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Liquidity, Availability, and Flexibility – Clubs’ Needs For Reopening and Restructuring

board room accountant meeting

By Ed Shanaphy
B.A. Duke University, M.A. The London School of Economics
President BeyondTheBaselines.com – SBW Associates, Inc

These are unprecedented times, but they will come to an end. Whether this summer, or in early 2021, Covid-19 will finally subside and we as an industry across the nation must be ready. Club managers, owners, and boards of governors should have a short-term and long-range plan for reopening. Reopening requires liquidity, availability and flexibility.

Prior to opening, as a club manager or owner, you have a single opportunity to restructure the tennis and fitness departments. All bets are off as you return and bring staff back to work. Most clubs and businesses are predicting a revenue drop of approximately 30 percent over the next 18 to 24 months and preparations for the change that Covid-19 will bring to bear on the country club and the tennis and fitness industries must be weighed in appropriately before any plans are finalized.

Liquidity

Liquidity is essential. The access to cash and funding is a necessity, whether you are a facility employing a director or “farm out” your tennis or fitness department to a director running a business within your club structure. Many clubs are unable to apply for Small Business Association funding, whether excluded as a 501(c)7 social club or simply red tape. But if by chance your club or facility was successful in its application for SBA loans or grants, that is a great help to retain staff and cover payroll costs during these weeks and months that clubs are not operational.

If you were not able to get through the paperwork for government funding, there are other avenues to liquidity. There are emergency disaster loans from most states. If your club or facility has a long association with a bank, you can often receive bank funding at a low percentage rate using club assets as collateral. Finally, if your facility or club has an excellent credit rating or Dun & Bradstreet report, it should not prove too difficult to gain some more liquidity if required to restart from industry financiers. What we must take away from this as club managers, governing bodies and advisors is that the term “savings for a rainy day” must be now essential business management as we move forward and budget accordingly.

Most clubs run at a fixed cost, whether they are open or closed. Staying closed longer puts more money in the club’s coffers, but members might become impatient and ask for partial or pro-rated refunds of membership dues. It’s a delicate balancing act for any club manager and board of governors.

Depending on refunds to members or clients, clubs remaining closed longer may and should have access to savings and funding bigger than any contractor working within the framework of the club. We have encountered many clubs guaranteeing the independent contractors running their tennis and fitness departments funding for costs incurred, such as overheads, retail purchases for golf, tennis and fitness shops, and payroll. These loans from the clubs in most cases will be paid back over the next season of full service.

As we move forward through this crisis, there is a possibility of assessing a membership for a planned project which could help instill cash into a club as the revenue streams come recover. This could be a somewhat riskier method in that it relies on timing of the recovery and a strong economy coming back to fore in 2021 and beyond.

However you find cash, it’s imperative that the club or facility has enough to remain a viable concern and to be flexible when reopening, something we will look at below.

Availability

One of the top three desires and wants of any membership is availability of staff and management to members. The CoronaVirus era hasn’t changed that. In this era, in-person communication is not truly possible, so communication is left to substitute for availability. Communication should be planned, positive and productive. Communications with staff should be daily, especially with department heads who are planning the minutiae of reopening their departments.

Communication with stakeholders, whether clients or members, should be relevant and frequent. Both the club manager and the department heads should be reaching out often to members or stakeholders. Outlining the plan to reopen, the new regulations that will be in effect at the club, and the overall, continuing finances of the club should be part of weekly updates.

Zoom or Skype meetings with stakeholders should be held at least twice a month, if not more often as the facility moves through the CoronaVirus era and looks to reopen in the coming weeks and months. Newsletters via email, communications via text and letters and cards through the old-fashioned “snail mail” can play a part as people are stuck at home. These communications should focus on how you are looking to safe-guard the facility, the members, players and staff members, along with protecting the stakeholders value.

Both club managers and department heads should be at their home desks with the phone nearby. It’s reassuring for members and staff to know that you are on the other end of the line or email message. And, even though you might not hear from them, they’ll realize and understand that you are there providing a service. It creates value for you, for the club, for the program and club staff.

Positive communication with staff is essential in these times to keep morale high and to lead staff thoughtfully and effectively through a crisis such as Covid-19. Questions to be prepared for are numerous and your plans for restructuring your club’s staff must be solid with a mind to possible future changes given the fluid situation. But we believe in numbers – studying the numbers and reports over the past 12 to 18 months should help you decide how to move forward looking at a possible reduction in revenues up to a possible 30 percentage points in the coming 12 to 18 months.

Flexibility

As a club manager or governor, this is the opportunity you have been waiting for. This is the chance to make that professional who is not at the top of your list a part-time or seasonal employee, saving you 401k matching payments, healthcare and other benefit costs. This is your chance to move up that instructor who has been grinding for you with the 10 and under tennis players on the back courts to a more senior position and to create more club revenues by renegotiating that individual’s contract while at the same time lifting that instructor’s pay scale. Everything can be done and restructured under the “guise” of Covid-19

With all that is said about keeping jobs, we all know what is coming after this unexpected cessation of trade: Restructuring. And for those governing boards, general managers and club managers, this is, however you look at it, your chance to weed the wheat from the chaff.

As we all look forward to a new trading opportunity after being shutdown through lockdowns, the realization that a club could possibly save more money closed than as a going concern came as a surprise to many. With or without member refunds, driving down the costs of personnel, letting those instructors go who are on higher salaries or stipends, and perhaps looking at cross-training some positions, is all something each and every club and facility should not just be planning, but doing.

Payroll Folder
Liquidity will retain instructors

In the short term, any club or facility must maintain its staff. Do remember, in addition, that there is basically a stoppage of all legal immigration through at least June 23rd, which means that any H-1B visas and foreign temporary workers are not going to be here through the summer season. Summer will be affected for those seasonal clubs, but this too is a chance to restructure looking toward Summer 2021. Being flexible with staff is key.

With those foreign, temporary workers requiring replacement, the PPP loan or EIDL and Small Business Administration grants, can be used as a short-term method to keep the department or facility in line and ready. The upward revenue curve following the height of the crisis will be slow and proportional, and in line with CDC guidelines. This extended, slow rebuild is a club’s opportunity to effectively restructure. This period should give us some clues as to the long term cash flow and revenues over the next 12 to 18 months. We outline below some ideas that should be discussed as reopening starts to occur.

  • Restructuring Staff
    • Flow Charts – this is your chance to reset reporting structures. Ensure, for example, that the holdover pro who has remained outside of management and supervision for the last 10 years shall now report to the new Director of Junior Development. And enforce that new structure upon opening.
    • Reporting structures should be updated and formulated to new needs. Weekly reports should be required from all instructors and directors to club management detailing new membership drives, communication with non-active members, new and possible revenue streams and conflicts between staff and members. These reports should follow the organizational flow chart: i.e. junior instructors report to Junior Director who in turn reports to Director of Tennis who then reports to the General Manager.
    • Seasonal Positioning and pushing year-round staff members to a seasonal contract could be highly useful. Not sure where and when CoronaVirus will leave us, and where there are seasonal differences in revenue streams, it’s essential we look at those revenue curves weekly in terms of staffing. Shortening the season for the summer might save clubs over-paying for staff when members might not be present due to local rentals being curtailed. It’s also an opportunity to make year-round staff seasonal aimed at the peaks of member usage, saving on 401k and healthcare costs.

  • Restructuring 1099 Contractors
    • We have long been advocating a revision in straight hourly rates for 1099 instructors. As we work with clubs, we look to create incentives for your instructors.
      • Rentals versus Hourly Rates: With fixed income from club departments becoming essential in recovery, why not charge fixed rentals (as do corporate gyms with their personal trainers who are 1099 contractors) and split that rental revenue between the club (75% and the Director 25%). Once the rental is reached, 100% of revenues could go to the 1099 instructor. This model creates massive incentive for instructors to teach both private sessions and groups as well as club-based programs. But more importantly, it guarantees a fixed revenue from all instructors to the club.
    • Create incentives for directors and instructors favoring group and clinic teaching over private lessons on the courts or sessions on the gym floor. This will help rebuild the group teaching ethos as we are forced to social distance. But more importantly, it will grow revenue for the club immediately upon reopening. Remember, private lessons and sessions conducted by junior staff don’t really add to club or director revenues in a major way.

  • Cuts to compensation and reduction of staff
    • We all know that staff will not look exactly the same as we come out of the pandemic work stoppage. This is not a time to worry about personal relationships with staff. Staff are looking to safeguard their career and might make a move before your plan is initiated. A staff member, who may have been at the club for a very long period, might be forced to have a salary reduction in order to retain his or her position. Given that we will see an estimated 30% drop to most, if not all club and facility revenue streams, cutting salaries and related costs are essential. Perhaps set goals for these long-serving staff members in order to regain their salary over a two to three-year period to show that the club values their work. At the same time, communicate that many staff are being forced to accept a pay cut or have fewer scheduled hours as we rebuild slowly.

Moving Forward

This is a time to make wise business and economic decisions. Study past revenue streams and pro-rate those streams accordingly as we rebuild. Budget conservatively and study the economic comeback locally and nationally as the virus is not uniformly affecting the nation. Use this opportunity to shed non productive staff while creating incentives for valued staff. No one is expecting staff to look exactly the same after the biggest economic crisis since the Great Depression. Use that belief to bring back your club with better staff, leaner departments, and a higher value to member services.

Ed Shanaphy is President of BeyondTheBaselines.com, a subsidiary of SBW Associates, Inc. He served for 17 years as Managing Director and Chief Executive Officer of Haysbridge (UK) Ltd, a marketing and advertising international conglomerate, operating in 16 countries with offices in Dublin, Ireland and Sydney, Australia with head offices in London, England. BeyondTheBaselines.com is a US-based consultancy which aims to bring additional resources to governing bodies and general managers and has some of the most elite country clubs in the nation as clients.

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The Home Owners Association: Where The Members Are Residents

Stillwater HOA Clubhouse

At a country club, a Director of Tennis sees the members that come to the club on that day. At a Home Owner’s Association, every member sees when the Director arrives in the morning, when he teaches, whom she teaches, and when the Director leaves for the day.

The 4 new courts at Stillwater HOA

Tim Clay, Director of Tennis at Stillwater Tennis in Naperville, IL, takes us through a normal day at the his home owner’s association. Tim is a great pro, but a true business man. Tim runs a business. “I’m neither an employee nor an independent contractor,” pronounces Tim. He’s right. As a full corporation with various interests, he is simply a corporation with a franchise at an HOA. Fortunately he has his M.S. in Management. “But, I’m always learning.” He has built a program that has over 90 percent prepayment and preregistration all through credit card usage.

Tim Clay has been the Director of Tennis at Stillwater for 10 years and has worked at the HOA for the past 15 years.

Tim has been coaching tennis for over 20 years. Illinois PTR named Tim their Member of the Year for 2 consecutive years in 2019 and 2020. His program at Stillwater is one of the bright lights in the region.

HOA Politics and Resale Values

Whether dealing directly with residents or through a Community Association Manager or management firm, Tim has found the right method of navigating through a situation that is rife with politics. How can it not be where each member is on property all the time and each decision Tim makes could affect property values? Tim discusses how he has grown into the job and learned the differences between being a country club professional and a Director at a large HOA.

You can reach Tim with any and all of your questions about working at HOA’s by email: tim@stillwatertennis.com

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Equity and Corporate Clubs Have Different Strategies During The Corona Era

notepad from Harvard Club on Raffles Hotel Book

During our National Town Hall this past week as part of our BeyondTheBaselines.com Podcast Series, we were fortunate enough to have several club managers, club governors, retailers and suppliers on the call. Having such a diverse audience helped us to realize that there could be a difference between equity and corporate clubs during the Corona Virus era. Clubs from university and city eating clubs, to fitness clubs through to elite golf clubs are choosing different avenues of communication with members and methods of retaining staff through the crisis.

Club ownership and its distinctions aren’t always apparent from the outside. Some of the most beautiful and magnificent clubs in our nation are actually for profit organizations, looking to service a paying membership. Augusta National Golf Club is one. On the other hand, some of the oldest and most established country clubs, are member-owned, otherwise known as equity clubs. Usually these clubs are termed “social clubs” and are formed as a 501 (c) not for profit organization under IRS statutes.

Member Share Certificate For Aladdin Country Club which is no longer in existence.

The History of Club Ownership

Harking back to the 1800s, emanating from the Northeast, the idea of a club through member ownership followed manifest destiny and moved Westward across our land. The Country Club, located in Boston, Massachusetts, is simply called the The Country Club, as it was one of the first clubs in the nation founded by five gentlemen from Boston in 1882. Clubs of the day were focused on outside activities, of which golf and tennis were two.

There were shooting and equestrian activities at many of the clubs along with swimming at lake and beach clubs, such as the famed Bailey’s Beach operated by the Spouting Rock Association. The move westward followed and, as an example, Tradition Golf Club in La Quinta, CA, became a member-owned club in 2008 after years of development. Equity clubs usually offer a bond in return for initiation fees which under normal economic conditions accrues a profit and are “purchased” back by the Club at the end of the membership at the higher value.

In stark contrast are clubs which are known as non-equity, in which membership is owned by a group or an individual which are not part of the membership. Often now among corporate golf clubs, these clubs do offer a bond upon joining, however any accrued value is usually retained by the Club. Club Corp, which is the largest corporate owner of country clubs in the country, is just one example. Club Corp just acquired from PGA National in Palm Beach Gardens, FL and added it to its list of clubs it manages through its subsidiary Club Life Management. In taking over clubs, usually after a developer finishes a gated community, Club Corp purchases the club and manages the club. Clearly, profits are a motivating factor for such clubs in order to finance their shareholders, who are not usually members.

Modern Day Distinctions In The Covid-19 Crisis

Bringing this historical differential to the present day and looking at the clubs such as New York Sports Clubs, which is corporately owned, and Midtown Athletic Club, which is family owned, both have shuttered up their doors, laid off all but essential corporate staff, and have communicated with employees. What they have not done quite as much is communicate with members. The New York Post writes that it is nearly impossible to get in touch with anyone at NYSC or its parent company, Town Sports International LLC, as the firms are attempting to make refunds harder to process for its members.

Midtown Athletic has, in fact, written a few times to its members, discussing the heartbreak laying off all its full-time and part-time workers and offering pro-rated refunds of monthly dues immediately upon closing its doors under State guidelines. It has set up a Covid-19 webpage stating its policies and with links to letters from the corporate president. That site can be found here and is an example of corporate-owned clubs communicating with their memberships.

Many of the non-equity clubs have stayed open as long as possible to avoid having to refund pro-rated monthly and annual dues. This is counter-productive in regard to social distancing, but it could also, if continued, open clubs up to a liability.

On the other hand, we are finding that clubs in which there is a bond held by the member, communications are almost daily. Clubs that we monitor, in Florida, Texas, the Mid West and the North East, have been constant in daily communications about what is to be expected. These clubs, where members are owners or have a shared bond, have boards and managers that have a shared financial objective. We haven’t seen members of these clubs breaking down the doors like a run on a bank for refunds or asking for pro-rated returns of their memberships.

In fact, one club we monitor, Silver Spring Country Club, in Ridgefield, CT is following the protocols on the golf side with foam in the cups on the green, no caddies and no touching the pin. It also sends out twice weekly newsletters to its members and extra communications about special happenings, such as an Eagle this past Sunday by one of the members on the signature 14th hole. The Golf Shop is offering pickup or direct mail delivery and the kitchen is open for curbside pickup. Communications such as this keep the membership informed, enlightened and familial.

Conclusion

When joining a club, those joining don’t often think about equity versus non-equity scenarios. But in a situation in which Covid-19 puts financial strain on all types of clubs, having a common financial goal with shared expenses throughout the membership creates a stronger foundation. A club which has its members as owners are more cohesive than corporate clubs, especially corporate clubs without a membership bond.

Perhaps the golden age of equity clubs will come back with more and more clubs offering a bond and ownership, which could help clubs through turbulent financial times and give membership a sense of ownership. Perhaps an effect of these tough times will be to enhance the value of membership bonds and perhaps a few new equity clubs.

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Composing a Governing Body

Boards Formed in the 19th Century Now Operating in the 21st Century

Boards and governing bodies of country clubs and sports facilities, along with home owner associations, often point to the Articles of Association or Club By-Laws during their meetings. Often overheard is “Well, what do the rules say?” Club and community rules can be quite lengthy and, over the years, have been amended, added to, and deleted. But they are there to move the club forward each year within the club or association’s remit.

It’s interesting to note that country club by-laws can be over 100 years old – many of the clubs we have worked with were established long before 1919 and those by-laws and club regulations might be in need of some updating. Even condo associations which have by-laws dating back to the time of Presidents Nixon or Ford might look at updating their governing rules. But why? Is there a new method out there for governing bodies to review?

Board Members

With technology and reporting being updated almost monthly on software platforms, it is much easier for a Club or HOA Board to stay in touch and in fact, stay more inspired, motivated and enthused about their role at the facility. This being said, it can create a Board which, in reality, may be too hands on. With the best intentions, in fact, given the wonderful advancements in communication technology, a board can micromanage the general manager or the community association manager. This in turn, applies pressure, either directly or indirectly, on the Directors of Tennis and Fitness.

Challenges of Board Composition and Effects

Firstly, boards like every other grouping in business and life, find safety in numbers. However, in our experience, the larger the board, the harder decision making becomes. “Too many cooks spoil the recipe” is often heard, but we believe that this is sincerely true when looking at the number of board members for clubs and HOAs.

In looking at composing a board, the board must first define it’s role within the Club. What it the club’s long-term intent and goal? Does the club have a mission statement and is that statement adhered to or even applicable in the present time? Is it a profit-related club or a home-owners association concerned with falling property prices? The board should ask itself annually: Where do we want the club or HOA to be in 5, 10 and 20 years? Often, boards get caught up in the minutae of the daily accounting, marketing, hiring and terminating and neglect the bigger picture of steering the club or association into a new era while staying in touch with heritage, history and original intent.

Turnover is perhaps the most important aspect in creating strong, stable boards. In order to maintain consistent leadership and focused governance, we find that perhaps one-fifth to one-sixth of any board should be replaced on an annual basis. So, for example, if you had a board of 15, perhaps each year three board members should be replaced, meaning that a board member would serve 5 years. Too much turnover on an annual or bi-annual basis creates perhaps too much change too frequently and leaves the board without a consistent goal. A nominating committee, or advisory board in charge of choosing members of the board, is essential. And the appointing of this committee should be carefully weighed, whether by the membership or homeowners, or by the existing board itself.

Executive Committees and Standing Committees

Standing committees are the smaller bodies that get into the nitty gritty of running any club or association. They should act as a breeding ground for new board members and appointments to these committees should take that into account. On another note, perhaps an appointment of a former president or board member can bring stability to a committee. Tennis and fitness committees are usually the bodies in charge of either a search for a new Director or appointing a search committee under its supervision. Too often we see certain groups overly represented on such committees. For example, a tennis committee comprised of 9 members has 5 of those members all on ladies teams. Composition of standing committees should be reviewed on an annual basis to continually create equality among membership groups. This can be done also by creating positions for certain types of membership categories: Full, associate, junior, honorary, etc.

Executive committees are perhaps the most vulnerable to inconsistent thinking. Usually comprised of just four or five members, they can easily fall into the hands of a small, opinionated group of members who desire change that’s not always in agreement with the membership as a whole. Carefully reviewing the nominations for board members, after having those members serve on a committee, can help to avoid problems in the future.

Constant self-evaluation of a board is not only prudent, but should be required. But, as we all know, to be objective when criticizing one’s self can be quite difficult.

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Election Day Thoughts: Taxes on Country Clubs in the Trump Era

Presidents can change the social fabric of a country, and in reality, President Trump’s tax bill passed in the first term of his presidency has changed the finances of golfers, members, and in fact, clubs themselves to a small degree. To a larger degree, his ownership of some of the biggest golf clubs in the USA and world has changed how clubs do business, classify profits and use funds. No matter what your politics, it’s important to know the changes that are here and that might come in the future as clubs and their Boards plan for the future.

The tax code which deals with not-for-profit social clubs is extensive and is addressed in Section 7 of the US Tax Code. Clubs which are not-for-profit are 501(c) organizations and must maintain that status by adhering to tax legislation which clearly earmarks such clubs as social with members participating in a common activity. There are so many circumstances where a club can fall afoul of the tax code and endanger part or all of its 501(c) status, club governors have to be extremely cautious in activities that go beyond simple club operations.

For example, hosting a golf tournament, where the public is welcome and the income is substantial, can indeed lead to loss of non-profit status.

  1. Golf tournament—A club formed to maintain a country club for the promotion and enjoyment of golf for its members, receives, as host of an annual golf tournament, substantial income from the public, and uses the income for club operating expenses and improvements is not exempt under IRC 501(c)(7). Rev. Rul. 68–638, 1968–2 C.B. 220.

logo-pga

Basically, income derived from outside of normal club activities cannot be used for improvements or expenses (say to build a parking lot to host more tournament visitors). And those profits do not fall under non-profit income. So, for example, Bellerive Country Club, which hosted the PGA Championships this year, must look carefully at the profits derived from holding the prestigious tournament and how to handle them in its balance sheet.

Given the delicate nature of maintaining the tax status of a club, it’s interesting to note that many newly-formed clubs are going in the direction of corporate or individual ownership. In fact, President Trump, or his businesses, own many of the golf courses at which he plays like Trump Doral and Mar-A-Lago, both in Florida.

Refundable vs Non-Refundable Initiation Fees

Mr. Trump is not alone. In fact, having spoken to several accountants through doing business here at beyondthebaselines.com, we have noted that “refundable” member initiation fees, which were extrememly popular at the height of the boom in the 1980s and early 90s, are in actually interest-free loans. They were derived by equity, or member-owned, clubs to help with capital expenses and growth. The membership, through its Board, would be able to decide on uses for the money – capital expense, maintenance, or stemming losses from a rainy season.

However, with the advent of clubs such as Mr. Trump’s and with the growth of individual and corporate ownership of clubs, these funds have found different uses.  In essence, refundable initiation fees can be used by the business owner or owners as they see fit. In actuality, these funds are interest free loans over long period of times. We wonder if Congress or the President might look at this in upcoming legislation. It’s a win-win situation as the refundable initiation fee can be classified as a liability on a club’s balance sheet, and used to lower corporate tax due.

Some clubs have moved to non-refundable initiation fees, and these yet again, for the corporate or individual club owner, can be used really in any way they see fit given the contract and its wording that they have with the paying “member”. We put “member” in quotes as they are really simply users and not member-owners as has been the case in the old-line country clubs of the 20th Century. However, without the repayment necessary as in refunded intitiation fees, owners cannot put non-refundable intitiation fees as a liability on the balance sheet and should really pay income tax on those funds when received. Looking at how to spend and the timing of spending those funds on improving the club’s facilities is imperative to lessen corporate tax as well.

New Tax Law Doubles The Cost of Doing Business On The Golf Course

This year, with the Republican tax bill, a small but noteworthy change is that a round of golf is no longer deductible against your income. As golf.com writes: “Embedded in the recently approved tax reform bill is a provision that eliminates a 50 percent deduction for business-related entertainment expenses. It applies to a range of activities, including concerts, sporting events and, yes, rounds of golf.”

This could in the long term affect the number of rounds played by corporate golfers doing business on the course. That round of golf just got 50% more expensive. Here’s the good part though: Dinner with that client after the game is still a tax deduction!

Ed Shanaphy is President of BeyondTheBaselines.com which is a consultancy aimed at governing boards of country clubs. He received his undergraduate degree from Duke University and his graduate degree from The London School of Economics.

 

 

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Board of Ed: The Board Itself Might Be In Need of Education

The politics surrounding governing boards at clubs and homeowner associations are infamous. The tasks facing governing bodies at Clubs or Home Owner Associations are far too numerous to list here, but one of them often is to oversee a tennis or fitness department. In investigating the inherent politics of Boards, we will separate the country club board from the HOA board as there are extreme differences between the two Within the county club sphere, we shall separate even further between an equity or member-owned country club and a non-equity club. That said, all three Boards in question must understand the intricacies involved in the hiring of staff and the supervising of tennis and fitness facilities.

Home Owner and Condominium Associations and their Boards

Home owner or condo association boards are a hotbed of politics and biases. We’ve seen this at every community with which we have worked. From parking to paving, from decor to dandelions, condo boards can find issues to discuss for days. In all honesty, it’s almost imperative that a consultancy such as ours is brought in to work through the inherent biases and misguided owner motivations to find a result that most owners can stomach financially, but that will also allow a tennis or fitness facility to thrive and maintain “best-in-class” service levels within the community.

poster of a home owner getting caught in a trap by the HOA
Don’t get caught up in the politics of a home owners’ association board.

In most instances, HOA or POA membership is a requirement of living within the community, which is the essential difference from a country club or membership facility in which membership is voluntary. This difference must be taken into consideration when making any decision by the Board and its agents. Condo fees or HOA fees are set by the board or, in some instances the managing agent, and reflect the costs of living within the community. Again, there are differences in regard to types of communities as well. A gated community, such as Ibis or Mirasol in Palm Beach County, Florida or communities created by developer Toll Brothers are geared from the outset as a gated community offering a “country club” lifestyle. Those initial home buyers are fully aware of the lifestyle in to which they are buying. Older condominium associations or gated communities may not have had this club environment in their initial offerings to owners and any additional costs for leisure facilities can be met with indifference or even hostility.

The relationship with property management is essential and often there are long-term issues between property management and owners and members of the board. This is where an advisory consultancy can come in extremely handy to mediate and cut through the politics to the necessary needs of tennis and fitness management!

What we have noted though, for many years, is that any tennis or fitness programming at an HOA adds to property prices. Owners have to be consistently reminded of this fact as any tennis or fitness programming grows. Buyers are much more aware of offerings and have mentioned to us in surveys that they are inclined to purchase upon seeing an “active” community with events and leisure facilities. The small funds required in advance per household to run a “best-in-class” tennis or fitness program are clearly worth the profitability gained in property value after the sale. In the long run, an HOA is far better off having a tennis and/or fitness ingredient than not having one at all.

Equity Country Club Boards of Directors and Governors

The layers of country club boards, we believe from our experience, is almost always excessive. Board of Governors, Tennis and Fitness committees and their chairpersons, Trustees, and the rest of the club officers (or flag officers at Yacht Clubs) all have various sentiments and biases toward club operations. With country clubs, where there is golf offered, the number of committees grows even more numerous: Greens and Golf committees often have the ear of the General Manager far before the tennis or fitness committees.

Country Club Management Flow Chart
Country Club Management Flow Chart

Due to a cost and revenue basis, golf clubs, and even at times yacht clubs and beach and swim clubs, often overlook tennis as a revenue generator. These clubs more often than not focus more widely on golf (or yachting) and its offerings at the club level. Tennis as the “second fiddle” usually requires more persuasion for budgetary items such as maintenance, upgrades, housing and salaries or stipends for staff professionals. Pushing these items through at committee level, then board level and finally through at management level, takes commitment not usually found within a tennis committee.

It is imperative that a tennis or fitness department fund itself at the appropriate level in order to maintain a service level equal to that of the rest of the club’s offerings. Frequently, this does not happen.  We’ve seen this across the nation from country clubs to beach and swim clubs and yacht clubs.

Most boards will break down the tennis or fitness department within a budgetary constraint that does not allow these departments to show a profit. Time and time again we have heard from Directors of Tennis and Fitness that the club has earmarked an annual loss for their department, and therefore, are loathe to spend more on these departments which are “losing” money.

There are many ways to allocate membership dues and initiation fees across various departments and once this is done appropriately, we often have shown the club officers that tennis and fitness are indeed profitable. Usually, initiation fees are budgeted for capital expenses, and a prudent Board would look at percentages across club departments when allocating new membership fees. It’s imperative that a matrix which considers club usage by hour and member is used to create this percentage basis. Also, experience shows us that tennis or fitness can “drive” members to high profit areas of the club, such as food and beverage. A tennis event ending with a luncheon must be taken into account when looking at the tennis department’s profitability. We literally can affix a number to such events: ” The salon day special brought 42 ladies to the restaurant for lunch” Some of that food and beverage profit should be allocated to the fitness department at month end.

Non Equity Clubs

Firstly, it’s imperative that we note there are major differences between equity (member-owned and usually a 501C non-profit organization)and non-equity clubs which are usually corporations. It’s interesting to note that non-equity clubs tend to be more receptive to staffing professionals and creating the right work environment and benefit packages for their employees and staff. Overall, non equity clubs understand better the need for quality instruction and management in their tennis and fitness departments as they see the profit related from these departments. Again, there are fewer committees and, in some cases, just a Managing Director rather than a Board of Governors who is clearly focused on making a profit and keeping a healthy club and bank account.

A recent general manager once said to me: “It’s much easier for a member to leave a non-equity club, in that they are leaving a company in which they do not own stock.” It’s also easier for a member to leave a non-equity club and turn to their own gated community club (usually member-owned) as well if the member is looking to make cuts in their payables. So, non-equity clubs are forced to focus even more on member retention. Because of this, many non-equity clubs treat their members better than equity clubs. However, members still have an innate stigma about leaving a club in which they own a stake in and maintain a membership at an equity club longer on average than a non-equity club. With an equity-owned club, members are in fact shareholders in their club, whereas, they feel less connected to a non-equity club which is a corportation for profit.

Summary

In conclusion, each and every club has inherent biases and outward motivations. With various departments competing for budgetary requirements along with membership usage, all Board of Directors are inherently flawed, and in many ways, clearly ill-educated in regard to tennis and fitness management. Club Managers are often too removed to deal with the daily managment and budget items. Tennis and Fitness Committees have different objectives than the Directors of Tennis and Fitness who are running the program. Educating all of the above groups is part of the Director’s task and often times, the Director does not have enough time off the gym floor or off the teaching courts and excellent programming and best business practices are never achieved nor measured.

Ed Shanaphy has served as Managing Director to three global advertising and marketing firms and was a finalist in the Ernst and Young (UK) Entrepreneur Of The Year Award. He is now President of BeyondTheBaselines.com, a consultancy aimed at advising country clubs and homeowner associations in marketing and profitability.

 

 

 

 

 

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The Top 5 Reasons Directors Of Tennis Are Terminated

It happens every year. The summer comes to an end, and so does the job of the Director of Tennis. Data seems to suggest that there is a higher turnover among tennis Directors than Fitness directors. And by turnover, we mean termination – not moving on to a better job. What are the reasons behind such a large number of terminations? Our experience at Beyond The Baselines can help decipher the reasoning. Below, we list in order, the reasons we have found in our work with clubs and facilities for termination in our work across the nation.

5. Change of Board Members

It’s a regular occurrence. Most country clubs have a revolving door when it comes to appointing board or committee members that oversee the Director of Tennis. Terms on the board or committee usually range from 2 to 4 years. A board or committee that hired one professional disappears and the make-up of the committee changes significantly in the first two to three years of the new hire taking place.

Boards tend to have factions. An outspoken or opinionated board member lures other members to his or her viewpoint over a couple of meetings or a year. And there you go. The one board member that didn’t like the new hire from the outset (in many cases the applicant they had supported for the hire was not chosen) has two or three members now in support.

It’s crucial that boards or committees have a remit that helps continuity. Numerous yearly nominations often hurt continuity and create an unstable work environment for all employees. Boards or committees that have terms too long can stalemate a club or facility. In our experience, a governing body that sees no more than 20% of its members drop off each year is about right. That would mean, a committee of 12 would see 2  positions rotate each year.  We will write more about board and committee representation in our next issue, but it is a top reason why Directors of Tennis are terminated.

4. Financial – Can our Director really make that much?

How many times have you heard these two questions: “How much does the tennis pro make?” or “Since we can’t see how much the pro makes and she doesn’t share that info, she must be taking us to the cleaners.” These questions often come from a club treasurer or non-active member who sees the yearly budget and wolf whistles when he or she sees the cost of the tennis operation. The thought process is: “How can someone who just hits fuzzy yellow balls make so much money?”

There are so many sides to this issue. If the professional is an employee, then it’s clear to the board how much “take-home” pay the professional is in fact taking home. However, if the professional is an independent contractor there are two different avenues which bring angst to members and boards. If the independent contractor is doing all the billing directly, the membership really has no idea how much the professional is making. If the facility is billing the members and acting as an agent for the professional, often the facility just sees the revenues and not the costs associated with such revenues, such as assistant pros stipends and percentage of lessos, balls, supplies, travel and abode, insurances and liabilities.

As a Director stays at a position and does a good job and participation grows, so do revenues. As the years progress, the professional has to add to the program to ensure that the revenues match the additional programming and members can see improvements. But sometimes, adding programming can be injurious to a career. Transparency across revenues as well as costs with the club or facility helps to alleviate any issues down the road.

3. Creature Comforts – Getting Too Close To The Membership

This is a very common reason and we see it at various levels in the tennis and fitness industries. Examples abound, but here are a few.

Your Director of Tennis has golf privileges after 3pm on weekdays. Far too often, these privileges are exploited and he is playing golf with members two days a week or more. We have seen situations where the Director of Fitness keeps an hour open on her book for a particular member every day of the week and often it goes unfilled. We call this the “regular” factor which other members despise. Finally, there is the far-too-often misdeed of ruining a member’s connubial bliss, sometimes through deed, but much more prevalent, simply through rumor or assumption.

All of these can be almost always avoided. Professionalism at the highest standard is expected of a Director and that should never wary based on dealings with particular members or groups of members.

2. Misunderstanging 1099 Contracted Labor

We have found, over the years, that Club Governoers, HOA boards, tennis committees, and more often than not, fellow Directors of Tennis, misunderstand independent contractor status. The rules governing a 1099 worker versus an employee are truly staggering and are not always revered as closely or legally as they should be.

Independent contractors set their own schedules. This one fact creates friction with both governing bodies and fellow Directors. A recent court case at one of the exclusive HOA’s on the exclusive island of Palm Beach, saw a long-term Director of Tennis being sued and forced to resign over work habits of an independent contractor. Contractors often cross-over between their work outside the club, and there can be cases of restraint of trade along with simple misunderstandings of how an independent contractor can instruct within a club or facility environment.

Communications with your independent contractors is a necessity. Poor communications will lead to disagreements between the Director and the Club and the instructor. The contractor will go find work elswhere. The Director will be the scape goat as the governing boards have to be seen as addressing the situation.

And, Number 1…
Ladies Teams and Tournament Management

At a recent USPTA conference, fomer WTA player and now USPTA Officer Trish Faulkner, mentioned a staggering figure: Almost 7 out of 10 Director of Tennis are terminated in large part due to mishandling ladies teams.  We would add to this tournament management and, with that addition, it’s by far the most common reason for termination of a Director.

In discussing this with professionals ranging from elite country clubs to racquet clubs in the Northeast which host USTA indoor women’s teams, it appears that a Director’s success must start from the outset. A planned, written team manifest seems to deter issues across ladies teams. This document must address pairings, captaincy, rankings and placements from the beginning of a season, if not from when the Director takes the helm at the club or facility on day one. Ladies Teams are a business and the Director must remember this throughout his tenure.

One of our esteemed colleagues put it best very bluntly: “The last thing you want to do as a Director is put yourself directly in opposition to a team member on a woman’s team or a member who feels they should have the easier road to the final in the club champs.”  There are several ways to avoid these two dangerous, and almost fatal, scenarios. At clubs that are member-owned, it really is essential that the Director of Tennis cede the desire to make team decisions to a member-accepted captain. Create a tournament committee for each draw requiring seedings and placements. In this way, the Director can offer advice, help and support – rather than making poor, ill-advised decisions that will be held against him for the rest of his tenure.

Ed Shanaphy, USPTA, is former Managing Director of Haysbridge (UK) Ltd, a global advertising and marketing firm with offices in London, Dublin and Sydney.  He is presently President of Beyondthebaselines.com and a Director of Tennis.

beyondthebaselines@gmail.com – 508.538.1288

 

 

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Exempt versus Non-Exempt Tennis Professionals – The FLSA On The Courts

Our leisure industry, and golf and tennis particulary, is lumped dangerously in with every other industry and falls under federal legislation just like any other business in the USA.

Just as there are rules governing the independent contractor and whether the IRS will see an independent contractor as a club employee and fall under the tax umbrella, so are there also stipulations governing exempt vs non-exempt employees. These regulations only come into effect if your tennis professional is an employee of the club. Oftentimes, clubs and home owner associations make the error in creating an independent contractor position to avoid these pitfalls within the employment legislation.

To try and make complicated legislation simple for the purpose of this article, an exempt employee is not due overtime pay. A non-exempt employee is due overtime pay when over 40 hours in one week or holiday pay comes into effect. The legislation falls under the Fair Labor Standards Act and the act itself defines an exempt employee as such:

  1. The employee must be guaranteed a salary that equates to no less than $455
    per week.
  2.  The employee’s primary duty must consist of managing the business or a
    customarily recognized department; and
  3. The employee must customarily and regularly direct the work of two or more
    other employees;
  4. The employee must have authority to hire or fire employees, or the employee’s
    recommendations as to hiring, firing, or promotion of employees must be
    given particular weight.

As you can see these points can be hazy given the position of a Director of Tennis, Head Tennis Professional or an Assistant Tennis Pro. An IRS fact sheet that can help any understanding of any exemption is located here: IRS Exempt Employee Fact Sheet

Almost on an annual basis, we hear of cases where tennis professionals have sued the club at which they work under the Fair Labor Standards Act. Each case is an employee by employee investigation as each case has its own characteristics and merits its own investigation.

Some of the points that have been raised previously by disgruntled tennis employees are as follows:

  • Time that is spent with members or players before and after lessons count toward hourly pay. These hours are often claimed by employees and have stood up in court as the employee is working with members on club property and providing a “concierge” service.
  • Less than 50% of time is spent managing other employees and programming. Most of the time of a head pro or assistant pro is spent on the court and therefore it is impossible for that employee to spend over 50% on managerial duties. In fact, any exempt employee must manage and be responsible for the hiring and firing of at least two full-time employees.
  • A club has docked the assistant pro for missing an afternoon. This is an immediate hint to any examiner that the employee is in fact non-exempt. Docking pay is looked badly on by examiners and should not be part of an exempt employees package.

Examples abound. And there are many ways in which a club can get itself caught in the web of legislation and defending itself during a state payroll or IRS audit. An exempt employee is one who has several classifications and because of those administrative and professional classifications, can fall foul of the federal law. Tennis and golf professionals along with fitness trainers, and even caddies, often fall within the cracks of this legislation, both at the federal and state levels and clubs end up paying overtime in back pay in court.

Before any club or human resources department draws up a contract, the club and its governing bodies should fully understand the FLSA legislation and the background in the case law.

 

 

 

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The Data Beyond The Baselines

Tennis, once again, is a growing sport in the USA. With an All-American female final last month at the U.S. Open between Sloane Stephens and Madison Keys, American tennis is at an exciting, yet pivotal point. There are two distinct tracks taking place and it’s important to note each one and the statistical trends that are occurring.

At the grassroots level, the USTA is looking at bringing the game to the masses. With its new National Campus in Lake Nona holding national tournament finals at all levels and ages. The USTA’s work at the grass roots levels with L9 tournaments all the way to Tennis on Campus at the college age shows that the USTA is trying to bring tennis to new players at all ages and levels. That said, tennis participation is up just 1% in 2017, according to the Tennis Industry Association and the core number of players is contracting slightly as the median age is rising. The USTA is winning slowly with the junior participation levels but there are limitations. With tennis being restricted not only by the number of public courts, tennis is a sport that requires initial technical instruction early on. Growing participation is not an easy task for the USTA.

But, that leaves an opportunity for us at the Club level, where we can work individually with juniors and pass them along to the upper ranks and prepare them for tournaments and beyond. In order to take advantage of this wonderful opportunity at the club level to move juniors into a position to play in high school, college, and beyond – it’s imperative that we hire the right instructors and have a handle of the wonderful new programming that is out there. This can only happen if you understand the industry across the the club and public environments.

The position of tennis instructor has been for years a vague one. It’s oftentimes a stop-gap for a player who didn’t make the tour. This doesn’t mean he or she is a good instructor. We see more often than not, great players are not good instructors. We do see that instructors do not always have to be great players. And, what has been the bane of existence for our industry is that we push along a great coach and instructor into a Director’s role, which is a managerial role rather an on-court role at most clubs.

But with more stringent examinations and internships for certification and continuing education being offered by the USPTA and USPTR, the industry is slowly realizing that the key component of increasing the tennis industry and coddling great players to move them along the routes to success. We are slowly learning that a great coach or instructor should stay just that and not become a manager. Management is very different from being on-court and should be viewed as such.

As we consult with third-party institutions and clubs, we are able to collect data from numerous sources across our industry: from country clubs, tennis clubs to home owner and properety associations offering tennis amenities. Armed with this data, we have a singular and special viewpoint of the tennis industry based on data available only to us at Beyond The Baselines.

Consulting with and advising club boards and tennis committees, we bring a new dynamic to the table.  Sharing the data that we have derived from our industry, we can help create not only a fantastic tennis department at the club level, but also enrich the programming and employment opportunities. Gleaning what we have learned from our experiences and bringing actual live data with us to the table, we can bring a whole new viewpoint to any board or committee discussion and move tennis programming in the right direction to the benefit of the club and facility as a whole.

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A Club’s Profile Is Just The Start

What Is A Club Profile?

Clubs are far and wide across our nation. Established country clubs in the Northeast with golf courses and old stone swimming pools are quite different from a yacht club in Florida which offers yachting, tennis and social amenities set in a gated community. Again, a tennis-only club is different from a golf club. Average ages of membership and length of memberships held vary widely from club to club.

How do each of these clubs fall into a general hiring process? They don’t. Plain and simple.

Having worked with so many clubs, the term “Director” or “Department Head” has various meanings – all defined by the particular club and its management structure. For demonstration purposes, and to keep it general and not even club specific, a Director of Sailing is quite different from a Director of Tennis. Sailing Directors are rarely seen instructing adults or offering much in the way of any adult programming. Programming and instruction for yacht clubs mainly focuses on juniors. The Sailing Director is asked to hire young, college-age instructors, find and organize those instructors’ housing for the summer, and run a program that aims at getting juniors age 8 to about 17 (they have to be over the age of 8 to be insured on the water) on the water and learning to sail.

With that in mind, many clubs place a major focus on their junior programs, sometimes with good motives, but oftentimes, with monetary gains in the mind of the present Director of Tennis or Golf. Junior programs, by far, outweigh adult programming in terms of revenue to most Directors of Tennis across our country. An industry standard that we have seen is something in the region of a 75/25 ration in favor of junior programming. Sometimes, this is how the club over years has structured itself. At other times, it is that the Director sees the junior program as his or her main revenue stream.  Often, the adult program is left behind – ragged and uninspiring. We see it far too often.

That’s why the first item in any process of finding a new Director of Tennis (or Sailing or Golf for those clubs that offer those sports) is to create a Club Profile. This profiling is imperative in understanding the ethos of the club. Sometimes we call it the “vibe” of the club, but both words help to describe how we unearth the actual essence of the club.

Through meetings with the board, committees and active members, we can glean the strengths and weaknesses of the Club. Without a bias and a truly objective eye, we focus on where the club is failing, where it should be more even-handed, and where it should be in the next five to ten years.

The Club Profile is divided into two parts, one statistical and one part motivational.

Club Profile Part A: Statistical

These figures we glean easily enough from club management. Below are some of the statistics we look at – but we would also look quite intensely at usage and revenues which are clearly club specific.

  • Total Number of Present Members
  • Total Number of Members 5 Years ago, 10 Years Ago, and 20 Years Ago
  • Number of Member Categories and Change In Those Categories By Year Over Past 10 Years
  • Waitlist Numbers Growth and/or Decline
  • Ages of Members, Spouses and Children
  • Ages of New Members, Spouses and Children
  • Length of Membership Held
  • Projection of Membership Numbers and Age of Members: 5, 10, and 20 Years.
  • Tennis Court/Golf Course – Usage by Member Category, Age and Season
  • Tennis/Golf Revenues – Broken down between Instruction, Tournament Play, Guest Fees, Special Events, Socials, Fees, etc.

These questions and more will help to understand the type of Director of Professional that is required. The average age of a Director of Tennis in the United States is 48 – is that the right age for a club that is based in New York City and focuses on squash with a membership mainly of young people working on Wall Street? Probably not. But perhaps it is if that Director then hires two strong, younger professionals who are great players and teachers.

Club Profile Part B: Motivational, Change and Club Environment

Part Two of any Club Profile is a written survey and subsequent meetings with active members, the board and committee. Our “Club Profile Request” which we offer to all board and committee members helps to discover and uncover hidden ideas and agendas. Through this 25 to 50 question document created specifically for each club we work with, we discover the present programming and currently held ideas and opinions of members and the club’s governing bodies. We find where boards, committees and active members feel their club is failing and where it is strong and why they believe they require (or in some cases do not require) a new tennis or golf professional. And, more importantly, we uncover the various board and committee’s factions, so we better understand the entire situation prior to starting any recruitment process. This entire process aids us and allows us to better educate and work with the club’s governing bodies as we progress through any changes of employment or management structures.

Questions such as: Is there a teaching ethos at the club or do most members just use the club for their doubles games? Are tournaments catering to the same small group of members or do tournaments receive club-wide participation? Does the tennis committee represent all the various groups and demographics using the tennis courts? Does the Greens Committee overstep its job description and squash the Golf Committee? In this gated community, have house prices gone up or down and how has that affected the membership? These are simple enough questions, but we need to know the answers to these general questions before forging ahead.

The Club Profile is perhaps one of the most important documents and processes in any situation where a club believes it might be time for a new Director of Tennis or Golf… or Sailing. It is an investigation into the club itself, the board and the committees and why there is an apparent disconnect with present employee. Sometimes, communication and lack of oversight can create a hot-bed of resentment toward present employees. Sometimes, present employees are not fulfilling the clearly stated job description. Reasons for a disconnect are many.

However, the reasoning behind the disconnect, the apparent or non-apparent need to address issues, the desire for change, and ideas for the future all dictate why the present management structure may or may not be working. How to find a better-suited Director or professional in the future, if that is indeed required, is the responsibility of the governing bodies of the club. Understanding those bodies’ motivations and goals will help find and retain the right professional for the present and future.