Friday, August 7, 2009


By Michael Vogt, CGCS
For golf and country clubs the golf course is the number one revenue generator, the club’s primary asset, the centerpiece, crowning jewel and Holy Grail. No other club asset can be more emotionally charged than the club’s golf course. The National Golf Foundation’s recent survey stated the number one reason why a member joins a particular club, based on individual club amenities is the golf course. That is why, when the course or its support facilities decline in quality, they become the clubs highest priority for renovation, improvement or replacement.

A club’s ability to develop a successful Golf Course Improvement Program is based on:
1. Understanding the existing course conditions,
2. Clearly identifying the vision for the course (are improvements required for just improving conditions or is a major design change needed to enhance the course playability/prestige?),
3. Having the best golf course architect,
4. Being sure the members support the proposed changes,
5. Properly communicating the Course Improvement Program to the members and finally,
6. Properly financing the project.

The financing step for a successful Golf Course Program has an impact on all aspects of planning, presentation and approval. Often times it is the controlling factor on what gets done and if approval is achieved. When deciding how to finance a project, there are three basic aspects to consider. One is identifying the necessary costs for doing the “right” project as wanted by the members. Another aspect is to identify what is actually needed to correct problems or to achieve specific goals. This is the technical and design aspects that the superintendent, consulting agronomist, irrigation consultant, and the golf course architect help decide. The last basic consideration is how to raise the necessary funds to pay for the Course Improvement Program. The financing for major golf course projects that we are talking about here are not small maintenance or single-hole Improvement Programs. They are entire course projects with costs in the multi - million dollar range.

Now for private clubs the ways to fund major projects seem to have several sources. Cash-on-hand is a fantastic financing source, but the reality is most clubs do not have huge cash reserves for major golf course expenditures. Thus clubs normally have to raise funds directly or indirectly from the members. The big question most often asked is, “How much will the individual member pay to fund a program at his or her club?”

Members in private clubs are normally in the top 5% income bracket for the region they live in. They usually have the financial resources to pay for “wanted and necessary” projects. Thus it is essential to have good membership input by way of focus groups and a club-wide survey so a club’s leadership is in-tune with member wishes. It is infinitely easier to raise money from members if the proposed Golf Course Program is what they want in the first place. Also, a good Membership Survey should also have tested funding option preferences and what is the maximum dollar amounts members would pay for each basic payment option.

Experience in funding golf course projects has shown that projects which give members what they want along with a good value-received perception can raise up to twice as much money for the course versus projects that ignore member wishes and preferences. The members’ perceived value received for the cost of a project is the critical deciding factor affecting approval of a major course project.

Sometimes a golf project must include improvements that are necessary, but not understood nor supported by members. This could include new greens projects, irrigation system replacement, upgrades or replacement to the golf maintenance facility, etc. If such projects are not done, the course is seriously threatened. In these instances the club’s leadership needs to make a special effort to educate members so they become well informed on the issues. Oftentimes, the most challenging issue, politically, is the perceived course enhancements that make the course more challenging. If such projects do not require member assessments, the controversy is obviously lessened. But if a large assessment is necessary to pay for unpopular improvements, the controversy can be great and approval is almost certain to fail. The political aspects affecting financing on course projects must be well understood before a specific project is brought to the members.

As mentioned earlier cash-on-hand is a funding source for some clubs. Very seldom is cash-on-hand sufficient for an entire project’s cost, but often times there is some money available in reserve accounts.

Many clubs in the upper tier of the private club world generate annual operating and initiation fee surpluses that are not needed for normal capital projects. When this is the case, such clubs can allocate a portion of their surpluses for funding course improvements. Again this is seldom utilized as the sole source of a project’s funding, but it can dedicate five to ten years of such surpluses for golf course financing.

While somewhat risky, clubs do occasionally project a membership gain based on improved club facilities as a way to fund a Golf Course Program. These new initiation fee and dues revenues can fund expenditures and support loans by providing annual debt service funds. A word of caution here is to be conservative on the expectations for membership growth.

The ability to sell unused or little-used club land has been a source of capital improvement funding for some clubs. This is almost always a controversial, fund-raising approach that while possible, is not recommended. The old cliché is that God is not making any more land. Also it is almost universally true that most clubs, who sell land, always regret it later.

This is by far the most frequently used way of financing golf and clubhouse projects. Most clubs have a set number of existing members who belong and use the club. For a golf improvement project usually the members with golf usage privileges will pay some additional monthly or upfront capital payment for projects they support. The payment amounts are usually weighted with Junior and Retired members paying reduced amounts. The Regular, Active members pay a higher amount, and this amount is usually determined by the initial Membership Survey that tested funding options at the beginning of the planning process.
A typical example for member financing of a Golf Course Improvement Program for an assumed 500 member club with a $5 million project cost is as follows:

1. The cost per member for the project would be $10,000 ($5 million ÷ 500 members).

Members would have the option of paying $10,000 upfront in the form of a refundable or non-refundable assessment,
2. $100 per month assessment in order to fund, say a 7% project loan amortized over 15 years inclusive of principal and interest costs. Usually no part of this monthly payment plan is refundable to members.

Local banks are usually the best source for raising funds to finance club projects. A club should always start its financing inquires with its existing banking connections. Then to verify rates, other banks should be contacted.

It would not be unusual for a club to utilize various ways to raise funds for its golf course project. These could include:
1. Utilizing any surplus cash-on-hand.
2. Utilizing surplus initiation fee funds and/or operating surpluses over a set number of years for funding some part of a loan’s debt service cost.
3. Utilizing member assessment options to raise the major portion of the Course Improvement cost.

Although an asset reserve strategy is an ultimate funding avenue, a reserve account system to fund needed renovations is rarely applied in the club environment. Simply put, an account for asset replacements is funded throughout the useful life of the asset and at the retirement of that asset an amount of money is available for the needed replacement. Ideally the funding begins for replacement on day one of the assets life. For example, a driving range tee has an estimated useful life of 15 years, the cost to rebuild the tee is $20,000, if the new tee is to be fully funded at the end of its life cycle, $1,333.33 should be funded each year, plus a factor for inflation.
A reserve specialist would take a physical inventory of all capital assets; assign an estimated useful life and a funding program to fulfill the appropriate dollars per year to replace these assets before the end of their useful life. An asset reserve system can be applied for irrigation systems, cart paths, greens, tees, etc.

Raising the necessary funds for golf improvement projects is both a political and business process. A good understanding of the membership, the course conditions, the costs, and the willingness of banks to lend money are the essential ingredients for successful project financing.

Michael Vogt, CGCS is a consultant for McMahon Group. He can be contacted at 800-365-2498 or .

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