Commentary by Glen GerenaOperating a golf club or country club today is more challenging than ever, and one solution may be hiring a management company. The decision by a club owner or board to retain a management company could greatly impact the success of the club. More and more golf courses are deciding to hire a third party management company, with approximately 18 percent of all U.S. golf courses today employing this kind of support. Troon Golf, the largest club management company, has added over 123 new courses since 2011.
It makes sense for a club to hire a management company when the management company can reduce expenses and increase revenues by more than the management fees. Management companies can often implement programs to increase membership sales, improve membership retention and increase member spending. Sometimes, the reputation of a management company itself can help attract members. National golf management companies also often have national marketing programs to attract golfers to semi-private clubs and reciprocal club programs to increase usage of private clubs, which result in increased guest fees and spending. Management companies can often decrease expenses through national buying programs for equipment, supplies, insurance and other services, while also bringing economies of scale in terms of sharing employees, systems and other resources. However, the club should ask whether the company passes the savings of these programs on to the clubs they manage. Management companies often can recruit employees that a club would not otherwise be able to hire, which can result in more efficient operations, enhanced members' satisfaction and even improved membership sales based on the hiring of an experienced membership director.
Clubs need to scrutinize the fees and other costs of hiring a management company to fully evaluate the total cost. Such costs often include items such as (i) allocations of national marketing program costs, (ii) allocation of centralized or corporate office expenses, and (iii) reimbursements for costs, including travel costs, marketing costs, and employee relocation. When a management agreement charges for these costs, a club should obtain cost estimates from the management company it is considering retaining. Clubs should carefully scrutinize the management company's scope of services to understand what services are covered by the base management fee and what services can result in additional charges.
Clubs should also be sure to carefully research any management company before hiring it to ensure that the company and its methods are compatible with the club's positioning, membership admission policies, governance and non-member usage policies. A management company may plan on more non-member use of the facilities than desired by the members. The club’s board may want a more rigorous membership candidate admission process than planned by the management company.
In addition to deciding on whether to engage a management company, the club must also decide whether the management company should take responsibility for marketing the club's memberships. Some management companies do not have much experience in marketing club memberships or the management company's experience may not match the club's membership market. For example, a club in a large residential community may be most successful in marketing memberships through real estate broker referral and builder membership purchase programs; whereas, some management companies have more experience with non-property owner invitation programs. If the management company's scope of services does not include membership marketing, membership initiation fees or other joining fees are generally excluded from a percentage management fee calculation. If the management company is responsible for membership marketing, the club and the management company should separately consider whether membership initiation or joining fees should be included in gross revenue or a different commission percentage should be negotiated.
After a management company has been retained, it is critical for the club and management company to coordinate a smooth transition. The club may want to ensure that the management company retains certain key employees. The management company and club board must establish clear guidelines delineating the duties of the management company, on-site manager and member committees.
Hiring a management company has the potential to significantly improve operating results. But a club owner or board must do the research and ask the right questions to ensure that it is making the right decision, both as to whether to hire a management company and in selecting the best one for the particular club.
Glenn A. Gerena is a shareholder in the Hospitality Practice Group in the Boca Raton office of the international law firm Greenberg Traurig. His practice focuses on structuring and documentation for recreational club membership programs and community governance. He can be reached at email@example.com