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Thinking about joining a private club....pros and cons

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  • davep043davep043 Members Posts: 3,607 ✭✭✭✭✭✭✭

    @pinhigh27 said:
    The whole point is if you claim it's for improvements then it shouldn't be dynamic. But most of them are dynamic because they're simply charging what the market will bear.

    It's kinda weird nobody has given a solid answer, just the equivalent of " that's the way it is."

    Well so is everything else, until it changes.

    Initiation fees have the effect of encouraging stability in membership, that is a primary reason we have them at my home club. Yes, they will turn some people away. On the other hand, they encourage those who DO choose to join to remain as members. A while back, my club tried to boost membership by offering "no initiation" memberships. They worked fine in the Spring, but when the weather turned cold in the fall, almost every member who hadn't paid an initiation fee was gone. They had no incentive to stay These days, we try to keep our initiation fee reasonably low in order to build membership, but we'll never go back to the old "no initiation fee" model.

  • david.c.wdavid.c.w Members Posts: 8 ✭✭

    @pinhigh27 said:
    The whole point is if you claim it's for improvements then it shouldn't be dynamic. But most of them are dynamic because they're simply charging what the market will bear.

    It's kinda weird nobody has given a solid answer, just the equivalent of " that's the way it is."

    Well so is everything else, until it changes.

    I would say that there really is no other way to do it. You made mention earlier that the cost should be distributed across all members when capital improvements are needed. That is simply a non-starter as there is nothing that anyone hates more than the word "assessment". Perhaps it is psychological, but assessments draw ire like nothing else in a membership. It is like a lighting a fire under anyone who has the slightest idea of resigning and going somewhere else. And every club ALWAYS needs people who are paying but not using. I think it is the old 80/20 rule: 80% of the membership only uses 20% of the club. The other 20% of the club uses the club 80% of the time and enjoys the dues paid by the old timers that only come up for free coffee and free saltines. They have been paying their dues for 25 years and it has become a part of their monthly expenditures. Don't give them a reason to leave.

    I can only speak for my club and maybe a few others, but it is true that from a budget perspective dues pays expenses and initiation funds capital. When I was on the finance committee we look only at dues to cover all club expenses. It may even be a tax/audit requirement based on being a non-profit or private club or whatever classification. I can say that our club does ding each member $50/month to go into a capital as well, so there is some skin in the game for existing members.

    As a point of reference our club has a $50k+ initiation and a 5+ year waiting list. So yes, the market can and will dictate what and how people pay. But even during he early 2010's there was no drop in fees. There was a reduction of members but it has since grown back to better than normal.

  • MooJerseyMooJersey MarylandMembers Posts: 530 ✭✭✭✭✭

    I go with quality of quantity every time. You should do the same.

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  • MaxBuckMaxBuck Members Posts: 432 ✭✭✭✭
    edited Aug 20, 2019 8:52pm #95

    @pinhigh27 said:
    I still don't understand the purpose of initiation fees, it's nothing but a money grab.

    @North Butte said:
    I don't know why the people who run country clubs are so obsessed with having different "pots" of money they pretend are somehow not just dollars in the club's bank account.

    Clubs don't charge $30,000 initiation fees to fund capital improvements. They charge $30,000 initiation fees because potential new members are willing to hand over $30,000 for the privilege of joining. It's really that simple.

    My club has all sorts of capital expenditure needs pending. But we're not in an area where anyone is going to pay half that much or even a quarter that much to join one of the dozen or so clubs all competing for a very limited pool of potential members. So we charge our couple dozen incoming members each year $3K or $5K or whatever the current number is and we're glad to get it.

    We don't charge less because our capital needs are less, we charge as much as the market will bear. Same as any club.

    Kind of surprising that golfers, a cohort that is pretty well off economically, can be so ignorant of basic economics.

  • az2auaz2au Members Posts: 1,915 ✭✭✭✭✭✭

    @MaxBuck said:

    @pinhigh27 said:
    I still don't understand the purpose of initiation fees, it's nothing but a money grab.

    @North Butte said:
    I don't know why the people who run country clubs are so obsessed with having different "pots" of money they pretend are somehow not just dollars in the club's bank account.

    Clubs don't charge $30,000 initiation fees to fund capital improvements. They charge $30,000 initiation fees because potential new members are willing to hand over $30,000 for the privilege of joining. It's really that simple.

    My club has all sorts of capital expenditure needs pending. But we're not in an area where anyone is going to pay half that much or even a quarter that much to join one of the dozen or so clubs all competing for a very limited pool of potential members. So we charge our couple dozen incoming members each year $3K or $5K or whatever the current number is and we're glad to get it.

    We don't charge less because our capital needs are less, we charge as much as the market will bear. Same as any club.

    Kind of surprising that golfers, a cohort that is pretty well off economically, can be so ignorant of basic economics.

    :lol:

  • GolfnuckGolfnuck Members Posts: 621 ✭✭✭✭✭
    edited Aug 20, 2019 11:04pm #97

    @pinhigh27 said:
    So if initiations are for covering capital expenses, why are initiations so dynamic? That's illogical. Do they only decide to improve things when the market is hot? That would also seem illogical and if anything the opposite is probably true.

    pinhigh27 think of initiation fees as a source of funding instead of it being the determining factor on how much capex will be spent.
    For example - our club wants to spend $1M in capex each year.
    Currently we receive over $1M in initiation fee each year so we can get 100% of the funding from initiation fees. In fact we usually bank $100k to $200k for future capex.
    If we could not get our $1M of funding from initiation fees then we have options:
    1. Reduce the capex to how much we have funds for.
    2. Charge a capital assessment to the existing members.
    3. Borrow funds externally from the bank.
    4. Use up capex reserve from previous years.
    5. Obtain funds from sale of unused golf course land or other capital assets.
    6. Any combination of the above.

    @pinhigh27 said:
    If you want to make capital improvements it should be via assessments, ie members paying for it. Or you could do it via dues, money is fungible and doesn't really matter. But I have no idea how depending on a fluctuating thing which changes often year to year in price and quantity, ie is dependent on people joining or not makes sense. It's stupid and it's inefficient.

    pinhigh27 - the problem with assessments is that you are charging some existing members who have already paid for the existing capital infrastructure again for future capex.
    For example when our 2nd club house burnt down we had to sell some land in order to rebuild it. When we wanted to replace our third club house we again sold some land. When we wanted to do a major renovation to our 3rd club house we borrowed the funds from the bank and spent the next 15 years paying it off. Recently we did more renovations to our club house and we used initiation fees from the current year as well as previous year reserves to do it.
    The current club house has been "paid" for by the existing membership. So if we want to do another major renovation the current membership would not be happy with a capital assessment as they have already "paid" for the existing infrastructure. New members "pay" for their share of the existing infrastructure by their initiation fees.
    This is why initiation fees goes towards capex and also why capital assessments are so unpopular.
    BUT that doesn't mean we should always shy away from capital assessments it is just that they represent just one method of funding and that is the case also with initiation fees.

    In short pinhigh27 think of initiation fees as just a source of funding. You are correct in saying that for most private clubs this source of funding is very sensitive to the supply and demand cycle.

  • pinhigh27pinhigh27 Members Posts: 9,725 ✭✭✭✭✭✭✭

    Good discussion. I guess it's just a perspective question, like for instance Im not sure I feel like buying into Capex once means I should be mostly done besides intermittent assessments, as each person continually benefits from current and future and infrastructure. I definitely see what you're saying though.

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  • carreracarrera Members Posts: 2,605 ✭✭✭✭✭✭✭

    My club is like some described above (I have been on my club's finance committee for the last four years). A relatively high initiation fee, of which the club keeps a large percentage as a transfer fee (the smaller percentage goes to a departing member as their "equity". We use transfer fees as our source of capex funds. That is a $1MM-plus amount each year, with the golf course getting a large amount (for equipment, other capital items) but needs all around the club including the clubhouse, tennis, pool etc. We have been fortunate to have a predictable stream of transfer fees because we allow initiation fees to be paid in over four years. So we have inflows that are essentially assured (every once in a while someone defaults for various reasons) and then we just need to have "normal" new member initiations. We run things pretty conservatively, as we saw our longstanding 10-year waiting list vaporize like everyone else's back in the last recession...now we don't count on anything even though the club is full and in very good financial health.

    A word about assessments as a vehicle for capital improvements - that is a great way to get resignations from seniors or folks who only use the club on occasion. Unless it is a fully baked (town hall meetings and full member buy-in) assessment for something that is absolutely necessary.

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  • GolfnuckGolfnuck Members Posts: 621 ✭✭✭✭✭
    edited Aug 21, 2019 3:26pm #100

    @pinhigh27 said:
    Good discussion. I guess it's just a perspective question, like for instance Im not sure I feel like buying into Capex once means I should be mostly done besides intermittent assessments, as each person continually benefits from current and future and infrastructure. I definitely see what you're saying though.

    True existing members will continue to benefit from the infrastructure that they originally funded.

    The answer for that lies in the subtle difference between what is a capex and what is an operating expense.

    Again easier to explain by example.

    When a new club house is built all of the costs are capex.

    When the carpet and paint for the club house needs replacing in the future then that cost is an operating expense.

    Therefore the membership that funded the original capex for the club house continues to fund its maintenance and existence in the future as part of their funding of operating expenses. Operating expenses are funded thru monthly dues.

    To go further when parts of the club house are renovated in the future (stripped down to bare studs) then that cost would be considered capex.

    The definition of capex vs. operating can be grey sometimes.

    Post edited by Golfnuck on
  • Schley Schley Love ya don't tell ya enough! Kingdom of Saudi ArabiaMembers Posts: 1,223 ✭✭✭✭✭✭

    @Golfnuck said:

    @pinhigh27 said:
    Good discussion. I guess it's just a perspective question, like for instance Im not sure I feel like buying into Capex once means I should be mostly done besides intermittent assessments, as each person continually benefits from current and future and infrastructure. I definitely see what you're saying though.

    True existing members will continue to benefit from the infrastructure that they originally funded.

    The answer for that lies in the subtle difference between what is a capex and what is an operating expense.

    Again easier to explain by example.

    When a new club house is built all of the costs are capex.

    When the carpet and paint for the club house needs replacing in the future then that cost is an operating expense.

    Therefore the membership that funded the original capex for the club house continues to fund its maintenance and existence in the future as part of their funding of operating expenses. Operating expenses are funded thru monthly dues.

    To go further when parts of the club house are renovated in the future (stripped down to bare studs) then that cost would be considered capex.

    The definition of capex vs. operating can be grey sometimes.

    Not to get too detailed in accounting speak, but replacing aspects of a fixed asset that you purchased under CAPEX, can also be CAPEX'd as they last for greater than an accounting year. You don't need new carpet every year so you can CAPEX the carpet then depreciate over it's useful life. Some of which is determined if you want the charge to hit all in one year as an expense or spread out the hit via depreciation over multiple years.

  • GolfnuckGolfnuck Members Posts: 621 ✭✭✭✭✭

    Schley - you are absolutely correct there is an ability to frame certain expenditure as CAPEX or operating expense.

  • CCTxGolfCCTxGolf Going to the Masters...Someday Corpus ChristiMembers Posts: 868 ✭✭✭✭✭

    Comes to read about possibly joining a club in the future. Leaves with an Econ minor.

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  • JoshuaRJoshuaR Members Posts: 2

    To me, the real question is whether a relatively poor golfer should join a relatively cheap private/semi-private club. These $500,000 initiation fee discussions aren't even remotely close to any realistic possibility.

  • vinprun71vinprun71 ConnecticutMembers Posts: 113 ✭✭✭

    @JoshuaR said:
    To me, the real question is whether a relatively poor golfer should join a relatively cheap private/semi-private club. These $500,000 initiation fee discussions aren't even remotely close to any realistic possibility.

    Depends on the commitment level to improve. Your money is your money. How you spend it is entirely up to you. If you're joining with the intention of playing a lot and possibly taking lessons with a pro at the club, then it could be a good investment. This is what my wife and I did.

    I'm a newer golfer and not the great, but I'm committed to playing as much as possible and taking lessons to improve. Couple that with a great pool for the wife and kid as well as awesome food and families. That's the right value for my family and me. Every person is different though.

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  • smashdnsmashdn Let's cut them trees down. Members Posts: 1,468 ✭✭✭✭✭✭

    What is the difference between "stock" and initiation? Local club you can buy stock or not but you must pay the initiation and of course monthly dues and a very modest F&B minimum each month. I want to say the stock is refundable if you leave. They don't pay a dividend or anything like that with traditional stocks.

    Is it just to create collateral or to draw interest for the club while it is deposited?

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