BoardRoom Briefs March/April 2017

briefs Revenue from Contracts with Customers

By Phil Newman

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 201409, Revenue from Contracts with Customers (Topic 606).

This standard outlines a single comprehensive model for companies to use in accounting for revenue from contracts with members and supersedes the most current revenue recognition guidance, including industry-specific guidance.

The core principle of the revenue model is that revenue is recognized when a member obtains control of a good or service. A member obtains control when it has the ability to direct the use and obtains benefits from the good or service.

Transfer of control is not the same as transfer of risk and rewards, as it is considered in the current guidance. The club will also need to apply new guidance to determine whether revenue should be recognized over time or at a point in time.

assessments should be recorded under the new standard and determine what they need to do to be in compliance. Clearly for many clubs, having to defer initiation fee income over the expected term of a membership could have a significant effect on the club’s balance sheet for many years to come.

Clubs should be consulting with their outside CPA firm on this issue. ASU No. 2014-09, will be effective for annual reporting periods beginning after December 18, 2018. BRB

Why should club’s care about this standard?

Some of the guidance specifically refers to upfront fees paid to a health club – suggesting that they should be deferred and recognized over the expected length of a membership.

Publicly traded club owners such as ClubCorp have been following similar accounting rules for many years. Clubs need to evaluate how amounts received as initiation fees or capital

briefs

Table of Contents BOARD Capital Planning & Critical Capital Ratios - P2 Member Connectivity is Vital - P12 CLUB CULTURE Club Cult Creation - P10 CLUB TRENDS LEED Certification - P6 GOVERNANCE Clubhouse Renovation - P2 Market Differentiation- P8 HUMAN RESOURCES ACA Questions- P12 MEMBERSHIP Membership Committee Responsibilities - P6 Children’s Spaces and Programs - P10 WELLNESS Are Private Club Spas the Next Big Thing- P4

MARCH/APR IL 2017 VOLUME 2 | ISSUE 2

BoardRoom Briefs is complimentary to BoardRoom magazine subscribers.

This newsletter offers content that goes beyond the buzz, by surfacing and summarizing important industry information. Each issue will offer practical insights from industry experts with a focus on fit for boards, board presidents and paid management.

John G. Fornaro / Publisher Dee Kaplan / Advertising

Heather Arias de Cordoba / Editor Dave White / Consulting

If you have a story idea, please contact heather@boardroommag.com or call (949) 365-6966.

For more information please visit www.BoardRoomMagazine.com. Interested in advertising, please email dee.kaplan@gmail.com or call (310) 821-0746.

CONTRIBUTING WRITERS AND INDUSTRY RESOURCES Joe Arias / LEEP AP architect, Anil Verma Associ ates / joea@anilverma.com Henry DeLozier / golf management consultant / hdelozier@globalgolfadvisors.com Ray Cronin / co-founder/CEO, Club Benchmarking / rcronin@clubbenchmarking.com Lauren Gordon / Chambers / lgordon@chambersusa.com Steve Graves / founder & president, Creative Golf Marketing / steve@creativegolfmarketing.com Kelley Harris / principal interior designer, Harris Interiors / kelley@hintatlanta.com Bonnie J. Knutson Ph.D. / professor, The School of Hospitality Business, MSU / drbonnie@msu.edu Philip Newman / partner, RSM / philip.newman@mcgladrey.com Frank Vain / president, McMahon Group / fvain@mcmahongroup.com Dave White / editor, BoardRoom magazine / whitepks@mac.com

Capital Planning and Critical Capital Ratios

By Ray Cronin

If just one rule could be instituted in every club boardroom with the goal of making the entire industry healthier, it would be this…

Every time a board member wants to discuss F&B profitability, they must stop and replace that topic with two critical questions: • What are our future capital needs?

• What are our projected capital resources?

Capital planning is at once the biggest challenge and the best opportunity for improvement in clubs, and yet few clubs seem to fully recognize its importance.

There are two easily calculated measures that boards can use to gain keen and immediate insight into their club’s capital situation. The first measure, net worth over time, is explained below. We’ll cover the second measure, Net Available Capital to Operating Revenue Ratio, in our next installment.

The chart below shows a real-life example of UNA or net worth over time, plotted in this case by Carmel Country Club in North Carolina. The club’s impressive growth, from a net worth of about $12 million in 2004 to more than $30 million in 2016, is a direct result of a strong commitment to capital investment on the part of club’s board and management. The club’s consistent cycle of investment has, over time, produced amenities that increase the value of being a member of the club. Strengthening the club’s value proposition supports increases in initiation fees and dues and as a result, the club’s UNA is on a very healthy upward trajectory. BRB

Calculating net worth over time begins by assembling ten years of audited financial statements. Search for owner’s equity if you’re a for-profit club or unrestricted net assets (UNA) if yours is a not-for-profit club. Enter the number for each of the 10 years into a spreadsheet and plot a simple line graph using that data. The resulting graph will show the trend of your club’s net worth over time and clearly illustrate whether your UNA is increasing, going sideways or declining.

5 Things to Consider Before a Clubhouse Renovation

By Kelley Harris, Principal Interior Designer, Harris Interiors

MEMBERSHIP BUY IN Have you surveyed or interviewed your members to understand what they expect in a renovation, or what they think is missing at their club? Members want to be heard and will support a renovation if they feel like they had a voice.

DEFINE YOUR GOALS What would you like to accomplish with a renovation? Have you considered the members and the staff? Your staff sees and hears it all, so make sure you listen to them.

energize your clubhouse and become your members’ first choice for dining.

PLANNING AND TIMELINE How would a renovation affect your events and a la carte dining? Should you consider phasing your renovation?

Members appreciate temporary solutions that maintain operations during a renovation. Storyboards that illustrate the design can help you book future events.

FINANCE RESEARCH YOUR COMPETITION How have other competing clubs renovated to enhance their facilities? Or even beyond clubs; are there popular restaurants your members frequent and why? Think about ways you can

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Have you done your research? How have other clubs structured financing? Members have low tolerance for assessment, so consider attractive payment plans. Your best resource is your peer group. BRB

Are Private Club Spa Facilities the “Next Big Thing?” Part II By the design experts at Chambers

On the surface, private club spa facilities include features that seem similar to what many clubs already offer, but in order to be successful, club spas must consider a few unique factors…

SENSORY EXPERIENCES “A spa is a sensory experience. When you’re designing a spa, you shift away from the utilitarian and create a place where people want to go, linger and enjoy,” says Charlie Turner, Chambers’ VP and director of interior design director. The more sensuous the experience, the more demand you generate. “Club spa service prices parallel those at hotels and privately-owned spas, so it’s important that the design reflects that,” says Turner.

“Think upgraded plumbing fixtures, fine glasses, water walls, detailed mosaics, and sculpture halls.”

THOUGHTFUL LAYOUTS Spas are valuable amenities, but not every club can afford to build a full facility. However, thoughtfully placing treatment rooms can create a similar experience.

“Strategically placed spa facilities will consider the club’s traffic patterns. For example, many clubs don’t want to invest in a separate locker room for the spa, so you would connect the treatment rooms to the locker rooms facilities

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or place them in the same vicinity,” suggests Turner. Like any facility, it’s important to consider industry trends and work within budget to create the best experience.

WELLNESS SERVICES Spa facilities accommodate services not traditionally associated with pampering. For example, treatment rooms can be converted into areas for sports massage or physical therapy – increasing the space’s value for members. Craft special menus complete with healthy foods for a “getaway” experience. “Ultimately, spas are another amenity that you can sell. It creates additional value for current members and becomes a recruitment tool,” says Turner.

Spa amenities offer a modern take on the club’s original purpose, providing an inclusive, health-conscious space to escape life’s pressures. After all, private clubs are all about creating a home-away-from-home. BRB

Club Trends

By Joe Arias Sustainability and LEED Certification LEED certification is a natural next step in your efforts to reduce your energy costs and build a more sustainable clubhouse. In most cases, a private golf facility already qualifies for many requirements in becoming LEED Certified, with open space, water conservation and green recycling. With a few simple improvements such as converting light fixtures and updating the building envelope, the outer elements of the building’s structure such as windows, doors and trellises, and perhaps some simple modifications such as adding a bike rack, a vegetable garden, walk-off mats and recycling bins, your clubhouse is well on its way to qualifying for LEED certification.

Many Benefits With LEED If you’re renovating your existing clubhouse, or building a new one, you should consider building with green building principles in mind (sustainability).

The United States Green Building Council (USGBC) developed the Leadership in Energy and Environmental Design (LEED) rating system to provide a national standard for green building design. The benefits of building or renovating to LEED building standards include: • 20-40 percent less water usage • 30-50 percent less energy usage • 50-75 percent less waste Ultimately, it’s up to the club to decide what level of certification has the best cost-benefit ratio.

Certification comes with a plaque that mounts on the building to certify that you have met the requirements to be called a green sustainable building or club.

LEED evaluates buildings in five areas: sustainable sites, water efficiency, energy and atmosphere, materials and resources, and indoor environmental quality. To achieve LEED certification, all buildings (new or existing) must meet all prerequisites in the rating system and receive a minimum of 40 points.

The flexibility of the rating system allows building owners, contractors and clubs to determine which credits to pursue based on performance goals.

LEED for existing buildings and new construction ratings are awarded according to the following point thresholds: Certified 40-49 points Silver 50-59 points Gold 60-79 points BRB Platinum 80 points and above page 6

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Membership Committee Responsibilities

By Steve Graves

There is no disputing that serving as a volunteer member of the membership committee is different today than it was 20 years ago.

Historically, the primary role of this committee has been administrative, performing such duties as approving/rejecting applications and formalizing admission policies. Today, this role may include creating and designing membership incentive programs, serving as ambassadors or hosts for prospective members, proposing modifications to existing membership category structures or even designing club promotional materials.

All clubs can benefit from an active membership committee. And in regards to the complexities involved in membership recruitment and retention, it does require a more structured process and increased involvement by members of the committee. With this in mind, what role or roles should the membership committee assume? Obviously, the answer to this question may vary from club to club depending on the management structure in place and whether or not the club has a dedicated membership marketing/services individual on staff will also influence how the membership committees’ role should be defined.

Ideally, membership committees should be highly active advocates for their club, and be supportive of various strategies, regardless of whose ideas and strategies they are promoting. The endorsement of the membership committee can make or break the success of a club’s membership growth efforts.

The involvement of an active membership committee will have a greater positive effect on the overall membership recruitment and retention efforts because the message is being conveyed by a group of peers. There is no doubt that a peer group that is actively involved in this process will have a greater chance of attaining ultimate success with regard to achieving desired goals. BRB

Market Differentiation

By Henry DeLozier

Some clubs enjoy a competitive advantage. So how do clubs differentiate themselves from their competitors?

Market differentiation is simply a matter of making your club stand out favorably from the pack. Many clubs offer the same value proposition at similar prices for joining and monthly dues.

To set your club apart from your competitors, answer the following five questions.

What do I know about my primary market?

When seeking competitive advantage your club must know the current demographic trends concerning consumer confidence, household (“HH”) income growth, HH disposable income, HH make-up (such as, average number of children, schools), and educational attainment profile.

Does the external market – outside of your club’s front gate – significantly differ from the internal market of existing members?

Usually clubs prosper when they can successfully recruit new members who have similar demographic and psychographic characteristics as the existing members. This need indicates that the club must know its external and internal markets thoroughly.

What do you know about the competition?

Do they offer better facilities, programs and activities? At a better or similar price?

To answer these questions, your club must have an objective understanding of competitive circumstances. And, your club must dispassionately understand the momentum of each club – whether surging forward, stagnant or falling back.

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What will provide your club competitive advantage and a favorable lean into the future?

Unless your club is a private men’s golf club, the answer should be facilities, programs and processes that are attractive to women since it is women who hold the veto-vote.

Currently programs that leverage surging demand for wellness – it’s more than fitness – programs and maximizing the reach and impact of the club as a platform for socialization. Women are seeking a safe haven where the needs of the entire family can be addressed. That means that clubs that enjoy favorable market differentiation currently can learn from the best attributes of large retailers.

Meet the needs of the entire family – children’s and junior programs, golf, wellness (physical, nutritional, and emotional fitness), non-golf sports and

activities, and – of course – socialization to enjoy family and friends.

How do you set fees and dues?

Market differentiation is seldom a matter of pricing alone – especially within the private club category.

Nonetheless, members want to feel that they receive great value for what they pay. Genuine market differentiation is to be found in value-received more than price-paid.

The price comparison to the competition is important when your club does not provide superior value. Win the value match and you will win the game.

Competitive advantage is the benefit of market differentiation that is achieved when the club provides its members more, better and at a reasonable price. BRB

TrendWatch: Children’s Spaces and Programs

By Frank Vain

Most clubs have long considered themselves to be family oriented. They’ve been good at introducing young people to sports like golf and tennis and imparting other skills that prove valuable throughout life.

Given the demands on today’s parents, many are taking this focus to new heights, and they’re finding it to be good for business. The biggest elements of this strategy include a great pool facility; casual dining spaces that are comfortable for the entire family; youth activity rooms where children can play and relax; and hiring staff to develop and oversee a robust recreation program and teaching professionals to motivate and train youngsters in the sport of their choice.

We expect the demand for these amenities and services will only increase as the Gen X and Millennial Generations become the primary new member cohort. They are predominately two wage-earner households with limited disposable time. A big issue for them is getting together as a family and balancing work and play. Clubs that can offer families the total package

of recreational activities, social spaces and great instruction will have a great advantage in this new climate.

The biggest capital investment in this strategy is the pool, and while they can run into the millions of dollars these days, they are proving to be excellent investments. The dining facility can sometimes be accomplished with relatively simple spatial modifications and interior design. When combined with something like a youth room, suddenly the club turns into a real draw for the time-constrained family looking for an easy dining experience. Finally, highly skilled professionals make it all happen on the front lines and parents will support any club or program that develops skills and an appreciation of sports in their children. Ramp your club up from family-oriented to familycentric and you’ll build one that has a sustainable future. BRB

Club Cult Creation

By Bonnie J. Knutson

Is your club like Amazon, Apple, Oprah, Harley-Davidson, and Jimmy Buffett? If not, it should be because they are all cult brands. They are experts in generating revenues by making customers members of their cult.

In a club environment filled with countless competing products and services, the only way you can really win big is by making an emotional connection with members. You have to capture their hearts. Features and benefits alone don’t cut it anymore.

By definition, human beings – i.e. members – are social creatures.

We have a strong sense of community, of wanting to belong to something. Remember studying Abraham Maslow’s hierarchy of needs in school? He tells us that, once we have our basic survival needs met – food, water, shelter – we are motivated by our need to be a part of something larger than we are. We want to belong to a group or a community. So it is natural that members want to connect with brands (i.e. clubs) that give them a sense of belonging to something special. After all, isn’t your club really in the business of raising your members’ standard of living – i.e. taking them to a higher rung on Maslow’s hierarchy?

Top clubs know how to successfully capitalize on this belonging need to attract members and develop cult-like loyalty. They do this by creating authentic emotional connections that are aimed at tapping into powerful emotions

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about image, fantasies, and aspirations. Americans sport the red, white, and bue because they want to project the image of being part of the patriotic lore. Golfers head for the Nike “swoosh” because they have the fantasy of joining the ranks of those invited to play in the Masters or British Open. And weekend athletes drink Gatorade because they aspire to reach the next level in their sport.

Today’s members are less motivated by your club’s products and services than they are in the social links and identities that come with buying them. This reality means that your strategy must be structured to draw customers into your club’s cult.

Perhaps Richard Branson said it best: “The idea that business is just a numbers affair has always struck me as preposterous.

For one thing, I have never been particularly good at numbers, but I think I have done a reasonable job with feelings. And I’m convinced that it is feelings – and feelings alone – that account for the success of the Virgin brand in all of its myriad forms.”

Start building your club’s cult today. Your bottom line will thank you! BRB

Member Connectivity Is Vital

By Dave White

You just never know what general managers might say, what they might be thinking, what the current issues are, or if the current issues have even changed over the years. But if you ask, you might get some answers.

For general managers a long laundry list remains: • Micromanaging boards – directors who just can’t keep their fingers out of the general manager’s pie • General manager burnout • Lagging memberships and the lack of membership wait lists • Changing demographics • Club finances, and a member’s right to know what’s going on • The requirement for boards to have clear, concise information so they can make rational financial decisions • Setting of policies for same sex or significant other issues • Sacred cow staff members • Members’ responsibilities • Updating of club technology • Food and beverage operations and minimums • Alcohol use • Club etiquette • Club health costs • 501(c)(7) clubs Equally important though, is providing a club environment that allows friendships to develop…connectivity. People have to connect. People who join private clubs do so for a variety of reasons. Of ten today, the private club is views as ‘the new community’, a place where families and friends can meet to

play, socialize and hang out. Even if new members join the club because that’s what their friends have done, if they don’t connect…if the culture and other members are indifferent to them as newcomers, it won’t last. Many clubs will find that a large percentage of those who leave their club had been members for about a year. They just aren’t able to connect with the old traditional group and it’s fairly easy to predict who’s going to stay and who’s not. Often it’s a matter of getting groups that are used to playing together to open their arms to newer members, particularly new members with young families –the group that’s changing the face of many private clubs.

It’s vitally important for clubs to embrace their new members.

Membership marketing staff should plan on re-visiting with new members, especially during the early months of membership, to ensure that the club is meeting their needs and wants. It’s also helpful to have club ambassadors – other members who can ‘buddy’ up with new members and family to help them become immersed in the club’s activities. These intangibles – the quiet behind-the-scenes activities – can help make a difference welcoming new members into your club family. If you want to grow your club, if you want to create that culture with core values, you’ve got to connect the new members. BRB

7 ACA Questions and How to Answer Them The Affordable Care Act (ACA) is still a real, enforceable law. Given all the talk about repealing Obamacare (ACA), there’s a good chance your employees will have questions once they start receiving their ACA-mandated 1095 forms from you.

1. Didn’t President Trump repeal Obamacare?

No. He has promised to repeal and replace the ACA, but to date he’s only signed an executive order that directs federal agencies to grant certain exemptions from the law, as well as waive requirements. Employers still have to comply with the “play or pay” mandates, and individuals still have to carry health insurance or risk penalties.

2. Did Republicans in Congress start repealing the law?

No, they don’t have the votes they need to repeal the ACA outright. They’ve stated their intention to attack the law through a process known as reconciliation. It’ll allow Republicans to vote on budgetary pieces of the law.

3. Then when will Obamacare be repealed?

There’s no clear answer on when this will happen. Republicans plans to use the reconciliation process to repeal and replace parts of the law. A package was introduced in early March. page 12

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4. What is Form 1095?

The employer or insurer sends Form 1095 to the IRS and to the employee. It shows whether the individual had the minimum level of required of health insurance under the ACA in 2016 and if the person was eligible for a premium tax credit in 2016.

5. If Obamacare is going to be repealed, do I still need this?

Yes, because the ACA was in effect for all of 2016, and this form is reporting information that reflects what happened in 2016.

6. Do I have to wait to receive the form to file my taxes?

Only those who received insurance via an exchange or the marketplace have to wait for their 1095 to file their taxes. If a person’s unsure whether they had minimum coverage for the entire year, they should wait for the form before filing their taxes.

7. How will I receive the form(s)?

One of three ways: mail, hand delivery, or electronically. BRB