1. Operating Trends And Other Fun Facts For Private Clubs Texas Lone Star Chapter CMAA July 22, 2019
John D. Daum, CPA, Partner
James W. Gilson, CPA, Partner
Condon O’Meara McGinty & Donnelly LLP

2. Introduction Condon O’Meara McGinty & Donnelly LLP
Providing audit, tax and other consulting services to private clubs for 27 years
Currently providing services to approximately 350 private clubs in 17 states
Information to be covered
Operating Statistics
Food & Beverage
Golf Course Operations
Membership
Dues
Initiation fees
Capital expenditures
Long-term debt
The Club Income Dollar…And Where It Went
Current Club Events (The Fun Facts)

3. WARNING! These Statistics and Trends are Averages NOT Standards
Your Experience May Be Different!
Based on Audited Client Data
Data we Can Verify and Analyze
This Photo by Unknown Author is licensed under CC BY-NC-ND

4. Food and Beverage Operations
Mix of business
Operational trends
Not typically a profit center
Focus is on member experience
New and multiple dining facilities
Menu options
Amenity for the members
Management
Auditors/Consultants
Key Performance Indicators
Clubs that are able to turn a profit in F&B do so on outside business – not making a profit on member a la carte dining
Club must balance outside business and member satisfaction
F&B exists as an amenity for the members and the focus is on the member’s experience
Improvements to and addition of new facilities
Changing menus periodically to keep it fresh
KPI’s – Management and outsiders have difference focuses
Management KPIs may include – revenue per cover, member spending trends, etc. with a view on future service
Outsiders (Auditors) – focus on prior results and review costs of sales percentages, payroll ratios

5. Food and Beverage Operations – Golf and Country Clubs
Averages
2019
2018
2017
2016
2015
Food sales
100.0%
Cost of food consumed
45.4%
45.1%
45.3%
45.7%
Less employees' meals
3.6%
3.9%
4.0%
4.1%
Cost of food sold
41.8%
41.2%
41.3%
41.6%
Food gross profit
58.2%
58.8%
58.7%
58.4%
Beverage sales
Cost of beverages sold
30.8%
30.9%
Beverage gross profit
69.2%
69.1%
Total food and beverage sales
Less cost of sales
38.3%
38.0%
38.2%
38.4%
Gross profit
61.7%
62.0%
61.8%
61.6%
Other revenue
5.2%
5.1%
5.4%
5.5%
Total gross profit and other revenue
66.9%
67.1%
67.2%
67.0%
67.3%
Departmental expenses
Salaries and wages
60.7%
60.5%
59.1%
59.0%
Less service charge
15.0%
14.9%
15.2%
15.1%
Salaries and wages – net
45.6%
43.9%
43.5%
Payroll taxes and employee benefits
14.3%
14.2%
Employees' meals
1.4%
Laundry
1.1%
1.2%
1.3%
Linen, china, glass and silver
0.8%
Other expenses
8.1%
8.0%
Total expenses
71.4%
71.2%
69.7%
69.3%
Departmental net income (loss)
-4.5%
-4.1%
-2.5%
-2.3%
-2.4%
F&B department strives to break-even
Net amounts have not changed dramatically over the past 10 to 20 years with most clubs losing between 2 and 4% annually
This Photo by Unknown Author is licensed under CC BY-SA

6. Food and Beverage Operations – City Clubs
Averages
2019
2018
2017
2016
2015
Food sales
100.0%
Cost of food consumed
33.2%
33.0%
33.3%
34.0%
33.9%
Less employees' meals
3.2%
3.1%
3.0%
Cost of food sold
30.0%
29.9%
30.2%
31.0%
30.9%
Food gross profit
70.0%
70.1%
69.8%
69.0%
69.1%
Beverage sales
Cost of beverages sold
24.9%
25.3%
25.9%
25.5%
Beverage gross profit
75.1%
74.7%
74.1%
74.5%
Total food and beverage sales
Less cost of sales
28.5%
28.6%
28.8%
29.5%
29.2%
Gross profit
71.5%
71.4%
71.2%
70.5%
70.8%
Other revenue
10.9%
11.3%
11.1%
10.3%
10.6%
Total gross profit and other revenue
82.4%
82.7%
82.3%
80.8%
81.4%
Departmental expenses
Salaries and wages
65.3%
68.8%
67.8%
67.9%
Less service charge
6.7%
10.8%
Salaries and wages – net
58.6%
57.5%
58.3%
57.0%
57.1%
Payroll taxes and employee benefits
23.6%
23.0%
22.7%
22.0%
22.3%
Employees' meals
1.3%
1.4%
Laundry
2.1%
2.0%
1.6%
Linen, china, glass and silver
0.8%
1.0%
1.2%
Other expenses
5.4%
5.3%
5.6%
5.5%
Total expenses
91.8%
90.1%
90.8%
88.7%
88.9%
Departmental net income (loss)
-9.4%
-7.4%
-8.5%
-7.9%
-7.5%
City clubs – typically larger payroll costs – many of our city club clients have unions which drive payroll and benefits costs higher and lead to larger losses than other types of clubs
This Photo by Unknown Author is licensed under CC BY-SA-NC

7. Food and Beverage Operations – Tennis, Beach and Yacht Clubs
Averages
2019
2018
2017
2016
2015
Food sales
100.0%
Cost of food consumed
42.7%
42.5%
43.7%
44.7%
44.6%
Less employees' meals
3.6%
3.7%
3.9%
Cost of food sold
39.1%
38.8%
40.1%
41.0%
40.7%
Food gross profit
60.9%
61.2%
59.9%
59.0%
59.3%
Beverage sales
Cost of beverages sold
29.4%
28.6%
28.1%
28.2%
Beverage gross profit
70.6%
71.4%
71.9%
71.8%
Total food and beverage sales
Less cost of sales
36.2%
35.7%
36.6%
37.3%
37.1%
Gross profit
63.8%
64.3%
63.4%
62.7%
62.9%
Other revenue
4.9%
4.8%
4.5%
4.7%
5.0%
Total gross profit and other revenue
68.7%
69.1%
67.9%
67.4%
Departmental expenses
Salaries and wages
61.0%
57.5%
59.5%
Less service charge
12.6%
12.0%
11.6%
11.8%
12.4%
Salaries and wages – net
48.4%
47.3%
45.9%
47.2%
47.1%
Payroll taxes and employee benefits
13.5%
13.0%
13.4%
Employees' meals
1.4%
1.5%
1.6%
Laundry
Linen, china, glass and silver
0.7%
0.8%
0.9%
Other expenses
7.5%
7.3%
7.6%
7.9%
Total expenses
72.9%
71.6%
70.0%
72.2%
Departmental net income (loss)
-4.2%
-2.5%
-2.1%
-4.8%
-4.3%
Very similar results to golf and country clubs

8. Golf Course Operations
Annual Increases vs. Consumer Price Index
Impact of weather-related issues
Cost Per Hole Analysis
Decreases in the number of rounds industry-wide
Health and Fitness
Revenue Trend
Often the largest cost center for a golf and country club on a net basis
Net cost of golf operations (excluding golf shop) have increased nearly 40% over the past 10 years
Revenue over that time period is basically flat – up only 2% over the same timeframe

9. Golf Course Maintenance
Average Cost Per Hole
2019
2018
2017
2016
2015
Salaries and wages
$ ,949
$ ,219
$ ,324
$ ,164
$ ,372
Payroll taxes and employee benefits
10,574
10,140
10,075
9,708
9,475
Course supplies
17,097
16,550
16,386
16,290
16,112
Repairs to equipment, sprinkler system, etc.
5,112
5,092
5,288
4,958
4,846
Utilities
2,503
2,912
2,833
2,359
2,331
Equipment leases
2,026
1,964
1,838
1,617
1,359
All other expenses
4,103
4,080
4,253
4,592
4,259
Total golf course maintenance
85,364
82,957
81,997
79,688
77,754
Add: golf shop, committee expenses, etc.
31,037
29,672
28,991
27,913
27,297
Total golf expenses
116,401
112,629
110,988
107,601
105,051
Less: revenue from greens fees, golf car rentals, etc.
37,305
36,488
37,175
36,059
35,191
Net golf expenses
$ ,096
$ ,141
$ ,813
$ ,542
$ ,860
Annual percentage increase
3.9%
3.2%
2.4%
3.8%
Percentage change in average CPI
2.1%
1.3%
0.1%
1.6%
Increases have far outpaced annual percentage change in CPI over the past 5 years
Cost per hole has continued to increase putting pressure on clubs to continue to increase revenues – specifically dues
This Photo by Unknown Author is licensed under CC BY-SA-NC

10. Membership Trends Golf and Country Clubs
Regular Members
2008 Economic Crisis had an immediate impact
Nationwide decreases in membership
Decreased over 10% since 2008
Other Membership Categories
Modest growth in 2009 despite economic crisis
Over a decade of growth in other categories
Other members have increased over 15% since 2008
Focus on “Equivalent Members”
Membership Trends Golf and Country Clubs
Regular membership is nearly 11% lower than pre-2008 financial crisis levels as of January 2019
Other membership categories have increased
Members have downgraded membership to remain at the club – social, senior, etc.
Aging population has grown senior categories
Millenial generation uses club differently than prior generations
Clubs have renewed their focus on the number of equivalent members

11. Golf and Country Club Membership Trends By The Numbers
Regular
Other
Total
Percentage Change Since 2008
-10.9%
17.6%
-0.4%
Percentage Change Since 2014
0.4%
7.0%
3.2%
Total membership subsequent to 2008 financial crisis has leveled off and other membership categories continue to grow
Some good news – over the past 5 years total membership has grown and regular members have leveled off

12. Membership Trends City Clubs
Steady Membership Growth Over Past Seven Years
Larger Memberships
Typically smaller difference in cost between regular members and other membership classes
Membership Trends City Clubs
City clubs did not feel the economic crisis the same way golf and country clubs did
Larger memberships and a somewhat captive audience for the clubs has helped
Lower price point for city clubs has been the primary reason for their success – was easier after the economic crisis to maintain city club membership

13. City Club Membership Trends Seven-Year Trend Analysis
Only one down year in the past 7
We focus on total membership because of the typically larger sizes of the membership and the smaller difference between the cost of a regular membership as compared to other membership categories

14. Membership Trends Tennis, Beach & Yacht Clubs
Regular Members
Increased 3.5% Since 2008
Lower Volatility than Golf and Country Clubs
Family-oriented
Lower price-point
Other Members
8.9% Increase Since 2008
Aging Population
Member Loyalty
Membership Trends Tennis, Beach & Yacht Clubs
These clubs weathered the financial crisis better than any other category
Lower price point than golf and country clubs
Family experience – these clubs are often more family oriented and engage the whole family as opposed to just 1 member (golfer) of the family
These clubs are also often “part of the community”

15. Tennis Beach and Yacht Clubs Membership Trends By The Numbers
Regular
Other
Total
Percentage Increase Since 2008
3.5%
8.9%
5.3%
Percentage Increase Since 2014
2.6%
5.1%
These clubs did experience a dip in membership immediately following the 2008 economic crisis but were able to rebound quickly and have grown membership in both regular and other categories since that time
These clubs have also shown positive membership gains in the past 5 years

16. Membership Dues Primary Source of Operating Revenue Annual Increases
Largest
Golf and Country Clubs – 54.4%
City Clubs – 36.7%
Tennis, Beach & Yacht Clubs – 46.3%
Most predictable
Budget Setter
Annual Increases
Keep pace with increases in expenses – especially payroll and related
Ten-Year Average Annual Increases
Golf and Country Clubs – 3.2%
City Clubs – 3.9%
Tennis, Beach & Yacht Clubs – 3.7%
Membership Dues
Membership and the resulting dues are the lifeblood of a club’s operations
A strong dues line will typically make breaking-even (or better) a real possibility
When membership declines or when clubs fail to increase dues annually there are significant stresses put on other operating departments to reduce costs

17. Initiation Fees Let’s Make a Deal!
Incentive Programs
Payment Plans
More Modest Average Annual Increases (Decreases)
Golf and Country Clubs – (1.9)%
City Clubs – 2.7%
Tennis, Beach & Yacht Clubs – 2.8%
Primary Source of Capital Funding
Golf and Country Clubs – 47.9%
City Clubs – 25.7%
Tennis, Beach & Yacht Clubs – 33.1%
Initiation Fees
Many clubs are making deals – the sticker price is not always what new members are paying
Initiation fees continue to feel downward pressure since the 2008 financial crisis with many clubs unable to make increases in the amount charged since that time and many clubs reducing or even eliminating the fees altogether to entice new members to join
Initiation fees are often utilized for capital funding – generally for ongoing capital. Because these revenues are difficult to predict and budget for clubs should generally not utilize them as a funding source for large capital projects

18. Capital Expenditures Clubs Need Constant Facility Upgrades
New Amenities for Existing Members
Attract New Members
Dining Facilities
Sports Facilities
Major Projects
Approximately Once Every 10-Years
Funding Sources
Assessments
Bank Borrowing
Ongoing Capital
Initiation Fees
Capital Expenditures
If you build it they will come…maybe! But if you don’t build it they probably won’t and those that are already there may leave
Clubs must continue to add to and improve facilities and amenities to retain members and attract new ones

19. Long-Term Debt Clubs Appetite for Borrowing Has Increased
Higher Percentage of Clubs with Outstanding Debt
Higher Overall Average Outstanding Debt
Golf and Country Clubs
Approximately 86% of Clubs Carrying Debt
Average Amount Outstanding Approximately $4.3 million
City Clubs
Approximately 50% of Clubs Carrying Debt
Average Amount Outstanding Approximately $3.8 million
Tennis, Beach & Yacht Clubs
Approximately 63% of Clubs Carrying Debt
Average Amount Outstanding Approximately $2.4 million
Long-Term Debt
Borrowing trends have continued to go up – more clubs are borrowing more money
Secured (mortgage) vs. unsecured – negative pledge, etc

20. The Country Club Income Dollar and Where It Went
Remember the waring we gave earlier – these amounts are averages and your experience may be different!
These averages have not changed dramatically in many years
Golf and country clubs typically generate approximately 54% of revenue from dues and pay out a very similar amount in payroll and related expenses

21. The City Club Income Dollar and Where It Went
City Clubs payroll expenditures are similar to those of golf and country clubs but the revenue composition is different
Dues are still the largest operating revenue line item, however city clubs are less reliant on dues primarily because of rooms operations – typically a profitable department for a city club

22. The Tennis Beach & Yacht Club Income Dollar And Where It Went
Similar to golf and country clubs – especially on the expenditure side where many of the expense ratios are very similar to golf and country clubs
These clubs on average generate slightly more revenue from food and beverage and sports activities than golf and country clubs

23. Current Club Events “The Fun Facts”
Real Estate Taxes - A “growing” concern
IRS Audits – Yes Please!
Sales Tax Audits – Oh no…
Service Charges – Are you at risk?
Cyber Attack – Are You Vulnerable?
Current Club Events “The Fun Facts”
Real Estate Taxes – New York and Maryland issues
Proposed legislation in New York - highest and best use – not going forward for now
Attempt to get similar change on the ballot in Montgomery County, MD but was unsuccessful – would have significantly increased real estate taxes
These changes could have increased real estate taxes by a factor of 10 – already the second largest expense at many clubs would have grown exponentially
IRS Audits – largely innocuous, clubs generally do a good job of compliance with IRS Regs
Areas of focus – payroll, specifically taxable fringe benefits
Audits are rare but can be triggered by frequently going over the 15/35 limit or reporting significant diversion of assets
Recently several clients that have above 10% UBI have received letters from the IRS (has anyone in the room received a notice?) – they are monitoring this – track your non-member income and report it appropriately
Sales tax audits are far more common – many states looking for cash
Risk is typically not on the revenue side – clubs generally do a very good job of capturing and remitting taxes on revenue – but on use tax on purchases from out-of-state vendors, online purchases or other purchases which are misclassified as capital expenditures exempt from tax
Service charges – several states have issue of lawsuits claiming service charges should have been paid out as gratuities – know the facts in TX and review documents such as employee handbook, member rule books, sales receipts (chits), function contracts, etc.

24. Thank You Texas Lone Star Chapter! CMAA
Condon O’Meara McGinty & Donnelly LLP
John D. Daum, CPA
Partner
Telephone: (212)
James W. Gilson, CPA