What Will Our Members Think?

An interesting phenomenon occurs when we talk to a member-owned club's Board of Governors about injecting millions into the club to pay off bank debt and fund capital improvement projects at the club. The Board almost always votes unanimously in favor of recapitalizing the club, after researching the pro's and con's carefully. But the Board members are deeply concerned about what their members will think when the Board presents such a historic change in the club's governance and strategic direction. And the members vote in favor by a 90% to 100% vote every single time.

What causes this misplaced fear? And why is the concept universally embraced once fully understood by both Boards and club members?

First, Boards of member-owned clubs are conditioned to fear presenting controversial proposals to the membership. Often they have presented a seemingly straightforward capital project, and seen either a "no" vote or weeks of dissension among the membership leading to a split 50-50 or 60-40 vote that is hardly a mandate for moving forward. After all, most assessments cause 5-10% of members to quit, so each assessment has risks.

Next, no one feels like they got elected in order to sell the club or bring in a capital or operating partner. Most Board members envision a quiet period as the respected or even visionary leader, followed by handing the reins to the next leader who continues with the same strategic plan. When they dig into the financial projections and membership trends, and look at the capital needs of the club, they often scratch their heads and face some challenging strategic decisions:

  • Debt: Borrowing more debt from the local bank might not be possible, if the club already has a mortgage. And the specialty golf lenders are now gone. Even if the bank will lend to the club, the prospect of high principal and interest payments as far as the eye can see (well past your current term as President) often dooms the club's finances.
  • Assessment: At elite clubs, even large assessments are not a problem. But at 80% or more of private clubs, we have seen assessments as small as $1,000 or $2,500 cause a membership meltdown. If the Board saw the last small assessment lead to 20 or 30 members quitting, the idea of another assessment is just not viable.
  • Extra Dues: Why not just spread out the assessment over time and call it Capital Dues or something like that? This is the usual approach; it seems logical to split the assessment 300 ways and spread it out over 5 years so the monthly payments are smaller. But now you have added $100 per month to the Regular Dues of $650, and after doing this a couple times the club is no longer priced competitively with similar clubs. With your club priced at $750 or $850 per month, the other clubs at $650 start to take more share of new member prospects.
  • Member Debt: A logical answer is to get some of the wealthier members to fund the club's capital needs. However, this brings with it a few common problems. The dreaded segregation of members into "A" and "B" classifications has tended to cause real "2nd class citizens" issue at most clubs where this has been tried. And these wealthier members typically demand their money back; this is just a different form of debt, which has the problems listed above.
  • Outside Partner: "Professional equity" comes from firms like Concert Golf Partners and ClubCorp. Each firm has hundreds of millions of dollars of equity capital, enabling the club to pay off all its debt and fund all of its capital project needs while remaining debt-free. And the capital comes with decades of experience managing upscale private clubs professionally.

The board President who brings this solution forward is ushering in a new era for the club. The club will be debt-free, have fresh capital improvements, and the track record of clubs using this model indicates a very high success rate: an influx of new members, new activities for the members, improved course conditions and dining experience, and rising levels of member satisfaction. But it means that the Board is transitioning the club to new leadership, essentially giving up most day-to-day controls to the professional operator. Keeping a member Advisory Board helps to preserve the strategic direction that the members want, but the new professional operator is now in charge.

Interestingly, Boards routinely vote unanimously in favor of this option, because they realize after talking to clubs that have successfully made the transition to a professional owner do not rue their "loss of control." They are glad to be members again, enjoying their club instead of trying to micro-manage it. They reflect back on the fears and rumors about such a change, and they laugh. "We have no expertise at agronomy or food & beverage, but these folks do; plus, they have capital - let them invest it instead of us. Let the professionals work for us," they routinely say.

Members initially mirror the Board's fears about such a transition, in the absence of good information. Once they meet the professional operator and hear the Board members discuss the rationale, the vote is uniformly in the 90% to 100% range in favor of recapitalizing the club.