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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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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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National Town Hall For Seasonal Clubs in The Corona Era

Windsor Tennis Club

As the Corona Virus Pandemic intensifies, seasonal clubs are looking at an approaching summer with trepidation.. Club managers, club boards of governors and Directors of Tennis and Fitness are wondering if and when the club may open. Boards of Governors are looking at liability and possible waivers of liability for all members and guests in connection to the virus.

In this age of uncertainty, we believed that most of the national associations and organizations were looking at the year-round clubs and the larger players. But seasonal clubs, largely member-owned with contract labor, are a large part of the industry. Focusing on these clubs, our National Town Hall attracted over 100 industry professionals to ask to join the call.

This call with club managers, club governors, clothing and tennis suppliers, along with Directors of Tennis and Fitness, discusses issues from slow supply chains to schedule changes. Offering ideas from a soft opening event free to members to updating and adding text messaging databases through Google Voice, Ed Shanaphy from beyondthebaselines.com moderates a lively discussion through the issues facing clubs for the 2020 summer.

Communicating with both members and staff in a congenial and regular way is clearly important to these industry leaders. And helping staff and contractors through the maze that is government aid and legislation is another issue covered.

All in all, a thorough conversation from industry leaders discussing how they are dealing with their business, their staff, their members and their clubs through the Covid-19 crisis.

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Communication, Communication, Communication

Baileys Beach Club Chit

From Phone Books to Contacts and Club Chits. Communication Is Vital.

Baileys Beach Club Chit
Bailey’s Beach Newport Club Chit

We’ve asked each and every club and home owner association with which we have worked what would be their number one criterion for a new Director of Tennis or Fitness. It wasn’t that they were once ranked top 500 on the ATP Tour or that they competed at Crossfit Nationals. It was simply: communication, communication, communication.

Not to sound like a real estate agent emphasizing location, but it’s so true. In this day and age where we spend more time looking at our phones than speaking to other humans, it’s essential that we communicate through each medium presented to us. This holds true in the world of tennis and fitness.

 

Tradition versus Modernity

As I continue to work in the industry after a career in marketing and advertising, I realize that the speed of communication changes really from generation to generation. In my grandparents’ day, we had to wait for the Telegram, the fastest mode of communication. Then along came my parents’ generation and the telephone. I can still vividly see the cream colored, wall-mounted, long spiral-cabled phone in my childhood home in the early 70s. And we used to call the exchanges by letters rather numbers – my grandmother lived in Scarsdale, NY so it was SC3 (723 in today’s world). I grew up in South Salem, SO3 (763) and so on. Along came my adulthood and email where we had our Blackberrys logged into our our AOL (remember how it was capitalized?) account. But today, it’s text or IM (we need instant in everything from our coffee to messaging). So quick that my daughter calls it snapchat – oh, that’s the application? Oh, ok.

Phone Book White Pages

So as a boy, I flipped through what was known as the White Pages. I don’t think my daughter, who turns 11 in a few weeks, has ever heard that expression. “Dad, were there yellow pages?” Yes there were for commercial phone listings and pink pages for government and official listings. Now we just have “Contacts” in the grasp of our hands. How clutch is that? No pun intended!

One of my board members asks at the annual budget meeting about the cost and need of the yearly “Club Handbook”. It’s a private club tradition. A printed, bound club handbook with each member’s address, phone, email, place of work and the club’s by-laws written in the early decades of the past century. Every club has one. Years ago, one of the clubs where I served as Head Pro disbanded this and put it all on the protected member-only accessed website. What a great idea. Print it out at home if you’d like, or just type in and search for the member. My grandmother would opt for the printout, my daughter for the search bar.

Long gone are the days where the pro would call a home and leave a message to play in a doubles game hoping to hear back by the end of the day. Now, by sharing a text database with membership, members themselves put out a text say to 8 players and get a court of 4 back in a matter of minutes. Long gone are the Men’s and Ladies Days – they just exist in a different world: textual rather than virtual. In fact, Duxbury Yacht Club simply disbanded their formal Men’s and Ladies’ Days and left it to the members to text each other and updated the “sub” list with a text database update! No more bulletin board substitute lists that never get read because by the time you are the club it’s too late to get a substitute.

We stress the importance of the front desk having a fully up-to-date text database on either Google Voice or some other platform in order to communicate with each and every member instantly. No worrying if the member received the voicemail – it’s a text! Breaking down that database by level of player, whether they participate in clinics, or if they have children to whom you can market junior events – this is all helpful. Does it matter if they take clinics? Sure, how are you going to fill that last minute spot in the 9am clinic? With a text banged out to 27 members who love that clinic at 8.34am that same morning! You can do this for Pilates and Yoga classes too, although those members might be doing deep-breathing exercises before they type in their now 6-digit security code on their iPhone.

You can post on Twitter and on Instagram openings in clinics, or new programming ideas and events. Maybe a few people will stop their scrolling to see what their best-friend did last night, look and sign up. On Twitter, you can actually link usually right to your signup software. Tougher to do on Instagram. But Facebook allows direct links too.  Many private, elite, member-owned clubs frown on social media. I say, just control your viewership. Easy to do on most social media platforms. By the way, those old, printed club handbooks have a lot of information lying around people’s homes who may no longer be members if we are talking about viewership and confidential information.

The strength of your database is the foundation to your customer and member service. A weak database most likely means poor service. A wonderfully clean and efficient database means better billing, more on-court sales, filled yoga classes, and simply put, better member service. If you’re still using paper chits and not printing member receipts from a POS system, your behind the times in member services.

Don’t Forget To Dot your I’s and Cross Your T’s: Formal Writing

Strunk and White

My copy of Strunk and White is never far from my desk. I know, those two names show my age. I just looked – first published in 1959. But, like a classic book, there is still the opportunity for formal writing. A thank you email or, even, a posted letter to thank a member for attending a special event or the summer’s signature event, like a member-guest is always welcomed. Or, a thank you for a gratuity card receipt from an employee or a thank you for a contribution to the staff Christmas fund. A welcome letter at the beginning of the season or a new year is always suggested. And how often does your Director reach out with a letter, either emailed or posted, to all the new members feeling a bit “out-in-the-cold” after the rosé of the initial cocktail party fades? These touches bring members to your facility and growth to club revenues.

However you communicate, keep it professional, informative, to the point and often. Only two times has someone told me I email too often. Countless are the times I’ve heard: “If I had only known…”

 

Ed Shanaphy once wrote for a well-known magazine with offices in Murray Hill on 35th Street in Manhattan at which he learned that criteria is the plural to criterion.  He now muses on the country club industry while consulting for clubs and home-owner associations. His copy of The Elements of Style is so well-thumbed and brittle, MOMA is considering putting it in a glass case.

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A Community Cup – Enriching The Community and Marketing To New Members

Tennis has changed. From the lawns of Wimbledon in the early 1900s and prior to the “Open” Era, through to the advent of the “Open” to the present day, tennis, as with many other sports, has been brought into the 21st Century with professionals representing the sport at the highest levels. It wasn’t always like this. The “grass roots” – no pun intended – still remain in many areas, both nationally and internationally. By grass roots, we mean the country club tennis programs where member participation is strong and those members follow the US Open and other ATP events.  They love Federer… Nadal… they talk about the semi-finals and how Halep came through. But largely, these club programs have not much to do with tennis as a professional sport, or even tennis for the masses.

The professionals-to-be come more from the middle class and attend academies such as IMG, Saddlebrook, Rick Macci and others. The process of gaining and improving a UTR ranking is a full-time job and is not a part of the country club experience. So, we need to realize there is a divide between competitive and professional tennis and the country club.

At the country club level, pressures are being put on staff and programming for member use.  A constant re-evaluation of member services and club usage is required. Behind all this is the need for clubs to consistently find new and active members. It’s all well and good to have a large and diverse membership, but members who are not actively supporting the club are not profitable to the club, nor do they really add to the sustainability of the club. Dues alone are just not enough to sustain a club facility. The members have to be active or the club will struggle.

The Legacy Error – Costing Country Clubs Financially

A few decades ago, clubs, which had always thrived on tradition and legacy, in general made legacies extremely inviting. Due to a national trend, country club membership began to wane. The accepting of children of long-time family members at a reduced “legacy” initiation rate or at lower annual dues in reality has come back to haunt club coffers in the 21st Century. A large percentage of dues-paying members came in at a lower rate, and much like Social Security, the funds are now running low, making it hard to maintain the club finances.

Because of these issues, the drive for new memberships to maintain member-service levels and the facility is crucial and constant.

One of the best ways of attracting new members is by “showing off “the club or facility, but how can we do this? How can we bring potential, active members in large numbers to the club and let them see the club without looking like we are “selling” the club, to both the perspective members and the current members who might not be all that supportive of new memberships and change?

A Community or Charity Cup

Quail Valley Golf Club in Vero Beach, Florida might be the best example of such an idea creating an environment for new membership applications, while creating an atmosphere of giving to the less privileged in the community. The Charity Cup, as Kevin Given and Steve Mulvey called it back almost 19 years ago, has grown into a club-wide tournament which garners close to $800,000 per year in charitable giving. We hear members across the country bemoan that they can’t get a member-guest tournament to last more than an extended morning. Imagine a three-day tennis tournament just like those old Member-Guest days, a two-day golf tournament, charity fast walk and run, a “cook-a-thon” from the best local chefs, a duplicate bridge competition, a Saturday night gala at the main clubhouse…. the list goes on, expanded greatly from the first year in which it was just a small golf tournament.

Charity_Cup_Logo_1_(2C) (2)

What really gives The Charity Cup its austere feeling is that the diverse charities selected by the Quail Valley Charities Committee are all represented in so many ways on tournament days. From throngs of volunteers from each of the numerous children’s and local charities earmarked for funding, to the notice boards laced with supporters and charitable organizations alike, The Charity Cup is an inclusive event. The week-long celebration of giving literally puts Quail Valley on the cover of every “culture” insert and at the top of many web-page blogs, if not the front page of Vero Beach Magazine and all the local papers.

Quail Valley also realizes the importance of non-member play over the weekend. A majority of the golf and tennis pairings have at least one non-member playing and the tournament is viewed as the Member-Guest to play in the area. Pairings of non-members are also allowed so it is truly an Open tournament, simply using the club facility – opening the club to the public is attractive to non members.

What better way is there to “show off” a club to perspective members? The club, and its members, not only giving back financially to the community, but also producing the services at a greatly reduced cost. It proves that the club possesses the breadth and knowledge to host such an imposing, community-wide event. Reaching out to the community adds a wonderful perspective to both members and non-members alike.

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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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Off Peak Hours: How To Make Them More Inviting and Attractive

We all know about crunch time. At university it’s the 24 hours before that final exam. In business, it’s making sure that presentation is glistening and vibrant the night before meeting that new business acquisition possibility. In fitness, it’s your personal training hours between 7 and 10am. And in tennis, it’s the crunch on courts from 8am to about 10 or 10.30am on weekdays.

Crunch time is basically the same everywhere – those morning hours where each demographic of member wants to play. The older generation that gets up early might start it off with a 7 or 7.30am doubles game that has been in existence for the past 20 years. Next to arrive are the working parents at 7.30 or 8am who want to get a game and some exercise in before heading to the office for the morning. Young family parents usually arrive around 8.30 after dropping the kids off at camp or school and participate in a clinic or have their game. If you’re going to run out of courts, it’s going to be in these weekday morning hours. How do we motivate members to play at other times?

There are numerous methods in which to push member play to off-peak hours. We will investigate smaller methods and ideas before we look at a bigger, club-wide picture later in the article.

Waive Guest Fees For Off-Peak Play

This is a fantastic, quick way to kill two birds with one stone. Members get irritated seeing non-members playing at peak times. Countless times I’ve had members ask me how many times a certain guest has played in a month or across a summer or year. Invariably, this is asked when the guest is playing at a peak time. When I was Director of Tennis in the Palm Beach county the biggest complaint I received was that the women’s teams played by league rule at 10am. Members would come up and say: “Mr. Pro, half of each court are non-members and we can’t get a court at 10!” This is something to keep in mind in looking at guest fees. Remember that team or leauge play does not add guest fee revenue to the club and members dislike that, especially if at peak times.

That being said, if you waive guest fees after 10.30 or 11am, this certainly pushes non-member play to later hours in the morning, which not only increases off-peak play, but also reduces the number of non-members playing during peak times thereby reducing member complaints.

Discount Private Lessons at Off-Peak Times

I have always been an advocate of early bird lesson discounts. Most teaching professionals advocate early morning hours to get two or three hours in before the “regular” rush. We usually advise offering 15 to 20 percent off lessons taken at 6am or 7am. This also alleviates the private lesson crunch professionals get for lessons at 9 through 11am – hours which are inevitably booked. If a teaching professional can teach non-stop from 6 to 12 noon, he or she already has 6 hours under their belts by the middle of the day.

You can take this even further. If you have a over-subscribed clinic (cardio in many cases at 8am) why not discount a 7am cardio clinic a few dollars and see if you can alleviate some of the pressure by not only adding a second class but one at an off-peak time.

For indoor courts, moving just one clinic or one game 60 minutes later in the morning to 11am or to 2pm before school lets out and junior clinics start is a massive help, not only to court usage, but to defraying heating and lighting costs. Having play throughout the day adds revenue to an indoor facility while defraying costs across more hours of play.

row of empty tennis courts
Having empty courts at an indoor facility is not cost-effective.

On A Bigger Scale – Membership

My fellow director Christophe Delavaut, who is creating one of the leading tennis clubs at The Boulevard in Vero Beach FL, brought up with me the idea of non-team memberships for off-peak hours. Oftentimes, leauge play is at those peak hours and men and women simply join a club to play on a team. However, if you offer non-team packages, you can make these packages for off-peak hours only without leauge play. Or, you can offer league play but open play at only off-peak times. There are many ways you can affect court usage through different membership types.

One of my favorite methods of increasing off-peak usage is by scheduling practices or open play in conjunction with lunch.  If you schedule a team practice for your ladies at 9am, you are fighting for courts at which you and your team of pros would almost certainly have privates. In many cases team practices are mandatory or pre-charged. Why make them at peak times? If you schedule a team practice at 10.30 to finish at 12 noon, you have made an enormous difference to court usage freeing up 2 to 4 courts from 9 to 10.30am. And, the food and beverage director will thank you as many tennis team members will invariably filter over to lunch at that time of day following practice.

Be A “Club” Team Player

You can make your general manager even happier by combining incentives across club departments or working schedules with the Directors of Golf and Fitness.

For example, why not offer a discount on the club lunch menu for all court reservations made between 11 and 12.30 on weekdays? In this way, you incentivize members to play at an off-peak time while at the same time pushing them toward using another club department. If you have facilities such as a pool or lake, why not offer free guest passes for non-member tennis play after 11am so that the guest can use the pool or lake after their tennis game, again usually adding to the food and beverage department’s revenue.

You can work with the Director of Golf as well. Usually practice facilities, which can vary between a driving range, putting green or chipping areas, are not prone to such crunch times as a limited number of tennis courts. Why not offer a weekly dual clinic – golf from 9.15 to 10.15am with tennis following from 10.30 to 11.30am? Or create a TRX/Cardio Tennis Clinicio to start in a TRX studio at 10am for 45 minutes and moves to the tennis courts at 10.45 for cardio tennis? Using two club facilities in one clinic also cross-polinates club department usage.

Here at BeyondTheBaselines.com we have many other ideas as to how to build play and member usage during off-peak times. The above is just a smattering of incentives and programming possibilities to enhance your member experience and create more play on the courts and usage of the club as a whole throughout the day.

 

Ed Shanaphy is Director of Tennis at Sippican Tennis Club in Marion, MA and President of BeyondTheBaselines.com. Ed has been a finalist in the Ernst & Young’s Entreprenuer of the Year for Europe.

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Fitness Classes & Tennis Clinics: Do They Help or Hurt Personal Training or Private Lessons?

This age old question rears its head everytime a Director of Fitness creates a new group class or a Director of Tennis adds a new clinic. Group teaching is a big revenue earner for the director and the club, but it really doesn’t mean much to the instructor. An incentive program can help boost revenues for the actual instructor, but that is a separate issue.

Either way, usually the group instructor hopes that a clinic or fitness class will garner more hours for their lesson books… but do classes and clinics necessarily do that? How can we ensure, as Directors, that our staff’s lesson books are full and that your team members gain clients from group teaching?

As a fitness or tennis program establishes itself at a club, the ethos of instruction and learning should grow. There are several ways to create a “teaching environment.”  Group fitness classes and tennis clinics through to personal training sessions in the gym and private lessons on the courts should all add to the ethos of teaching at the club.  Viewership is important. Teaching courts and personal training should be done in high traffic areas and instructors need to realize that they are always “selling” and “marketing” themselves in a positive way.

Directors who have been at fitness facilities for many years have grown revenues in the gym. This comes from exemplary knowledge and teaching, both in group and private situations with an educated team of instructors. The same holds true on the courts – good directors who have established a teaching arena at the club, usually have their assistants’ books rather solidly booked.

At beyondthebaselines.com we have worked with directors of tennis and fitness who have been at their respective clubs for lengthy periods of time. Some clubs, after years retaining a long-term director, feature an instructional ethos as outlined above. Members are happy to call for personal training or a private tennis lesson or just hitting sessions or sign up for the latest TRX class. Whether a seasonal or year round club, this is a membership’s state of mind. This is part of the “culture” of the club. However, we have visited and consulted for clubs where this is not the case and yet they have had a director at the helm for years.

Why Are Some Clubs Teaching Clubs?

Why are these clubs not as vibrant in terms of teaching? Is it a case of members not being able to afford private instruction? But why are group fitness classes not well attended or clinics lacking volumes on the courts if at a lower cost to members?

We tend to believe it is not financial. Members will open their wallets if they feel they are getting quality instruction and service.  Service being at least 50 percent of the reason they are happy to subscribe. When the service levels are lacking, we find that lessons and sessions are not booked as much and classes are all not as well attended.

Classes and clinics are an opportunity to show your talents and those talents of your assistants. It is also a chance for members to sample the level of servicing or, as we call it in the industry concierging. 

With service levels at a good level, most decent instructors on the team should have a relatively filled lesson planner. But, there are those Directors that hog all the hours. We’ve seen it time and time again – and it’s one of the biggest shortcomings of a good Director. It’s a shortcoming because it’s shortsighted. We look at sharing the wealth which increases overall wealth over the long haul. Therefore, the director should be promoting time with his or her staff rather than taking privates.

Mornings are always a crunch time in the gym and on the courts. Rather than have a dissatisfied member taking a private at 3pm with the only time a director might have an open hour, a director should hand the dissatisfied member to an assistant at 10am if that is the time first asked for. If a great program, there is absolutely no way a director can placate all the times needed by members – grow the private lesson ethos through passing off and having your assistants show their talents to attract other members.

full teaching professional lesson scheduleSpeaking of crunch times, mornings are always the busiest. So why have the same instructor stuck teaching that same class on that Tuesday at 9am every week? Rotate instructors and let the members meet various staff members, which increases member awareness of all your team members. And allow that group instructor to teach a private at 9am – people on the gym floor will see that instructor doing privates. If that instructor had been labelled a group instructor – no longer. Now he or she is a personal trainer too! The director just doubled the personal trainer’s role.

By rotating instructors from class to class, instruction never gets stale and members don’t get bored. You will never dash their expectations either by having a regular instructor not there – they are used to a rotation. Just ensure each instructor is a valued asset to the team and is of the same expertise and experience. And group instruction should add to your privates.

Ed Shanaphy is currently Director of Tennis at Sippican Tennis Club in Marion, MA and has taught at Jupiter Island Club in Hobe Sound, FL, Greenwich Country Club and Round Hill Country Club in Greenwich, CT and Edgartown Yacht Club on Martha’s Vineyard.

 

 

 

 

 

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Staff Communication Leads To Member Retention

Members we are told are a family. We grow up with the membership and as we stay at a club longer and longer, we become part of that family as we watch the juniors grow into legacy memberships. That’s partly true, but it’s important to keep a fine line between service to the membership and becoming too ingratiated and familiar with the members.

This being said, we often get waylaid by the minutae of a department – the day-to-day banality of billing or inventory.  The day to day business of running a tennis or fitness department can become mind-boggling at times, but it is important that we continue to see through the weeds to our final destination or goal:  a happy membership which participates and funds the club or facility at growing levevls.

Maintaining transparency with the members goes a long way in keeping and retaining key staff. Staff stays motivated for a Director who is in touch with his or her membership and sees the relationship between members and staff as rewarding for both sides.

Communication is often the key. Solid and timely communication, ranging in everything from a text database for quick memos about court conditions, upcoming lessons or sudden changes, to email newsletters well-crafted and organized. Add to the above possible “thank you” cards to a member for doing something special. And what do most directors misunderstand? That these communications should not only come from themselves, but from all their staff. Make staff part of your communcations team, and relationships between members and colleagues will flourish.

  1. Email – Emails are more formal and leave room for marketing and promotional content to be detailed and clear. Email can also be used to aid in the set up to an event or item on the schedule.
  2. Text – Texts are fantastic for short bursts directly to the person or people involved. Examples like a change in lesson time or a booking in the spa is best by text to the member’s cell number.
  3. Twitter, Instagram and Facebook – Social media is the newest form of communication that clubs are using. Twitter can be quite personal – tweet a member directly. But we believe that social media is a more general method to sell and promote the club as a whole rather than a department or an event.

What we should understand best is to make such communication using the appropriate technology and aim at making it as personal as we can given the type of media.

Tennis and fitness departments lead to member/member communication as well as member/staff communications at clubs. This all adds to the relationships which are the mainstay of any club. Through personal communications and events, tennis and fitness departments can really add reason for members to retain their membership status.

beyondthebaselines@gmail.com – 508.538.1288

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Programming The Future Of Country Club Tennis & Fitness

The Future of American Club Tennis & Fitness is Fresh, Appropriate Programming

How do you reinvent the wheel? How many ways can one create a tennis program that is fitting for a country club while instilling the true desire to play tennis and increase play in our community as a whole?

We have seen programming that we have instituted at various clubs take off on both the adult and junior levels and we believe that this is the future of tennis and fitness programming. The country club serves up several challenges. What are the demographics of the membership? Older retirees or youthful families with juniors? Or both? Are the members mainly seasonal or year-round? How exclusive is the club? Is it an elite club or a club looking to add members and add cash to its balance sheet?

All of these questions affect programming at a club. But the other issue at hand is to build tennis and fitness into life-long activities for members. The short-term goal is to keep the club active and busy, but the long-term goal is to maintain a members’ interest in the activities so that the sport and fitness are part of the members’ lives for years to come and to prolong a legacy at the club, and in fact, in the community.

Don’t Let A Member Go Home Disgruntled

A General Manager once said: “Make sure, as best you can, that each and every member leaves your club happy.” It’s a rule that should never be forgotten. It comes into play when planning and programming each and every clinic or group instruction class. An unwise clinic marketed to the wrong segment of a membership or an individual signing up for a far too advance spinning class can make or break a member’s experience for days or weeks or even years to come. And it damages the reputation of the department and its Director. The first thing to do is clear the air with the member and make it right. But, that’s reactionary. Proactively, a good Director of Tennis or Fitness can create programming and market that programming in such a way as to avoid many of the pitfalls that can damage a member’s experience.

A dissatisfied member is like a small cancer cell. The member talks to another member, and so on. Soon enough, there is a group of members that have taken up the cause and now there is a faction on the Board. Guess who takes the hit? The Department Head… the Director of Tennis or Fitness.

Small Changes Lead To Big Cross Sells!

Making a change such as separating a Cardio Tennis class into advanced and beginners, which can actually double participants across two courts, can lead to additional revenue while also catering to various levels. Why can’t a Pilates studio bring in a “pop-up” store for Soul Cycle in the back warehouse and enhance business offerings while bringing in new clients to your Pilates business. It’s called cross-selling, and every other industry does it. Why do tennis and fitness stay so isolated?

We see the same issue in regards to pickleball. So many tennis directors are against it. Why? Have they scientifically looked at the numbers and who actually plays pickleball? Have they considered the upsurge in traffic through the tennis shop? In our vast experience, we have found that only a small cross-section of tennis players enjoy pickleball. Pickleball is played by a different club segment: mainly golfers. Tennis players, in the end, find pickleball lacking. But golfers, who tend to be more stationary on a court, enjoy this new sport and have flocked to the courts being built at clubs and gated communities across the country.

Perhaps there is an anti-social ethos or environment presently at your tennis club. Clubs are really to foster not only sport, but also lasting friendships. Why not create a drill group and bring in a social aspect? to another level where we make it “social” with members and offer a social gathering with food afterward in the evening has made an enormous difference in turnout across various clubs. On the junior side, we’ve added barbeques to Triples or Touch The Fence events, making it an evening for juniors while the parents have dinner on the porch.

On the junior side, we have offered Cardio Tennis with TRX Training along with personal training – in this way we can work with juniors at a high intensity having them hit hundreds of balls while also really working on their focus and fitness levels.

Cross-selling is what Amazon does so well and why it’s one of the leading companies in the world. In our own small way, tennis and fitness should be cross-selling every hour of every day. Beyond that, we should be looking at generating revenues for our food and beverage department and other club departments. Beyond that, we should be looking at increasing tennis and fitness in the community. Community awareness brings more applications for membership and club growth or more home sales in a gated community. Job done.

Beyond The Baselines is a consultancy aimed at educating both industry professionals and club boards while recruiting and retaining “best-in-class” professionals and maintaining benchmark levels of service at clubs and home owner associations. Please email us at beyondthebaselines@gmail.com or call us at (508) 538-1288.