What really happens with my initiation fee?
Joining a private club in this frothy time of ever-growing waiting lists and initiation fees is not for those who waffle. You need to show your commitment. Reinforce your commitment.
Even if you get on that waiting list, you might be at the whim of a membership committee that raises the initiation fee again and again, tightening the screws on your commitment.
In general, private golf clubs have increased the amount it costs to join by 55 percent since 2020, according to Michael Gregory, a director at GGA Partners, which advises private clubs. Whether you’ve waited patiently or gate-crashed with your checkbook, you might be wondering what your new club does with your initiation fee.
It depends where you’ve joined. Corporate-owned clubs, such as Invited (formerly known as ClubCorp), are for-profit enterprises. Clubs owned by their members are non-profits. Within both categories, you’ll find clubs that treat your initiation fee as mostly one of three things— equity, a bond or refundable. This affects how a club can spend your initiation fee, and that might matter when you think about how you imagine your club experience.
A corporate-owned club is going to put your initiation fee directly into its coffers, the same as any other revenue. That’s not all bad. When it comes time for property upgrades, you’re not likely to see an assessment from these professionally managed organizations. The downside is that companies make financial decisions based on financial performance. If your fellow members aren’t spending freely, then you might have to accept the bunkers with the liners poking out or the garish tap-room carpet for a few more seasons.
As non-profits, the real differentiator with member-owned clubs is their boards (made up of people with day jobs and expertise derived, in the best cases, from their professional lives) that decide where initiation money goes. These people are making decisions for just one club where they have a social network. While some might have a high golf IQ and know how to empower the superintendent, head pro and general manager to do their jobs, there are always those who just watched the Masters and suddenly want to plant azaleas all over the course.
At a member-owned club, theoretically, your joining fee should be earmarked for capital projects and any improvements to a club’s physical plant that add to the member experience. That’s it. It should not be used to fund basic operating expenses or prop up a food-and-beverage operation that isn’t breaking even.
Ray Cronin, founder of Club Benchmarking, says that at most clubs, up to 65 percent of the money needed for capital improvements comes from initiation fees. The rest comes from monthly capital assessments and the occasional member assessment.
But such a straightforward use of funds has been hard for most clubs to achieve over the past two decades. Gregory points to a particular struggle with member-owned clubs and a reason why new members who have just joined shouldn’t expect immediate improvements.
“At member-owned clubs, it’s like moving the Titanic,” he says. “Use of those initiation fees is pretty rigorous, and those big capital projects are years in the making.”
Here’s where the details matter. What type of initiation fee have you just paid? Are you an equity member of the club, meaning you’re a small owner in the way you are when you buy shares of Nvidia? Or do you have a bond that will pay back some amount when you leave? Or are you part of a club that considers some portion of your initiation fee refundable?
That last one has two risky outcomes. If you’ve joined a club that is run by a strong founder, like Bayonne (Eric Bergstol), Friar’s Head (Ken Bakst) or Scottsdale National (Bob Parsons), your initiation fee could be refunded when you don’t want it to be. Parsons famously paid people to leave when he took over Scottsdale National so that he could remake the club as he wanted.
The other possibility is capital projects that drag on when a club has a large membership that is owed a lot of money. In the 1990s, developers used refundable initiation fees to sell real estate with little regard to what might happen decades later. Some of these clubs offered 30 to 70 percent of the fee back, and a few even offered that refund against whatever the current initiation fee was when someone left, ostensibly allowing people to profit on their initiation fee. To refund departing members, money gets taken from new members’ fees, and that, in turn, cuts into the capital projects the clubs can undertake. Forget the new patio chairs.
“The thinking was people wouldn’t remember they gave [clubs] those initiation fees,” says Tim Clow, partner at Addison Law in Dallas, which has been helping clubs create membership plans since the 1990s. “When the fees were small, $500, $1,000, people didn’t remember it. When they went up to $30,000, they remembered it.”
There’s a Dallas club that currently charges $500,000 to join, but the fee is 80 percent refundable upon leaving. So, it really costs $100,000 to join, but that larger amount acts as a gate to keep all but the wealthiest out. Maybe you want to be a part of that; maybe you don’t.
“Many people think a high initiation fee makes a private club exclusive when all it actually does is make it expensive,” says Steve Graves, president of Creative Golf Marketing and a former Oklahoma State University golfer. “Too often initiation fees are a show of bravado.”
Golf and bravado go together like vodka drinks and three-putts. New members should pay attention that their initiation fee is properly separated from dues. Mixing capital and operating funds can put a club into a vicious cycle of using initiation to cover budget shortfalls, Graves says. It might work for a year or two but over time that strategy can result in deteriorating facilities.
When it comes to determining what the right amount is to join, Cronin has an adapted corporate metric for private golf clubs that any prospective member can understand: Book value per full member equivalent. He calculates this by determining the value of the club, which is its assets minus its liabilities, and then divides it by the number of existing members. That figure is what each member’s equity is worth. Cronin says an appropriate initiation fee is around 1.8 times book value. “Some clubs are charging four to five times that. If it’s a Baltusrol, that’s fine, but if it’s a regular club, they’re overcharging.”
The risk of overcharging is that if demand dries up, the club must cut its initiation fee. “The worst thing you can do,” Gregory says, “is go back.”
When that happens, many members will no longer feel as committed to the club.