information faster than the gossip from the boardroom table to the grill room bar. Board members need to be reminded at every meeting that loose talk can put their club at a competitive disadvantage in the market place.

Will prospective members be interested in joining a club or buying into a community that is famous for its boardroom slugfests? We doubt it, so goodbye to any joining fee dollars from those prospects and hello to deferred maintenance projects, declining facility conditions and the proverbial death spiral. For those clubs connected with residential real estate this impact is magnified as lack of interest in club memberships takes its toll on property values. Those board members intent on getting their own way can be happy that, eventually, they will, as members flee to depart the madness.

For those readers who still find the link between boardroom angst and membership economics tenuous, consider this academic research, “Boardroom Brawls: An Empirical Analysis of Disputes Involving Directors” (http://bama.ua.edu/~aagrawal/resign.pdf), and we can quickly draw the analogy between public companies and their share price and private clubs and the perceived value of their memberships:

“We examine the nature, determinants, and consequences of boardroom disputes…About two-thirds of the conflicts pertain to board functioning or agency problems, while most of the remaining cases involve disagreements over corporate strategy or financial policy…Stock prices experience large and significant declines upon the revelation of boardroom disputes. Finally, dispute firms exhibit poor operating and stock price performance in the years surrounding a dispute episode, and they experience a greater incidence of post-dispute shareholder class-action lawsuits, proxy contests, asset divestitures, and stock market de-listings compared to control firms.”


So what of our other stakeholder group affected most directly by boardroom strife—employees? When we conduct operational reviews for clubs across the country, one constant theme emerges all too often: club employees are negatively affected by lack of direction, consistency and understanding in their boardrooms. Even with the economic challenges of recent years, employees will choose to leave, just like members, when they feel that the value is just not there. When employees leave the costs to any organization are huge. The club loses its investment in staff training; it loses the employees’ institutional knowledge of how to satisfy members; and it loses the public relations war. Employees who leave in the face of boardroom abuse will often talk negatively about their former employers.

Management communities in the private club world, be they GMs, finance professionals, or golf and restaurant department heads, are tightknit and their constituents are typically very loyal to each other. These communities, like most, will look out for their own and warn against taking jobs at certain clubs because of the irregular board dynamics. This will only increase the cost to clubs of hiring replacements and training them. Certainly for senior management positions, clubs will find it even more difficult to retain or attract top leaders. The U.S. Department of Labor has estimated the cost associated with the loss of a trained employee as upward of 30 percent of the

employee’s salary and benefits combined. While the costs of losing a “normal” employee are high enough, another study found that the cost of losing an executive is astronomical—up to 213 percent of the employee’s salary. Clearly this can produce a seriously adverse impact to a club’s bottom line. Even worse than the financial impact is the negative affect that a high turnover rate has on the effectiveness of the club and the morale of the people in it—people who are charged with delivering lifestyle experiences to club members. This potentially can lead to another death spiral.

Discord in the boardroom does no one any good. Yes, healthy debate should be encouraged and practiced but the horror stories that emanate from some club boardrooms would put Stephen King to shame. Help board members help themselves by routinely investing in governance training, orientation sessions, strategic planning and governance audits. But remember, just like operations audits, a club cannot audit anything unless established standards exist. It is time to reflect on whether these standards for board governance exist within your club and when the board thinks it too costly to make these investments we ask them how they can measure the opportunity cost of boardroom dysfunction when the alternative is priceless, at least according to us bean counters.


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