Often, a club management agreement reads exactly like a hotel management agreement, with the word “hotel” changed to “club.” This should not be the case. Clubs have unique characteristics that should be considered in drafting a club management agreement.
1. If the club is a member-owned club, it is not a profit-seeking business. As a result, the management fee structure would not have a profit based incentive fee, but could have an incentive fee tied to membership sales and retention or members’ satisfaction.
2. Clubs generally seek to enhance the member experience and limit non-member use of the facilities. The typical hotel marketing plan, in which the management company tries to maximize usage of the facilities, is not consistent with this goal. The club’s goal should be reflected in the management agreement.
3. Membership marketing may or may not be done by the management company. The management company’s scope of services should reflect this.
4. Exclusive clubs market memberships through member and broker referral programs, not broad marketing programs. This characteristic impacts the club’s marketing plan, which should be reflected in a management agreement.
5. Management companies’ duties should include administering the club membership program in accordance with membership documents.
6. Management companies’ duties should include scheduling, planning, and attending committee and member meetings and keeping minutes.
7. Clubs and management companies should carefully draft the gross revenue definition applicable for management fee calculations. Gross revenue should include dues and guests fees and exclude member assessments, if any. If the management company does not market memberships, membership-joining fees should be excluded. If the management company does market memberships, the parties should consider whether to negotiate a membership marketing fee separate from the regular based management fee, and the membership proceeds number should deduct any refunds paid to resigned members.
Clubs and management companies that do not draft and negotiate the management agreement to consider a club’s unique business, risk having a management agreement that does not further the goals and objectives of the club owner or board.