United States

First-class facilities: A necessity, not an option

ECLUB NEWS  | 

When considering the physical facilities offering at a private club, it's critical to bear in mind that having first-class facilities really is non-negotiable. Facilities must be reflective of the  members' expectations for a quality experience, and while it may not be essential to have absolutely every conceivable amenity offering on the campus, those facilities that clubs choose to offer need to be beyond reproach.

While working through obtaining membership approval for a facility's enhancement proposal, it should be recognized that the club must remain competitive by offering quality amenities expected by both current and future members. Similarly, any failure to provide facilities that are congruent with the club's overall mission and vision presents the risk that prospective members may choose to join alternative clubs, which in turn impacts initiation fees and dues revenue streams. Prospective club members who are faced with more choices on how to utilize discretionary spending dollars, as well as more demands on their time will simply "pass up" if the experience doesn't promise to suit their lifestyle. 

And none of this should be in any way surprising when we look at the dollar commitment a prospective member faces when joining a club. How can clubs ask potential members to write a check for $20,000* for a yacht club or $87,000* for a country club without offering first-class facilities?

Those clubs that are tempted to "kick the can" on capital improvements or that don't have the appetite for selling a capital improvement plan to the membership, should bear in mind that the longer maintenance is deferred, the more expensive it becomes, and member recruitment and retention efforts will become undermined by inadequate or outdated facilities. As the president of the Breakers Hotel in Palm Beach, Florida commented on capital improvement expenditures during a Wall Street Journal interview, "If it's hard swallowing $20 million to $25 million per year over 20 years, try swallowing it all at once because you didn't do anything."

Improving club facilities carries a number of advantages for a club; it can attract new members, (but not in and of itself; rather, clubs can use the facilities and amenities offerings as a tool for member outreach), new facilities can serve as a launch pad for new amenities offerings, and change the energy level within the existing membership base and drive enhanced utilization. The questions then become ones of which facilities should we improve, how should we improve them and how much should we spend?

Trends in capital improvements include offering a nontraditional golf experience, which is less time-sensitive, such as "big hole" golf, improving practice facilities, incorporating golf-focused fitness programs into the overall amenities offering, and more casual dining options, such as "coffee shop" concepts. More resources committed to fitness facilities, and golf instruction for kids can also be useful for bringing non-golfing parents to the game. 

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, approximately 40 percent* of clubs are planning what they consider to be significant projects in the next 12 months with an average budgeted project amount of $6 million*. The way in which clubs pay for these improvements is a decision to be made by each club; however, the proportion of clubs carrying some form of third-party debt is, in general, slowly trending upward with 70 percent* of clubs, statewide, carrying debt. When considering debt on a per member basis, bear in mind that the debt per member number for an individual club will usually correlate with the life cycle of the club's physical assets. So if your club's debt per member figure is significantly higher than the average, it could be because your club has newer facilities than the average club. Also, in the case of a club with a small membership which uses debt to finance a golf course renovation, the debt per member figure will be higher than that of a larger club, which also uses debt to finance a golf course renovation, as the debt burden is spread over fewer members. 

Of course, in the private club environment, the members ultimately pay, and it's important for club leaders to be candid with both existing and prospective members on this seemingly obvious point. The important take away is that clubs need to have a plan for how they are going to maintain their facilities to the level demanded by their members and the market. This should be an integral part of the club's overall strategic plan, including the club's plans for member retention and member recruitment. Clubs should give careful thought to the future composition of the membership as part of the capital planning process.

Also, as part of capital planning, it will not come as a surprise that clubs continue to reduce the refundable proportion of joining fees. There has been some evolution in the funding methodology for capital improvements from relying exclusively on initiation fees from new members to the emerging strategy of creating a fund based on estimated future capital needs identified by an independent reserve analyst.

In conclusion, clubs need to continue to carefully plan and manage the maintenance and improvement of their facilities. In doing so, clubs must consider the ongoing relevance of their facilities to today's expected program offerings, together with their overall strategy and vision. When taking a capital improvement plan to the members for approval, clubs need to communicate clearly and regularly with the membership, and also be candid about the costs associated with the project in terms of dollars, and the costs associated with failing to proceed with the project in terms of member attrition and business risk.

*Per McGladrey's 2014/15 Florida Trends In Private Clubs