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Witt Mares: 2011 PKF Club Trends
 

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  • Many more people are without jobs to day than what was the case during the previous three U.S. recessions, and the peak of unemployment in the current cycle – at 10.5% according to Moody’s – will not arrive until the 3rd quarter of this year.
  • Many more people are without jobs to day than what was the case during the previous three U.S. recessions, and the peak of unemployment in the current cycle – at 10.5% according to Moody’s – will not arrive until the 3rd quarter of this year.
  • Many more people are without jobs to day than what was the case during the previous three U.S. recessions, and the peak of unemployment in the current cycle – at 10.5% according to Moody’s – will not arrive until the 3rd quarter of this year.
  • Many more people are without jobs to day than what was the case during the previous three U.S. recessions, and the peak of unemployment in the current cycle – at 10.5% according to Moody’s – will not arrive until the 3rd quarter of this year.
  • Many more people are without jobs to day than what was the case during the previous three U.S. recessions, and the peak of unemployment in the current cycle – at 10.5% according to Moody’s – will not arrive until the 3rd quarter of this year.
  • Many more people are without jobs to day than what was the case during the previous three U.S. recessions, and the peak of unemployment in the current cycle – at 10.5% according to Moody’s – will not arrive until the 3rd quarter of this year.
  • Many more people are without jobs to day than what was the case during the previous three U.S. recessions, and the peak of unemployment in the current cycle – at 10.5% according to Moody’s – will not arrive until the 3rd quarter of this year.
  • Many more people are without jobs to day than what was the case during the previous three U.S. recessions, and the peak of unemployment in the current cycle – at 10.5% according to Moody’s – will not arrive until the 3rd quarter of this year.

Witt Mares: 2011 PKF Club Trends Witt Mares: 2011 PKF Club Trends Presentation Transcript

  • Tax and Financial Trends in Clubs in a Recovering(?) Economy
    Club Managers Association of America
    84th World Conference on Club Management
    February 28, 2011
    Presented by: Kevin F. Reilly, J.D., CPA
    Witt Mares, PLC
    Fairfax, Virginia
    kreilly@wittmares.com
  • Trends Overview
    Economic Outlook
    Lifestyle and consumer trends
    Demographic Influences
    Golf and Recreation
  • Consumer Confidence
  • U.S. Unemployment Rate
    9 percent in December
    Source: Moody’s Economy.com
  • U.S. Unemployment Rate – by State
  • Consumer Behavior Study
    Economy's Impact on Upper Income Consumers
    Income $150K+
    August 2007August 2009
    More practical in purchases 32% 50%
    More budget conscious 25% 44%
    Only buy clothes on sales 14% 15%
    Use coupons more 15% 31%
    Buy store brand/generic more 7% 20%
    Recent surveys on consumer spending behavior indicate thatreductions in discretionary spending may be prolonged. When asked how the recent economic downturn will affect consumer lifestyles over the next 5 years, 52% of survey respondents indicated they will evaluate purchases more carefully.
    Source: BIGresearch, August 2009
  • Trends – Economic
    $17 trillion drop in net wealth between 2007-2009
    Bernanke : 12 of 13 major financial firms faced failure in 2008
    Libya impacts US$ and price of oil
    Club specific
    68% of clubs increase membership marketing
    60% increase member retention emphasis
    50% -special financing offers
    44% waive or discount initiation fees
    23% trial membership
    Plurality expanded facilities
    Fix only if broken policy
  • Housing Outlook
    Housing largely a local market
    Some areas improving, but long road ahead
    New home sales in 09 driven by 1st time homebuyers (tax credits)
    In Jan 10, fell to lowest level in nearly 50 yrs
    Existing home sales continued to fall over summer, 2010, but some
    improvement was expected by year end
    Buyers of second homes:
    Typically 40-60 yrs of age
    Large pool of Baby Boomers now, but purchases affected by downturn in market
    Foreclosures expected to be higher in 2011 than 2010
  • Leisure Spending
    Baby Boomers
    Generation X
    Generation Y
    Matures
    Note: Data does not take into account future immigrants entering the United States.
    Based on historical trends, an individual’s lifecycle spending typically peaks between ages 46-49 with spending on leisure peaking near age 52.
    Source: DHS, CDC, and Wells Fargo Securities, LLC estimates
  • The Luxury Market
    Generally, the “Luxury Market” is defined as the top 2 to 5% income earners with net investible assets greater than $1M
    U.S. Households by Income
    ‘000s
    14,000
    12,230
    12,000
    10,073
    10,000
    8,000
    5.6MM
    6,000
    4,000
    2,977
    1,472
    1,154
    2,000
    0
    Annual HH Income
    % of Total Market
    Near
    Affluents
    Mass
    Mass
    Mass/Super
    Affluents
    Affluents
    Affluents
    Affluents
    $75 -$100k
    $100 -$150k
    $150 -$200k
    $200 -$250k
    >$250k
    11%
    9%
    3%
    1%
    1%
    Trading Up – Siverstein & Fiske
  • Luxury Market: 2010
    Jan, 2010 Luxury Study of Affluents
    Top 20% of household income
    Still pessimistic on economy overall
    Feel recession won’t end until 2011
    More optimistic about their own financial position
    Spent 8% more on luxury goods in 4th quarter of 2010
    Appeal to them with consistently high quality and exceptional service
  • Luxury Market Outlook
    Luxury market recovery likely to be driven by:
    • Ultra-affluents (incomes > $250,000)
    • Represent roughly 2.5 million households in U.S.
    • Spend 4.5 times more on luxury than
    other affluents
    • Increased spending by 40% from 3rd
    to 4th quarter
    • Young affluents (Age 40 or younger)
    • Outspent their elders by 2.5 times in 4th quarter
    • Strong appetite for luxury brands and goods
  • Why Members Join
    Private club golfers participating in NGF’s research study indicated different reasons for joining a private club that varied with the type of club…
    • Members of both country clubs and golf-only clubs join for the
    convenience and quality of the golf course and…
    • Country club members also placed a high priority on other amenities
    for themselves and their families
    Source: National Golf Foundation
  • Membership Initiation
    Initiation Fee Income has declined across the country with reports of 25% to 50% reduction at some clubs
    Initiation Fees:
    $5,000 and under – 8.5%
    $5,001-$10,000 – 7.3%
    $10,001-$20,000 – 8.2%
    $20,001-$50,000 – 5.9%
    $50,000+ – 3.7%
    Source: NCA Planning Survey, 2009
  • Change In Country Club Membership
  • Change in City Club Membership
  • Age First Joined Club
    (Current Country Club Members)
    The Gen Y population is reaching the age when, historically, the majority of current members joined a country club (30-39 years old)
    Source: National Golf Foundation
  • Membership Issues – Nonfinancial
    Limited free time
    Increased commuting time
    Homes becoming entertainment centers
    Parents spend more time with children
    People travel more
    50% increase in daily fee courses since 1990
    Same number of golfers
    Private clubs more appealing to men than women
    Exclusivity not so important
    Corporations change way do business
  • Club Membership
    The majority of clubs responding have increased their focus on membership through…
    Improved Retention Efforts – 86%
    Expanded Membership Marketing – 82%
    Other responses to the economy include:
    Trial Memberships – 72%
    Special Financing Offers – 69%
    Discounted Initiation Fees – 69%
    Source: NCA Planning Survey, 2009
  • Dues Issues
    Clubs are in the dues business
    Anecdotal evidence
    No change to services – need approximately 7% increase
    Fewer members to carry overhead costs
    Dues raised approximately 3%
    Many Clubs
    Goal is no dues increase
  • Country Clubs – Dues
  • City Clubs – Dues
  • Country Club Income Per Member
  • Country Club Operating Cost Per Member
  • Country Club Income 2010
  • Country Club Expenses 2010
  • City Club Income Per Member
  • City Club Operating Cost Per Member
  • City Club Income 2010
  • City Club Expenses 2010
  • NRA Stats
    2010 sales increase 2.5%
    Economy remains top challenge facing operations
    2010 unemployment decreasing slowly
    Operators more optimistic and capital spending plans at a 2-year high
    Growth in wholesale food prices expected to slow in 2010 (2.9%)
    Menu Prices – moderate growth (3.8%)
    33% of adults say they do not eat on-premises of restaurants as often as they would like
    Long-term labor issues eventually will return
  • Trends – Food & Beverage
    All types needed
    Controlling of costs critical
    Different ages, different options
    Casual dining a must
    Outside dining increasingly desired
    Clubs must cater to every membership class
  • Trends – Food & Beverage
    Staying on top of dining trends very important
    Food to go issues
    Locally grown produce
    Bite size deserts
    Organic items
    Nutritionally balanced dishes (especially children)
    Michelle Obama’s child obesity thrust
    73% of adults trying to eat healthier
  • Trends – Beverages
    Infused liquor
    Flavored drinks
    Pairings with food (cocktails, as well as wine)
    Organic wine
    Microbrews
    Specialty/seasonal beers
    Organic/specialty coffees
    Flavored/enhanced water
    Specialty teas
  • Country Clubs – Food & Beverage
  • Gross Profit Country Clubs
  • City Clubs – Food & Beverage
  • Gross Profit City Clubs
  • Trends – Golf
    1950 – 3.5million golfers
    2002 – 26 million golfers
    National Golf Foundation – 1990
    New Course every day for next ten years
    New players per year – 3 million!
    Players lost per year – 3 million!!
    New course openings 1990 – 224
    New course openings 2000 – 398
    New course openings 2002 – 220
    Openings 2003 – 237
    Openings 2009 – 50
    Openings 2010 – 46
    60 percent public-fee
  • Golf Report
    100 – 200 courses per year will close until supply and demand reach equilibrium
    2009 net loss was 90 clubs (140 closed)
    2010 net loss was 61 clubs (107 closed)
    1/4 of closures in the past decade were private clubs
    10 – 15% of public courses at risk
    Two out of three core golfers remain passionate
    Business of golf faces an economic outlook that is sinking like a downhill putt (WSJ)
  • Golf Trends: Boomer Impact
    • Not what was expected
    • Over next 20 years, Boomers will play more rounds per year than they’re playing now
    • Core golfers (8+ rounds/year)
    • Majority of occasional golfers (1-7 rounds/year) expect to keep playing over next 10 years but see little reason to join a club
  • Family Friendly Golf
    Clubs that provide experiences for the entire family are growing in popularity. Family lessons, “short course” set up, kid friendly vehicles all serve to improve the value of membership in many clubs.
    Kids Car – With Duel Safety Brakes and Foot Activated Turn On and Shut Off Switch
    4-Seat Family Golf Car
    Short Course &
    Par 3 Courses
  • Golf Clubs & Members
    • The number of private golf clubs throughout the U.S. is approximately
    4,400, or about 30% of all golf facilities
    • Currently, there are 2.1million private club adult golfers in the U.S.,
    which represent about 9% of all adult golfers and 6% of the Mass
    Affluent
    • Private golfers are important to the golf industry because they are
    disproportionately avid players and spendersversus public golfers
    • Private club golfers play and spend 3xas much as public golfers and
    • The majority joined their clubs before they turned 50 years old
    Source: National Golf Foundation
  • Golf/Country Club Membership
    Likelihood of remaining a member for 5 years:
    66% very likely to stay
    20% “on the fence”
    10-15% at risk of leaving
    Reasons they might leave (other than relocation):
    Dues too expensive 46%
    Might not be able to afford it 38%
    Opt for high end public courses 36%
    Cost per round hard to justify 33%
    Retention much higher if spouse is a golfer
    Juniors (age 6-17) 10% of total golfers
    Source: National Golf Foundation
  • Golfer Profile & Spend
    Distribution of Golfers by Age and Spending
    Along with the cruise and toy subindustries, golf could potentially be well positioned to benefit from demographic-led spending trends.
    Source: National Golf Foundation and Wells Fargo Securities, LLC
  • Issues for Women Golfers
    Study sponsored by The Little Family Foundation to understand key issues for women golfers
    Key findings:
    For female golfers, a round of golf is as much a social experience as a competitive one. Social aspects carry even more weight for Lapsed Golfers.
    Many women are frustrated by their inability to hit far enough and to complete a round in a reasonable amount of time.
    Data suggests that the deck is stacked against them, with holes that are in fact significantly longer than most women can hit.
    Source: “The Right Invitation: A Comprehensive Research Study to Guide the Golf Industry to Meaningfully
    Increase Women’s Golf Participation and Satisfaction;” Sports & Leisure Research Group
  • Increasing Rounds for Women Golfers
    Women golfers are seeking a pleasant social outing, not a test of their physical and emotional stamina. Thus, lack of basic comforts and amenities are key detractors to their enjoyment of the game.
    Women also care a great deal about, and perceive the following to be problem areas that can be significant stressors:
    Condition and aesthetics of the course
    Ease of booking tee times
    Ample directional signage on the course
    Source: “The Right Invitation: A Comprehensive Research Study to Guide the Golf Industry to
    Meaningfully Increase Women’s Golf Participation and Satisfaction;”Sports & Leisure Research Group
  • 20 Year Cost Per Hole
  • Cost Per Hole
  • Cost Per Round
  • Fitness
    More prevalent at golf/country clubs (55% have them)
    75% of clubs report that usage is growing
    60% of country clubs are expanding facilities
    Reflects more health-conscious society and growing health needs of Boomers
    Key factors for member satisfaction:
    Size of facility
    Condition and availability of equipment
    Hot trends:
    Providing array of program choices (core training, weight loss, spinning)
    Lifestyle and wellness programs
    Functional fitness, to deal with impact of aging
    Source: McMahon Group Survey Database
  • Tennis Outlook
    Participation in 2009 topped 30 million players for 1st time in two decades
    12% growth over 2008
    2010 growth looks similar
    25% growth since 2003
    7.1 million new players
    14.8 million “regular” players
    Strongest growth segment: players 12-17 years (nearly 21% of total in 2009)
  • Changing Demands for Club Services
    Members are looking for family-centered opportunities to learn, connect, have outdoor adventure, enjoy healthy experiences and interaction with diverse groups
    Value Added Considerations
    • Family Friendly Golf
    • Video Game Rooms
    • Online Network Games
    • Exercise and Wellness
    • Life Support – Concierge Services
    • Food For Convenience & Health
  • Spa & Wellness Trends
    Pamper & Health are highly valued by the Mass Affluent
    • Massage Therapy Rooms
    • Mind and Spirit Rooms
    • Manicure and Pedicure Facilities
    • Child Care
    • Reform Pilates
    • Group Exercise Room
    • Fitness Facilities
    • Health Bar and Grill
    “The Women’s Market opportunity is Number One and there’s no close second for the foreseeable future…”
    ~ Tom Peters
    In 2010 Women own 50% of U.S. Stocks & control 60% of the wealth.Women influence 94% of purchases in the U.S.
  • Spas
    4th largest leisure industry in U.S. – $11 billion annual revenue
    18,000 spas in U.S.
    70% of users are women
    Men are a growing market – “not just a shave and haircut”
    Average age of users: 40 yrs
    23% of clubs now have spas
    50% of clubs with spas say demand is increasing
    29% of clubs use independent contractors; 25% have full and part-time staff
  • Key Club Strategies
    Accommodate youth and family to get them more involved in the club
    Youth camps, movie nights, family camp night on the golf course, teen clubhouse or junior lounge
    Expanded pool facilities (water parks)
    Fitness areas for youth
    Expansion of junior sports programs (golf, tennis)
  • Youth & Family
    Other recreational facilities for families: bowling, hockey
    Expanded social programming for youth, including parent/children events
    Parents night out programs
    Junior activities committees
    Child-care services
  • Demographics: Population Trends
    Overall growth in U.S.
    • Reached 300 million in 2007; 400 million by 2040 (doubling every half century)
    • Nearly half of current growth is immigrants (legal and undocumented)
    • 12% of population is foreign-born
    Growth in population > 65 yrs
    • Will more than double between 2010 and 2030, growing from 35 million to 72 million
  • Demographic Overview
    • The American population is changing at a rapid pace.
    • A record number of babies—4,315,000—were born in the U.S. in 2007. The last time the number was that high was in 1957 in the middle of the baby boom.
    • The U.S. population is expected to reach 439 million by 2050, from 296 million in 2005, according to the Pew Research Center.
    82% of that increase will be due to
    immigrants arriving between 2005 and 2050
  • Change in U.S. Population
    Projected Racial Changes Based on Current Rate of Immigration
    1995
    2050
    The minority population is approximately 12% of the population today…by 2050 it is projected to be 19%.
    Source: National Research Council Study
  • The Boomers: Are We Ready?
    8,000 turning 60 each day – 70 million will retire in next 40 years
    Now 1/3 of U.S. adult population – control 70% of total U.S. net worth (spending $2 trillion/yr)
    Boomers are reinventing how peopleover 60 live (“60 is the new 40”)
    Fitness a priority – likely to remain active
    Working “Retired”: 1/3 of workers over 50 likely to delay retirement
    By 2015, those over 50 will be 1/3 of the entire workforce, many in “encore” careers
  • Boomers Trends to Watch
    Seeking communities with:
    Active lifestyles
    Social interaction
    Learning/education
    Recreation, health and fitness
    Motivated to move by home that meets needs of their new life stage
    20% plan to build new home for retirement
    Looking for maintenance-free, efficient design and high quality features
    Communities that contribute to healthy lifestyle
    Source: Future of Master Planned Communities, Robert Charles Lesser & Co.
  • The Changing American Family
    Married couples with children: 50% drop since 1960
    31 million people live alone today (27% of households)
    Large families now rare – average household now 2.5
    72% increase in Americans cohabiting since 1990
    9.7 million with opposite-sex partner
    1.2 million with same-sex partner
    Majority of couples marrying today have cohabited (55% marry in 5 yrs)
    Households with multi-generations
    At highest point in 50 years (recession and job losses)
  • Demographics: Women
    By 2014 will be 47% of the workforce
    More likely to have graduate degrees and/or own small businesses than in past
    More wives now the higher-income spouse
    Larger share of women are married to men with less education and income
    78% of men still earn more than their wives, but the % of wives who earn more has quadrupled since 1970
    51% of women now living without a spouse:
    Younger women marrying later
    Older women outliving spouse or not remarrying after divorce
    5.8 million are golfers (20% of total golfers, but 60% of Get Golf Ready participants)
  • Generations X & Y Profile
    Social Networking and Technology are the Primary Lifestyle Interests
    Generation X:
    • Nearly 70% shop and bank online
    • 21% read a blog once per month
    • 61% send text messages
    Generation Y:
    • 90% own a computer
    • 82% own a mobile phone
    • 72% send or receive SMS messages
    • They spend more time online than watching television
    • 42% watch online videos at least once per month
  • Web 2.0
  • Progression
    • 2009 – 1.5 billion users
    • 2016 – 5.8 billion users
    • 2000 – global internet traffic – 100,000 GBs
    • 2009 – 10.94 billion GBs
    • 2016 – 65.1 billion GBs
    8/9/2010 report
  • Social Media
  • The Problem Is……
    Members communicate in the home, business and the community in one way, but the club cannot make use of all the same methods
    ….or can they?
  • Everybody Is Doing It
    www.KevinsClubTalk.com
  • What Is A Private Club?
    A place where people with a common bond congregate for social and recreational purposes
    Purpose of a private club is to serve its members
    By definition, it is a place not open to the public
    Individuals must be accepted for membership before they can join
  • Tax–Exempt Club
    Organized for pleasure, recreation, or other nonprofitable purpose
    “Substantially all” of the club’s activities must be conducted as above
    No part of club’s net earnings benefit member (inurement)
    No written policy that discriminates on the basis of race, color, or religion
  • Why Is Private Status Important?
    Maintain right to select members and set policies
    Avoid discrimination suits
    Private club exemptions
    Federal laws
    State laws
  • Web Sites
    IRS will visit
    Good stuff
    Promote Quality of Club
    Relevant History
    Member Portal
    Relevant Hyperlinks
    Tax–Exempt Status Notification – Form 990
    Events Calendar
  • Web Sites – Part II
    Bad stuff
    Sale of merchandise
    Nontraditional activities
    Solicit members
    Reciprocal arrangements
    OK on member page
    Bartering issue
    Privacy issues–members know what will appear
    No surprises
  • Web Sites
    501(c)(7)
    Approved
    Web Site
  • Liability Issues
    Privacy more than tax may be the issue
    However, tax-exempt private clubs may have more exposure
    Examination
    IRS will review web site before coming out
    Reflects exempt purpose for which it was formed
    Reduce exposure
  • Enforcement Status
    Exempt Organization Division
    “…balance its traditional provision of service and outreach with an increased focus on enforcement”
    Budget increase to 32 percent
    Not out to “get” clubs
    Did revoke tax exempt status of several clubs during 2009 - 2010
    PA, TX, NY, CO, MN, DL, HI, MA, NJ, CT
    Project to trace clubs reporting investment income on Form 990 and not filing Form 990-T
  • Issues
    Organizational test
    Filing requirements
    Employment taxes
    Investment income
    Nonmember income
    Gaming and other fundraising
    • Member related issues
    • Private inurement
    • Discrimination
    • Demographic information
    • Public Disclosure
    • Scholarships
    • Traditional activity
    • Sale of club property
  • Giving Up Tax Exemption
    Think long and hard before giving up tax status
    Privacy is still important
    Excessive UBI can impact enjoyment by members of a club
    Why join club if anyone can use it?
    Do not make decisions having long-term impact based on short term economic issues
    Form 990 disclosure not enough to give up status
    May not just be able to give it up
  • Questions
    Please Contact:
    Kevin F. Reilly, J.D., CPA
    Partner
    Witt Mares, PLC
    12150 Monument Drive, Suite 350Fairfax, VA 22033Phone: (703) 385-8809kreilly@wittmares.com