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

    1. 1.
    2. 2. Tax and Financial Trends in Clubs in a Recovering(?) Economy<br />Club Managers Association of America<br />84th World Conference on Club Management<br />February 28, 2011<br />Presented by: Kevin F. Reilly, J.D., CPA<br />Witt Mares, PLC<br />Fairfax, Virginia<br />kreilly@wittmares.com<br />
    3. 3. Trends Overview<br />Economic Outlook<br />Lifestyle and consumer trends<br />Demographic Influences<br />Golf and Recreation<br />
    4. 4. Consumer Confidence<br />
    5. 5. U.S. Unemployment Rate<br />9 percent in December<br />Source: Moody’s Economy.com<br />
    6. 6. U.S. Unemployment Rate – by State<br />
    7. 7. Consumer Behavior Study<br />Economy's Impact on Upper Income Consumers<br />Income $150K+<br />August 2007August 2009<br />More practical in purchases 32% 50%<br />More budget conscious 25% 44%<br />Only buy clothes on sales 14% 15%<br />Use coupons more 15% 31%<br />Buy store brand/generic more 7% 20%<br />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.<br />Source: BIGresearch, August 2009<br />
    8. 8. Trends – Economic<br />$17 trillion drop in net wealth between 2007-2009<br />Bernanke : 12 of 13 major financial firms faced failure in 2008<br />Libya impacts US$ and price of oil<br />Club specific<br />68% of clubs increase membership marketing<br />60% increase member retention emphasis<br />50% -special financing offers<br />44% waive or discount initiation fees<br />23% trial membership<br />Plurality expanded facilities<br />Fix only if broken policy<br />
    9. 9. Housing Outlook<br />Housing largely a local market <br />Some areas improving, but long road ahead<br />New home sales in 09 driven by 1st time homebuyers (tax credits)<br />In Jan 10, fell to lowest level in nearly 50 yrs<br />Existing home sales continued to fall over summer, 2010, but some<br /> improvement was expected by year end<br />Buyers of second homes:<br />Typically 40-60 yrs of age<br />Large pool of Baby Boomers now, but purchases affected by downturn in market<br />Foreclosures expected to be higher in 2011 than 2010<br />
    10. 10. Leisure Spending<br /> Baby Boomers<br /> Generation X<br /> Generation Y<br /> Matures <br />Note: Data does not take into account future immigrants entering the United States.<br />Based on historical trends, an individual’s lifecycle spending typically peaks between ages 46-49 with spending on leisure peaking near age 52.<br />Source: DHS, CDC, and Wells Fargo Securities, LLC estimates<br />
    11. 11. The Luxury Market<br />Generally, the “Luxury Market” is defined as the top 2 to 5% income earners with net investible assets greater than $1M<br />U.S. Households by Income<br />‘000s<br />14,000<br />12,230<br />12,000<br />10,073<br />10,000<br />8,000<br />5.6MM<br />6,000<br />4,000<br />2,977<br />1,472<br />1,154<br />2,000<br />0<br />Annual HH Income<br />% of Total Market<br />Near<br />Affluents<br />Mass<br />Mass<br />Mass/Super<br />Affluents<br />Affluents<br />Affluents<br />Affluents<br />$75 -$100k<br />$100 -$150k<br />$150 -$200k<br />$200 -$250k<br />>$250k <br />11%<br />9%<br />3%<br />1%<br />1% <br />Trading Up – Siverstein & Fiske<br />
    12. 12. Luxury Market: 2010<br />Jan, 2010 Luxury Study of Affluents<br />Top 20% of household income<br />Still pessimistic on economy overall<br />Feel recession won’t end until 2011<br />More optimistic about their own financial position<br />Spent 8% more on luxury goods in 4th quarter of 2010<br />Appeal to them with consistently high quality and exceptional service<br />
    13. 13. Luxury Market Outlook<br />Luxury market recovery likely to be driven by:<br /><ul><li>Ultra-affluents (incomes > $250,000)
    14. 14. Represent roughly 2.5 million households in U.S.
    15. 15. Spend 4.5 times more on luxury than </li></ul> other affluents<br /><ul><li>Increased spending by 40% from 3rd</li></ul> to 4th quarter<br /><ul><li>Young affluents (Age 40 or younger)
    16. 16. Outspent their elders by 2.5 times in 4th quarter
    17. 17. Strong appetite for luxury brands and goods</li></li></ul><li>Why Members Join<br />Private club golfers participating in NGF’s research study indicated different reasons for joining a private club that varied with the type of club…<br /><ul><li> Members of both country clubs and golf-only clubs join for the</li></ul>convenience and quality of the golf course and…<br /><ul><li>Country club members also placed a high priority on other amenities</li></ul>for themselves and their families<br />Source: National Golf Foundation<br />
    18. 18. Membership Initiation<br />Initiation Fee Income has declined across the country with reports of 25% to 50% reduction at some clubs<br />Initiation Fees:<br />$5,000 and under – 8.5%<br />$5,001-$10,000 – 7.3%<br />$10,001-$20,000 – 8.2%<br />$20,001-$50,000 – 5.9%<br />$50,000+ – 3.7%<br />Source: NCA Planning Survey, 2009<br />
    19. 19. Change In Country Club Membership<br />
    20. 20. Change in City Club Membership<br />
    21. 21. Age First Joined Club<br />(Current Country Club Members)<br />The Gen Y population is reaching the age when, historically, the majority of current members joined a country club (30-39 years old)<br />Source: National Golf Foundation<br />
    22. 22. Membership Issues – Nonfinancial<br />Limited free time<br />Increased commuting time<br />Homes becoming entertainment centers<br />Parents spend more time with children<br />People travel more<br />50% increase in daily fee courses since 1990<br />Same number of golfers<br />Private clubs more appealing to men than women<br />Exclusivity not so important<br />Corporations change way do business<br />
    23. 23. Club Membership<br />The majority of clubs responding have increased their focus on membership through…<br />Improved Retention Efforts – 86%<br />Expanded Membership Marketing – 82%<br />Other responses to the economy include:<br />Trial Memberships – 72%<br />Special Financing Offers – 69%<br />Discounted Initiation Fees – 69%<br />Source: NCA Planning Survey, 2009<br />
    24. 24. Dues Issues<br />Clubs are in the dues business<br />Anecdotal evidence<br />No change to services – need approximately 7% increase<br />Fewer members to carry overhead costs<br />Dues raised approximately 3%<br />Many Clubs<br />Goal is no dues increase<br />
    25. 25. Country Clubs – Dues<br />
    26. 26. City Clubs – Dues<br />
    27. 27. Country Club Income Per Member<br />
    28. 28. Country Club Operating Cost Per Member<br />
    29. 29. Country Club Income 2010<br />
    30. 30. Country Club Expenses 2010<br />
    31. 31. City Club Income Per Member<br />
    32. 32. City Club Operating Cost Per Member<br />
    33. 33. City Club Income 2010<br />
    34. 34. City Club Expenses 2010<br />
    35. 35. NRA Stats<br />2010 sales increase 2.5%<br />Economy remains top challenge facing operations<br />2010 unemployment decreasing slowly<br />Operators more optimistic and capital spending plans at a 2-year high<br />Growth in wholesale food prices expected to slow in 2010 (2.9%)<br />Menu Prices – moderate growth (3.8%)<br />33% of adults say they do not eat on-premises of restaurants as often as they would like<br />Long-term labor issues eventually will return<br />
    36. 36. Trends – Food & Beverage<br />All types needed<br />Controlling of costs critical <br />Different ages, different options<br />Casual dining a must<br />Outside dining increasingly desired<br />Clubs must cater to every membership class<br />
    37. 37. Trends – Food & Beverage<br />Staying on top of dining trends very important<br />Food to go issues<br />Locally grown produce<br />Bite size deserts <br />Organic items<br />Nutritionally balanced dishes (especially children)<br />Michelle Obama’s child obesity thrust<br />73% of adults trying to eat healthier<br />
    38. 38. Trends – Beverages<br />Infused liquor<br />Flavored drinks<br />Pairings with food (cocktails, as well as wine)<br />Organic wine<br />Microbrews<br />Specialty/seasonal beers<br />Organic/specialty coffees<br />Flavored/enhanced water<br />Specialty teas<br />
    39. 39. Country Clubs – Food & Beverage<br />
    40. 40. Gross Profit Country Clubs<br />
    41. 41. City Clubs – Food & Beverage<br />
    42. 42. Gross Profit City Clubs<br />
    43. 43. Trends – Golf<br />1950 – 3.5million golfers<br />2002 – 26 million golfers<br />National Golf Foundation – 1990 <br />New Course every day for next ten years<br />New players per year – 3 million!<br />Players lost per year – 3 million!!<br />New course openings 1990 – 224<br />New course openings 2000 – 398<br />New course openings 2002 – 220<br />Openings 2003 – 237<br />Openings 2009 – 50<br />Openings 2010 – 46<br />60 percent public-fee<br />
    44. 44. Golf Report<br />100 – 200 courses per year will close until supply and demand reach equilibrium<br />2009 net loss was 90 clubs (140 closed)<br />2010 net loss was 61 clubs (107 closed)<br />1/4 of closures in the past decade were private clubs<br />10 – 15% of public courses at risk<br />Two out of three core golfers remain passionate<br />Business of golf faces an economic outlook that is sinking like a downhill putt (WSJ)<br />
    45. 45. Golf Trends: Boomer Impact<br /><ul><li>Not what was expected
    46. 46. Over next 20 years, Boomers will play more rounds per year than they’re playing now
    47. 47. Core golfers (8+ rounds/year)
    48. 48. Majority of occasional golfers (1-7 rounds/year) expect to keep playing over next 10 years but see little reason to join a club</li></li></ul><li>Family Friendly Golf<br />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. <br />Kids Car – With Duel Safety Brakes and Foot Activated Turn On and Shut Off Switch<br />4-Seat Family Golf Car<br />Short Course & <br />Par 3 Courses<br />
    49. 49. Golf Clubs & Members<br /><ul><li>The number of private golf clubs throughout the U.S. is approximately </li></ul>4,400, or about 30% of all golf facilities<br /><ul><li> Currently, there are 2.1million private club adult golfers in the U.S.,</li></ul>which represent about 9% of all adult golfers and 6% of the Mass <br />Affluent<br /><ul><li> Private golfers are important to the golf industry because they are</li></ul>disproportionately avid players and spendersversus public golfers<br /><ul><li> Private club golfers play and spend 3xas much as public golfers and
    50. 50. The majority joined their clubs before they turned 50 years old</li></ul>Source: National Golf Foundation<br />
    51. 51. Golf/Country Club Membership<br />Likelihood of remaining a member for 5 years:<br />66% very likely to stay<br />20% “on the fence” <br />10-15% at risk of leaving<br />Reasons they might leave (other than relocation):<br />Dues too expensive 46%<br />Might not be able to afford it 38%<br />Opt for high end public courses 36%<br />Cost per round hard to justify 33%<br />Retention much higher if spouse is a golfer<br />Juniors (age 6-17) 10% of total golfers<br />Source: National Golf Foundation<br />
    52. 52. Golfer Profile & Spend<br />Distribution of Golfers by Age and Spending<br />Along with the cruise and toy subindustries, golf could potentially be well positioned to benefit from demographic-led spending trends.<br />Source: National Golf Foundation and Wells Fargo Securities, LLC<br />
    53. 53.
    54. 54. Issues for Women Golfers<br />Study sponsored by The Little Family Foundation to understand key issues for women golfers <br />Key findings:<br />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.<br />Many women are frustrated by their inability to hit far enough and to complete a round in a reasonable amount of time. <br />Data suggests that the deck is stacked against them, with holes that are in fact significantly longer than most women can hit. <br />Source: “The Right Invitation: A Comprehensive Research Study to Guide the Golf Industry to Meaningfully <br />Increase Women’s Golf Participation and Satisfaction;” Sports & Leisure Research Group<br />
    55. 55. Increasing Rounds for Women Golfers<br />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. <br />Women also care a great deal about, and perceive the following to be problem areas that can be significant stressors:<br />Condition and aesthetics of the course<br />Ease of booking tee times<br />Ample directional signage on the course<br />Source: “The Right Invitation: A Comprehensive Research Study to Guide the Golf Industry to <br />Meaningfully Increase Women’s Golf Participation and Satisfaction;”Sports & Leisure Research Group<br />
    56. 56. 20 Year Cost Per Hole<br />
    57. 57. Cost Per Hole<br />
    58. 58. Cost Per Round<br />
    59. 59. Fitness<br />More prevalent at golf/country clubs (55% have them)<br />75% of clubs report that usage is growing <br />60% of country clubs are expanding facilities<br />Reflects more health-conscious society and growing health needs of Boomers<br />Key factors for member satisfaction:<br />Size of facility<br />Condition and availability of equipment<br />Hot trends: <br />Providing array of program choices (core training, weight loss, spinning)<br />Lifestyle and wellness programs<br />Functional fitness, to deal with impact of aging<br />Source: McMahon Group Survey Database<br />
    60. 60. Tennis Outlook<br />Participation in 2009 topped 30 million players for 1st time in two decades<br />12% growth over 2008<br />2010 growth looks similar<br />25% growth since 2003<br />7.1 million new players<br />14.8 million “regular” players<br />Strongest growth segment: players 12-17 years (nearly 21% of total in 2009)<br />
    61. 61. Changing Demands for Club Services<br />Members are looking for family-centered opportunities to learn, connect, have outdoor adventure, enjoy healthy experiences and interaction with diverse groups<br />Value Added Considerations<br /><ul><li> Family Friendly Golf
    62. 62. Video Game Rooms
    63. 63. Online Network Games
    64. 64. Exercise and Wellness
    65. 65. Life Support – Concierge Services
    66. 66. Food For Convenience & Health</li></li></ul><li>Spa & Wellness Trends<br />Pamper & Health are highly valued by the Mass Affluent<br /><ul><li>Massage Therapy Rooms
    67. 67. Mind and Spirit Rooms
    68. 68. Manicure and Pedicure Facilities
    69. 69. Child Care
    70. 70. Reform Pilates
    71. 71. Group Exercise Room
    72. 72. Fitness Facilities
    73. 73. Health Bar and Grill</li></ul>“The Women’s Market opportunity is Number One and there’s no close second for the foreseeable future…”<br />~ Tom Peters<br />In 2010 Women own 50% of U.S. Stocks & control 60% of the wealth.Women influence 94% of purchases in the U.S. <br />
    74. 74. Spas<br />4th largest leisure industry in U.S. – $11 billion annual revenue<br />18,000 spas in U.S. <br />70% of users are women<br />Men are a growing market – “not just a shave and haircut”<br />Average age of users: 40 yrs<br />23% of clubs now have spas<br />50% of clubs with spas say demand is increasing<br />29% of clubs use independent contractors; 25% have full and part-time staff <br />
    75. 75. Key Club Strategies<br />Accommodate youth and family to get them more involved in the club<br />Youth camps, movie nights, family camp night on the golf course, teen clubhouse or junior lounge<br />Expanded pool facilities (water parks)<br />Fitness areas for youth<br />Expansion of junior sports programs (golf, tennis)<br />
    76. 76. Youth & Family<br />Other recreational facilities for families: bowling, hockey<br />Expanded social programming for youth, including parent/children events<br />Parents night out programs<br />Junior activities committees<br />Child-care services <br />
    77. 77. Demographics: Population Trends<br />Overall growth in U.S. <br /><ul><li>Reached 300 million in 2007; 400 million by 2040 (doubling every half century)
    78. 78. Nearly half of current growth is immigrants (legal and undocumented)
    79. 79. 12% of population is foreign-born</li></ul>Growth in population > 65 yrs <br /><ul><li>Will more than double between 2010 and 2030, growing from 35 million to 72 million</li></li></ul><li>Demographic Overview<br /><ul><li>The American population is changing at a rapid pace.
    80. 80. 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.
    81. 81. The U.S. population is expected to reach 439 million by 2050, from 296 million in 2005, according to the Pew Research Center. </li></ul>82% of that increase will be due to <br />immigrants arriving between 2005 and 2050<br />
    82. 82. Change in U.S. Population<br />Projected Racial Changes Based on Current Rate of Immigration<br />1995<br />2050<br />The minority population is approximately 12% of the population today…by 2050 it is projected to be 19%. <br />Source: National Research Council Study<br />
    83. 83. The Boomers: Are We Ready?<br />8,000 turning 60 each day – 70 million will retire in next 40 years<br />Now 1/3 of U.S. adult population – control 70% of total U.S. net worth (spending $2 trillion/yr) <br />Boomers are reinventing how peopleover 60 live (“60 is the new 40”) <br />Fitness a priority – likely to remain active<br />Working “Retired”: 1/3 of workers over 50 likely to delay retirement<br />By 2015, those over 50 will be 1/3 of the entire workforce, many in “encore” careers<br />
    84. 84. Boomers Trends to Watch<br />Seeking communities with:<br />Active lifestyles <br />Social interaction <br />Learning/education<br />Recreation, health and fitness<br />Motivated to move by home that meets needs of their new life stage<br />20% plan to build new home for retirement<br />Looking for maintenance-free, efficient design and high quality features<br />Communities that contribute to healthy lifestyle <br />Source: Future of Master Planned Communities, Robert Charles Lesser & Co.<br />
    85. 85. The Changing American Family<br />Married couples with children: 50% drop since 1960<br />31 million people live alone today (27% of households)<br />Large families now rare – average household now 2.5 <br />72% increase in Americans cohabiting since 1990 <br />9.7 million with opposite-sex partner <br />1.2 million with same-sex partner <br />Majority of couples marrying today have cohabited (55% marry in 5 yrs)<br />Households with multi-generations<br />At highest point in 50 years (recession and job losses)<br />
    86. 86. Demographics: Women<br />By 2014 will be 47% of the workforce<br />More likely to have graduate degrees and/or own small businesses than in past<br />More wives now the higher-income spouse <br />Larger share of women are married to men with less education and income<br />78% of men still earn more than their wives, but the % of wives who earn more has quadrupled since 1970<br />51% of women now living without a spouse:<br />Younger women marrying later <br />Older women outliving spouse or not remarrying after divorce<br />5.8 million are golfers (20% of total golfers, but 60% of Get Golf Ready participants)<br />
    87. 87. Generations X & Y Profile<br />Social Networking and Technology are the Primary Lifestyle Interests<br />Generation X:<br />• Nearly 70% shop and bank online<br />• 21% read a blog once per month<br />• 61% send text messages<br />Generation Y:<br />• 90% own a computer<br />• 82% own a mobile phone<br />• 72% send or receive SMS messages<br />• They spend more time online than watching television<br /><ul><li> 42% watch online videos at least once per month</li></li></ul><li>Web 2.0<br />
    88. 88. Progression<br /><ul><li>2009 – 1.5 billion users
    89. 89. 2016 – 5.8 billion users
    90. 90. 2000 – global internet traffic – 100,000 GBs
    91. 91. 2009 – 10.94 billion GBs
    92. 92. 2016 – 65.1 billion GBs</li></ul>8/9/2010 report<br />
    93. 93.
    94. 94. Social Media<br />
    95. 95. The Problem Is……<br />Members communicate in the home, business and the community in one way, but the club cannot make use of all the same methods<br />….or can they?<br />
    96. 96. Everybody Is Doing It<br />www.KevinsClubTalk.com<br />
    97. 97. What Is A Private Club?<br />A place where people with a common bond congregate for social and recreational purposes<br />Purpose of a private club is to serve its members<br />By definition, it is a place not open to the public<br />Individuals must be accepted for membership before they can join<br />
    98. 98. Tax–Exempt Club<br />Organized for pleasure, recreation, or other nonprofitable purpose<br />“Substantially all” of the club’s activities must be conducted as above<br />No part of club’s net earnings benefit member (inurement)<br />No written policy that discriminates on the basis of race, color, or religion<br />
    99. 99. Why Is Private Status Important?<br />Maintain right to select members and set policies<br />Avoid discrimination suits<br />Private club exemptions<br />Federal laws<br />State laws<br />
    100. 100. Web Sites<br />IRS will visit<br />Good stuff<br />Promote Quality of Club<br />Relevant History<br />Member Portal<br />Relevant Hyperlinks<br />Tax–Exempt Status Notification – Form 990<br />Events Calendar<br />
    101. 101. Web Sites – Part II<br />Bad stuff<br />Sale of merchandise<br />Nontraditional activities<br />Solicit members<br />Reciprocal arrangements<br />OK on member page<br />Bartering issue<br />Privacy issues–members know what will appear<br />No surprises<br />
    102. 102. Web Sites<br />501(c)(7)<br />Approved <br />Web Site<br />
    103. 103. Liability Issues<br />Privacy more than tax may be the issue<br />However, tax-exempt private clubs may have more exposure<br />Examination<br />IRS will review web site before coming out<br />Reflects exempt purpose for which it was formed<br />Reduce exposure<br />
    104. 104. Enforcement Status<br />Exempt Organization Division<br />“…balance its traditional provision of service and outreach with an increased focus on enforcement”<br />Budget increase to 32 percent<br />Not out to “get” clubs<br />Did revoke tax exempt status of several clubs during 2009 - 2010<br />PA, TX, NY, CO, MN, DL, HI, MA, NJ, CT <br />Project to trace clubs reporting investment income on Form 990 and not filing Form 990-T<br />
    105. 105. Issues<br />Organizational test<br />Filing requirements<br />Employment taxes<br />Investment income<br />Nonmember income<br />Gaming and other fundraising<br /><ul><li>Member related issues
    106. 106. Private inurement
    107. 107. Discrimination
    108. 108. Demographic information
    109. 109. Public Disclosure
    110. 110. Scholarships
    111. 111. Traditional activity
    112. 112. Sale of club property</li></li></ul><li>Giving Up Tax Exemption<br />Think long and hard before giving up tax status<br />Privacy is still important<br />Excessive UBI can impact enjoyment by members of a club<br />Why join club if anyone can use it?<br />Do not make decisions having long-term impact based on short term economic issues<br />Form 990 disclosure not enough to give up status<br />May not just be able to give it up<br />
    113. 113. Questions<br />Please Contact:<br />Kevin F. Reilly, J.D., CPA<br />Partner<br />Witt Mares, PLC<br />12150 Monument Drive, Suite 350Fairfax, VA 22033Phone: (703) 385-8809kreilly@wittmares.com<br />