Butler is a 200-year-old Western Pennsylvania city 35 miles from Pittsburgh. It is home to 14,000 residents who relish the small-town vibe and proximity to a thriving metropolis. Since the early 1800s, Butler has been home to many family-owned farms and has a diversified economic base attracting companies and organizations in manufacturing, information technology, education and health care. The area is the birthplace of the Bantam Jeep, has deep roots in oil refining, has enjoyed success in railcar manufacturing, is at the epicenter of the ongoing Marcellus Shale gas boom and is home to the headquarters of Westinghouse Nuclear. It is a proud community of hard-working families, many of whom have been in the area for generations and have adapted as industries have shifted and the landscape has changed.
Club History
Butler Country Club has served as a gathering place for many of those local families, and the club’s rich history embodies the industrious character of its members. In 1904, the Butler Golf Club, a predecessor of the Butler Country Club, first brought golf to the area with six holes laid out on a leased farm. Even though the greens were sand, the venue became so popular that in 1905 a group of men purchased 70 acres to develop a more extensive course with a clubhouse. The new property was situated near a soon-to-be-built short line railroad that would boost interest and increase access to the remote club.
In 1908, nine charter members incorporated the Butler Country Club. Soon, tournaments, family outings and social gatherings became common and the foundation was laid for a legacy of recreational and leisurely pursuits that continues today. The club’s 466 members enjoy a host of amenities centering around golf, tennis, aquatics and dining along with a slate of activities to engage members of all ages and generations. In season, the club employs a staff of about 150 people and about 30 of those individuals remain year-round. Like most clubs, Butler Country Club has experienced ups and downs as the economy ebbed and flowed and has done its best to remain a welcoming and central part of its members lives even as wallets tightened and balance sheets reflected tougher times. The club’s management team is a cohesive and seasoned lot who have worked hard to keep the members’ desires and the club’s financial position in alignment.
Using Data to Drive Decisions
At traditional clubs like Butler Country Club, rhetoric about what “the club has always done” or conjecture about what other clubs are doing sometimes finds its way into the board room. Doug Fernandes, the club’s finance director, partnered with Club Benchmarking about six years ago because he knew the value of having access to fact-based figures and comparisons and he was hoping to confirm his suspicions that the club was over-spending in some areas and under-funding others. There are several other clubs nearby, all competing for members who, naturally, want the most for their money. Using Club Benchmarking data, Fernandes was able to show his board how the club compared in different operational areas and what it needed to improve to be competitive in the market.
With those facts in hand, the membership approved an assessment to help fund an extensive renovation of the pool, and the club now boasts one of the most family-friendly, up-to-date aquatics facilities in the vicinity. The pool renovation was completed in 2014, and recently the members received a renovated members’ lounge and expansive new patio overlooking the pool and the 18th green.
The reality for any club is that assets begin depreciating as soon as you build or purchase them. There is always work to be done, repairs to make and members to please. After years of deferring maintenance on many of the club’s assets, Fernandes knew that a realistic picture of looming capital expenditures was needed in order to determine how to prioritize the repair and replacement of the club’s physical assets before they could responsibly consider any additional projects. Fernandes said he would often review survey results from members indicating they wanted an updated member lounge, a new and expansive patio area and updates to the men’s locker room, while still expecting the golf course to be maintained as the crown jewel of the club. He would wonder how to effectively communicate an accurate picture of the capital required to both meet the members’ desire for new assets while also keeping up with necessary maintenance and replacement of the club’s existing assets.
First Step: Capital Reserve Study
Fernandes and General Manager Michele Ruth concur that having a qualified, independent third-party consultant perform a Capital Reserve Study (CRS) is the best money the club has ever spent. In a deliberate effort to strategize ways to address specific member-driven projects while remaining competitive in a market saturated with clubs, the board partnered with Club Benchmarking for a Capital Reserve Study.
The Club Benchmarking proprietary CRS process provides a thorough inventory of every asset as well as a precise assessment of condition, useful remaining life and replacement or repair cost over a 20-year timeframe. During their onsite visit to the club, the Club Benchmarking CRS team identified, documented and evaluated every club asset with a current-year replacement value of $2,500 or more and a useful life of 3 years or greater—450 items in all for Butler Country Club—and quantified the cost and timeframe in which they would need to be replaced looking out over the next 20 years.
The club’s Capital Reserve Study report made clear to the management team that they needed to “find funds” if they wanted to ensure a stable future for the club’s existing asset base, not to mention adding or expanding the asset base to add new services and amenities.
The question that needed to be answered was “what is the most palatable way to get the funds the club needs?” The process itself was eye opening, and even more daunting was the task of taking all the information and conveying it in a digestible way to the board and members.
Second Step: Capital Strategies Modeling
To develop a plan that would fund all aspects of their future capital needs, the club once again turned to Club Benchmarking for a solution. Eric Gregory, CCM, who directs the Capital Strategies Modeling process for Club Benchmarking, worked with club leaders to develop a Capital Strategy Model to be presented first to the full board and then, ultimately, to the membership to determine an effective course forward.
Arnie Burchianti, Butler Country Club president during the process, explained: “I have used benchmarking data in my own business and have always espoused the benefits of having industry data and facts to measure my company’s performance against industry benchmarks. The numbers are the reality and a third-party perspective is invaluable as the emotion is removed and the data leads the discussion. Club Benchmarking came in and not only had the platform to give us accurate data, but they have the team and the resources in place, especially in terms of talented, passionate experts, to convey the information to us in a way that made it clear what our options were and what the repercussions of inaction would look like. Eric presented us with options, and then made our club’s path forward clear.”
The Journey
Burchianti was dedicated to the process and determined to leave a legacy of fiduciary responsibility with a clear path to a solid financial and operational future for his beloved club. Gregory began working to develop a strategy with just 45 days to spare until the club’s scheduled fall membership meeting. Time was of the essence if Burchianti’s presidential legacy was to become a reality. An ad-hoc committee was assembled: the outgoing president, incoming president, treasurer, general manager, controller, golf pro and golf superintendent all worked tirelessly to ensure the project’s success by providing the most accurate data, meticulous reviews and valuable feedback possible.
Gregory built a capital model specifically for Butler Country Club that factored in results from operations, net initiation fees, capital dues and membership growth. He built out a database with all the categories, dues and fees, as well as beginning balances, debt service, assessment receivables and other items that affect capital income and he assessed the forward-looking capital needs and resources over a 10-year trajectory.
Knowing the club would want to operate from a conservative standpoint, Gregory factored in zero net membership growth, so any growth that did occur would essentially be money in the bank available for future use. The resulting report spelled out Butler Country Club’s capital needs over the next decade; if the club continued operating as is, there would be a seven-figure gap between capital requirements and capital resources. After the Butler team reviewed the report, they were comfortable with looking at strategies that would fund a major portion of the “perfect world” scenario suggested in the CRS report. The club’s leadership wanted to take a plan to the membership that was not too large a shock to handle, but still proactive and aggressive in its reach.
With that in mind, two different strategies, either of which could be used to generate the required capital were presented. The bottom line was that to bridge the gap between requirements and available funds, the club would need to increase monthly member capital dues in order to fund all the necessary capital. The sooner the funds were generated, the better the club would be able to meet future needs. Time can either be a friend or an enemy in capital planning. The longer the can gets kicked down the road, the harder it becomes to catch up.
Recommended Strategies
The Capital Strategies Report was to be prominent on the agenda for the club’s fall membership meeting, and the report was ready just days before it was to be presented. The Butler Country Club leadership team promoted the meeting and encouraged members to come to hear Gregory explain the process, decipher the data, and walk them through the two proposed strategies.
The meeting was more well-attended than usual, but to be as transparent as possible and to give members the chance to digest the information, Fernandes also provided members with online access to a recording of the meeting and a copy of the Capital Strategies Report. The club’s leadership held subsequent information sessions and reached out to the members to field questions and solicit feedback.
Both strategies presented would achieve the intended result and adhere to the philosophy that the capital required for timely replacement of existing assets should come from the club’s most stable form of income— capital dues. Any future improvements or projects designed to maintain the club’s relevance in the market and keep them competitive in terms of member growth, deemed “aspirational capital,” were to be funded by initiation fee income. One strategy option was centered on a loan and the associated debt service, thus requiring a membership vote. This scenario proposed a small increase in monthly capital dues every year for the next five years. Easier on the members’ wallets initially, but adding more debt.
The second option would not require a loan—a more sensible approach that would still fund necessary repairs and replacements. It proposed a larger increase in monthly dues in year one and two smaller monthly increases in years two and three. It would achieve the same goal as the first option, but with higher fees initially and with no additional debt service.
With Gregory’s assistance to clarify the club’s current situation, explain the graphs and charts used to illustrate the financial projections and to answer questions, the meeting was a great success. The members who spoke acknowledged the importance of the endeavor and the expediency with which they needed to act to ensure that Butler Country Club would have the capital resources necessary to meet its future capital needs. One member, while urging the membership to raise the capital dues to align with the quality of the product they offer in comparison to other clubs, stated simply, “We either pay now or we pay later. That’s it.”
The Path Forward
The hardest part of the process for the club was taking the leap to procure a reserve study in order to get a concrete, data-driven strategy. The first step takes courage and leadership. Butler Country Club is on much surer footing as it moves forward, and the leadership takes great comfort in having factual statistical comparisons and reality-based financial projections to validate its decisions and the recommendations it makes to the membership. Butler Country Club is poised to continue providing its industrious, hard-working members a private club that they can be proud of and that their families can enjoy for generations to come. Through bold commitment and forward thinking, they have built a clear path to the future!
Burchianti is confident in the process and results. “I would tell other clubs that you might know the direction your club needs to head and it’s your fiduciary responsibility to ensure the club has prudent financial practices, but you do not have to shoulder the responsibility of providing the data and details and analyzing the best practices and coming up with the solutions,” he said. “Club Benchmarking took a lot of that pressure off. Having them do the heavy lifting in presenting to the members of the club was invaluable to our staff and volunteer leaders.”