Time to pay the bills

Money is the biggest question at most golf facilities. How much will it cost? How are we going to pay for it? How much is it going to cost me?

For too many years, clubs survived through recession, declining participation and heightened competition by waiting it out, relying upon superintendents to patch things up and effectively lifting funds from the capital expenditures account to cover operational deficits. Initiation fees and waiting lists disappeared. Clubs discounted heavily. And many public access facilities handed over their pricing power to third-party agencies whose interests differed from the club’s.

The pandemic, now entering its third year, if in attenuated form, has been a boon to the golf industry finances. Small wonder so many courses are contemplating upgrades, renovations and major overhauls.

At every facility, there are various standard ways to get people to pay for things. The basic one is a price hike for services, whether increased green fees in the public golf sector or increased dues in the private membership world. Municipal facilities can go to their town office for funding, whether from a dedicated golf enterprise fund, a generalized rainy-day account or specified public bond issue. Good luck, however, trying to convince a city council – let alone the public – that the golf course has undelayable infrastructure needs.

Private clubs have more flex through a variety of sources. They can raise dues and hope that the net gain outstrips any defection from members who quit because of the price hike. At every club, dues hikes raise alarm bells, and seniors are particularly likely to claim they cannot afford it. But, in fact, the losses are minimal, and it’s not the worst thing to endure some attrition if the market is able to replace those members with new ones who can afford the increased fee – and with it, pay an initiation fee. Also, presumably as younger members, likely with families, these newcomers will spend more at this club and thus contribute more to the financial health of the facility. A certain loss of (older) membership is not to be feared; it’s to be welcomed.

The threat of membership loss is generally overstated and does not materialize to more than marginal degrees – and in any case there are replacements to compensate right away.

A standard way to pay for improvements is through an assessment, whether a lump-sum fee (sometimes to be financed) or through monthly installments as an add-on to dues for an agreed-upon timeframe. If used to offset part of the project cost, an assessment is a useful tool, but there is always going to be grumbling and resentment about such an excise fee.

Because everyone at a club is not in the same economic position to pay added fees, I‘ve seen facilities rely upon a private bond issue to which a limited number of members subscribe – effectively becoming partial owners in the project and the club. This is an attractive, market-based option, but carries with it considerable risk of empowering or entitling those members making the investment to feel as if they are privileged to have a say in club policy or to circumvent club rules because they are special.

A private funding path ought to be avoided. It’s a formula for creating a two-class system of members. If the bond issue is not paid down as planned, then bond holders are, in effect, able to hold the club hostage, act as outright owners and circumvent normal club procedures for decision making.

Borrowing is always an option, though banks are a lot more scrutinous now of the ledger sheet and value of the club as collateral than they were 20 years ago. A club should only borrow if the investment they are making is likely to produce increased cash flow.

Most clubs overlook a potential source of revenue: voluntary contributions. I know of one club in the Midwest that financed a third of the cost of its impending renovation through a weeklong volunteer campaign that raised $1.2 million, all of it unencumbered. Don’t offer anything for the gift other than the pleasure of helping out. Ideally, the contribution should be anonymous.

Funding a project comes down to convincing people that they have a special responsibility for handing their kids and grandkids a quality facility. Such appeals these days sound tearful or romantic. Maybe there must be an emotional component. Not everyone will get it. But key decision makers, including superintendents, must be able to make the case for long-term responsibility.