October 31, 2024 • 40 mins
Assessments. They seem to go hand-in-hand with private club membership. Many clubs have voted to assess members for new amenities in recent years, and many more are considering doing the same in the months ahead. Like death and taxes, clubs see assessments as a necessary evil, but are they?
In this episode we talk to Jim Butler, CEO of Club Benchmarking who shares his perspective on assessments and how club’s can plan for the future more thoughtfully. What he says, may surprise you.
Key Moments:
• Introduction to Club Assessments [00:00:13]: Ed Heil introduces the topic of club assessments and how they, along with initiation fees, are two factors that often concern prospective club members.
• Not-for-Profit Business Model [00:04:45]: Jim Butler explains the unique challenge of private clubs being not-for-profit entities, contrasting with how board members often try to apply for-profit thinking to club management.
• Capital Intensity of Clubs [00:06:51]: Butler reveals that the average club has $28 million in gross assets while making no profit, making clubs one of the most capital-intensive industries.
• Three Main Capital Sources [00:09:10]: Discussion of how clubs fund capital through three main sources: capital dues, initiation fees, and assessments, typically split equally between these sources.
• The Irrigation System Story [00:18:30]: Butler shares an illuminating story about Thorny Lea Golf Club's 50-year-old irrigation system to explain the concept of capital consumption and member responsibility.
• Net Worth Categories [00:24:02]: Description of the three categories of clubs based on net worth trajectory: decreasing (red bucket), flat (yellow bucket), and growing above inflation (25% of industry).
• Union League Success Story [00:25:32]: Discussion of how the Union League of Philadelphia's success came from understanding the business model and creating more opportunities that members were willing to pay for.
• Board Education Challenge [00:31:12]: Butler addresses the unique challenge of educating rotating board members about the club business model, with boards typically changing 3-4 members annually.
• Counter-Intuitive Club Economics [00:34:29]: Explanation of how the most financially successful clubs often have the highest food and beverage subsidies, demonstrating the unique nature of club economics.
• Industry Evolution [00:38:26]: Butler discusses the dramatic changes in the club industry from 2019 to 2023, including increased capital generation, facility investments, and unprecedented waiting lists at many clubs.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Ed Heil (00:00):
You are listening to Crushing Club Marketing, a podcast for progressive club leaders ready to increase their club's revenue. Time for Change begins right now. [9.3]
(00:00):
You are listening to Crushing Club Marketing, a podcast for progressive club leaders ready to increase their club's revenue. Time for Change begins right now. [9.3]
Assessments. They seem to go hand in hand with private club membership. Many clubs have voted to assess members for new amenities in recent years, and many more are considering doing the same in the months ahead. Like death and taxes, clubs see assessment as a necessary evil. But are they? In this episode, we talk to Jim Butler, CEO of Club Benchmarking, who shares his perspective on assessments and how clubs can plan for the future more thoughtfully. Well, thanks for listening in today. There are two things that freak out people who are looking to join a private club, especially if they are first time club members or looking at clubs for the first time. The two things are initiation fees and assessments, and both are levers that clubs pull to keep their clubs financially viable and moving forward in many cases. But it is a vicious circle and it's become the expectation for how clubs operate, in many cases. The clubs amenities get old, as you know, and they need to be updated or expanded in order to keep the members happy and also to be able to attract new members. And then an assessment comes up and it's voted on. And if it passes, great. If not, well, your club might be stuck or at least scrambling for alternatives to make sure that some of the essential things are taken care of. You could also potentially increase initiation fees and dues. But then what happens in a down economy and updates have to be made? If the membership isn't healthy and engaged, clubs run the risk of losing members and then they might also be unable to attract new members. And that's not even to mention, some of the other quote unquote "casualties" of this whole thing, which is distrust in the marketplace. And that can have an impact on prospective members. You know, I you know, the situation is if a club's initiation fees bounce all over the place, a prospective member could decide to sit on the sideline and wait for that best deal to come along. Or, even worse, they could say, you know what, I don't want to play that game. This seems kind of crappy. And, and I don't trust it. So, you know, I'm going to go build a home or go buy a place on a lake and spend my time there. Right? With the kids and, and approach their discretionary income that way. And yet it doesn't have to be that way. And oddly enough, I do spend some time thinking about these things. And I decided to reach out to Jim Butler, the CEO of Club Benchmarking. He and I had met several years ago at a conference, and I've wanted to have him as a guest for years, but our schedules didn't always align. So I'm looking forward to the conversation today. And in prepping for our discussion, just a little public service announcement for you, but while I was getting ready, I went to the Club Benchmarking website, just doing a little digging around and stuff, and I came across this white paper that's called "Measuring Capital Health." And I downloaded it, put my email and my name and all the stuff in there, and I got this document and it's a terrific piece that introduced me to a completely different way of looking at managing and monitoring your club's financial health. This is not my industry. I'm a marketer, as you as you may know, but we do so much work in the club space, I'm like, "gosh," it'd be better to understand this a little bit better. So read it if you haven't. It's, it's really worth a short read and it can be very insightful and connected to what Jim and I are talking about today. So anyway, Jim and I recently spoke about the white paper. We talked about the industry, of course, and managing the financial health of clubs. So, Jim, thanks so much for joining me today. It's.. This is such an interesting topic for me as someone who's trying to learn more about how, you know, the whole kind of the financial planning world works for for private clubs. And, Lord knows for so many people in the club industry and for members, it can be very confusing when it comes to capital improvements and assessments. And so often when, you know, clubs start talking about making improvements and then it's always like, well, what is there going to be an assessment? And how much is it going to be? And I guess maybe the first place that I'd love to start is, you know, what do most members and, and many club leaders not really understand about assessments and how operating and capital income can impact the need for and even the amount of the for the assessments? [270.5]
Assessments. They seem to go hand in hand with private club membership. Many clubs have voted to assess members for new amenities in recent years, and many more are considering doing the same in the months ahead. Like death and taxes, clubs see assessment as a necessary evil. But are they? In this episode, we talk to Jim Butler, CEO of Club Benchmarking, who shares his perspective on assessments and how clubs can plan for the future more thoughtfully. Well, thanks for listening in today. There are two things that freak out people who are looking to join a private club, especially if they are first time club members or looking at clubs for the first time. The two things are initiation fees and assessments, and both are levers that clubs pull to keep their clubs financially viable and moving forward in many cases. But it is a vicious circle and it's become the expectation for how clubs operate, in many cases. The clubs amenities get old, as you know, and they need to be updated or expanded in order to keep the members happy and also to be able to attract new members. And then an assessment comes up and it's voted on. And if it passes, great. If not, well, your club might be stuck or at least scrambling for alternatives to make sure that some of the essential things are taken care of. You could also potentially increase initiation fees and dues. But then what happens in a down economy and updates have to be made? If the membership isn't healthy and engaged, clubs run the risk of losing members and then they might also be unable to attract new members. And that's not even to mention, some of the other quote unquote "casualties" of this whole thing, which is distrust in the marketplace. And that can have an impact on prospective members. You know, I you know, the situation is if a club's initiation fees bounce all over the place, a prospective member could decide to sit on the sideline and wait for that best deal to come along. Or, even worse, they could say, you know what, I don't want to play that game. This seems kind of crappy. And, and I don't trust it. So, you know, I'm going to go build a home or go buy a place on a lake and spend my time there. Right? With the kids and, and approach their discretionary income that way. And yet it doesn't have to be that way. And oddly enough, I do spend some time thinking about these things. And I decided to reach out to Jim Butler, the CEO of Club Benchmarking. He and I had met several years ago at a conference, and I've wanted to have him as a guest for years, but our schedules didn't always align. So I'm looking forward to the conversation today. And in prepping for our discussion, just a little public service announcement for you, but while I was getting ready, I went to the Club Benchmarking website, just doing a little digging around and stuff, and I came across this white paper that's called "Measuring Capital Health." And I downloaded it, put my email and my name and all the stuff in there, and I got this document and it's a terrific piece that introduced me to a completely different way of looking at managing and monitoring your club's financial health. This is not my industry. I'm a marketer, as you as you may know, but we do so much work in the club space, I'm like, "gosh," it'd be better to understand this a little bit better. So read it if you haven't. It's, it's really worth a short read and it can be very insightful and connected to what Jim and I are talking about today. So anyway, Jim and I recently spoke about the white paper. We talked about the industry, of course, and managing the financial health of clubs. So, Jim, thanks so much for joining me today. It's.. This is such an interesting topic for me as someone who's trying to learn more about how, you know, the whole kind of the financial planning world works for for private clubs. And, Lord knows for so many people in the club industry and for members, it can be very confusing when it comes to capital improvements and assessments. And so often when, you know, clubs start talking about making improvements and then it's always like, well, what is there going to be an assessment? And how much is it going to be? And I guess maybe the first place that I'd love to start is, you know, what do most members and, and many club leaders not really understand about assessments and how operating and capital income can impact the need for and even the amount of the for the assessments? [270.5]
Jim Butler (00:04):
Yeah. Yeah. I think historically, Ed it's great to be with you too, and thanks for all you do in the industry such as such as this and having a platform to talk about some of these things. But the club industry is a very unique industry and there's two main points that I would make to kick us off today. One is that we are in a not-for-profit business model, and many of the board members that come into the clubs are very familiar with for-profit models and are trying to drive profit. And they drive that profit both to reinvest in either their facilities or their assets and to pay back stakeholders. But at the end of the day, they're judged on efficiency, how profitable they're going to be, what kind of growth rates they're going to have, how many new customers that they acquire, and they come into the club industry. And we don't do any of that. So we're a not-for-profit industry. The majority of clubs break even in operations, so we lead with the thought that, number one, this is a not-for-profit industry. So the operating ledger is not a financial driver at the club and we usually have to duck after that because the board members, that goes right over the top of their head because they come from a world of for-profit. And I'm from Michigan originally, and if you talked to a manufacturing person out of Ford, the first thing they're going to do is start talking about efficiency and how we're going to have efficiency in the club business, and have very little to do with it. As a matter of fact, by definition, the operating ledger doesn't drive the business. So therefore, everybody in the club industry that's a not-for-profit has no competitive advantage on the operating ledger because they don't make money. [123.9]
Yeah. Yeah. I think historically, Ed it's great to be with you too, and thanks for all you do in the industry such as such as this and having a platform to talk about some of these things. But the club industry is a very unique industry and there's two main points that I would make to kick us off today. One is that we are in a not-for-profit business model, and many of the board members that come into the clubs are very familiar with for-profit models and are trying to drive profit. And they drive that profit both to reinvest in either their facilities or their assets and to pay back stakeholders. But at the end of the day, they're judged on efficiency, how profitable they're going to be, what kind of growth rates they're going to have, how many new customers that they acquire, and they come into the club industry. And we don't do any of that. So we're a not-for-profit industry. The majority of clubs break even in operations, so we lead with the thought that, number one, this is a not-for-profit industry. So the operating ledger is not a financial driver at the club and we usually have to duck after that because the board members, that goes right over the top of their head because they come from a world of for-profit. And I'm from Michigan originally, and if you talked to a manufacturing person out of Ford, the first thing they're going to do is start talking about efficiency and how we're going to have efficiency in the club business, and have very little to do with it. As a matter of fact, by definition, the operating ledger doesn't drive the business. So therefore, everybody in the club industry that's a not-for-profit has no competitive advantage on the operating ledger because they don't make money. [123.9]
Ed Heil (00:06):
Mhm. [0.0] Ed Heil
Jim Butler (00:06):
So that's number one. So that's really important for a board member because we have to put the focus on membership satisfaction, not on profitability. Number two, clubs are very capital intense. So the average club has a gross asset number on their balance sheet of about $28 million. So I always joke with people, okay, who would want to have to put up $28 million to make no money? And they usually laughs because we would say, well, that's a pretty dumb business model. But that, in terms of the club, that's what we have to have. And the amount of investment in clubs, especially in the last ten years as the demographics have changed. As you know, during the downturn in 2008 or 9, that's when clubs really had to start focusing on the families and reinvest in the facilities and change their facilities. And in order to do that, we're in the capital business. The clubs that are the strongest are the ones that have the best capital engine. The difference in clubs is not on the operating ledger, it's on the balance sheet. Which clubs can create the most amount of capital? You're in Detroit. Right now, Oakland Hills, the clubhouse burned down. What do they have to do? They have to, they have to create capital in order to replace that asset. It's not, they're not finding that on the operating ledger. They got to collect capital and every club is faced with that in terms of if I want to be a general manager or a board member, I want to be on a club that has the strongest capital engine, because the operating ledger by definition in our business is breakeven. [113.0]
So that's number one. So that's really important for a board member because we have to put the focus on membership satisfaction, not on profitability. Number two, clubs are very capital intense. So the average club has a gross asset number on their balance sheet of about $28 million. So I always joke with people, okay, who would want to have to put up $28 million to make no money? And they usually laughs because we would say, well, that's a pretty dumb business model. But that, in terms of the club, that's what we have to have. And the amount of investment in clubs, especially in the last ten years as the demographics have changed. As you know, during the downturn in 2008 or 9, that's when clubs really had to start focusing on the families and reinvest in the facilities and change their facilities. And in order to do that, we're in the capital business. The clubs that are the strongest are the ones that have the best capital engine. The difference in clubs is not on the operating ledger, it's on the balance sheet. Which clubs can create the most amount of capital? You're in Detroit. Right now, Oakland Hills, the clubhouse burned down. What do they have to do? They have to, they have to create capital in order to replace that asset. It's not, they're not finding that on the operating ledger. They got to collect capital and every club is faced with that in terms of if I want to be a general manager or a board member, I want to be on a club that has the strongest capital engine, because the operating ledger by definition in our business is breakeven. [113.0]
Ed Heil (00:08):
So that's a... And that makes so much sense. And yet the question is how? How do clubs generate more capital income and how do they, like, what are their, you know, are there are there certain go-to ways? I mean, obviously, you know, you can increase that part of the member dues. But what are the other ways that you see the clubs, clubs are able to do this? [24.6]
So that's a... And that makes so much sense. And yet the question is how? How do clubs generate more capital income and how do they, like, what are their, you know, are there are there certain go-to ways? I mean, obviously, you know, you can increase that part of the member dues. But what are the other ways that you see the clubs, clubs are able to do this? [24.6] Jim Butler
Jim Butler (00:10):
Yeah. So the, so number one, operating dues does not influence the capital side because clubs are breakeven and the operating and the operating dues, clubs consume the operating dues and fund the amenity. But it's at breakeven at the end of the day. So the things that fund the capital side are the capital dues, and capital dues are relatively new to our industry. And we'll talk about why that is here in a in a second. Initiation fee income. And we've seen the initiation fees and clubs increase, especially in the last 4 or 5 years. We've seen, in a lot of cases, we've seen them double as we go forward and then assessments which, generally members earn crazy about assessments, but those are the three main buckets. And relatively speaking, the clubs fund their capital fairly equally. Between those three buckets, it's about a third, a third, a third in terms of between the capital dues, initiation fees, and assessments in the industry. [71.7]
Ed Heil (00:10):
And so, you know, that's that makes sense and seems typical. There are some outliers I'd love to learn more about from you as well. But focusing on those three items, and this is kind of helping new members understand how this works as well. So they see an initiation fee. All of that initiation fee usually will go to capital. Is that correct? Is that kind of the typical... [28.2]
And so, you know, that's that makes sense and seems typical. There are some outliers I'd love to learn more about from you as well. But focusing on those three items, and this is kind of helping new members understand how this works as well. So they see an initiation fee. All of that initiation fee usually will go to capital. Is that correct? Is that kind of the typical... [28.2]
Jim Butler (00:10):
That's what, that's what we'd like to see. And some, there are some clubs that have operating deficits and the only place that they can really get that money is on the capital side. And that's a very slippery slope to go in because again, if you got a $28 million asset that is typically, and clubs are underfunded generally on capital, that's why we have assessments. We have assessments because clubs don't have enough capital [30.8]
That's what, that's what we'd like to see. And some, there are some clubs that have operating deficits and the only place that they can really get that money is on the capital side. And that's a very slippery slope to go in because again, if you got a $28 million asset that is typically, and clubs are underfunded generally on capital, that's why we have assessments. We have assessments because clubs don't have enough capital [30.8]
Ed Heil (00:11):
Right. [0.0] Ed Heil
Jim Butler (00:12):
in generation of that. So if you're taking that to fund operations, that's not a good thing. We don't like to see that and the majority of clubs have gotten away from that. But there is a small contingent of clubs that have that. But what the industry as a whole is underfunded on the capital because and I would say for the most part because we had not understand the importance of capital until the last decade and management and boards are obviously we're all learning every single day, but we've learned how significant the need for capital is in the industry. And I- I'm going to go back to that 2009. Clubs used to have refundable. You, you know, you're old enough to remember when we had refundability and membership. [46.7]
Ed (00:12):
Absolutely. Yeah. [0.6] Ed
Jim Butler (00:12):
And when we talk about the Michigan market and you talk about some of the big developers coming out of Michigan, they build the clubs and in order to sell the memberships, they had refundable memberships. Well, when the market crashed in 2008 and nine, that really went away and initiation fees decreased and clubs started collecting capital dues to help supplement that. But we- we think, we believe that unless you're a, unless you want to do it on purpose, and we do have clubs in our database that do assess and want to assess, those are usually the really high-end clubs. But we we're on a mission to try for those clubs that want to get rid of the assessments, to get rid of the assessments and create a stronger capital engine between the capital dues and the initiation fees. [55.5]
And when we talk about the Michigan market and you talk about some of the big developers coming out of Michigan, they build the clubs and in order to sell the memberships, they had refundable memberships. Well, when the market crashed in 2008 and nine, that really went away and initiation fees decreased and clubs started collecting capital dues to help supplement that. But we- we think, we believe that unless you're a, unless you want to do it on purpose, and we do have clubs in our database that do assess and want to assess, those are usually the really high-end clubs. But we we're on a mission to try for those clubs that want to get rid of the assessments, to get rid of the assessments and create a stronger capital engine between the capital dues and the initiation fees. [55.5]
Ed (00:13):
Is that I mean is is maybe a simple way of, look, this is probably oversimplifying, but in reading your white paper, it almost seem like the idea is your capital fund is your savings account. [13.3]
Is that I mean is is maybe a simple way of, look, this is probably oversimplifying, but in reading your white paper, it almost seem like the idea is your capital fund is your savings account. [13.3]
Jim Butler (00:13):
You're it's it is every I wouldn't say savings account. [4.5]
You're it's it is every I wouldn't say savings account. [4.5] Ed Heil
Ed Heil (00:13):
But investment account. [0.7]
Jim Butler (00:13):
It's your investment account. Because when we look at the balance sheet of a typical, the balance sheet of a typical club is really simple. There's only two lines that are significant. One is cash and one is net property, plant, and equipment. And if I said to you and you're on your committee at your club there, do you know that if you're the typical club, 75% of your assets on the balance sheet are in net property, plant, and equipment? So when we have money in the club business, we don't pay it back in profit. We don't pay it back to stakeholders. What do we do with that? We put it back into facilities. So any money that you have or you make is having enough money to go back and put into your facilities. And when you look at a balance sheet of the club and you don't have to be a financial guru to understand it, assets are equal to liability and equity. And on the asset side, 75% are in net property, plant, and equipment, and that's very symmetrical to the right side which liabilities and equity have to match up to the asset. And in the club business, the member equity line, which is typically about 70%, is, is very simply matches up to net property, plant, and equipment, which is about 75%. What does that mean in English? Yeah, that means that the money that you get from the members is going to go into net property, plant, and equipment. And the only reason we have assessments are because we don't have enough member equity. [111.9]
It's your investment account. Because when we look at the balance sheet of a typical, the balance sheet of a typical club is really simple. There's only two lines that are significant. One is cash and one is net property, plant, and equipment. And if I said to you and you're on your committee at your club there, do you know that if you're the typical club, 75% of your assets on the balance sheet are in net property, plant, and equipment? So when we have money in the club business, we don't pay it back in profit. We don't pay it back to stakeholders. What do we do with that? We put it back into facilities. So any money that you have or you make is having enough money to go back and put into your facilities. And when you look at a balance sheet of the club and you don't have to be a financial guru to understand it, assets are equal to liability and equity. And on the asset side, 75% are in net property, plant, and equipment, and that's very symmetrical to the right side which liabilities and equity have to match up to the asset. And in the club business, the member equity line, which is typically about 70%, is, is very simply matches up to net property, plant, and equipment, which is about 75%. What does that mean in English? Yeah, that means that the money that you get from the members is going to go into net property, plant, and equipment. And the only reason we have assessments are because we don't have enough member equity. [111.9]
Ed Heil (00:15):
Got it. And just for the listener, the net property, plant, and equipment is basically like the structures on the club. Is that accurate? [7.3]
Got it. And just for the listener, the net property, plant, and equipment is basically like the structures on the club. Is that accurate? [7.3]
Jim Butler (00:15):
It's the structure and all equipment within the club
It's the structure and all equipment within the club
Ed Heil (00:16):
Yeah. Got it. Interesting. So can we just go back to something you said earlier, which is the capital dues being new to the industry? Why? Why is that When when I hear you say that, you know, like, you know, in the last ten years, I think
Yeah. Got it. Interesting. So can we just go back to something you said earlier, which is the capital dues being new to the industry? Why? Why is that When when I hear you say that, you know, like, you know, in the last ten years, I think
Jim Butler (00:16):
Yeah, it's it's possible because the you know, the changing of the market in the club business. When- you know, the two things that I say that has happened, and- and we've seen downturns in the industry and we've seen with Covid the upturn in the industry, but when--and I'm just going to go back to 2009--when there was a downturn in the industry, many clubs had to cut their initiation fees to get more members. But they were also faced with the- they had to change some of their facilities. We had to get into fitness and wellness. We had to get into casual dining. We had to build the golf courses. We had more sets of tees on the golf course, and all of that required more capital income. And in order to have more capital income in a world that was downsizing, clubs had to come up with another avenue of capital and they had the advent of capital dues at that, at that point of time to generate more capital. We see it all the time where clubs will assess and they'll assess through some form of annual payment that the members make in time. And it's very rare that we see that go away, maybe have a ten year assessment program. They get paid $1,500 a year at the end of that ten years. And I'm here to tell you it's not going anywhere because you're going to- the club needs that capital money. [92.3]
Yeah, it's it's possible because the you know, the changing of the market in the club business. When- you know, the two things that I say that has happened, and- and we've seen downturns in the industry and we've seen with Covid the upturn in the industry, but when--and I'm just going to go back to 2009--when there was a downturn in the industry, many clubs had to cut their initiation fees to get more members. But they were also faced with the- they had to change some of their facilities. We had to get into fitness and wellness. We had to get into casual dining. We had to build the golf courses. We had more sets of tees on the golf course, and all of that required more capital income. And in order to have more capital income in a world that was downsizing, clubs had to come up with another avenue of capital and they had the advent of capital dues at that, at that point of time to generate more capital. We see it all the time where clubs will assess and they'll assess through some form of annual payment that the members make in time. And it's very rare that we see that go away, maybe have a ten year assessment program. They get paid $1,500 a year at the end of that ten years. And I'm here to tell you it's not going anywhere because you're going to- the club needs that capital money. [92.3] Ed Heil
Ed Heil (00:18):
And, and, I mean, based upon what you're saying and what I'm- I'm learning is that that's not a bad thing. I mean if you can as a club, it's almost like if you can put more- if you can invest more money into the future of your club, that will create a healthier club in the future that maybe will avoid assessments in a perfect world. [20.7]
Jim Butler (00:18):
Yeah, they absolutely and this is a very I'm going to tell a cute story just so everybody can remember. Can remember this. So there's a Ray Cronin, who's my partner and the founder of Club Benchmarking, was the president of Thorny Lea Golf Club up in Boston. And they had a 50 year old irrigation system and irrigation systems typically last 20 to 25 years. And Ray wanted to put in capital dues as president of the club. And half the members loved Ray and half the members weren't so high on Ray for putting- trying to put capital dues in. So they had a town hall meeting. And one of the members who had been a member at the club for a long time stood up and said, "Hey, I'm 83 years old. I don't want to- I'm only going to play golf a couple more years and I don't want to pay for the new irrigation system because I don't think that's fair" Ed. And the reaction is, "okay, well, how long have you been a member of the club?" "Well, I've been a member of the club for 45 years." "Well, during that 45 years, how much have you paid in capital dues?" "Well, I haven't paid anything in capital dues because we don't have capital dues." "Okay. 45 years ago, how much did you pay for initiation fees?" "Well, they had- they were running a great deal 45 years ago. So all I had to do was pay dues." And so the point of that is, to this person, Mr. Smith, we don't want you to pay for the new irrigation system that you are not going to use. We want you to pay for the old irrigation system, which you didn't contribute a penny to and used it for 45 years. And that's- that's the, that's the core part of that, Ed. There's a consumption of capital in the club business. And from an accounting standpoint, we call that depreciation. So when we talk about the club industry as a breakeven, it's breakeven without depreciation. So we- people- clubs need to pay for depreciation plus inflation, plus any new facilities. Up until about ten years ago, the vast majority of clubs were not covering the cost of capital consumption like the example that I gave you, and they were pushing that onto the new members. And only using initiation fees because there wasn't a capital consumption cost like capital dues. And that's where the capital dues came from. And we're still working through that as an industry. Club Benchmarking feels like the best practice is that capital dues ought to cover the cost of that capital consumption. Depreciation with inflation, if you will. You know, we're advocates of having, you know, an up to date capital reserve study or asset management, which is more useful life and even more accurate to be able to cover that with capital dues. And we think the initiation fees ought to be used for what we call aspirational capital. You know, pickleball, nobody had ever heard of pickleball before. And we're... This casual outdoor dining, the golf technology, the teaching facilities, all of the new stuff that has come in. We don't believe that using that initiation fees predominantly to cover the cost of capital is actually fair or the right business models for clubs to use. [227.3]
Yeah, they absolutely and this is a very I'm going to tell a cute story just so everybody can remember. Can remember this. So there's a Ray Cronin, who's my partner and the founder of Club Benchmarking, was the president of Thorny Lea Golf Club up in Boston. And they had a 50 year old irrigation system and irrigation systems typically last 20 to 25 years. And Ray wanted to put in capital dues as president of the club. And half the members loved Ray and half the members weren't so high on Ray for putting- trying to put capital dues in. So they had a town hall meeting. And one of the members who had been a member at the club for a long time stood up and said, "Hey, I'm 83 years old. I don't want to- I'm only going to play golf a couple more years and I don't want to pay for the new irrigation system because I don't think that's fair" Ed. And the reaction is, "okay, well, how long have you been a member of the club?" "Well, I've been a member of the club for 45 years." "Well, during that 45 years, how much have you paid in capital dues?" "Well, I haven't paid anything in capital dues because we don't have capital dues." "Okay. 45 years ago, how much did you pay for initiation fees?" "Well, they had- they were running a great deal 45 years ago. So all I had to do was pay dues." And so the point of that is, to this person, Mr. Smith, we don't want you to pay for the new irrigation system that you are not going to use. We want you to pay for the old irrigation system, which you didn't contribute a penny to and used it for 45 years. And that's- that's the, that's the core part of that, Ed. There's a consumption of capital in the club business. And from an accounting standpoint, we call that depreciation. So when we talk about the club industry as a breakeven, it's breakeven without depreciation. So we- people- clubs need to pay for depreciation plus inflation, plus any new facilities. Up until about ten years ago, the vast majority of clubs were not covering the cost of capital consumption like the example that I gave you, and they were pushing that onto the new members. And only using initiation fees because there wasn't a capital consumption cost like capital dues. And that's where the capital dues came from. And we're still working through that as an industry. Club Benchmarking feels like the best practice is that capital dues ought to cover the cost of that capital consumption. Depreciation with inflation, if you will. You know, we're advocates of having, you know, an up to date capital reserve study or asset management, which is more useful life and even more accurate to be able to cover that with capital dues. And we think the initiation fees ought to be used for what we call aspirational capital. You know, pickleball, nobody had ever heard of pickleball before. And we're... This casual outdoor dining, the golf technology, the teaching facilities, all of the new stuff that has come in. We don't believe that using that initiation fees predominantly to cover the cost of capital is actually fair or the right business models for clubs to use. [227.3]
Ed Heil (00:22):
So is it- is going back to the the what you were saying earlier about that a lot of board members who come from the for-profit world try to apply the for-profit thinking into a nonprofit. And so at that time, it's like, well, we have initiation, we have dues that should cover everything, but in fact, it doesn't in it, you know, and probably became more obvious after 2009. And is that part of the whole, am I getting my piece in this in a somewhat..? [33.7]
So is it- is going back to the the what you were saying earlier about that a lot of board members who come from the for-profit world try to apply the for-profit thinking into a nonprofit. And so at that time, it's like, well, we have initiation, we have dues that should cover everything, but in fact, it doesn't in it, you know, and probably became more obvious after 2009. And is that part of the whole, am I getting my piece in this in a somewhat..? [33.7]
Jim Butler (00:22):
If I if I go into a board--and I love doing this and we're in front of a lot of boards at Club Benchmarking--and if I say to them
If I if I go into a board--and I love doing this and we're in front of a lot of boards at Club Benchmarking--and if I say to them
Ed Heil (00:24):
Absolutely yeah. [0.8] Jim Butler
Jim Butler (00:25):
But at the club they generally can't. We think the most important metric is that net worth, because that net worth represents the amount of money you have in excess of depreciation. And is the money that you have to grow the club and invest back in the facilities. And there's three- and we put them in three buckets. There's clubs that have decreasing net worth and we can predict with 100% certainty what's going to happen in those clubs. And there's going to be a major capital call because they're not keeping up with their facility. There's clubs that are flat. We call them "yellow bucket clubs." They're not growing as much as inflation is growing. And again, we can predict with 100% certainty what's going to happen in those clubs. There's going to be a capital call. And then about 25% of the industry that is growing at a rate higher than inflation. And in those clubs, we argue about how to spend the capital money versus the "yellow bucket clubs" and the "red bucket clubs" where we argue about how are we going to raise the money. [68.1]
Ed Heil (00:25):
Right. Got it. So understanding that this is not a net worth question. How does a club like the Union League of Philadelphia, and I think Jeff McFadden actually shared that Ray Cronin story with me in an episode I did with him, how does that go from like a $7 million club to over $100 million? [20.3]
Right. Got it. So understanding that this is not a net worth question. How does a club like the Union League of Philadelphia, and I think Jeff McFadden actually shared that Ray Cronin story with me in an episode I did with him, how does that go from like a $7 million club to over $100 million? [20.3]
Jim Butler (00:25):
Yeah, the- the funding on that club is based on, he's taken in more members, and he is playing chess where many people are playing checkers. And Jeff understands the business model of clubs better than anybody. And the membership value that is equated with that and that is
Yeah, the- the funding on that club is based on, he's taken in more members, and he is playing chess where many people are playing checkers. And Jeff understands the business model of clubs better than anybody. And the membership value that is equated with that and that is
Ed Heil (00:26):
Yeah. What are the things that, to that point, and I was fascinated and when I would listen was listening to him explain some of this stuff. And I mean, there's just I've never seen anyone like that and heard anything like that. Yet, people will go to Union League to go meet with Jeff and see what he's done. What are the takeaways? I mean, you kind of just saide it, but what are the takeaways that, you know, you say to the club that maybe doesn't have the same opportunities? I mean, or might seem like you don't have the same opportunities to do what was done at the Union League. What is what are the learnings that you take and that you can share with other clubs that are maybe those the yellow- in the yellow area, you know, that are that are trying to figure it out? [44.4]
Yeah. What are the things that, to that point, and I was fascinated and when I would listen was listening to him explain some of this stuff. And I mean, there's just I've never seen anyone like that and heard anything like that. Yet, people will go to Union League to go meet with Jeff and see what he's done. What are the takeaways? I mean, you kind of just saide it, but what are the takeaways that, you know, you say to the club that maybe doesn't have the same opportunities? I mean, or might seem like you don't have the same opportunities to do what was done at the Union League. What is what are the learnings that you take and that you can share with other clubs that are maybe those the yellow- in the yellow area, you know, that are that are trying to figure it out? [44.4]
Jim Butler (00:27):
Yeah. Yeah. I think, number one, you have to understand the business model and what business you're in. And I say that sincerely. We go around the country, look at clubs' financials, visit the clubs, talk to people and really help them understand the business model that they're in. And we believe strategic planning is finding the issues in clubs and then developing strategies to overcome them. And that's exactly what Jeff did, is they were looking for more members, they were looking for more capital. So he very simply figured out that in that case it was creating more opportunities and adding more members. And then when you do that and you satisfy them and create value, you can increase initiation fees and- and increase operating dues. And that's that was the model he did. I'll give you a couple other examples of that. The there's a club in Naples called Grey Oaks. And Grey Oaks had an aging membership there. And in the Naples market, and there's plenty of clubs, there's 150 clubs down there. So in order to increase the turn and the real estate market, they partnered with Moorings Park, which is an A-rated independent assisted living facility. It allowed the older members to move out right next door to go keep their membership, created $1 million worth of additional dues to the club forever. So all that issue and that was a fantastic example of that. Mediterra in Naples, what did they do? They went on the beach there located kind of inshore, you know, about ten, 12 miles. A lot of their members wanted a beach club. What did they do? They went out and bought a beach club for that and satisfied that part of that. So you got to be brave. You got to be innovative. You got to create opportunities. And you got to lead the board to do that. It's- we have yet to come across somebody that we work with that you can't innovate and get out of the issue. But do what you have to do? Is you have to create membership value, right Ed? I mean, that's the business you're in. If you're not doing that, then the market will pass you by and the market changes every day. We've seen it generationally, but you've got to, you know, and this is what leadership is about seeing value where other people don't see it and then taking steps to overcoming those bottlenecks. [168.2]
Yeah. Yeah. I think, number one, you have to understand the business model and what business you're in. And I say that sincerely. We go around the country, look at clubs' financials, visit the clubs, talk to people and really help them understand the business model that they're in. And we believe strategic planning is finding the issues in clubs and then developing strategies to overcome them. And that's exactly what Jeff did, is they were looking for more members, they were looking for more capital. So he very simply figured out that in that case it was creating more opportunities and adding more members. And then when you do that and you satisfy them and create value, you can increase initiation fees and- and increase operating dues. And that's that was the model he did. I'll give you a couple other examples of that. The there's a club in Naples called Grey Oaks. And Grey Oaks had an aging membership there. And in the Naples market, and there's plenty of clubs, there's 150 clubs down there. So in order to increase the turn and the real estate market, they partnered with Moorings Park, which is an A-rated independent assisted living facility. It allowed the older members to move out right next door to go keep their membership, created $1 million worth of additional dues to the club forever. So all that issue and that was a fantastic example of that. Mediterra in Naples, what did they do? They went on the beach there located kind of inshore, you know, about ten, 12 miles. A lot of their members wanted a beach club. What did they do? They went out and bought a beach club for that and satisfied that part of that. So you got to be brave. You got to be innovative. You got to create opportunities. And you got to lead the board to do that. It's- we have yet to come across somebody that we work with that you can't innovate and get out of the issue. But do what you have to do? Is you have to create membership value, right Ed? I mean, that's the business you're in. If you're not doing that, then the market will pass you by and the market changes every day. We've seen it generationally, but you've got to, you know, and this is what leadership is about seeing value where other people don't see it and then taking steps to overcoming those bottlenecks. [168.2]
Ed Heil (00:30):
Yeah. Interesting. I just have one other question for you around this, because I think it's, you know, everything that we're- and there's so much more to talk about just, you know, in the interest, and I'd love to pick this up and with other dimensions because there's so much to it. But so much of this seems to start with the board of directors, the board of governors, and, you know, whatever, and of course, the club leaders. What is the barrier for club leadership to- to embrace the things that you're doing at Club Benchmarking and some of the thinking that- that you, you know, that you believe? [41.6]
Yeah. Interesting. I just have one other question for you around this, because I think it's, you know, everything that we're- and there's so much more to talk about just, you know, in the interest, and I'd love to pick this up and with other dimensions because there's so much to it. But so much of this seems to start with the board of directors, the board of governors, and, you know, whatever, and of course, the club leaders. What is the barrier for club leadership to- to embrace the things that you're doing at Club Benchmarking and some of the thinking that- that you, you know, that you believe? [41.6]
Jim Butler (00:31):
Yeah, I- you know, I think that it's it comes down to education. The club industry is a boutique industry where you have fundamentally 3800 small businesses that run their own businesses. And the private club is just that. They're private. If we go to Orchard Lake, Orchard Lake is not really interested in taking the financials and putting them up in the Detroit News every day so everybody can see that. So we have this insular look from our directors, from a board of directors, where they only have the viewpoint within their own club. And whereas if we're working at Ford or GM, you know, we can go to Yahoo! Finance and go see what the competitors are doing. And that's what, obviously Club Benchmarking brings, is that we do financial benchmarking on the industry to help educate the board. And then we have this issue of the club business where we have a board of directors, 9 to 11 people, typically. We change 3 to 4 of them every year. And fundamentally at the end of three years we have a brand new board and we have to start on over and educate them on what we're doing. And so we find a lot of times that the clubs don't spend enough time educating the business model within the boards. It's not an intelligence issue because the boards are very smart. They're CEOs, CFO, COOs, marketing people, they're very successful people and that's why they belong to a club. And once you can explain, I can't tell you how many times we walk out of a board retreat where we have very sophisticated financial people say, you know what? Nobody ever explained that to me. I did not understand that. I did not understand how capital intense clubs were or how important membership value and satisfaction was. And the difference between the operating ledger and the capital ledger. And why would you, if nobody's ever explained it to you, you know why- why would you? And- and that's, you know, the experience of that and being able to look at it in aggregate. And that is about choice, right? Ed, you know, in your business, the clubs that are really successful are the ones that have made the right choices. So if we can frame what the questions are, then the board can make the determination on what they- what they want to know. And it's counterintuitive. I mean, I'll give you a couple examples that are a poster child, that Club Benchmarking. The clubs that subsidize food and beverage the most--or if I put it another way, the clubs that lose the most amount of money in food and beverage--are the strongest clubs financially in the industry. Put that against somebody that's running a for-profit restaurant and see what they think about that. Right? It's just totally counterintuitive to them. [191.9]
Yeah, I- you know, I think that it's it comes down to education. The club industry is a boutique industry where you have fundamentally 3800 small businesses that run their own businesses. And the private club is just that. They're private. If we go to Orchard Lake, Orchard Lake is not really interested in taking the financials and putting them up in the Detroit News every day so everybody can see that. So we have this insular look from our directors, from a board of directors, where they only have the viewpoint within their own club. And whereas if we're working at Ford or GM, you know, we can go to Yahoo! Finance and go see what the competitors are doing. And that's what, obviously Club Benchmarking brings, is that we do financial benchmarking on the industry to help educate the board. And then we have this issue of the club business where we have a board of directors, 9 to 11 people, typically. We change 3 to 4 of them every year. And fundamentally at the end of three years we have a brand new board and we have to start on over and educate them on what we're doing. And so we find a lot of times that the clubs don't spend enough time educating the business model within the boards. It's not an intelligence issue because the boards are very smart. They're CEOs, CFO, COOs, marketing people, they're very successful people and that's why they belong to a club. And once you can explain, I can't tell you how many times we walk out of a board retreat where we have very sophisticated financial people say, you know what? Nobody ever explained that to me. I did not understand that. I did not understand how capital intense clubs were or how important membership value and satisfaction was. And the difference between the operating ledger and the capital ledger. And why would you, if nobody's ever explained it to you, you know why- why would you? And- and that's, you know, the experience of that and being able to look at it in aggregate. And that is about choice, right? Ed, you know, in your business, the clubs that are really successful are the ones that have made the right choices. So if we can frame what the questions are, then the board can make the determination on what they- what they want to know. And it's counterintuitive. I mean, I'll give you a couple examples that are a poster child, that Club Benchmarking. The clubs that subsidize food and beverage the most--or if I put it another way, the clubs that lose the most amount of money in food and beverage--are the strongest clubs financially in the industry. Put that against somebody that's running a for-profit restaurant and see what they think about that. Right? It's just totally counterintuitive to them. [191.9]
Ed Heil (00:34):
Is it because the member experience and that they're investing in that? [3.3]
Is it because the member experience and that they're investing in that? [3.3]
Jim Butler (00:34):
It's the member experience and it's a zero sum game that, although food and beverage is subsidized, at the end of the day, the operating ledgers breakeven. And oh by the way, golf course and the golf course maintenance and the golf shop operations in a typical club loses 2 to 3 times the money that the food and beverage do. And yet we've never taken a call in our office
It's the member experience and it's a zero sum game that, although food and beverage is subsidized, at the end of the day, the operating ledgers breakeven. And oh by the way, golf course and the golf course maintenance and the golf shop operations in a typical club loses 2 to 3 times the money that the food and beverage do. And yet we've never taken a call in our office
Ed Heil (00:35):
Right. Right. Yeah. So interesting. And the education component that you mention, it just seems so paramount to the whole the whole thing. Because, I mean, going back to the very beginning of our conversation of for-profit people in a nonprofit, in this nonprofit environment, in changing times, no less, to really understand that, yes, you're really smart and great at what you do, but this is a little bit different. And once you understand it, it almost makes me think that, not just the leaders and granted, not every member wants to know this, but if members better understood the model, they might not complain as much about certain things. Or they may, you know, if in fact the club is operating with the right intent and the right, you know, the right way. [46.4]
Right. Right. Yeah. So interesting. And the education component that you mention, it just seems so paramount to the whole the whole thing. Because, I mean, going back to the very beginning of our conversation of for-profit people in a nonprofit, in this nonprofit environment, in changing times, no less, to really understand that, yes, you're really smart and great at what you do, but this is a little bit different. And once you understand it, it almost makes me think that, not just the leaders and granted, not every member wants to know this, but if members better understood the model, they might not complain as much about certain things. Or they may, you know, if in fact the club is operating with the right intent and the right, you know, the right way. [46.4]
Jim Butler (00:36):
We think that is a critical component. And every new member, as part of their orientation, should understand what their responsibilities are and how it works. The typical club dues is somewhere around a thousand a month, just use that as an example. And the typical club member spends generally an equal amount to that. So somewhere around 10 to $20,000. Well, at the end of the year that $20,000 is completely used up and we do it again the next year. The club doesn't make any money on that. You start over from ground Zero. So the money that the club gets to keep to invest in the facilities is that initiation fee and that capital dues is and is continuous and much like operating dues go up in time, capital dues are going to have to go up in time and we have to continuously invest that. Now, if I go to the- to the typical club member at a club and I ask them to explain that to me, most of them, to your point, have no idea. And we believe that that's a real miss in the industry. And we're doing more and more town hall meetings. I mean, I've done three of them this week and I'm going to do three next week to explain the business model to members as a growing part of our business of treating members as owners, not just as customers. [97.6]
We think that is a critical component. And every new member, as part of their orientation, should understand what their responsibilities are and how it works. The typical club dues is somewhere around a thousand a month, just use that as an example. And the typical club member spends generally an equal amount to that. So somewhere around 10 to $20,000. Well, at the end of the year that $20,000 is completely used up and we do it again the next year. The club doesn't make any money on that. You start over from ground Zero. So the money that the club gets to keep to invest in the facilities is that initiation fee and that capital dues is and is continuous and much like operating dues go up in time, capital dues are going to have to go up in time and we have to continuously invest that. Now, if I go to the- to the typical club member at a club and I ask them to explain that to me, most of them, to your point, have no idea. And we believe that that's a real miss in the industry. And we're doing more and more town hall meetings. I mean, I've done three of them this week and I'm going to do three next week to explain the business model to members as a growing part of our business of treating members as owners, not just as customers. [97.6]
Ed Heil (00:37):
Yeah, I think that was one of the great lines in the white paper too. I mean, it's just- it's, it's such an important differentiation distinction in, in that. Jim, I really appreciate your time and your insight and I would love to talk more. I mean, it's hopefully I can I can hit you up for some more insight. And I know at Club Benchmarking you do so much research as well. You know, valuable information that I think many club leaders would appreciate. [27.1]
Yeah, I think that was one of the great lines in the white paper too. I mean, it's just- it's, it's such an important differentiation distinction in, in that. Jim, I really appreciate your time and your insight and I would love to talk more. I mean, it's hopefully I can I can hit you up for some more insight. And I know at Club Benchmarking you do so much research as well. You know, valuable information that I think many club leaders would appreciate. [27.1]
Jim Butler (00:38):
Yeah, we study it as, you know, getting ready for this podcast, I did a comparison of 2019 to 23, you know, post-COVID, pre-COVID and post-COVID. And the club industry has changed dramatically. We're generating a lot of capital. We're investing it in facilities. Half the clubs have a waiting list to get in. That's never happened before. Right, in the in the time that we've been in, we've had contraction. The number of clubs have gone from over 5000 down to 3800 in terms of that. And the industry is moving towards being healthier and healthier every day. Ed, you know, thanks for what you're doing of helping to educate people. [46.5]
Yeah, we study it as, you know, getting ready for this podcast, I did a comparison of 2019 to 23, you know, post-COVID, pre-COVID and post-COVID. And the club industry has changed dramatically. We're generating a lot of capital. We're investing it in facilities. Half the clubs have a waiting list to get in. That's never happened before. Right, in the in the time that we've been in, we've had contraction. The number of clubs have gone from over 5000 down to 3800 in terms of that. And the industry is moving towards being healthier and healthier every day. Ed, you know, thanks for what you're doing of helping to educate people. [46.5]
Ed Heil (00:39):
Hey, well, I appreciate that and look forward to to talking to your more. [2.7]
Hey, well, I appreciate that and look forward to to talking to your more. [2.7]
Jim Butler (00:39):
Okay. Thank you. [0.8]
Okay. Thank you. [0.8]
Ed Heil (00:39):
Thanks, Jim. And thank you for listening. If you find this podcast helpful, be sure to subscribe on iTunes, Google Play, Spotify or wherever you get your podcasts. Until next time, keep crushing your club marketing. [0.0] Ed Heil
You are listening to Crushing Club Marketing, a podcast for progressive club leaders ready to increase their club's revenue. Time for Change begins right now. [9.3]
(00:00):
You are listening to Crushing Club Marketing, a podcast for progressive club leaders ready to increase their club's revenue. Time for Change begins right now. [9.3]
Assessments. They seem to go hand in hand with private club membership. Many clubs have voted to assess members for new amenities in recent years, and many more are considering doing the same in the months ahead. Like death and taxes, clubs see assessment as a necessary evil. But are they? In this episode, we talk to Jim Butler, CEO of Club Benchmarking, who shares his perspective on assessments and how clubs can plan for the future more thoughtfully. Well, thanks for listening in today. There are two things that freak out people who are looking to join a private club, especially if they are first time club members or looking at clubs for the first time. The two things are initiation fees and assessments, and both are levers that clubs pull to keep their clubs financially viable and moving forward in many cases. But it is a vicious circle and it's become the expectation for how clubs operate, in many cases. The clubs amenities get old, as you know, and they need to be updated or expanded in order to keep the members happy and also to be able to attract new members. And then an assessment comes up and it's voted on. And if it passes, great. If not, well, your club might be stuck or at least scrambling for alternatives to make sure that some of the essential things are taken care of. You could also potentially increase initiation fees and dues. But then what happens in a down economy and updates have to be made? If the membership isn't healthy and engaged, clubs run the risk of losing members and then they might also be unable to attract new members. And that's not even to mention, some of the other quote unquote "casualties" of this whole thing, which is distrust in the marketplace. And that can have an impact on prospective members. You know, I you know, the situation is if a club's initiation fees bounce all over the place, a prospective member could decide to sit on the sideline and wait for that best deal to come along. Or, even worse, they could say, you know what, I don't want to play that game. This seems kind of crappy. And, and I don't trust it. So, you know, I'm going to go build a home or go buy a place on a lake and spend my time there. Right? With the kids and, and approach their discretionary income that way. And yet it doesn't have to be that way. And oddly enough, I do spend some time thinking about these things. And I decided to reach out to Jim Butler, the CEO of Club Benchmarking. He and I had met several years ago at a conference, and I've wanted to have him as a guest for years, but our schedules didn't always align. So I'm looking forward to the conversation today. And in prepping for our discussion, just a little public service announcement for you, but while I was getting ready, I went to the Club Benchmarking website, just doing a little digging around and stuff, and I came across this white paper that's called "Measuring Capital Health." And I downloaded it, put my email and my name and all the stuff in there, and I got this document and it's a terrific piece that introduced me to a completely different way of looking at managing and monitoring your club's financial health. This is not my industry. I'm a marketer, as you as you may know, but we do so much work in the club space, I'm like, "gosh," it'd be better to understand this a little bit better. So read it if you haven't. It's, it's really worth a short read and it can be very insightful and connected to what Jim and I are talking about today. So anyway, Jim and I recently spoke about the white paper. We talked about the industry, of course, and managing the financial health of clubs. So, Jim, thanks so much for joining me today. It's.. This is such an interesting topic for me as someone who's trying to learn more about how, you know, the whole kind of the financial planning world works for for private clubs. And, Lord knows for so many people in the club industry and for members, it can be very confusing when it comes to capital improvements and assessments. And so often when, you know, clubs start talking about making improvements and then it's always like, well, what is there going to be an assessment? And how much is it going to be? And I guess maybe the first place that I'd love to start is, you know, what do most members and, and many club leaders not really understand about assessments and how operating and capital income can impact the need for and even the amount of the for the assessments? [270.5]
Assessments. They seem to go hand in hand with private club membership. Many clubs have voted to assess members for new amenities in recent years, and many more are considering doing the same in the months ahead. Like death and taxes, clubs see assessment as a necessary evil. But are they? In this episode, we talk to Jim Butler, CEO of Club Benchmarking, who shares his perspective on assessments and how clubs can plan for the future more thoughtfully. Well, thanks for listening in today. There are two things that freak out people who are looking to join a private club, especially if they are first time club members or looking at clubs for the first time. The two things are initiation fees and assessments, and both are levers that clubs pull to keep their clubs financially viable and moving forward in many cases. But it is a vicious circle and it's become the expectation for how clubs operate, in many cases. The clubs amenities get old, as you know, and they need to be updated or expanded in order to keep the members happy and also to be able to attract new members. And then an assessment comes up and it's voted on. And if it passes, great. If not, well, your club might be stuck or at least scrambling for alternatives to make sure that some of the essential things are taken care of. You could also potentially increase initiation fees and dues. But then what happens in a down economy and updates have to be made? If the membership isn't healthy and engaged, clubs run the risk of losing members and then they might also be unable to attract new members. And that's not even to mention, some of the other quote unquote "casualties" of this whole thing, which is distrust in the marketplace. And that can have an impact on prospective members. You know, I you know, the situation is if a club's initiation fees bounce all over the place, a prospective member could decide to sit on the sideline and wait for that best deal to come along. Or, even worse, they could say, you know what, I don't want to play that game. This seems kind of crappy. And, and I don't trust it. So, you know, I'm going to go build a home or go buy a place on a lake and spend my time there. Right? With the kids and, and approach their discretionary income that way. And yet it doesn't have to be that way. And oddly enough, I do spend some time thinking about these things. And I decided to reach out to Jim Butler, the CEO of Club Benchmarking. He and I had met several years ago at a conference, and I've wanted to have him as a guest for years, but our schedules didn't always align. So I'm looking forward to the conversation today. And in prepping for our discussion, just a little public service announcement for you, but while I was getting ready, I went to the Club Benchmarking website, just doing a little digging around and stuff, and I came across this white paper that's called "Measuring Capital Health." And I downloaded it, put my email and my name and all the stuff in there, and I got this document and it's a terrific piece that introduced me to a completely different way of looking at managing and monitoring your club's financial health. This is not my industry. I'm a marketer, as you as you may know, but we do so much work in the club space, I'm like, "gosh," it'd be better to understand this a little bit better. So read it if you haven't. It's, it's really worth a short read and it can be very insightful and connected to what Jim and I are talking about today. So anyway, Jim and I recently spoke about the white paper. We talked about the industry, of course, and managing the financial health of clubs. So, Jim, thanks so much for joining me today. It's.. This is such an interesting topic for me as someone who's trying to learn more about how, you know, the whole kind of the financial planning world works for for private clubs. And, Lord knows for so many people in the club industry and for members, it can be very confusing when it comes to capital improvements and assessments. And so often when, you know, clubs start talking about making improvements and then it's always like, well, what is there going to be an assessment? And how much is it going to be? And I guess maybe the first place that I'd love to start is, you know, what do most members and, and many club leaders not really understand about assessments and how operating and capital income can impact the need for and even the amount of the for the assessments? [270.5]
Jim Butler (00:04):
Yeah. Yeah. I think historically, Ed it's great to be with you too, and thanks for all you do in the industry such as such as this and having a platform to talk about some of these things. But the club industry is a very unique industry and there's two main points that I would make to kick us off today. One is that we are in a not-for-profit business model, and many of the board members that come into the clubs are very familiar with for-profit models and are trying to drive profit. And they drive that profit both to reinvest in either their facilities or their assets and to pay back stakeholders. But at the end of the day, they're judged on efficiency, how profitable they're going to be, what kind of growth rates they're going to have, how many new customers that they acquire, and they come into the club industry. And we don't do any of that. So we're a not-for-profit industry. The majority of clubs break even in operations, so we lead with the thought that, number one, this is a not-for-profit industry. So the operating ledger is not a financial driver at the club and we usually have to duck after that because the board members, that goes right over the top of their head because they come from a world of for-profit. And I'm from Michigan originally, and if you talked to a manufacturing person out of Ford, the first thing they're going to do is start talking about efficiency and how we're going to have efficiency in the club business, and have very little to do with it. As a matter of fact, by definition, the operating ledger doesn't drive the business. So therefore, everybody in the club industry that's a not-for-profit has no competitive advantage on the operating ledger because they don't make money. [123.9]
Yeah. Yeah. I think historically, Ed it's great to be with you too, and thanks for all you do in the industry such as such as this and having a platform to talk about some of these things. But the club industry is a very unique industry and there's two main points that I would make to kick us off today. One is that we are in a not-for-profit business model, and many of the board members that come into the clubs are very familiar with for-profit models and are trying to drive profit. And they drive that profit both to reinvest in either their facilities or their assets and to pay back stakeholders. But at the end of the day, they're judged on efficiency, how profitable they're going to be, what kind of growth rates they're going to have, how many new customers that they acquire, and they come into the club industry. And we don't do any of that. So we're a not-for-profit industry. The majority of clubs break even in operations, so we lead with the thought that, number one, this is a not-for-profit industry. So the operating ledger is not a financial driver at the club and we usually have to duck after that because the board members, that goes right over the top of their head because they come from a world of for-profit. And I'm from Michigan originally, and if you talked to a manufacturing person out of Ford, the first thing they're going to do is start talking about efficiency and how we're going to have efficiency in the club business, and have very little to do with it. As a matter of fact, by definition, the operating ledger doesn't drive the business. So therefore, everybody in the club industry that's a not-for-profit has no competitive advantage on the operating ledger because they don't make money. [123.9]
Ed Heil (00:06):
Mhm. [0.0] Ed Heil
Jim Butler (00:06):
So that's number one. So that's really important for a board member because we have to put the focus on membership satisfaction, not on profitability. Number two, clubs are very capital intense. So the average club has a gross asset number on their balance sheet of about $28 million. So I always joke with people, okay, who would want to have to put up $28 million to make no money? And they usually laughs because we would say, well, that's a pretty dumb business model. But that, in terms of the club, that's what we have to have. And the amount of investment in clubs, especially in the last ten years as the demographics have changed. As you know, during the downturn in 2008 or 9, that's when clubs really had to start focusing on the families and reinvest in the facilities and change their facilities. And in order to do that, we're in the capital business. The clubs that are the strongest are the ones that have the best capital engine. The difference in clubs is not on the operating ledger, it's on the balance sheet. Which clubs can create the most amount of capital? You're in Detroit. Right now, Oakland Hills, the clubhouse burned down. What do they have to do? They have to, they have to create capital in order to replace that asset. It's not, they're not finding that on the operating ledger. They got to collect capital and every club is faced with that in terms of if I want to be a general manager or a board member, I want to be on a club that has the strongest capital engine, because the operating ledger by definition in our business is breakeven. [113.0]
So that's number one. So that's really important for a board member because we have to put the focus on membership satisfaction, not on profitability. Number two, clubs are very capital intense. So the average club has a gross asset number on their balance sheet of about $28 million. So I always joke with people, okay, who would want to have to put up $28 million to make no money? And they usually laughs because we would say, well, that's a pretty dumb business model. But that, in terms of the club, that's what we have to have. And the amount of investment in clubs, especially in the last ten years as the demographics have changed. As you know, during the downturn in 2008 or 9, that's when clubs really had to start focusing on the families and reinvest in the facilities and change their facilities. And in order to do that, we're in the capital business. The clubs that are the strongest are the ones that have the best capital engine. The difference in clubs is not on the operating ledger, it's on the balance sheet. Which clubs can create the most amount of capital? You're in Detroit. Right now, Oakland Hills, the clubhouse burned down. What do they have to do? They have to, they have to create capital in order to replace that asset. It's not, they're not finding that on the operating ledger. They got to collect capital and every club is faced with that in terms of if I want to be a general manager or a board member, I want to be on a club that has the strongest capital engine, because the operating ledger by definition in our business is breakeven. [113.0]
Ed Heil (00:08):
So that's a... And that makes so much sense. And yet the question is how? How do clubs generate more capital income and how do they, like, what are their, you know, are there are there certain go-to ways? I mean, obviously, you know, you can increase that part of the member dues. But what are the other ways that you see the clubs, clubs are able to do this? [24.6]
So that's a... And that makes so much sense. And yet the question is how? How do clubs generate more capital income and how do they, like, what are their, you know, are there are there certain go-to ways? I mean, obviously, you know, you can increase that part of the member dues. But what are the other ways that you see the clubs, clubs are able to do this? [24.6] Jim Butler
Jim Butler (00:10):
Yeah. So the, so number one, operating dues does not influence the capital side because clubs are breakeven and the operating and the operating dues, clubs consume the operating dues and fund the amenity. But it's at breakeven at the end of the day. So the things that fund the capital side are the capital dues, and capital dues are relatively new to our industry. And we'll talk about why that is here in a in a second. Initiation fee income. And we've seen the initiation fees and clubs increase, especially in the last 4 or 5 years. We've seen, in a lot of cases, we've seen them double as we go forward and then assessments which, generally members earn crazy about assessments, but those are the three main buckets. And relatively speaking, the clubs fund their capital fairly equally. Between those three buckets, it's about a third, a third, a third in terms of between the capital dues, initiation fees, and assessments in the industry. [71.7]
Ed Heil (00:10):
And so, you know, that's that makes sense and seems typical. There are some outliers I'd love to learn more about from you as well. But focusing on those three items, and this is kind of helping new members understand how this works as well. So they see an initiation fee. All of that initiation fee usually will go to capital. Is that correct? Is that kind of the typical... [28.2]
And so, you know, that's that makes sense and seems typical. There are some outliers I'd love to learn more about from you as well. But focusing on those three items, and this is kind of helping new members understand how this works as well. So they see an initiation fee. All of that initiation fee usually will go to capital. Is that correct? Is that kind of the typical... [28.2]
Jim Butler (00:10):
That's what, that's what we'd like to see. And some, there are some clubs that have operating deficits and the only place that they can really get that money is on the capital side. And that's a very slippery slope to go in because again, if you got a $28 million asset that is typically, and clubs are underfunded generally on capital, that's why we have assessments. We have assessments because clubs don't have enough capital [30.8]
That's what, that's what we'd like to see. And some, there are some clubs that have operating deficits and the only place that they can really get that money is on the capital side. And that's a very slippery slope to go in because again, if you got a $28 million asset that is typically, and clubs are underfunded generally on capital, that's why we have assessments. We have assessments because clubs don't have enough capital [30.8]
Ed Heil (00:11):
Right. [0.0] Ed Heil
Jim Butler (00:12):
in generation of that. So if you're taking that to fund operations, that's not a good thing. We don't like to see that and the majority of clubs have gotten away from that. But there is a small contingent of clubs that have that. But what the industry as a whole is underfunded on the capital because and I would say for the most part because we had not understand the importance of capital until the last decade and management and boards are obviously we're all learning every single day, but we've learned how significant the need for capital is in the industry. And I- I'm going to go back to that 2009. Clubs used to have refundable. You, you know, you're old enough to remember when we had refundability and membership. [46.7]
Ed (00:12):
Absolutely. Yeah. [0.6] Ed
Jim Butler (00:12):
And when we talk about the Michigan market and you talk about some of the big developers coming out of Michigan, they build the clubs and in order to sell the memberships, they had refundable memberships. Well, when the market crashed in 2008 and nine, that really went away and initiation fees decreased and clubs started collecting capital dues to help supplement that. But we- we think, we believe that unless you're a, unless you want to do it on purpose, and we do have clubs in our database that do assess and want to assess, those are usually the really high-end clubs. But we we're on a mission to try for those clubs that want to get rid of the assessments, to get rid of the assessments and create a stronger capital engine between the capital dues and the initiation fees. [55.5]
And when we talk about the Michigan market and you talk about some of the big developers coming out of Michigan, they build the clubs and in order to sell the memberships, they had refundable memberships. Well, when the market crashed in 2008 and nine, that really went away and initiation fees decreased and clubs started collecting capital dues to help supplement that. But we- we think, we believe that unless you're a, unless you want to do it on purpose, and we do have clubs in our database that do assess and want to assess, those are usually the really high-end clubs. But we we're on a mission to try for those clubs that want to get rid of the assessments, to get rid of the assessments and create a stronger capital engine between the capital dues and the initiation fees. [55.5]
Ed (00:13):
Is that I mean is is maybe a simple way of, look, this is probably oversimplifying, but in reading your white paper, it almost seem like the idea is your capital fund is your savings account. [13.3]
Is that I mean is is maybe a simple way of, look, this is probably oversimplifying, but in reading your white paper, it almost seem like the idea is your capital fund is your savings account. [13.3]
Jim Butler (00:13):
You're it's it is every I wouldn't say savings account. [4.5]
You're it's it is every I wouldn't say savings account. [4.5] Ed Heil
Ed Heil (00:13):
But investment account. [0.7]
Jim Butler (00:13):
It's your investment account. Because when we look at the balance sheet of a typical, the balance sheet of a typical club is really simple. There's only two lines that are significant. One is cash and one is net property, plant, and equipment. And if I said to you and you're on your committee at your club there, do you know that if you're the typical club, 75% of your assets on the balance sheet are in net property, plant, and equipment? So when we have money in the club business, we don't pay it back in profit. We don't pay it back to stakeholders. What do we do with that? We put it back into facilities. So any money that you have or you make is having enough money to go back and put into your facilities. And when you look at a balance sheet of the club and you don't have to be a financial guru to understand it, assets are equal to liability and equity. And on the asset side, 75% are in net property, plant, and equipment, and that's very symmetrical to the right side which liabilities and equity have to match up to the asset. And in the club business, the member equity line, which is typically about 70%, is, is very simply matches up to net property, plant, and equipment, which is about 75%. What does that mean in English? Yeah, that means that the money that you get from the members is going to go into net property, plant, and equipment. And the only reason we have assessments are because we don't have enough member equity. [111.9]
It's your investment account. Because when we look at the balance sheet of a typical, the balance sheet of a typical club is really simple. There's only two lines that are significant. One is cash and one is net property, plant, and equipment. And if I said to you and you're on your committee at your club there, do you know that if you're the typical club, 75% of your assets on the balance sheet are in net property, plant, and equipment? So when we have money in the club business, we don't pay it back in profit. We don't pay it back to stakeholders. What do we do with that? We put it back into facilities. So any money that you have or you make is having enough money to go back and put into your facilities. And when you look at a balance sheet of the club and you don't have to be a financial guru to understand it, assets are equal to liability and equity. And on the asset side, 75% are in net property, plant, and equipment, and that's very symmetrical to the right side which liabilities and equity have to match up to the asset. And in the club business, the member equity line, which is typically about 70%, is, is very simply matches up to net property, plant, and equipment, which is about 75%. What does that mean in English? Yeah, that means that the money that you get from the members is going to go into net property, plant, and equipment. And the only reason we have assessments are because we don't have enough member equity. [111.9]
Ed Heil (00:15):
Got it. And just for the listener, the net property, plant, and equipment is basically like the structures on the club. Is that accurate? [7.3]
Got it. And just for the listener, the net property, plant, and equipment is basically like the structures on the club. Is that accurate? [7.3]
Jim Butler (00:15):
It's the structure and all equipment within the club
It's the structure and all equipment within the club
Ed Heil (00:16):
Yeah. Got it. Interesting. So can we just go back to something you said earlier, which is the capital dues being new to the industry? Why? Why is that When when I hear you say that, you know, like, you know, in the last ten years, I think
Yeah. Got it. Interesting. So can we just go back to something you said earlier, which is the capital dues being new to the industry? Why? Why is that When when I hear you say that, you know, like, you know, in the last ten years, I think
Jim Butler (00:16):
Yeah, it's it's possible because the you know, the changing of the market in the club business. When- you know, the two things that I say that has happened, and- and we've seen downturns in the industry and we've seen with Covid the upturn in the industry, but when--and I'm just going to go back to 2009--when there was a downturn in the industry, many clubs had to cut their initiation fees to get more members. But they were also faced with the- they had to change some of their facilities. We had to get into fitness and wellness. We had to get into casual dining. We had to build the golf courses. We had more sets of tees on the golf course, and all of that required more capital income. And in order to have more capital income in a world that was downsizing, clubs had to come up with another avenue of capital and they had the advent of capital dues at that, at that point of time to generate more capital. We see it all the time where clubs will assess and they'll assess through some form of annual payment that the members make in time. And it's very rare that we see that go away, maybe have a ten year assessment program. They get paid $1,500 a year at the end of that ten years. And I'm here to tell you it's not going anywhere because you're going to- the club needs that capital money. [92.3]
Yeah, it's it's possible because the you know, the changing of the market in the club business. When- you know, the two things that I say that has happened, and- and we've seen downturns in the industry and we've seen with Covid the upturn in the industry, but when--and I'm just going to go back to 2009--when there was a downturn in the industry, many clubs had to cut their initiation fees to get more members. But they were also faced with the- they had to change some of their facilities. We had to get into fitness and wellness. We had to get into casual dining. We had to build the golf courses. We had more sets of tees on the golf course, and all of that required more capital income. And in order to have more capital income in a world that was downsizing, clubs had to come up with another avenue of capital and they had the advent of capital dues at that, at that point of time to generate more capital. We see it all the time where clubs will assess and they'll assess through some form of annual payment that the members make in time. And it's very rare that we see that go away, maybe have a ten year assessment program. They get paid $1,500 a year at the end of that ten years. And I'm here to tell you it's not going anywhere because you're going to- the club needs that capital money. [92.3] Ed Heil
Ed Heil (00:18):
And, and, I mean, based upon what you're saying and what I'm- I'm learning is that that's not a bad thing. I mean if you can as a club, it's almost like if you can put more- if you can invest more money into the future of your club, that will create a healthier club in the future that maybe will avoid assessments in a perfect world. [20.7]
Jim Butler (00:18):
Yeah, they absolutely and this is a very I'm going to tell a cute story just so everybody can remember. Can remember this. So there's a Ray Cronin, who's my partner and the founder of Club Benchmarking, was the president of Thorny Lea Golf Club up in Boston. And they had a 50 year old irrigation system and irrigation systems typically last 20 to 25 years. And Ray wanted to put in capital dues as president of the club. And half the members loved Ray and half the members weren't so high on Ray for putting- trying to put capital dues in. So they had a town hall meeting. And one of the members who had been a member at the club for a long time stood up and said, "Hey, I'm 83 years old. I don't want to- I'm only going to play golf a couple more years and I don't want to pay for the new irrigation system because I don't think that's fair" Ed. And the reaction is, "okay, well, how long have you been a member of the club?" "Well, I've been a member of the club for 45 years." "Well, during that 45 years, how much have you paid in capital dues?" "Well, I haven't paid anything in capital dues because we don't have capital dues." "Okay. 45 years ago, how much did you pay for initiation fees?" "Well, they had- they were running a great deal 45 years ago. So all I had to do was pay dues." And so the point of that is, to this person, Mr. Smith, we don't want you to pay for the new irrigation system that you are not going to use. We want you to pay for the old irrigation system, which you didn't contribute a penny to and used it for 45 years. And that's- that's the, that's the core part of that, Ed. There's a consumption of capital in the club business. And from an accounting standpoint, we call that depreciation. So when we talk about the club industry as a breakeven, it's breakeven without depreciation. So we- people- clubs need to pay for depreciation plus inflation, plus any new facilities. Up until about ten years ago, the vast majority of clubs were not covering the cost of capital consumption like the example that I gave you, and they were pushing that onto the new members. And only using initiation fees because there wasn't a capital consumption cost like capital dues. And that's where the capital dues came from. And we're still working through that as an industry. Club Benchmarking feels like the best practice is that capital dues ought to cover the cost of that capital consumption. Depreciation with inflation, if you will. You know, we're advocates of having, you know, an up to date capital reserve study or asset management, which is more useful life and even more accurate to be able to cover that with capital dues. And we think the initiation fees ought to be used for what we call aspirational capital. You know, pickleball, nobody had ever heard of pickleball before. And we're... This casual outdoor dining, the golf technology, the teaching facilities, all of the new stuff that has come in. We don't believe that using that initiation fees predominantly to cover the cost of capital is actually fair or the right business models for clubs to use. [227.3]
Yeah, they absolutely and this is a very I'm going to tell a cute story just so everybody can remember. Can remember this. So there's a Ray Cronin, who's my partner and the founder of Club Benchmarking, was the president of Thorny Lea Golf Club up in Boston. And they had a 50 year old irrigation system and irrigation systems typically last 20 to 25 years. And Ray wanted to put in capital dues as president of the club. And half the members loved Ray and half the members weren't so high on Ray for putting- trying to put capital dues in. So they had a town hall meeting. And one of the members who had been a member at the club for a long time stood up and said, "Hey, I'm 83 years old. I don't want to- I'm only going to play golf a couple more years and I don't want to pay for the new irrigation system because I don't think that's fair" Ed. And the reaction is, "okay, well, how long have you been a member of the club?" "Well, I've been a member of the club for 45 years." "Well, during that 45 years, how much have you paid in capital dues?" "Well, I haven't paid anything in capital dues because we don't have capital dues." "Okay. 45 years ago, how much did you pay for initiation fees?" "Well, they had- they were running a great deal 45 years ago. So all I had to do was pay dues." And so the point of that is, to this person, Mr. Smith, we don't want you to pay for the new irrigation system that you are not going to use. We want you to pay for the old irrigation system, which you didn't contribute a penny to and used it for 45 years. And that's- that's the, that's the core part of that, Ed. There's a consumption of capital in the club business. And from an accounting standpoint, we call that depreciation. So when we talk about the club industry as a breakeven, it's breakeven without depreciation. So we- people- clubs need to pay for depreciation plus inflation, plus any new facilities. Up until about ten years ago, the vast majority of clubs were not covering the cost of capital consumption like the example that I gave you, and they were pushing that onto the new members. And only using initiation fees because there wasn't a capital consumption cost like capital dues. And that's where the capital dues came from. And we're still working through that as an industry. Club Benchmarking feels like the best practice is that capital dues ought to cover the cost of that capital consumption. Depreciation with inflation, if you will. You know, we're advocates of having, you know, an up to date capital reserve study or asset management, which is more useful life and even more accurate to be able to cover that with capital dues. And we think the initiation fees ought to be used for what we call aspirational capital. You know, pickleball, nobody had ever heard of pickleball before. And we're... This casual outdoor dining, the golf technology, the teaching facilities, all of the new stuff that has come in. We don't believe that using that initiation fees predominantly to cover the cost of capital is actually fair or the right business models for clubs to use. [227.3]
Ed Heil (00:22):
So is it- is going back to the the what you were saying earlier about that a lot of board members who come from the for-profit world try to apply the for-profit thinking into a nonprofit. And so at that time, it's like, well, we have initiation, we have dues that should cover everything, but in fact, it doesn't in it, you know, and probably became more obvious after 2009. And is that part of the whole, am I getting my piece in this in a somewhat..? [33.7]
So is it- is going back to the the what you were saying earlier about that a lot of board members who come from the for-profit world try to apply the for-profit thinking into a nonprofit. And so at that time, it's like, well, we have initiation, we have dues that should cover everything, but in fact, it doesn't in it, you know, and probably became more obvious after 2009. And is that part of the whole, am I getting my piece in this in a somewhat..? [33.7]
Jim Butler (00:22):
If I if I go into a board--and I love doing this and we're in front of a lot of boards at Club Benchmarking--and if I say to them
If I if I go into a board--and I love doing this and we're in front of a lot of boards at Club Benchmarking--and if I say to them
Ed Heil (00:24):
Absolutely yeah. [0.8] Jim Butler
Jim Butler (00:25):
But at the club they generally can't. We think the most important metric is that net worth, because that net worth represents the amount of money you have in excess of depreciation. And is the money that you have to grow the club and invest back in the facilities. And there's three- and we put them in three buckets. There's clubs that have decreasing net worth and we can predict with 100% certainty what's going to happen in those clubs. And there's going to be a major capital call because they're not keeping up with their facility. There's clubs that are flat. We call them "yellow bucket clubs." They're not growing as much as inflation is growing. And again, we can predict with 100% certainty what's going to happen in those clubs. There's going to be a capital call. And then about 25% of the industry that is growing at a rate higher than inflation. And in those clubs, we argue about how to spend the capital money versus the "yellow bucket clubs" and the "red bucket clubs" where we argue about how are we going to raise the money. [68.1]
Ed Heil (00:25):
Right. Got it. So understanding that this is not a net worth question. How does a club like the Union League of Philadelphia, and I think Jeff McFadden actually shared that Ray Cronin story with me in an episode I did with him, how does that go from like a $7 million club to over $100 million? [20.3]
Right. Got it. So understanding that this is not a net worth question. How does a club like the Union League of Philadelphia, and I think Jeff McFadden actually shared that Ray Cronin story with me in an episode I did with him, how does that go from like a $7 million club to over $100 million? [20.3]
Jim Butler (00:25):
Yeah, the- the funding on that club is based on, he's taken in more members, and he is playing chess where many people are playing checkers. And Jeff understands the business model of clubs better than anybody. And the membership value that is equated with that and that is
Yeah, the- the funding on that club is based on, he's taken in more members, and he is playing chess where many people are playing checkers. And Jeff understands the business model of clubs better than anybody. And the membership value that is equated with that and that is
Ed Heil (00:26):
Yeah. What are the things that, to that point, and I was fascinated and when I would listen was listening to him explain some of this stuff. And I mean, there's just I've never seen anyone like that and heard anything like that. Yet, people will go to Union League to go meet with Jeff and see what he's done. What are the takeaways? I mean, you kind of just saide it, but what are the takeaways that, you know, you say to the club that maybe doesn't have the same opportunities? I mean, or might seem like you don't have the same opportunities to do what was done at the Union League. What is what are the learnings that you take and that you can share with other clubs that are maybe those the yellow- in the yellow area, you know, that are that are trying to figure it out? [44.4]
Yeah. What are the things that, to that point, and I was fascinated and when I would listen was listening to him explain some of this stuff. And I mean, there's just I've never seen anyone like that and heard anything like that. Yet, people will go to Union League to go meet with Jeff and see what he's done. What are the takeaways? I mean, you kind of just saide it, but what are the takeaways that, you know, you say to the club that maybe doesn't have the same opportunities? I mean, or might seem like you don't have the same opportunities to do what was done at the Union League. What is what are the learnings that you take and that you can share with other clubs that are maybe those the yellow- in the yellow area, you know, that are that are trying to figure it out? [44.4]
Jim Butler (00:27):
Yeah. Yeah. I think, number one, you have to understand the business model and what business you're in. And I say that sincerely. We go around the country, look at clubs' financials, visit the clubs, talk to people and really help them understand the business model that they're in. And we believe strategic planning is finding the issues in clubs and then developing strategies to overcome them. And that's exactly what Jeff did, is they were looking for more members, they were looking for more capital. So he very simply figured out that in that case it was creating more opportunities and adding more members. And then when you do that and you satisfy them and create value, you can increase initiation fees and- and increase operating dues. And that's that was the model he did. I'll give you a couple other examples of that. The there's a club in Naples called Grey Oaks. And Grey Oaks had an aging membership there. And in the Naples market, and there's plenty of clubs, there's 150 clubs down there. So in order to increase the turn and the real estate market, they partnered with Moorings Park, which is an A-rated independent assisted living facility. It allowed the older members to move out right next door to go keep their membership, created $1 million worth of additional dues to the club forever. So all that issue and that was a fantastic example of that. Mediterra in Naples, what did they do? They went on the beach there located kind of inshore, you know, about ten, 12 miles. A lot of their members wanted a beach club. What did they do? They went out and bought a beach club for that and satisfied that part of that. So you got to be brave. You got to be innovative. You got to create opportunities. And you got to lead the board to do that. It's- we have yet to come across somebody that we work with that you can't innovate and get out of the issue. But do what you have to do? Is you have to create membership value, right Ed? I mean, that's the business you're in. If you're not doing that, then the market will pass you by and the market changes every day. We've seen it generationally, but you've got to, you know, and this is what leadership is about seeing value where other people don't see it and then taking steps to overcoming those bottlenecks. [168.2]
Yeah. Yeah. I think, number one, you have to understand the business model and what business you're in. And I say that sincerely. We go around the country, look at clubs' financials, visit the clubs, talk to people and really help them understand the business model that they're in. And we believe strategic planning is finding the issues in clubs and then developing strategies to overcome them. And that's exactly what Jeff did, is they were looking for more members, they were looking for more capital. So he very simply figured out that in that case it was creating more opportunities and adding more members. And then when you do that and you satisfy them and create value, you can increase initiation fees and- and increase operating dues. And that's that was the model he did. I'll give you a couple other examples of that. The there's a club in Naples called Grey Oaks. And Grey Oaks had an aging membership there. And in the Naples market, and there's plenty of clubs, there's 150 clubs down there. So in order to increase the turn and the real estate market, they partnered with Moorings Park, which is an A-rated independent assisted living facility. It allowed the older members to move out right next door to go keep their membership, created $1 million worth of additional dues to the club forever. So all that issue and that was a fantastic example of that. Mediterra in Naples, what did they do? They went on the beach there located kind of inshore, you know, about ten, 12 miles. A lot of their members wanted a beach club. What did they do? They went out and bought a beach club for that and satisfied that part of that. So you got to be brave. You got to be innovative. You got to create opportunities. And you got to lead the board to do that. It's- we have yet to come across somebody that we work with that you can't innovate and get out of the issue. But do what you have to do? Is you have to create membership value, right Ed? I mean, that's the business you're in. If you're not doing that, then the market will pass you by and the market changes every day. We've seen it generationally, but you've got to, you know, and this is what leadership is about seeing value where other people don't see it and then taking steps to overcoming those bottlenecks. [168.2]
Ed Heil (00:30):
Yeah. Interesting. I just have one other question for you around this, because I think it's, you know, everything that we're- and there's so much more to talk about just, you know, in the interest, and I'd love to pick this up and with other dimensions because there's so much to it. But so much of this seems to start with the board of directors, the board of governors, and, you know, whatever, and of course, the club leaders. What is the barrier for club leadership to- to embrace the things that you're doing at Club Benchmarking and some of the thinking that- that you, you know, that you believe? [41.6]
Yeah. Interesting. I just have one other question for you around this, because I think it's, you know, everything that we're- and there's so much more to talk about just, you know, in the interest, and I'd love to pick this up and with other dimensions because there's so much to it. But so much of this seems to start with the board of directors, the board of governors, and, you know, whatever, and of course, the club leaders. What is the barrier for club leadership to- to embrace the things that you're doing at Club Benchmarking and some of the thinking that- that you, you know, that you believe? [41.6]
Jim Butler (00:31):
Yeah, I- you know, I think that it's it comes down to education. The club industry is a boutique industry where you have fundamentally 3800 small businesses that run their own businesses. And the private club is just that. They're private. If we go to Orchard Lake, Orchard Lake is not really interested in taking the financials and putting them up in the Detroit News every day so everybody can see that. So we have this insular look from our directors, from a board of directors, where they only have the viewpoint within their own club. And whereas if we're working at Ford or GM, you know, we can go to Yahoo! Finance and go see what the competitors are doing. And that's what, obviously Club Benchmarking brings, is that we do financial benchmarking on the industry to help educate the board. And then we have this issue of the club business where we have a board of directors, 9 to 11 people, typically. We change 3 to 4 of them every year. And fundamentally at the end of three years we have a brand new board and we have to start on over and educate them on what we're doing. And so we find a lot of times that the clubs don't spend enough time educating the business model within the boards. It's not an intelligence issue because the boards are very smart. They're CEOs, CFO, COOs, marketing people, they're very successful people and that's why they belong to a club. And once you can explain, I can't tell you how many times we walk out of a board retreat where we have very sophisticated financial people say, you know what? Nobody ever explained that to me. I did not understand that. I did not understand how capital intense clubs were or how important membership value and satisfaction was. And the difference between the operating ledger and the capital ledger. And why would you, if nobody's ever explained it to you, you know why- why would you? And- and that's, you know, the experience of that and being able to look at it in aggregate. And that is about choice, right? Ed, you know, in your business, the clubs that are really successful are the ones that have made the right choices. So if we can frame what the questions are, then the board can make the determination on what they- what they want to know. And it's counterintuitive. I mean, I'll give you a couple examples that are a poster child, that Club Benchmarking. The clubs that subsidize food and beverage the most--or if I put it another way, the clubs that lose the most amount of money in food and beverage--are the strongest clubs financially in the industry. Put that against somebody that's running a for-profit restaurant and see what they think about that. Right? It's just totally counterintuitive to them. [191.9]
Yeah, I- you know, I think that it's it comes down to education. The club industry is a boutique industry where you have fundamentally 3800 small businesses that run their own businesses. And the private club is just that. They're private. If we go to Orchard Lake, Orchard Lake is not really interested in taking the financials and putting them up in the Detroit News every day so everybody can see that. So we have this insular look from our directors, from a board of directors, where they only have the viewpoint within their own club. And whereas if we're working at Ford or GM, you know, we can go to Yahoo! Finance and go see what the competitors are doing. And that's what, obviously Club Benchmarking brings, is that we do financial benchmarking on the industry to help educate the board. And then we have this issue of the club business where we have a board of directors, 9 to 11 people, typically. We change 3 to 4 of them every year. And fundamentally at the end of three years we have a brand new board and we have to start on over and educate them on what we're doing. And so we find a lot of times that the clubs don't spend enough time educating the business model within the boards. It's not an intelligence issue because the boards are very smart. They're CEOs, CFO, COOs, marketing people, they're very successful people and that's why they belong to a club. And once you can explain, I can't tell you how many times we walk out of a board retreat where we have very sophisticated financial people say, you know what? Nobody ever explained that to me. I did not understand that. I did not understand how capital intense clubs were or how important membership value and satisfaction was. And the difference between the operating ledger and the capital ledger. And why would you, if nobody's ever explained it to you, you know why- why would you? And- and that's, you know, the experience of that and being able to look at it in aggregate. And that is about choice, right? Ed, you know, in your business, the clubs that are really successful are the ones that have made the right choices. So if we can frame what the questions are, then the board can make the determination on what they- what they want to know. And it's counterintuitive. I mean, I'll give you a couple examples that are a poster child, that Club Benchmarking. The clubs that subsidize food and beverage the most--or if I put it another way, the clubs that lose the most amount of money in food and beverage--are the strongest clubs financially in the industry. Put that against somebody that's running a for-profit restaurant and see what they think about that. Right? It's just totally counterintuitive to them. [191.9]
Ed Heil (00:34):
Is it because the member experience and that they're investing in that? [3.3]
Is it because the member experience and that they're investing in that? [3.3]
Jim Butler (00:34):
It's the member experience and it's a zero sum game that, although food and beverage is subsidized, at the end of the day, the operating ledgers breakeven. And oh by the way, golf course and the golf course maintenance and the golf shop operations in a typical club loses 2 to 3 times the money that the food and beverage do. And yet we've never taken a call in our office
It's the member experience and it's a zero sum game that, although food and beverage is subsidized, at the end of the day, the operating ledgers breakeven. And oh by the way, golf course and the golf course maintenance and the golf shop operations in a typical club loses 2 to 3 times the money that the food and beverage do. And yet we've never taken a call in our office
Ed Heil (00:35):
Right. Right. Yeah. So interesting. And the education component that you mention, it just seems so paramount to the whole the whole thing. Because, I mean, going back to the very beginning of our conversation of for-profit people in a nonprofit, in this nonprofit environment, in changing times, no less, to really understand that, yes, you're really smart and great at what you do, but this is a little bit different. And once you understand it, it almost makes me think that, not just the leaders and granted, not every member wants to know this, but if members better understood the model, they might not complain as much about certain things. Or they may, you know, if in fact the club is operating with the right intent and the right, you know, the right way. [46.4]
Right. Right. Yeah. So interesting. And the education component that you mention, it just seems so paramount to the whole the whole thing. Because, I mean, going back to the very beginning of our conversation of for-profit people in a nonprofit, in this nonprofit environment, in changing times, no less, to really understand that, yes, you're really smart and great at what you do, but this is a little bit different. And once you understand it, it almost makes me think that, not just the leaders and granted, not every member wants to know this, but if members better understood the model, they might not complain as much about certain things. Or they may, you know, if in fact the club is operating with the right intent and the right, you know, the right way. [46.4]
Jim Butler (00:36):
We think that is a critical component. And every new member, as part of their orientation, should understand what their responsibilities are and how it works. The typical club dues is somewhere around a thousand a month, just use that as an example. And the typical club member spends generally an equal amount to that. So somewhere around 10 to $20,000. Well, at the end of the year that $20,000 is completely used up and we do it again the next year. The club doesn't make any money on that. You start over from ground Zero. So the money that the club gets to keep to invest in the facilities is that initiation fee and that capital dues is and is continuous and much like operating dues go up in time, capital dues are going to have to go up in time and we have to continuously invest that. Now, if I go to the- to the typical club member at a club and I ask them to explain that to me, most of them, to your point, have no idea. And we believe that that's a real miss in the industry. And we're doing more and more town hall meetings. I mean, I've done three of them this week and I'm going to do three next week to explain the business model to members as a growing part of our business of treating members as owners, not just as customers. [97.6]
We think that is a critical component. And every new member, as part of their orientation, should understand what their responsibilities are and how it works. The typical club dues is somewhere around a thousand a month, just use that as an example. And the typical club member spends generally an equal amount to that. So somewhere around 10 to $20,000. Well, at the end of the year that $20,000 is completely used up and we do it again the next year. The club doesn't make any money on that. You start over from ground Zero. So the money that the club gets to keep to invest in the facilities is that initiation fee and that capital dues is and is continuous and much like operating dues go up in time, capital dues are going to have to go up in time and we have to continuously invest that. Now, if I go to the- to the typical club member at a club and I ask them to explain that to me, most of them, to your point, have no idea. And we believe that that's a real miss in the industry. And we're doing more and more town hall meetings. I mean, I've done three of them this week and I'm going to do three next week to explain the business model to members as a growing part of our business of treating members as owners, not just as customers. [97.6]
Ed Heil (00:37):
Yeah, I think that was one of the great lines in the white paper too. I mean, it's just- it's, it's such an important differentiation distinction in, in that. Jim, I really appreciate your time and your insight and I would love to talk more. I mean, it's hopefully I can I can hit you up for some more insight. And I know at Club Benchmarking you do so much research as well. You know, valuable information that I think many club leaders would appreciate. [27.1]
Yeah, I think that was one of the great lines in the white paper too. I mean, it's just- it's, it's such an important differentiation distinction in, in that. Jim, I really appreciate your time and your insight and I would love to talk more. I mean, it's hopefully I can I can hit you up for some more insight. And I know at Club Benchmarking you do so much research as well. You know, valuable information that I think many club leaders would appreciate. [27.1]
Jim Butler (00:38):
Yeah, we study it as, you know, getting ready for this podcast, I did a comparison of 2019 to 23, you know, post-COVID, pre-COVID and post-COVID. And the club industry has changed dramatically. We're generating a lot of capital. We're investing it in facilities. Half the clubs have a waiting list to get in. That's never happened before. Right, in the in the time that we've been in, we've had contraction. The number of clubs have gone from over 5000 down to 3800 in terms of that. And the industry is moving towards being healthier and healthier every day. Ed, you know, thanks for what you're doing of helping to educate people. [46.5]
Yeah, we study it as, you know, getting ready for this podcast, I did a comparison of 2019 to 23, you know, post-COVID, pre-COVID and post-COVID. And the club industry has changed dramatically. We're generating a lot of capital. We're investing it in facilities. Half the clubs have a waiting list to get in. That's never happened before. Right, in the in the time that we've been in, we've had contraction. The number of clubs have gone from over 5000 down to 3800 in terms of that. And the industry is moving towards being healthier and healthier every day. Ed, you know, thanks for what you're doing of helping to educate people. [46.5]
Ed Heil (00:39):
Hey, well, I appreciate that and look forward to to talking to your more. [2.7]
Hey, well, I appreciate that and look forward to to talking to your more. [2.7]
Jim Butler (00:39):
Okay. Thank you. [0.8]
Okay. Thank you. [0.8]
Ed Heil (00:39):
Thanks, Jim. And thank you for listening. If you find this podcast helpful, be sure to subscribe on iTunes, Google Play, Spotify or wherever you get your podcasts. Until next time, keep crushing your club marketing. [0.0] Ed Heil
Popular Podcasts
NFL Daily with Gregg Rosenthal
Gregg Rosenthal and a rotating crew of elite NFL Media co-hosts, including Patrick Claybon, Colleen Wolfe, Steve Wyche, Nick Shook and Jourdan Rodrigue of The Athletic get you caught up daily on all the NFL news and analysis you need to be smarter and funnier than your friends.
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com