Summit abolishes initiation fees. Bold move or desperate measure?

Industry Notes

Last week, Summit Golf Club in Richmond Hill made some news by announcing that it was abolishing its initiation fee.

That’s a pretty dramatic departure from the norm when it comes to traditional private clubs in the Toronto area and particularly so for Summit, which recently celebrated its 100^th anniversary.

In a letter sent to members following the Club’s Annual General Meeting, Director of Golf / General Manager Ian Leggatt indicated that new members could join Summit ‘at $NIL’ until the Club adds 70 new members, which would restore it to its full playing complement of 510 members. The letter went on to say that new members would be charged ‘all annual dues, capital levies, minimums and other charges identical to any other member currently in the same playing category’.

OK, fair enough, Summit is about 14% below its full playing capacity and needs to get some people in the door pronto. Many clubs have offered a discount in the past when faced with the same scenario. The initiation fee is reduced, new members are added and then things return to normal. The only people bruised in the process are the ones who paid a higher price to join last month or last year and now see some members getting a better deal.

It’s similar to sitting beside someone on an airplane and finding out that person paid a lot less than you for the same flight. Kind of leaves a bad taste in your mouth and it doesn’t leave you with charitable feelings toward the airline – or your seatmate either.

Typically, private clubs only make these kinds of reductions to initiation fees in times of desperation because they don’t want to antagonize the current members – who exist in a fragile love/hate relationship with their Board and management anyway. While members know they’ll have to shoulder responsibility for maintaining the club with fewer members, most would rather do that for a short time than see someone get a significant discount to join.

Summit’s announcement probably wouldn’t be noteworthy beyond the impact on its own membership and maybe a few others in the golf industry who follow these things but Leggatt made it a much bigger story by doing a podcast with Ian Hutchinson of Golf News Now. In the podcast, Leggatt indicated that he felt the current model for private clubs was broken and that eventually initiation fees would disappear across the board as other clubs followed suit.

He says, “What’s the use of having an initiation fee if nobody is paying it anyway?”

(You can hear the entire podcast HERE.)

That’s bold conjecture. Just because the initiation fee model hasn’t been successful for Summit recently doesn’t mean that the model is broken for every club in the industry.

The thought of private clubs with no initiation fees raises a number of intriguing scenarios:

Easy come, easy go: In tough economic times, some members have to make a decision between the mortgage payments and the golf club and reluctantly walk away from the club, sacrificing their upfront investment. With no upfront fee, the number of members leaving could dramatically rise.

Race to the bottom: If a large number of private clubs abolish their entry fee, then memberships effectively become commoditized and it will be a competition to see which club can attract the most members with discounted annual dues. It’s not dissimilar to what’s happened to a large number of public courses in the GTA.

Rotating members: Also similar to what’s happening in public golf, private clubs could see a class of nomadic members, moving from one club to the next and never making the kind of commitment that clubs rely on. It would be pretty tough trying to estimate budgets for the coming year if a club didn’t have any membership certainty.

Loss of status: Private clubs enjoy a certain status based on their entry fee. Naturally the top clubs are able to command the largest initiations. Some of the most expensive clubs in the GTA have decent waiting lists today and exhibit no indication that the business model is broken. Clubs with no initiation fee will struggle to attract the kinds of life members that form the nucleus of membership for generations.

Competitive disadvantage: Initiation fees are required to fund future capital projects or pay down debt. If eliminated, members could expect an annual capital levy, thereby raising current annual dues. The alternative would be an assessment every time the clubhouse roof needed replacement or the greens needed to be redone. Neither option is very palatable, especially amongst older members, who may have limited time left to enjoy the latest capital project. Their reasoning is that the capital project is really for the benefit of the current and future members so let them pay for it through their entry fees. If private club entry fees are abolished and the market dictates a competition for new members based on the lowest annual dues, then clubs with debt or impending capital projects would be at a significant disadvantage to their neighbours.

Culture change: A drastic reduction (or elimination) of initiation fees often results in a culture change at the club, as the BMW’s and Mercedes are replaced by Toyotas and Hondas. Internally, friction can develop between the have and have-not factions.

There are a lot of other implications for private clubs with no initiation fees and none of them seem positive. General Managers I spoke to weren’t impressed with the idea and didn’t see any need to change their fee structure. One GM added, “We’re all competing for new members and if Summit can’t keep pace, that’s no reason to blame the business model.”

It will be interesting to see if Summit continues with zero entry fees after they attract 70 new members or if any other clubs follow suit. Stay tuned!

Note: Ian Leggatt’s public discussion of Summit’s initiation fees on Hutch’s podcast is another bold move for the private club. In years past, it would be difficult to get any general manager to even admit they were looking for members, let alone that there was some urgency to it. “Private” meant just that and public discussion of any club matter was prohibited. Leggatt’s transparency on Summit’s situation is quite remarkable.