If you are a leader of a top-tier private club (or a club that aspires to be top tier), you understand that relevance is not just a buzz word—it is the key to long-term success. In addition to relevance, the industry’s healthiest clubs share a common characteristic that we call “big picture thinking.” Their boards are far too busy planning for the future and executing on those plans to be distracted by operational issues. Their members recognize themselves as owners, and as such they willingly and continuously invest in the club’s physical plant throughout their tenure as members.
That notion of willingness to invest is important. The financial reality of keeping your club relevant and competitive in a dynamic market is this: During the next decade, the club’s members will likely need to invest a minimum of $10 million in modernization and transformative capital improvements. Here’s why:
- With depreciation running more than $1 million per year at many top-tier clubs, you’ll likely need to invest $10 million over the course of the next decade just to prevent erosion of your capital base (i.e., deferred maintenance). Protecting and maintaining the club’s physical assets is a primary responsibility of a club’s volunteer board members.
- It’s a safe bet that your competition is actively working to up their game. Like you, they understand that breadth and quality of club amenities, services and facilities matter now more than ever. The longer you delay getting started, the further ahead other clubs will be.
- Capital investment must be recognized as a continuous, never-ending process. In 10 years, the “new” clubhouse, pool, fitness center, spa or any aspirational project you are building right now will be showing its age.
- Annual member attrition of 4-7% is normal, which means over the next decade you will need to replace more than 50% of your membership. Given that the average age of new members joining a club is 42 (approximately 60 in residential community clubs in retirement areas), the profiles of those new members will be very different than the profiles of those departing. Consumer tastes and interests are constantly evolving.
The Top-Tier Mindset
Among successful top-tier clubs, amenity trends include upscale spas, fitness centers and locker rooms, more child-friendly spaces, more options for casual dining and socialization, more racquet sport options, yoga and Pilates studios, golf training centers, outdoor lawn games and golf simulators set up for leagues and socialization (not just for training), and many other evolving innovative amenities.
To fund these improvements, top-tier clubs rely on members thinking and acting as owners and willingly contributing capital ideally through recurring capital dues to fund obligatory needs (repair and replacing what is owned) and initiation fees and the judicious use of debt to fund aspirational investments (evolutionary investments to remain relevant). Capital funding must be comprehensively, precisely planned, separately from operational funds. It requires consistent, long-term thinking and careful proactive planning. It’s also critical to think in terms of funding a cohesive long-term plan versus a project-by-project approach. And remember that successful implementation of large-scale capital improvements will almost always increase operating costs. Long-term operating budgets must be planned separately and simultaneously.
The club’s long-term strategic vision should be distinct and well-documented with an unwavering commitment to funding the vision. As new members join the board, a key piece of their orientation to club finance should be the understanding that funds for obligatory and aspirational capital investments or debt service will not and should not come from operating surpluses. Far too many clubs have seen long-term plans derailed by a failure to grasp that basic tenant of club finance.
Top tier clubs think big picture and long term. They keep their eyes on the horizon and think strategically about what it will take to make themselves the club of choice for the next generation of members.
David Duval and Joe Abely are executive consultants with Club Benchmarking. They can be reached at [email protected] and [email protected].