Private Clubs In Distress

The Wall Street Journal has an article on the difficulties facing private clubs, as more and more members walk away in these tough financial times. Very interesting to me is the concept of “walkaway risk.”

More people are lining up to get out of private clubs these days than are lining up to get in, or so it seems. Many of the 4,400 private golf and country clubs in the U.S. are doing just fine, but one can sure get the impression that the situation is universally dire from listening to club managers and golf-industry consultants discuss the state of clubs in today’s economy.

For instance, you hear a lot of talk about the “walkaway” risk. This is a calculation of the leverage that clubs have or don’t have over members to keep them from leaving. At most clubs at least one newcomer has to join before a current member can cash in his bond, deposit or other type of equity stake and quit. If the annual dues are $7,500 and the equity stake is $20,000, most members will be inclined to stay put until a new member signs up. But if annual dues are high—say, $12,000 or $15,000—and the projected clearing time on the resignation list is four years (not uncommon in this economy), some financially strapped members will choose to bail immediately.

Clubs don’t like that because dues and the additional spending of an active member are more important than $20,000 in the bank. That is particularly true for the many clubs these days that are servicing big debt loads piled up in better times for multimillion-dollar course renovations or clubhouse expansions, and for new clubs, some in stalled real-estate developments, that haven’t yet reached their full quota of members.

So how many are in trouble?  The National Golf Foundation finds that 10% to 15% of private clubs are in some sort of financial difficulty. In those, membership is down 29% from the peak, rounds are down 22% and 57% operate at a loss.

I know of a couple of local golf clubs that are in the “troubled” category. Members I’ve spoken to report significant membership losses and debt loads—left over from expansions and needed repairs—that cannot be repaid. One reportedly has asked members to voluntarily pony up $20,000 each. I have to assume that in exchange, those members will get a bigger equity, or some other sort of compensation.  A shift to semi-private status also may be in the works—perhaps opening the course to the public Monday through Thursday. I doubt that will help, though. There are so many $20 courses in southeastern Michigan that they’re not going to get many takers at the $60 a round they’re going to charge.

And things will only get worse when the auto companies go under.

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2 thoughts on “Private Clubs In Distress”

  1. Read the article in the wall street journal and by all means I am one that cannot afford a membership being a electrician but, I find it interesting what it be like.
    I think the people who are leaving are the ones who where or are on the lower end of the rich scale.
    one of the things also is “vanity”
    people have enough competition in the work place they don’t need it by the pool.

    As far as opening to the public, I want to play on the weekend when I am off, not take a day off of work just to play at the private course.

    Then I thought if I had the resources to join why be tied down. I can go where I want, when I want.

    Reply
  2. I am a recent private club refugee.  Joined a local club for 2 years because I love golf.  But I am a working man. Well paid but a working man all the same.  I could only play on the weekends. So when I added up my rounds played by my annual costs I almost had a stroke on the spot.  I determined I was subsidizing the golf of people much wealtheir than I that have free time during the week.  That was it for me.  Resigned my membership and lost my up front equity stake which was luckily not as much as the wall street journal article.  So back to public courses for me.  I am looking forward to playing more with my buddies again.  Guest fees where outrageous and after hosting once you don’t like your buddies that much to pay for their golf…lol…. 

    Good luck to the private clubs out there.  They have a tough job recruiting people that are willing to pay the price.

    I’m glad I experienced being a country clubber but I won’t miss that monthly bill…..

    Reply

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