Equity vs. non-equity club memberships: What you need to know
Jason Becker, PGA
February 13, 2019
See the full article on golfadvisor.com
In 2008, I was finishing up my schooling to become a PGA Professional at a great club in Naples, Florida. It was your typical male-oriented club with happy members spending lots of cash and not much of a care in the world for anyone associated with the club.
But then it happened: a financial meltdown in 2009.
I vividly remember the day I walked into the General Manager’s office to learn that my position had been eliminated due to budget cuts. This was also the day I reconsidered my career in the club industry. The devastation came fast and left a lot of smart people scrambling to find a solution for a major problem.
Economists say most Americans lost at least 50% of their 401k savings in the market crash. Ancillary spending, such as golf outing budgets, was cut by big corporations, individual club members and those who generally enjoyed playing the game of golf. Collateral damage ripped through the private club industry and soon forced board members to get into a locked room and figure out how they were going to keep their club financially stable and prevent a “run on the bank” with their equity members. The fear was that the equity members would want refunds of their initiation fees and exit the club to avoid continued dues.
This fear came true. Some clubs had such a high demand from members who wanted to exit that they had to declare bankruptcy, setting up showdowns between the clubs and members who wanted to resign.
The financial effects of the recession were staggering as Americans delayed retirement in order to recoup their losses. Here at Golf Life Navigators, our average client was 63 years of age three years ago. Today, our average client is 58, with a 13 month transition time frame to the Sun Belt. This is a great sign not only for consumers but the private club industry as well. Buyers are financially stable again, ready to invest into the next chapter of their lives.
When you think of joining a private club, you can assume that your membership will include some sort of certificate or security as an equity member. This also means receiving a voting right, a degree of refundability and an ability to exit your club without a continued dues obligation should you want to leave in the future. However, post 2009, a new class of membership became widely popular for consumers to consider and take a bit of liability off the clubs’ shoulders: non-equity membership.
Today, nearly 85% of private clubs offer a non-equity membership and consumer buying trends are saying that this option is being selected by more and more prospective members. Courtesy of Lynn Josephson, President of Golf Life Navigators, here is a quick breakdown to help explain the dynamics between both classes of membership:
Equity membership (refundable)
- You will be eligible for a refund should you wish to leave the club.
- Equity Memberships include the right to vote on major club decisions, and the ability to govern.
- You are responsible for any assessments that may occur.
- Often times an Equity Membership will include a stock certificate or form of security.
- You will have a resignation option, but you must continue to pay dues until your membership has been filled.
- Buying Equity is like buying in the stock market – it can increase or decrease in value. (Think 2000, 2009…it can go up or down but you control when you want to sell.)
Non-equity membership (non-refundable)
- No voting rights.
- No certificate of ownership.
- Generally, not obligated for assessments (but I have seen some cases where an assessment took place to Non-Equity members.)
- Often times, less expensive compared to an Equity Membership.
- You may leave the club at any time but will receive no refund of your deposit (initiation).
- You are not responsible for dues after you leave.
These descriptions represent the general equity and non-equity membership structures. However, there are cases where you could have an equity, non-refundable option where you would have a say in the club’s governance but have no cash-back possibilities should you wish to resign. Each club will have different language within their documents, so it is important to review and understand them thoroughly.