Does Hiring Club Management Company Make Sense?

Posted in Clubs, Management Agreement

The decision by a club owner or board to retain a management company could greatly impact the success of the club. Approximately 18 percent of all U.S. golf courses utilize third party management companies. More and more golf courses are deciding to hire a third party management company. The number of golf courses that are managed by third party operators increased by 53 percent from 2001 to 2013 according to the National Golf Foundation. Troon Golf, the largest club management company, has added over 90 new courses since 2011.

It makes sense for a club to hire a management company when the management company can reduce expenses and increase revenues by more than the management fees. Management companies can often implement programs to increase membership sales, membership retention, and member spending. Sometimes, the reputation of a management company itself can help attract members. National golf management companies also often have national marketing programs to attract golfers to semi-private clubs and reciprocal club programs to increase usage of private clubs, which result in increased guest fees and spending. Management companies can often decrease expenses through national buying programs for equipment, supplies, insurance, and other services and economies of scale in sharing employees, systems, and other resources. However, the club should ask whether the company passes the savings of these programs to the clubs they manage. Management companies often can recruit employees that a club would not otherwise be able to hire, which can result in more efficient operations, enhanced members’ satisfaction, and improved membership sales in the case of a membership director.

Clubs need to scrutinize the fees and other costs of hiring a management company to fully evaluate the total cost. Costs often include items such as (i) allocations of national marketing program costs; (ii) allocation of centralized or corporate office expenses; (iii) reimbursements for costs, including travel costs, marketing costs, and employee relocation; and (iv) membership sales commissions. When a management agreement includes these costs, clubs should obtain cost estimates from the management company. Clubs should carefully scrutinize the scope of services to understand what services are covered by the base management fee and what services can result in additional charges.

Clubs should also obtain information about the management company to ensure that the management company and its methods are compatible with the club’s positioning, membership admission policies, governance, and non-member usage policies. A club may also want to inquire as to how the management company will handle existing employees.

Hiring a management company has the potential to significantly improve operating results. But, a club owner or board must obtain information and ask the right questions as to whether to hire a management company and in selecting the best one for the particular club, to ensure that it is making the right decision.

Collections Continue to Thrive

Posted in Brand Management, Hotels

Owners of strong, unique independent hotels are finding that they can gain many of the advantages of an affiliation with a branded hotel management company without entering into a management contract and relinquishing control of the hotel.  This is indeed the case and much has been written about the many collections of hotels now available in the marketplace, but the benefits should be approached with a clear head and a keen eye because at the end of the day there will be a signed collection agreement signed with the branded hotel management company that will have a significant term of years and that will not be subject to easy termination by the hotel owner.  To acknowledge the positives of the relationship, an owner with a hotel that has a unique story and that is recognized in its target market can benefit from the brand’s strength as a part of the underwriting process for financing, as well as better access to a rewards program, reservation system, buying power and training.  Nevertheless, remember that the collection contract is essentially a franchise agreement, with a significant term and fees to be paid to the brand.  The fees are not uniform, so care must be taken in examining that aspect of the transaction.  The variations on fees include fees based upon total gross revenues or total rooms revenues or simply the bookings through the brand’s systems.  If the owner is not going to self-manage the hotel, the better practice would be to involve the hotel manager in the process because the hotel manager will need to understand its duties and obligations to the owner in the context of being part of the collection.

To make the point, in early November 2015, Starwood rebranded the SLS-Las Vegas as part of the Tribute Portfolio, with the Lux Tower operating under the W brand.   The Tribute Portfolio is the second collection of hotels offered through Starwood, joining The Luxury Collection of hotels.  Other examples of branded collections include Marriott’s Autograph Collection, Hilton’s Curio Collection, Sofitel’s Legends Collection, the BW Premier Collection from Best Western and the Ascent Hotel Collection of Choice Hotels.

Difference Between Club and Hotel Management Agreements

Posted in Clubs, Hotels

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.

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Competing Interests at Equity Club Turnover

Posted in Clubs

Equity club developers and equity club members often view turnover and member due diligence completely differently. The typical developer position is: “The Club will be turned over to the members ‘where is, as is’ in accordance with the club documents.” The typical equity member view is: “We want to find out if there is any problem with the Club facilities, membership program or Club finances, and we expect the developer to fix any problem.” Which position is right?

The developer is generally correct that all it is required to do is turn over the Club in accordance with the club documents, and most club documents provide for a “where is, as is” turnover. However, the club documents may include title, deficit funding, reserve, and accrued liability payment requirements. Turnover must comply with such requirements.

Club members may also look beyond the club documents, and claim certain rights by virtue of side agreements, correspondence, representations in marketing materials, and even alleged verbal representations. These materials should be reviewed, as well as any Club document disclaimers regarding such ancillary materials and representations. Continue Reading

Franchise Agreement Transfer Provisions

Posted in Franchise, Hotels

The number of hotels, particularly limited service hotels, operating under franchise agreements has exploded in recent years, and this trend is expected to continue in the near term.  Franchise agreements, including those in the hospitality industry, are personal contracts for the benefit of the named franchisee only, and are further limited by the franchisee’s ownership structure as of the effective date of the franchise agreement. From this point of beginning, it is logical that the franchise agreement would also include strict limitations on the franchisee’s ability to transfer ownership interests of the franchisee both within the franchisee company and to third parties. Each franchisor will adopt its own unique approach to the transferability of interests, but there will be certain commonalities that franchisees should be aware of and carefully study.

Franchisees would be wise to assume that a transfer of any direct or indirect ownership interest in the franchisee is prohibited without the prior written consent of the franchisor or expressly permitted under the franchise agreement.  Regardless of some of the variations of language, this means every transfer and covers direct and indirect transfers within the entirety of the franchisee’s ownership structure. There will be variations in the requirements to obtain the franchisor’s consent, and some transfers that may not require consent, but the general expectation should be that the general rule under the franchise agreement will be to prohibit transfers.  Continue Reading

Hospitality Sector Leads the Way

Posted in Hotels

It is difficult, if not impossible, to miss all of the positive indicators pointing to a robust and exceedingly vibrant hospitality sector. Whether it is the acquisition, financing, construction or opening of a limited service hotel in a suburban location or a non-NFL city, or the awe inspiring deals like the sale of the Waldorf Astoria or the Baccarat, the signs are all positive and the appetite for trophy product seems insatiable. Our experience working on both the Waldorf Astoria and Baccarat transactions has provided an up close and personal view of just how powerful our industry is right now and how transactions of this stature and magnitude are likely to continue.  All of the excitement and publicity over these types of transactions should not lead us to conclude that the competition for quality product will always go to the swiftest or the one with the deepest pockets.  The execution of these deals and even deals of far lower price tags will remain achievable only through experienced and capable principals, advisors and lawyers being present at each phase of the transaction.  Read more about these transactions.

Considerations for the Boat Slip Sales Re-Emergence

Posted in Marinas

Florida MarinaThe long dormant boat slip and storage unit sales market is re-emerging after years of dismal sales. Marinas such as Sunset Harbour Yacht Club in Miami Beach, which had long slip sell lists a few years ago, now have waiting lists to buy slips, according to Ginger Hornaday of AquaMarine Global Group. The Sun-Sentinel recently reported on the re-emergence of the market for boat slip and boat storage sales in South Florida. The Sun-Sentinel noted an uptick in sales at Soverel Harbour Marina in Palm Beach Gardens and The Bluffs Marina in Jupiter, as well as the grand opening of the Dania Beach Boat Club, south of Fort Lauderdale. (Hemlock, Doreen. “‘Dockominium’ Sales Pick up Speed.” Sun Sentinel, Nov. 28, 2014, Money sec.)

Marina owners and boat storage facility developers will likely be considering new slip and storage unit offerings. Such owners and developers should consider the options for sales programs, and issues that impact the availability and desirability of the different options. Options for slip and boat storage sales programs include:

  • Deeded structures, including dockominiums or rackominiums, or subdivided land, or
  • Non-deeded structures, including equity or non-equity membership programs or long-term subleases. Continue Reading

Employee Characteristics and Effective Hotel Leadership

Posted in Hotels

Written by Nelson F. Migdal and Molly Kane.

What are the most important characteristics to possess in the hospitality industry? This question was recently posed among a highly experienced group of hospitality industry attorneys. Responses to the question included: enthusiasm for customer experience, working as a team, reliability, honesty, and being proactive as among the most important characteristics to possess in the hospitality industry. We thought the question was worth a deeper look.

On Bill Marriott’s list of 12 Rules for Success he states that “it is more important to hire people with the right qualities than with specific experience.” So what are the qualities Bill Marriott was referring to and how do they match up with some of the responses to our question?  Continue Reading

Which Family is Welcome at the Club?

Posted in Clubs

The days of the men’s golf club are over, and clubs that emphasize family oriented facilities are increasingly more common. Both traditional golf clubs and other clubs are struggling to define the family of members who have facilities use privileges. The trend is to expand the family definition, especially in resort and second home communities, to attract the family oriented market. Clubs have adopted a number of different family definitions: Continue Reading

Resigned Members: It’s the Same Category

Posted in Clubs

Clubs that resell resigned memberships generally have separate “sell lists” for each membership category. Therefore, if a club sells memberships in a different membership category, those sales do not trigger resales of resigned memberships and the corresponding refund payments to the resigned members. When clubs issue memberships in “new” categories, the question arises as to whether the new category is truly a different membership category. In two separate cases (one decided in August 2011 and the other in January 2014), resigned members of Hamilton Farms Golf Club challenged the club’s determination that membership sales in what the club called a new membership category did not count toward reissuing resigned memberships. In both cases, the club moved to dismiss the cases, and the court denied the motions, allowing the cases to proceed.

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