Thursday, March 22, 2012

Ski, Esq.

If you're a skier, be sure to check out our sister site - Ski, Esq.

Golf Course Closings Outpace Openings

In news that unfortunately comes as a shock to no one, more golf courses closed in 2011 than opened. What is surprising, however, is the scale of the contraction in the industry. More after the break.

Monday, March 19, 2012

Nice Shot?

Golfers are accustomed to seeking cover from incoming projectiles. Usually they're golf balls. Apparently that's not always the case in Texas. Several media outlets are reporting a bizarre incident in San Antonio, where a golfer at the Mission Del Lago municipal golf course was struck in the chest by a stray bullet allegedly fired from a nearby shooting range. Employees later reported hearing a second bullet whiz by.

Friday, March 16, 2012

An End to Tax Breaks for Golf Course Conservation Easements?

There appeared an interesting article in Wednesday's Forbes magazine by lawyer Robert Wood regarding a push by the Obama administration to end tax deductions for golf course conservation easements. The tax deduction for conservation easements generally expired on December 31, 2011 and has yet to be renewed. Even if the deduction is reinstated, it appears the Obama administration feels golf courses should not qualify for the tax break (more info).  More after the jump.

Friday, March 2, 2012

Preparing for a Rainy Day: Rethinking Initiation Fees

            It comes as no surprise to readers of Tee, Esq. that the recent economic downturn has been especially tough on golf clubs. A rainy day for the economy as a whole has been a monsoon for clubs across the country.  As family budgets tighten, often the first thing to go is the membership at the local country club. But while some families have been able to put their fiscal houses in order by resigning, the clubs they’re leaving aren’t so lucky. 

At a time when they’re the most strapped for cash, clubs face the two significant strains. First, fewer members means less income from dues, carts, food and beverage, etc. Second, member-owned clubs are being forced to pay back equity interests to outgoing members. Nationwide, this dual problem has pushed many clubs to the brink of insolvency.

What then should clubs and their governing boards do to address this problem? 

Bonds form a huge, and often unrecognized, liability on a club’s books. Take for example a club of 250 members whose bond is $15,000. The club would have a liability of almost $4 million. If only 10% of the membership resigns suddenly – a far lower percentage than many clubs experienced during the current recession - the club would have to come up with $375,000 at a time when it’s already struggling to make ends meet. As few as 25 departing members could break a club.

Unfortunately, there’s not much clubs can do about their existing bond liabilities. They’re on the hook to pay back bonds to departing members in accordance with their charters and cannot retroactively change their bond obligations without consent.

However, the prospect of quickly having to come up with such a large sum has caused many clubs to rethink their membership structure going forward. Many are considering options to help reduce the cash crunch in event of a similar economic downturn in the future.

For a few clubs, the answer has been a clever shift in the balance between initiation fees and bonds. For example, a club with a $10,000 initiation fee and a $15,000 bond might be better served charging $24,000 as an initiation fee and only $1,000 as a bond. The beauty of this approach is that the pricetag for joining remains the same, but the club can greatly reduce its exposure. By rebalancing the bond and initiation fee, this club would eventually reduce a $3.75 million liability to only $250,000.

Restructuring can help put a club back on more solid financial ground. In addition to lessening the sum total of the liability, restructuring as described above can offer other benefits. Lessening liabilities on a club’s balance sheet can make it more attractive to lenders. Many will likely find credit for improvements and renovations easier and cheaper to obtain.

Of course, there are other options available to clubs looking to put themselves back on solid ground. Some clubs have amended their charters to limit the number of bonds payable at once. Others have adopted policies where upon joining a new member agrees that any equity interest will be repaid only if the ratio of members joining exceeds those leaving. Still more have coupled such policies with first-in, first-out provisions which give priority to long-standing members and make their equity interest senior to newer members. 

Another interesting alternative some clubs have adopted is an approach whereby a member's bond becomes non-refundable as time progresses. Under this technique, the club simply retains 10% of a member’s bond for each year of membership. After 10 years, the bond is no longer a liability. Members generally think this is a fair approach because someone who resigns, dies or moves after only a short time doesn’t lose their entire bond, while longstanding members have received the benefit of years of membership in exchange for their initial contribution.

No matter what steps a club takes, now that the worst of the storm seems to have passed, it’s a great time for clubs to examine how to be better prepared for the next rainy day. After all, as any golfer knows, proper raingear can make all the difference.

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Thursday, March 1, 2012


Welcome to Tee, Esq. where you will find exciting, relevant and interesting perspectives on golf law, the golf industry and legal issues affecting the game of golf. As the calendar rolls towards spring, golf season is just around the corner. Stay tuned!