Is Your Club Worth More Than It Was 20 Years Ago?

Dr. Jim Butler and Ray Cronin on why net worth is the most important number most members never see, what drives it down, and the two questions every member should ask their board.

Club members are often careful investors. Few would put six figures into anything without reading the financials. Yet most have no idea whether the club they own is growing in value or quietly losing it.

Club Benchmarking believes net worth over time is the single most important metric in the industry, and that every board member and every member should know it.

What does equity mean for a private club?

Founder Ray Cronin calls "equity" one of the most misused words in the industry. CB uses it the way any business would: the net worth on the balance sheet, which in a club represents what it can reinvest in its facilities. The old model of a refundable entrance fee has largely faded, and for good reason. "It'd be like saying you go to college and, 25 years after you graduate, you get your tuition back," Cronin says. With average tenure now around 25 years, a $100,000 entrance fee works out to about $4,000 a year on top of dues.

Why are so many clubs losing value?

More than 40 percent of clubs are worth less in real dollars than they were in 2006, and about 20 percent are worth less in absolute dollars. The cause is inadequate capital income. Operations typically break even, so net worth only grows when capital income exceeds depreciation and interest. Without it, clubs can't reinvest in their facilities. They are, in Cronin's words, consuming themselves.

“Have we ever seen a club cut their way to success in the club business? Never.

Part of the problem is human. Board members find it hard to ask their friends for more money. That doesn't mean expense equals waste. A six-month CB analysis found only about 7 to 8 percent of the average club's operating expense could be called waste. On the margin, adding a percentage point to dues leaves a club better off than cutting a point of expense.

Why is efficiency the wrong goal?

CEO Dr. Jim Butler describes stopping at an airport restaurant where no one greeted him and a QR code handled the entire order. It was efficient, and it's the opposite of what a club should be. The most successful clubs spend more on labor, not less, because members join for the experience: the bartender who knows your name and your drink.

“No one ever wrote a check to join a club because it was efficient.

Cronin frames it as efficiency versus effectiveness. Efficiency is doing the thing right. Effectiveness is doing the right thing. Funding F&B as an amenity through dues may look inefficient on an income statement, but it's effective. Growing net worth over time is what matters.

What should every member ask their board?

Two questions. What is our club's net worth? And has it grown, stayed flat, or declined over the last 10 to 20 years? Cronin estimates no more than 10 percent of club board members could answer both within 10 percent. Butler recalls a club chairman, a senior executive at a major pharmaceutical company, who knew his company's equity instantly but had no idea about his club's. His reply: "I'm asking you the wrong question, aren't I?"

The stakes are concrete. A club whose net worth is declining will eventually face a capital call. Avoiding assessments starts with growing net worth faster than inflation.

Quotes are lightly edited for clarity.