2. 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
3. Trends Overview Economic Outlook Lifestyle and consumer trends Demographic Influences Golf and Recreation
7. 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
8. 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
9. 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
10. 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
11. 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
12. 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
18. 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
21. 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
22. 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
23. 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
24. 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
35. 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
36. 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
37. 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
38. 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
43. 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
44. 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)
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46. Over next 20 years, Boomers will play more rounds per year than they’re playing now
50. The majority joined their clubs before they turned 50 years oldSource: National Golf Foundation
51. 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
52. 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
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54. 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
55. 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
59. 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
60. 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)
73. 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.
74. 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
75. 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)
76. 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
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78. Nearly half of current growth is immigrants (legal and undocumented)
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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. 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
82. 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
83. 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
84. 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.
85. 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)
86. 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)
95. 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?
97. 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
98. 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
99. Why Is Private Status Important? Maintain right to select members and set policies Avoid discrimination suits Private club exemptions Federal laws State laws
100. 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
101. 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
103. 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
104. 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
113. 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
Editor's Notes
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.
