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Financial & Economic

Information for clubs as they brace for the economic impact of COVID-19

CLUB FINANCE

Measuring and Monitoring the Financial Effects of COVID-19 on Clubs Over Time

Club Benchmarking, a National Club Association Strategic Alliance Partner, has been collecting and analyzing financial data from the club industry for more than a decade. They are actively studying the actual and potential financial effects and will be sharing insights as they develop. Club Benchmarking released new information regarding the financial impact of COVID-19 on private clubs on May 18. Read it here.

Club Benchmarking also developed a whitepaper, The Framework for a Strategic Response to COVID-19 Crisis, for the Coronavirus Resource Center . The whitepaper addresses three specific timeframes: Between March and April 15, April 15 to June 30 and July 1 through the end of 2020.

Club Benchmarking Overview of Financial Effects

The one thing we know is that we don’t know enough. We know things can change overnight. We must make decisions that relate to the information we have in hand and we should be very wary of making snap decisions that have long-term effects. For example, at this juncture, clubs should not be cutting the initiation fee anticipating a decline in prospective members.

Clubs can expect to experience some level of financial impact that will be driven by two events: the near-term effects of the COVID-19 response itself, and the longer-term effect of the stock market decline or recession, which is influenced by a number of factors beyond COVID-19.

The financial impact will evolve in phases, affecting different aspects of the club’s financial model and long-term health over time. The extent of the impact will depend on the club’s existing financial model and most importantly, it will depend on the decisions that are made going forward.

Club revenue models vary based on their sources of revenue and the balance of income from those sources. The two primary sources are dues revenue and non-dues revenue, which comes from things like banquets, golf outings and ancillary fees. The different types of income have different impacts on the club’s financial situation.

A club’s revenue model is evident in its Dues Ratio which is dues revenue (not including capital dues) as a percentage of the club’s total operating revenue. For clubs with golf, the industry median dues ratio is 50% and the middle range (25th to 75th percentile) is 45% to 57%. In clubs without golf, the median is 38% and the middle range is 32% to 47%. Regardless of offerings (golf or no golf), clubs falling below the median are more reliant on non-dues revenue and will have more stress on the operating ledger as a result of this event. The fee-centric club model is higher risk due to situations such as the one the industry faces now and in the long term clubs can reduce their risk by moving toward a dues-centric model. The dues-centric model is lower risk because, as we are seeing now, it is more consistent, reliable and predictable than non-dues revenue.

Resources

Club Benchmarking Unveils Financial Impact of COVID-19 on Private Clubs

Thoughts on Private Club Finances and the COVID-19 Pandemic, Club Board Professionals

COVID-19 Insurance Claims May Not be Such a Lost Cause, Law 360

Maximize Chances of Insurance Coverage for COVID-19, Law 360

Whitepaper: The Framework for a Strategic Response to the COVID-19 Crisis

Crisis or Opportunity? Now Might be a Good Time to Rethink Your Club’s Business Model

Market Trends Video: Q1-2020

Strategic Club Insights Publication

Executive Dashboard KPI Report (Clubs with Golf)

Executive Dashboard KPI Report (Clubs without Golf)

Payroll & Labor Ratios in the Club Industry

How to Apply for Small Business Loans, SBA

Finance Items to Consider When Managing Club Cash Flow During COVID-19, Condon, O’Meara, McGinty & Donnelly, LLP

Lessons from the Past

Strategic Monthly Dashboard: Club Benchmarking introduced the Strategic Monthly Dashboard (SMD) as a free service to the industry in early 2019. The SMD allows clubs to measure in near real-time (monthly) changes in membership, cost of belonging and high-level financial metrics such as dues revenue, non-dues revenue, debt and a few more that are clearly pertinent in this crisis. The service was developed in anticipation of an inevitable market downturn to ensure that clubs would have timely, relevant data and insight for decision making that was not available to them during the 2007/2008 economic meltdown. Participating clubs will be able to monitor year-over-year changes every month, for their club, their local region or market and the industry overall – critical insight particularly in the months ahead. Is our club faring better/worse/same? How much so? What is happening in the market in terms of members entering/leaving? These questions demand a data-driven response. The SMD delivers that ability to each club, and it is free.

Frequently Asked Questions

Questions and answers are for informational purposes and not for the purposes of providing legal advice. Viewers should not rely upon the information shared as legal advice.

As of this writing (3/23/20), the time frame is uncertain as California and a growing number of states have shut down non-essential businesses. It is fair to say that the financial impact in clubs will be significant. The stock market decline, in part a result of the virus, will likely impact clubs. The effect will be based on the how long the recovery time is for the virus. The impact for all of the clubs will be immediate as about 50% of the clubs in the industry have shut the doors. The timing will be in three phases—the short term for the next 30 days. The midterm through June, and then the longer term effects.

This decision will be up to the individual clubs. Clubs will do what they can to protect their workers and keep them employed. Payroll is the largest expense in clubs, and therefore, paying staff will be a top priority. Clubs will clearly cut hours for staff in many departments, many by state and federal mandate.

The majority of the staff in clubs are hourly workers, so clubs will make a choice based upon their financial condition. Clubs that have cash reserves are in a stronger position to pay the staff. The issue of payroll is a cash flow issue for clubs. How much can or will be subsidized will depend on the financial strength of each club.

Clubs can pay wages during closings through reserves, loans, credit lines and donations from the members. In the last week, these vehicles were used to generate wages for the staff. Cash flows will be projected through the analysis of incoming revenues, which is a combination of dues and non-dues related income. Each club should calculate their dues ratio to better understand their current revenue mix. The dues ratio calculation is total dues revenue (not including capital dues) as a percentage of total operating revenue. For clubs with golf, the industry median dues ratio is 50% and the middle range (25th to 75th percentile) is 45% to 57%. In clubs without golf, the median is 38% and the middle range is 32% to 47%.

Regardless of offerings (golf or no golf), clubs falling below the median are more reliant on non-dues revenue and will have more stress on the operating ledger as a result of this event. The fee-centric club model is higher risk due to situations such as the one the industry faces now and in the long-term clubs can reduce their risk by moving toward a dues-centric model. The dues-centric model is lower risk because, as we are seeing now, it is more consistent, reliable and predictable than non-dues revenue.

Resignation will be based upon the cash flows of the individual members of the clubs. The two significant contributors to the resignation list will be the employment market and the stock market. For fixed income members, the down pressure of the stock market loss and low interest rates is significant. For our members that are employed, the future of being a member will be based upon continued employment. Each club will need to look at the membership rolls and make determinations and projections on the resignation rates, as it will have a direct impact on the revenue of the club.

The financial reality of the moment is bigger than the suspension of food minimums—the payment/continuation of dues will be a bigger issue for clubs in the near term. The median club brings in about $30,000 per year in minimums, so a holiday from it could make sense with little impact to the club. Or, some clubs are directing the F&B minimums to the employee holiday fund (for a “Christmas in April” program).