Golf & Finance/Money Clip
The Unending Dues Blues
The classic rock favorite "Hotel California" has a line that goes, "You can check out any time you like, but you can never leave." That's pretty much how it feels to belong to many country clubs these days. Unlike traditional clubs that allow you to quit whenever you want, these clubs insist you remain a dues-paying member until another warm body comes along to take your place. In a few cases, clubs have been known to continue demanding dues from members even after they've died.
Most common in the Sunbelt states and typically marketed by real-estate developers, these memberships surged in popularity over the past two decades. Their big lure is that the club will refund a portion of your initiation fee -- sometimes as much as 100 percent -- when you resign and sell your membership. Clubs like these now represent about one-third of all private golf clubs, says Frank Vain, president of the McMahon Group, a consulting firm based in Missouri.
It seemed like a great deal when demand for memberships was hot. But the crashing economy revealed the downside: You might have trouble finding a buyer for your membership. While you wait, you're stuck paying dues to a club you want to quit.
"It's a Ponzi scheme," argues Steve Graves, president of Creative Golf Marketing, a Kansas consulting group. Although I assume most clubs selling these memberships didn't intend to defraud anyone, Graves has a point in that they promise to pay off your initial "investment" (the initiation fee) with money from new members.
Bonita Bay Group, a collection of high-end clubs in Florida, faced a crisis in 2008 when it suffered, in effect, a run on the bank. More people wanted out than it could afford to pay right away. Though Bonita Bay asked members to be patient, tempers flared and lawsuits flew. This year the state's attorney general sued Bonita Bay, alleging deceptive and unfair trade practices as well as fraud. At one point there were about 800 people on the waiting list to get out, according to the suit. Bonita Bay CEO Brian Lucas denies any wrongdoing and points out that a circuit judge dismissed the case in August. (The attorney general's office had until Nov. 8 to file an amended complaint.)
Lucas' company has since sold four of its five golf clubs. Not one of them markets refundable memberships anymore.
They're among many clubs rewriting the rules on their fees these days. Some clubs are letting the market dictate the price: If you're willing to unload your membership for less than everyone else who wants out, yours will go to the top of the waiting list. Other clubs are allowing members to find buyers on their own. Though you can't advertise -- for a handful of reasons, doing so could threaten a club's non-profit status -- you can use word of mouth or "bundle" the membership with the sale of your home.
Still other clubs have reduced their refunds for new members or even eliminated them, allowing these members to walk away from the club whenever they're ready. (Older members are "grandfathered" and still get their money when they leave.)
Does this mean you should never join a club promising a refund? No. Just understand what you're buying -- and that you might be stuck paying dues longer than you'd like. A couple of years ago, it wasn't uncommon for it to take two years to get out of a club once you put your membership up for sale, says Robyn Nordin Stowell, an Arizona attorney specializing in private clubs. Now she figures it's anywhere from a few months to several years. With dues often around $12,000 a year, that could take a big bite out of any refund you're expecting.
Second, look at what happens if you die while a member. Some clubs will buy your membership and hand over the refundable portion to your estate immediately. Others aren't so generous. They will pass the membership on to your heirs and make them pay the dues until it can be sold. Welcome, as they say, to the Hotel California.
Equity membership is a phrase club owners often use to describe refundable initiation fees. Because of this, many golfers wrongly think all equity clubs promise such refunds. An equity club is the typical country club, one owned by its members as opposed to an individual or a corporation. An equity club might offer a refund on its membership fee, though more likely it will not.