A negative pledge is an arrangement made between the club (borrower) and the bank (lender) whereby the club will pledge not to encumber or sell the club or refinance the loan without the approval of the bank. It gives the bank more control over the pledged asset. It also saves the club from paying closing costs that are typically found in a traditional loan. On a $4-5 million loan, closing costs alone could be $150,000—which is a lost expense.
Should clubs increase their dues annually? Why? How much?
Our data supports raising dues annually. History has shown that clubs generally raise dues annually at the rate of approximately 4 percent, at least over the last 10 years. The reason to raise dues is mainly to cover rising inflationary costs, such as payroll, employee benefits, insurance, etc., which are expected expenses each year.
Since dues represent approximately 54 percent of total revenues, there is minimal opportunity from other revenue sources unless the club changes its business model. For those clubs that don’t raise dues annually eventually, they may need to “catch up” and have a double-digit dues increase in a given year.
Daniel T. Condon, CPA and James J Hankowski, CPA, are partners at Condon O’Meara McGinty & Donnelly, LLP, which provides consulting, auditing and tax services to more than 325 private social clubs in 14 states. They can be reached at 212-661-7777. Learn more at comdcpa.com.