Bad Policies Cause Clubs to Fail (Under Revision)

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Although nothing has been agreed to, several well-intentioned current Board members from the HOA and ECC, as well as new candidates for the ECC Board, are proposing alternatives that will have serious impacts on the community and Club’s future. These decisions could result in bad policies, wasted financial resources, and member dissatisfaction. 

Eastpointe voted in 2003 to be a mandatory community. When the Great Recession hit, many clubs fell victim to economic downturns and other forces that reduced the number of homeowners willing to support the club. As a result, large numbers of clubs and HOAs were faced with the stark reality that the club simply could not survive if only a few homeowners volunteered to participate in support of the Golf club and recreational facilities. Too few participants (i.e., members) required the club to make the difficult choice between raising dues beyond the market, thereby further reducing the number of members; reducing the quality and services that the club could afford to provide; or selling, closing or otherwise off-loading the club to another party. This is what happened to Golf and Racket. 

Ending Mandatory / RSM Membership may be popular with some members, but it would be disastrous for the Club and Community. Replacing the $2.2 M in revenue from social resident fees would require existing Golf members to increase their current Fees by about $3,900 annually. I would remind everyone that we lost 77 members this year because of a fee increase and assessment that was about ½ this amount. Eastpointe has over 150 golf members who are over 70 and on fixed incomes. Increasing fees by a few thousand dollars will drive a significant portion of the members out of the club. This perpetuates the cycle of failure resulting in existing members participating and spending less at the club, members stepping down their membership category to lower dues paying levels, or members resigning from the club. This downward cycle places even greater financial pressure on the diminishing number of members who remain at their club.

Additionally, a recent survey of actual member use of the new fitness facility and Pool showed that 61% of the members using the facilities were RSM and 39% full golf members. Losing RSM usage at the fitness, pool, and Pointe restaurant would further restrict the revenue generated by these amenities.  How would this revenue be replaced?

The bottom line is there are not enough residents in the community to voluntarily support the club. The pandemic is over, and the golf industry is slowly returning to a similar market as pre-pandemic. There is an overabundance of clubs with fierce competition for the limited number of golf players available. Current Market conditions are such that the club will not survive without mandatory membership.

Alienating mandatory members by rapidly increasing fees while providing no additional value will cause conflict within the community with the potential result of the community voting to eliminate mandatory memberships. I would remind everyone how close the community came to voting out mandatory back in 2012. Communities voting out mandatory club memberships has occurred about 10 times over the last 10 years, within Palm Beach County. Some communities, such as the Fountains Country Club near Lake Worth, the President Country Club in West Palm Beach and Polo Trace near Delray Beach, and Aberdeen country club have clubs that failed, property sold off for real estate development, and property values collapsing.

Instead of alienating the resident social members an alternate strategy would be the following:

• Perform a detailed survey of resident social members to discover who is not using the club and why and initiate an aggressive outreach program!
• 10% of annual RSM fees to be placed in a Capital Fund to be used only for non-golf capital improvements.
•  One ECC Board Member/Governor (1 of 9) to be elected by RSM beginning 11/01/2024;
•  Beginning on 11/01/2024 RSM to receive 1/4 vote & on 11/01/2025 RSM to receive additional 1/4 vote
•  Provide social members (resident social) more times to play golf in season and off season in afternoons. Raise revenue by incentivizing RSM to play more golf in the afternoon by providing a reduced fee of $60 (instead of raising fees to $125). This is a no-brainer because there is plenty of capacity on the course in the afternoons.
• If the discriminatory policies and fees discussed above are eliminated, survey RSM, engage in townhall meetings and generate support to Increase RSM annual fee by $xxx beginning on 11/01/2024 followed by another $xxx annual increase on 11/01/2025, beginning on 11/01/2026 annual increase to be determined by Cost-of-Living index; 
• Impose a RSM initiation fee of $x,xxx at closing for new home sales for those buyers choosing to be RSM, beginning TBD in 2024, with fees to be placed in a Capital Fund to be used only for non-golf capital improvements.
• Restrict nonresident ECC Board of Governors to a maximum of 2 at any time.

 This is a non-starter of a solution for several reasons. As stated earlier, the pandemic is over, and the golf industry is slowly returning to a similar market as pre-pandemic. There is an over  abundance of clubs with fierce competition for the same limited pool of potential members. If a club is unable to compete effectively with other clubs in the area, it may struggle to attract and retain members. Private golf clubs like Eastpointe rely on membership fees for a significant portion of their revenue. If membership numbers decline, it can be difficult for the club to sustain itself financially. 

The ECC is simply not able to recruit the required new golf members (replacing the 410+ RSM and $2.2M in revenue) needed to sustain the revenue needed to operate and maintain the quality of the club amenities and infrastructure.

• The ECC is not able to recruit the required new golf members needed to replace the lost members under our current policies and fee structures. As you are aware, the ECC Board attempted to immediately raise money for several proposed Capital improvements by raising golf dues by 20% (after a 10% increase last year) and putting 4 separate assessments in front of the members, most voted down. The result was losing 77 existing golf members, many who downgraded their full golf to resident social. 
•  Replacing the $2.2 M in revenue from social resident fees would require existing Golf members to increase their current Fees by about $3,900 annually. As stated above, we lost 77 members this year because of a fee increase and assessment that was about ½ this amount. Eastpointe has over 150 golf members who are over 70 and on fixed incomes. Increasing fees by a few thousand dollars will drive a significant portion of the members out of the club.  This perpetuates the cycle of failure resulting in existing members participating and spending less at the club, members stepping down their membership category to lower dues paying levels, or members resigning from the club. This downward cycle places even greater financial pressure on the diminishing number of members who remain at their club.
•  In the past, the ECC has replaced most of the annual member loss with  Eastpointe resident home sales where on average 30% of new owners become full golf members.  Over the last 10 years, Eastpointe has sold between 65-85 homes a year and as stated, approximately 30% of new owners become full golf members. Since last November we have had over 71 home sales in Eastpointe. As you recalled, last November our Board raised initiation fees for new golf membership to $50,000 for residents and $65,000 for nonresidents. What has been the result? Only 10 new golf members have signed up from the new home sales and 3 of them upgraded from Social and paid less than the $50K initiation fee that went into effect on 1 Nov22 (that is less than 9.8% new golf members from home sales). In other words, the real market impact of the increase in fees was to reduce the new golf membership from home sales from 30% to less than 9.8%. The new outside membership this year is allegedly around 14. We have reduced golf membership from 642 golf memberships to approximately 571 members, and we are not able to replace the lost members under our current policies and fee structures. The market is signaling that the club has not adapted well to changes in the external economic environment.

One reason Private clubs fail is because they use the wrong pricing strategy resulting in high F&B prices that lowers the volume of F&B sold.  Private Clubs should utilize a different pricing strategy than a regular business. For example, a restaurant derives revenue from selling its goods & services. The restaurant (business) is driven by a profit motive generated from what they sale. Restaurants develop their pricing based on the 1). costs of food, beverages, and labor (cost of goods & Services), plus 2). Indirect Costs (G&A and Overhead), and 3). Profit. They scale the infrastructure, staff, and other indirect costs based on the number of planned customers that can be served.

Private clubs derive their revenue using a two-tier system where they rely primarily on member fees augmented by the sale of goods and services. They have excess infrastructure like grand Ballrooms that can hold 300 members, multiple venues for food & beverage, card rooms that are not frequently used, other amenities that are not profit centers (provide services, not necessarily revenue). For the number of members served at a time, the volume could be handled by a food truck instead of multiple restaurants and bars at the various amenities.  Private clubs typically generate $1.40 worth of cost for every $1 of revenue. That’s why most private clubs lose money from food & beverage. That is standard throughout the industry. Their motive should be to cover costs while providing value-added member services. Successful clubs set prices equal to what it costs for the F&B and cover much of the indirect costs from the member fees. Have you ever been to a VFW, American Legion, Elks club etc. and seen how low the prices are for drinks and food? Ever been to COSCO and wondered how their prices are lower than Publix? 

Successful private clubs operate bars and restaurants in a club as an amenity instead of focusing on profit. Food costs usually run higher compared to those of a commercial restaurant. The one goal that always stays constant is making quality a priority for their members. Prices should be set to maintain quality and increase volume, not increase prices. When there is heavy competition by local restaurants, private clubs should have lower prices for Beverages while providing as good or better quality of food choices at a better price. Overpricing F&B drives members away from the private club amenities while creating member dissatisfaction.