September 2006
Draft Golf Report
Golf ProfitBuilders, LLC

Executive Summary

Ocean Pines G&CC (OPCC) is a moderate-length 18-hole golf facility with a reasonably good layout and moderate to good course conditions.  The clubhouse and range facilities are of more-than-adequate size but appear “tired” and compare unfavorably with many of the other facilities in the market, both public and private.

OPCC is somewhat a “tale of two markets.”  On the one hand, it sits as the only golf facility in the very large Ocean Pines community, while on the other hand it sits as just one mid-level course in a market of twenty-plus courses that constitute the Delaware shore / Ocean City, Maryland region.  This market also provides Ocean Pines community residents with alternative daily fee and membership options, from high-quality 36-hole facilities to executive courses that are a short drive from the Ocean Pines gates, and are an appealing cost-effective alternative for seniors.

The present membership classifications at OPCC are causing some friction among members, and do not represent the best format for maximizing membership revenue and minimizing tee sheet “compaction.”  Golf ProfitBuilders recommends membership classifications based more on when the member has access than on how far ahead he/she can book a tee-time.

GPB also believes that OPCC should spend some resources on upgrading certain items at the facility, as detailed within.  GPB further believes that the first impression of the facility is hurt by the outdated condition of the entrance and other public areas of the clubhouse and grounds.  This is particularly significant when compared to market competitors.  With an improved first impression, OPCC can more effectively initiate a more aggressive marketing campaign for both “outside” play and memberships.

In order to provide the financial stability to assist with the club’s turn-around, several recommendations are offered to increase revenues, from greater marketing of memberships within the community to the increase in non-resident play.  Some recommendation may be new and not popular while others will may have been proposed in the past.

 The recommendations contained within this report should be implemented by a management team lead by a full-time golf club General Manager, a position currently vacant.  In addition, Golf ProfitBuilders believes that hiring an outside management company at OPCC is a reasonable option, though not the only way to proceed.  Solid, sophisticated, growth-minded on-site management, with active, consistent support and clear direction from the Board can produce good results.  If these things can not be continually achieved, a management company would insure sophisticated operational oversight, along with marketing and administrative expertise.  The continuity of the operational and marketing programs are crucial to OPCC revenue and profit growth.

Our research process received feedback through interviews with both members, non-members or various age groups.  A summary of the feedback is presented below, but will be addressed further in the respective sections of this report.

Strengths of OPCC:

• Camaraderie and fellowship of members
• Property value and location
• Course condition (primarily a comment from members)
• Pace of play

Weaknesses of OPCC:

• Culture of community
• Lack of communication and education of buyers about amenities to property value
• Golf facility and food and beverage not up to standards expected at country club
• Disconnect with family, no family memberships available
• Perception yacht and golf facility not connected
• Food and beverage, lack of decent affordable casual meals
• Deterioration of facility
• Inconsistent course conditions (primarily a comment from non-members)
• Personnel (lack of GM)
• Only 18 holes while direct competitors have 36-holes

Opportunities for Improvement & Desired Actions:

• Restructure of governing boards / leadership
• Greater communication between board and residents
• Create a more businesslike structure to run the town and amenities
• Hire new staff – General Manager (for the club)
• Foster new culture of understanding that all benefit from the success of the town
• New membership golf structure (include single and  family memberships)
• Reach out to community and educate on programs available
• Reconditioning of club house to include pub and grille
• Marketing opportunities and data management opportunities
• Design programs that acknowledge the changing demographics
• Social interaction with community with an improved club and social opportunities
• Family membership and activities (demographics are changing – no longer just retirees, increasing number of families buying homes from the retirees)

Threats & Challenges:

• Fixed income residents will not support improvements
• Too many other golfing options at both the higher and lower end
• Lack of support from non-golfing community members
• Continued deterioration if capital improvements are not made
• Lower property values if the golf club does not improve its perception

Methodology

Scope of Services
The Ocean Pines Golf and Country Club assignment consisted of a detailed, top-down assessment of the current operating structure of the golf club to assess its current operating situation and recommend measures to improve profitability and service.  Specifically, the following areas were examined:
 1.  Membership and play fee structure
 2.  Golf operating practices
 3.  Management structure, authority and responsibility
 4.  Social programs
With an additional focus on:
• Ocean Pines Golf Course current membership, member base, financial history, professional and volunteer management.

• Ocean Pines Association restrictive covenants and demographics as they might influence the success of the golf operation.

• The competitive environment for golf in this area.
GPB also reviewed the following areas:
• Individual profit center analysis (Food & Beverage, Pro Shop, Driving Range, Carts)
• Clubhouse operations analysis – staffing and overhead analysis
• Golf course maintenance practices
• Fee structures – membership & public
• Membership/marketing plan
• Public play and tourism marketing plan
• Needed capital improvements – to the course and clubhouse
• Complete financial statement analysis
• General operational procedures
• Management alternatives and recommendations

Research Process

The Golf ProfitBuilders consulting team consisted of the following individuals:

Teddie O’Keefe (marketing), Matthew Galvin (operations & financial), Chris Schiavone (operations), Donna Talley (marketing), John Napier (operations) and Tom Saunders (agronomy).

The team members collected data through various means, including:

? Interviews with members, individually and in focus groups;
? Interviews with Association management;
? Discussions with current staff and employees;
? Blind meetings with Ocean City area golf course industry participants (booking agents, travel planners, golf course management personnel, local golf course lenders).  During “blind” meetings, the third parties were not aware of the subject facility.

GPB team members surveyed the range of competing courses in the Ocean City golf market.  In addition to the GPB team efforts, we received unsolicited letters and opinions from local residents and members, which were all reviewed and taken into account.  Lastly, GPB reviewed the following information provided by the OPG&CC staff:

• Historical financial statements, including budgets for 2006, including capital expenditure budgets.

• A summary list of the number of members, by type of membership, with the respective fee structure for the types of membership.

• A list of all fees charged by the golf operation, i.e. green fees, cart fees, etc.

• A list of the key country club employees and their compensation plans.

• A summary of rounds played for the last three years - with a breakdown of the rounds by category, i.e.: weekend, weekday, guest / public, member.

• Membership documentation - marketing plans, collateral material and by-laws.

• A summary of any contracts or leases relative to the operation of the club (equipment leases, cart leases, etc.) – what is owned versus leased.

• A summary of all material operating covenants, use restrictions, access rights by others, etc.  This would include the development covenants & by-laws.
 
Competitive & External Factors

The objective of this section of the GPB analysis is to establish the relative perception of OPCC within the competitive set of golf courses and country clubs.

OPCC is suffering from what is a common occurrence in the golf course industry in many parts of the United States – older, formerly-stable clubs losing members, rounds and market share to newer facilities.  In some cases, the newer facilities are being constructed as “loss leaders” to sell residential developments and are often “over-built.”  The newer facilities often boast several advantages:

? New clubhouses with fresh appeal and often high-quality restaurant options;
? Popular course designs by brand-name architects; and
? Excellent course conditions due to modern construction methods.

In addition to the physical facilities, the competition is often aided by more sophisticated management teams – either divisions of national or regional homebuilders, third party management firms or self-managed with management staff with expertise in marketing and operations.  This is often the case if the course or club is managed by a for-profit owner / investor looking to maximize its financial return.

GPB’s initial step upon commencement of this assignment was to understand the competitive and external factors affecting OPCC.  A thorough analysis was made of the many courses in the Ocean City, MD / Delaware shore market area.  The data findings are attached as Exhibit “A” to this report.  It should be noted that GPB’s competitive survey was completed at one point in time.  The competitive market is very dynamic, with rates, promotions and even course conditions changing daily.  Our findings reflect the state of affairs as they existed this past June.

Our competitive assessment is also based upon feedback from OPCC members and staff, golfers at other facilities and those involved in the local golf industry.  As with many things, “perception is reality” and in some cases the comments and impressions from others may not be well supported by the facts, but reflect the perception of OPCC in the marketplace.
 
S.W.O.T. Analysis

 Based upon GPB’s analysis of the competition, the following is an assessment of OPCC’s Strengths, Weaknesses, Opportunities & Threats in regard to physical and geographical characteristics:

Strengths

? Large community w/ only one 18-hole golf course

? Good course layout

? Adequate to good location and size of facilities (clubhouse, range, parking)

Weaknesses

? “Tired” facilities (clubhouse interiors, range)

? No attractive food and beverage venue in the golf clubhouse

? Numerous other courses in area of actual and/or perceived better quality

? Course condition lacking in some areas (bunkers) compared to competitors

? Relatively hidden from main arteries and tourist traffic – does not have direct frontage

Opportunities

? Capital improvements to course and clubhouse would improve appeal

? Location within Ocean Pines community could be leveraged for stronger growth

? There are many who would join / play more if certain measures were taken to improve the operations – both physically and operationally

Threats

? Continued competitiveness of market could impede rate and customer growth

To further distill our findings, the perception most often stated regarding OPCC in the marketplace is:

1. The course and facilities are “tired;”

2. Non-member play is not desired (and therefore not directed to OPCC);

3. There are many better options;

4. It is the “value” club in the market (the pseudonym given where price is also equated to the total quality of the experience); and

5. I would play it more “if only     (fill in the blank) improved” Select from: 19th hole / grille room, tee time availability, course conditions, membership structure.

With this feedback, we frame the findings and recommendations detailed in this report.
 
Management & Staffing

 The current management structure overseeing OPCC is need of significant change in order to effectively implement the recommendations contained in this report.  In its current state, OPCC suffers from the following management issues:

1. The club lacks the leadership that should be provided by a club-level General Manager.  OPCC needs a single leader charged with overseeing the day-to-day business of the club;

2. There is distrust between the Board of Governors and the Association Board which fosters discontent among the membership.  There is a perception that issues at OPCC have been amplified by “management by committee”;

3. The primary on-site staff member, Bob Beckelman, is in a precarious position in managing certain aspect of the club’s operation, while also operating his own business within the club;

4. A key component of any private club – food and beverage, is operated as if it were an annoyance and not an asset.

In short, there is not a person at the OPCC staff level dedicated, compensated and charged with:

A) Selling memberships;
B) Marketing non-member rounds or outings;
C) Creating member events, services and programs;
D) Maximizing food and beverage opportunities; or
E) Managing the “business” to improve the bottom line.

Some of these functions are covered to varying degrees by Bob Beckelman, Pudge Rupert and the Association staff – but in a disjointed manner, like orchestra musicians without a conductor.  The club needs a General Manager to be the conductor.

On the positive side, OPCC has two experienced, dedicated department heads – Bob Beckelman and Harlyn Goldman, who have persevered through a strong focus on their individual departments.

 To address this lack of leadership, promote stability and be an agent of change, GPB makes the following recommendations, which should be implemented prior to any other recommendation contained herein:

1) A general manager (“GM”) should be hired.
• Advertisements for the position can be placed with the Club Managers Association of America, PGA of America, www.hcareers.com and other industry placement services.
• The position should be salaried, with bonus potential based upon achieving certain revenue, membership and profitability targets.
• The typical salary range for such a position in this geographic market would have a base salary of $75,000 - $90,000 with bonus potential approaching 20% of base salary.

2) The goals for the GM should be made very clear and the GM should report directly to the Association Board.  Notwithstanding this, the Board must assure the GM that club-level operating decisions will be his or hers to make, so long as they are consistent with the overall missions and goals promulgated by the Association.  GM should be given the sufficient latitude and authority so that he or she can make the difficult decisions necessary without interference by various factions within the community, membership, Board of Governors or Association management.  Without this, it will be very difficult to hire and retain a properly qualified and experienced GM, especially if relocation is required.

We do not recommend granting dictatorial powers to the GM.  The club’s annual operating plans and budgets should require annual approval from the Association Board.  However, smaller details within the entire plan should not be micro-managed.

3) The club-level department heads should report directly to the GM.  It is our recommendation that the GM would then add to the club’s management team with the hiring of a Director of Membership and Marketing, who would be the primary sales person at the club.

4) In the golf and resort industry, it is very common that a GM oversee many different amenities and operate them cohesively to maximize revenues and operate most efficiently.  To that end, it would advantageous that the Yacht Club, Beach Club, and potentially the Pools and Tennis facilities all be combined under one management structure.

Similarly, the club’s financial recording should be merged with the other amenity operations so that financial results are combined to better reflect the actual business.  For example, food and beverage sales within the golf clubhouse are currently not recorded as revenues under the country club – therefore understating country club revenues.

The structure outlined in this paragraph 4 is the most common management structure found at for-profit clubs with other amenities located within the same community and under joint ownership.  Notwithstanding this, the Association may want to consider this as a year 2 or year 3 option, so that the larger structural changes don’t distract from the more pressing needs.

5) The Association may want to consider retaining a golf course management firm to oversee the operation of OPCC.  This would not replace the duties of and need for a General Manager, but would provide the club with additional resources that one stand-alone club could not afford – such as marketing resources, national vendor accounts to lower expenses, cross-marketing and reciprocity with other facilities to increase membership benefits.

Typically, such management companies would cost $6,000 - $7,500 per month for a club of OPCC’s type and location, often with an incentive fee based upon achieving certain results.  The management contract terms typically run for five (5) years but could be terminated for cause without penalty or terminated without cause for the payment of a termination fee.  Cost savings through national accounts and other efficiencies should allow the managed property to recoup a significant portion of this cost.  An experienced management firm should then provide a financial return on its costs to the facility through value-added expertise that would improve the club’s performance.

One of the key benefits to a management company is its ability to hire, train and retain key employees.  It provides employees with upward career opportunities and mobility.  In addition, at “troubled” properties that may have a difficult time attracting key employees, a management firm can fill key positions with their own employees or attract employees by offering greater stability.

Golf ProfitBuilders believes that hiring an outside management company at OPCC is a reasonable option, though not the only way to proceed.  Solid, sophisticated, growth-minded on-site management, with active, consistent support and clear direction from the Board can produce good results.  However, if OPCC wishes to explore this option further we can review the benefits and costs in greater detail.

Membership & Social Programs

Golf ProfitBuilders interviewed many members or various types to better understand the real and perceived issues at the club.  One of the strongest negative reactions was expressed towards the membership structure.  GPB is in agreement that the membership program must be revised, as we propose below.  However, let us first address what we feel a healthy membership program should be.

A healthy membership is not a group of people who buy a membership just because the average cost per round is lower than if they were public golfers.  A truly healthy membership is a group of people who want to belong to a social organization that helps create friendships, promote common interests and fosters camaraderie.  Our membership analysis must begin there.

Currently, the social atmosphere at OPCC is not healthy.  There is division between membership classes and more importantly, there is little to bind the membership body.  Without getting into the history of these issues, which may not be productive, we propose the following:

1. Social programs and activities should be expanded.  These will range from themed dinners (as discussed later in this report) to something as simple as nighttime golf with glow-in-the-dark balls.  The key requirement is that there be a consistent, recurring program of events.  To be successful, such events need to be coordinated with all departments – especially food & beverage and golf.  Some events will be designed to make a profit for the club, while others will not.  Attached as Exhibit “B” is a sample of such events offered at clubs affiliated with GPB.

This is too important to trust entirely to volunteers.  The responsibility to plan such events should come under the duties of a new membership/social director in conjunction with other club departments heads.

2. A communication program must be implemented, via the club’s website, mail and e-mail, to share important event information and help increase member participation.

3. Lastly, as discussed elsewhere in the report, certain capital improvements need to be made so that the club is an inviting venue to socialize.

One of the strengths of OPCC is the strong participation by women.  Most other clubs do not have such a healthy ladies group.  This success is due to the efforts of the women themselves in organizing their leagues and events.  In the future this can be impacted negatively by the growing number of women still working in later years – therefore innovative ideas for additional organizations and/or events for working mothers and singles that want to participate should be considered.  This will also be necessary as family memberships increase.  Women represent 41% of all new golfers.
Note:  Women represent 49% of corporate decision makers; and they own 40% of the businesses in the US.  They are not only the Chief Purchasing Officer of the family, but also the Social Director...responsible for 80% of the buying influence.

Membership Issues:

 There are several pressing membership issues at OPCC:

1. Membership sales efforts must improve to counter attrition.  This is discussed at length in the Marketing section.  The membership payment process should be moved from the Association to the country club.  In addition, monthly payment options should be explored.  Further analysis is requires to see if there would be a benefit of offering a calendar year membership versus one that tracks the Association fiscal year.

2. The membership pricing and structure should be redesigned to eliminate divisiveness between membership categories; and

3. The membership options should address changing demographics, specifically, the increased number of younger families within the Ocean Pines community.

Pricing:

 One of the fist steps undertaken by GPB on this assignment was to assess the membership pricing at OPCC – especially relative to the competition.  This can be reviewed in Exhibit “A.”

 In general, we find OPCC competitive priced within its set of competitive courses.  Contrary to the belief by some, the memberships at OPCC are not “cheap” or below market.  They are competitive with courses of similar quality.

 In fact, in the case of a membership for both spouses, the OPCC membership is prices slightly higher than some of its direct competitors.

 Membership pricing should be revisited every year in conjunction with a renewed Competitive Market Analysis of the competition.  Annual increases at or slightly above inflation should be warranted.

 OPCC does not charge an initiation fee.  We believe that a nominal fee of $1,500 should be charged.  If for no other reason, than to provide a fee that can later be waived for special promotions to create a sense of urgency.

Structure:

 Golf ProfitBuilders proposes the following membership structures to better serve the needs of the membership, community and to hopefully diffuse the issues surrounding the current membership classifications.  This will also simplify and streamline the various categories of memberships currently offered.

1) Full Family Membership – In order to attract the fast-growing segment within the Ocean Pines community, a Family Membership should be offered with the following benefits:

• Membership includes both spouses and all children living at home under the age of 18.
• Children can’t drive carts unless they have a valid drivers license.
• The annual cost should be $1,800.
• Same price with or without children – an incentive to grow the membership base with active families.

2) Full Individual Membership – Individual membership for one person.

• Annual cost of $1,200

3) Associate Family Membership – same as Full Family Membership, but tee times limited to after 1 PM.

• Annual cost of $1,200

4) Associate Individual Membership – Same as the Full Individual membership, but limited to after 1 PM.

• Annual cost of $750

Associate members may golf with Full Members prior to 1 PM, by paying the standard guest fee – but should be limited to not more than 10 rounds per year.

5) Corporate Membership – Not currently a significant option.

• Company would designate up to four (4) members.  The annual cost would be $1,500 X first two (2) designees and $1,000 X second two (2) designees.
• Designated members could golf any time.
• Can send unescorted guests after 1 PM.  Limit of six (6) rounds per year for same guest.
• Company must be a bona fide corporation with supporting documentation, designees must be employees.

The following categories have been eliminated or combined:  Premier, Basic, Starter, Weekend & Afternoon.  The starter membership should be redeveloped in conjunction with a new trial membership for new residents of the community, as discussed in the Marketing section.

The membership benefits would be the same for all classes with regard to:

• Tee time reservation policies,
• Cart fees and policy,
• Guest policies,
• Social activities,
• Handicap, bag storage, range and other fees.
• Members can book tee times up to three (3) weeks in advance versus public golfers at two (2 weeks).  Packagers and outings may book further in advance.
• For those members who pay an initiation fee, the dues could be billed monthly from the club.  This would be a departure from the membership billing process now handled by the Association.
 
Pro Shop & Golf Operations

Pro Shop:

 Analysis of the pro shop and golf operations was somewhat limited due to the fact that the pro shop is not operated by OPCC, rather it is a concession operated by Bob Beckelman, the head professional.

 Such “pro concessions” are less common today and are generally only found in member-owned clubs that are operated as not-for-profit entities.  In such cases, the golf professional would receive the concession as part of his pay package – or in lieu of a salary that would otherwise be paid to the golf professional.  This is also in addition to the golf professional keeping most or all of the lesson and range revenue he or she generates – which is still a common practice.

 For this, the golf pro would assume the risk of investing his personal capital to purchase and stock merchandise.  With merchandise cost of goods sold in the 60% - 70%, losses due to unsold or stale inventory that end up being discounted as well as the funds tied up in inventory, most golf professionals merely supplement their salary and are not “getting rich” with their concessions.

 Notwithstanding the shifting of the risk from the club to the golf professional, GPB generally recommends the club retaining the pro shop operations for several financial and non-financial reasons (not specific to Bob, but philosophically):

1) Some professionals may not have the financial ability to properly stock the pro shop with the newer, more desired merchandise.  This does not appear to be an issue at OPCC.

2) Most well-run pro shops and driving ranges do make a profit that should inure to the benefit of the club – especially if the club is already paying a fair market salary to the pro.

3) Most importantly, if the golf professional is essentially working for himself, they may not be fully integrated into the management structure and as accountable than if they were part of the club’s management team.  Their priorities may be divergent from the club’s.

In the case of Bob Beckelman, based upon interviews with him, he seems genuinely interested in the well being of OPCC and does not appear to have a “me versus them” attitude.

Nonetheless, GPB recommends that the club, upon the hiring of a new general manager, revisit the business relationship with Bob so that his responsibility and financial rewards are more closely tied to the success of the overall club – with incentives based upon rounds played, outings and non-member play booked and departmental net profit.  A change may ultimately be more rewarding to Bob than his current situation, but the real goal is to further align his financial interests with those of the club.

Golf Operations:

 Public Rounds / Play –

 The significant factor deserving the most attention relating to golf operations is the availability of OPCC to non-resident golfers.  This one area can provide the greatest financial opportunity for the club – but is also one of the most controversial.

 From our interviews with members, it was almost universal that they did not want to open the club up to non-resident play if they had the option.  It should be noted that such members often made a distinction between non-members and non-residents.  The vast majority commented that non-member residents were welcome, as this was their course too.  It was non-resident play that was not supported.

 Interviews with local golf booking agents also revealed that the perception is that OPCC does not want outside play – and therefore fewer public rounds are directed to OPCC.  There is no shortage of other courses willing to take those rounds, so OPCC has fallen to the bottom of the list (or off the list) of courses where play is directed.  As discussed in the Marketing section, part of the issue is technology related.

 This conflict between public play and membership / resident play is not unique to OPCC.  This is common at most semi-private clubs or even private clubs that open up to non-member outings.

 However, the economics are clear.  Increased outside play would provide needed cash flow to help make OPCC self sufficient and help pay for the capital improvements recommended in this report.

 Fortunately, increased outside play can be achieved with less impact to the membership than some fear by implementing tee time management systems, addressed further in the marketing section which would allow OPCC to “open their tee sheet” to the public at very specific and limited times.  This would improve the “yield” of tee time utilization.  Such practices are not currently being employed relative to public play.  With proper use of a new tee time management system, additional public rounds may not even be noticeable.

Ultimately, the goal of increasing public play is simply economic.  From time to time, the tee times opened to the public can be modified if the financial needs don’t require the outside play.  However, OPCC must ensure that it does not reduce public play too low to maintain a good symbiotic relationship with the booking agents, hotels and third parties who will also need a longer-term relationship.

 NOTE, based upon discussions with Mr. Ruptert, outside public play does not create a legal issue with regard to the bar service under the club’s liquor license.

 Golf Cart Use –

 Most golf courses, both public or private, require the rental of golf carts at certain times.  For a club to not require this is welcome by many golfers who prefer to walk for exercise or simply to save money.  Admittedly, requiring cart usage is primarily an economic decision.

 Contrary to the message communicated by many golf courses, using a golf cart generally does NOT increase speed of play (unless there is significant distance between holes).  Some courses will include a cart fee in the greens fee, but still let the golfer walk.

 OPCC does not require cart usage.  In addition, there is a vocal component of the membership body who would react negatively to the imposition of a mandatory cart.  Within the Ocean City golf market, GPB’s research indicated that only one club, The Bay Club, does not require carts at least some of the time.  Most of the other facilities require a cart rental before 1 PM.

 It is our recommendation that OPCC impose a golf cart fee (whether they allow golfer walks or not) in line with the competition – therefore charge the cart fee for rounds before 1 PM.  If this measure is approved, various trail fee and other plans could be offered to minimize the financial burden on the membership.

 This is sure to be a controversial recommendation.  Some may cite the Bay Club as a reason not to impose the fee – and defect to (or threaten to) that facility 10 miles away.  We believe that this is not a fair comparison.  Most golfers surveyed by GPB felt that the Bay Club was an inferior facility.  “One or two notches down” from Ocean Pines was a common sentiment.  No course will be successful by entering into a price war with an inferior facility.

 Furthermore, OPCC cannot afford the luxury of NOT employing a market-wide cart rental policy.  This policy will help generate funds required for the club’s improvement and financial stability.

 To smooth the implementation of this policy, several concessions could be offered such as lower cart fees for members versus non-members and monthly or annual cart trail fees with built-in discounts.
 
Marketing

The club is highly underutilized and in need of improvements.  The golf facility and food and beverage – café and second floor space are not up to standards expected at a country club – or a community golf club.  There is a lack of casual fare dining, as well as an attractive venue for social events and activities.  Therefore, marketing the facility to residents and guests under the present circumstances is money not well spent.  Thus, the marketing efforts recommended herein should be employed in conjunction with the other recommendations – it must be an integrated approach.

Currently, effective marketing at OPCC is almost non-existent.  Our analysis and recommendations will focus on two areas which need improvement – internal and external marketing.  With internal being the communication and marketing of the club within the Ocean Pines community and external being the same, directed to non-residents.

All efforts should be directed by the new position of Director of Membership Sales and Marketing – this person’s sole purpose would be membership sales and service.  Their compensation would be strongly tied to achieving the goals established by the general manager to sell as well as retain members.  In addition, they would coordinate member events and social functions.

Internal (current and potential residents):

The overall perception of the community at-large is that too few use the course and therefore those do not want their monies going to capital improvements or to cover operating shortfalls.  There is a lack of communication and education of current and potential Ocean Pines community residents about the amenities and the effect of the course on property values.

 A comprehensive communications program should be implemented, that would include the following:

1. A database, with names of residents, should be compiled for every homeowner within the Ocean Pines community.  This should be updated immediately upon every home sale, to delete residents moving out and include new residents.  This information should be readily available at little cost.

2. Within 60 days of a new resident moving in, they should receive a ‘welcome package” from the club – inviting them to visit the facility and play a round of golf.

3. The introductory round is not to sell golf or the “facility,” rather it is to sell the social aspect.  Therefore, the introductory round should be hosted by a current Member Ambassador – a personable volunteer who is knowledgeable about the membership and will be supportive of the club.  Ambassadors should be extroverts who volunteer to help support the club.  But, they should also receive some form of recognition from the club for their efforts.

4. An introductory membership should be offered to let the new homeowner join with little financial risk for a brief period – perhaps 6 months.  At the end of this period, they can upgrade to a regular membership.  Hopefully, in the 6 month period they have become part of the club’s fabric.

5. The new GM and the new membership director should host monthly or quarterly luncheons for local real estate agents.  Each meeting should include a presentation regarding the updates and improvements to the club.  The message should also be that the agents should use the club to help sell the community, and that the club will be supportive of this effort.  An incentive program could be offered to the real estate agents who generates the most membership sales within a certain period.

In many new residential golf communities, qualified potential home buyers are hosted to an introductory round of golf to help sell the community (again, hosted by a Member Ambassador).  If not abused, this can be a strong selling tool.  OPCC should consider offering this program, with the proper controls, with one or two of the leading real estate firms in the area.

 These steps will not work overnight, but will help in various ways:

? Communication with the residents will help them realize that OPCC is their club too.

? Membership sales should increase from within the community.

? Slowly, the community will begin to more effectively leverage the golf club as an asset and increase the awareness that Ocean Pines is a country club community.

? The combination of the above will improve the club’s financial performance as well as improve the perception of the community.

External Marketing:

The primary focus of external marketing is for the generation and management of needed public play, as addressed in the Golf Operations section.  As also discussed, this can be most effectively managed through use of improved tee time and customer relationship management technology.

Electronic tee sheet and POS systems that streamline accounting and reporting, data collection, interactive websites and email communication programs are available – not just to increase operational efficiencies, but also to enhance communication and dialogue with customers.

The challenge is to assess the value of each new technology advance in moving the club forward toward its objectives, and not getting sidetracked into complex, debilitating learning curves that sap creative energy or take the focus off the customer.

What to use…how much will it cost?

We highly recommend Ocean Pines becoming a member of the Ocean City Golf Association (formerly Ocean City Golf Getaway).  This can accomplish several objectives:

1. All golf courses participating in the Association are offered the reservation system free of charge.  They are contracted with tee times.com as their reservation system; also an integrated POS system free.  Note:  87% of golfers use the internet; 42% of core golfers online; 23% book tee times on line…and growing.

2. Inclusion in the 2007 marketing plan, which will co-op OPCC with various partners in the Ocean City market to increase exposure.

3. The reservation system will allow tee sheet management of inventory and reporting system.  Only those tee times that are deemed available for outside play would be released into the system for inclusion in golf packaging by the hotels.  In fact, Ocean Pines can co-market with certain hotel members of the Association by offering play in the afternoons, nine-hole play, etc. – tee times that are not presently being filled.  Part of the reservation voucher from the system can state the club’s dress codes and pace of play policies.

4. The reservation system will also allow for booking on-line.  Not only will members be able to book on line –from inventory that has been reserved for members – but also non-member residents and non- residents.

5. Ocean Pines, as a member of the Association will not be beholden to Pam’s Packages or any other packager exclusively, but can work with the Association and certain hotels of their choosing.

The Ocean City Package Season is March – June midweek; Weekends are popular pre-season; there is minimal package play on weekends in summer due to Saturday check-in and check-out.  Ocean Pines could manage the tee sheet accordingly to offer those days and times that will increase revenue without impacting member play.  This same scenario would work in offering outings for small groups – a marketing advantage.

The costs for Association membership are:

? $5 per round to the Association for package rounds;

? Each golf course member pays $4000 for a page in the annual Ocean City Golf Package Guide.

Marketing Summary

? Marketing dollars well spent are not about the perceived ‘running an ad’ and they may come – don’t spend money on delivering the message and not delivering on the promise.
? Invest in the facility, by paying attention to the changes and demands of the membership and influencing the perception.
? Invest in the technology to manage, perform and report in order to analyze and act.
? Invest in personnel that will deliver the product – and make the members and the entire community realize its real value.
 
Agronomy / Course Maintenance

 When initially interviewed for this consulting assignment, the selection committee members felt that the agronomic issues of the golf operation was the least area of concern – with the caveat of the possible need to make significant drainage improvements.  The issues surrounding the drainage matters are addressed in the Capital Improvements section.

Furthermore, OPCC already received an assessment from the USGA Greens Section, which addressed golf course agronomic issues, and the GPB analysis was not intended to be duplicative with that effort.  GPB reviewed the USGA report and does not believe any material items were missed.

 The committee members’ confidence in the golf course maintenance department is well-founded.  Harlyn Goldman is a well qualified superintendent.  He is a Certified Golf Course Superintendent, which is a professional designation which requires tremendous experience and skill in a discipline that is combination of art, chemistry, biology and labor management.  Harlyn maintains the golf course in accordance with a written “Operating Proceedures and Maintenance Plan” that is very thorough and professional.

 After review of the maintenance department staffing levels and expense budgets for the last two years it is our feeling that for a course of OPCC’s size and quality level Harlyn has been given adequate resources to carry out his mission.  Certainly, every superintendent wants for some resources from time to time.  However, a maintenance budget of approximately $800,000 for 18 holes at Ocean Pines, not including any capital costs to replace large equipment, is more than sufficient – even slightly higher than the $35,000 to $40,000 per hole average for better quality courses.  However, averages can be misleading and the drainage issues at OPCC as well as a tighter employee hiring market could justify the slight overage.

 As referenced in the Competitive Analysis section, there is a perception by some that OPCC suffers from poor course conditioning.  It is our opinion that the genesis of this stems from several factors:

o The persistent drainage issues;

o Greater need for “attention to detail” such as bunker edging, bunker conditions and other highly visible items that may not compare favorably to local competitors – but may be lower on Harlyn’s list of priorities when dealing with more serious matters.

Interestingly, the opinions and perceptions of OPCC members were more positive regarding the condition of the golf course than the opinions of non-members surveyed.  This may be attributable to a perception created months or years ago and persisting to this day from when the course may have been in worse condition.  It may also be the result of non-members’ greater expose to other courses both in and out of the region and their view of OPCC in comparison.
 
Capital Improvements

 For the purposes of this analysis, capital improvements will be segregated into three areas – the golf course proper, the clubhouse building and technology.

 All golf courses and country clubs are judged in relationship to their competition.  In this respect OPCC suffers by comparison to much of its competition simply because of facility age.  As discussed elsewhere in this report, OPCC is competing against many newer facilities – including clubhouses that have been “over-built” in order to sell homes in related communities.

The Clubhouse

It is not GPB’s recommendation to make expensive repairs or upgrades simply to look as nice as the neighboring facilities.  However, to make the clubhouse an attractive, inviting venue that could help increase membership sales and activity, certain improvements should be made.

It should be noted that GPB is not qualified, nor did it make any inspections regarding building structural integrity or condition.  During the period of this analysis, the clubhouse was undergoing some repairs to the exterior siding.  In general, the building exterior and surrounding areas are clean and well kept.  Notwithstanding this, some beautification could be improved to increase “curb appeal.”  This can be achieved with relatively little expense – more flower beds, newer signage, etc.

The interior of the clubhouse deserves the primary attention of capital improvement dollars.  With the goal that the clubhouse will become an inviting venue for membership and community activities.  Golf ProfitBuilders recommends the following clubhouse improvements:

1. As detailed further in the next section on food and beverage, renovate the downstairs grille room, including the expansion into the porch area to provide a clean, inviting grille room option for both golfers and community members.  This will also require investment in the downstairs kitchen to accommodate the service and storage needs.

2. Make repairs to certain clubhouse infrastructure and finishes, such as doors, carpeting, paint, wallpaper and ceiling tiles to both refresh the look and curb operating expenses.  For example, GPB witnessed a faulty door in the pro shop resulting in significant lost air conditioning.

3. As also detailed in the next section, the upstairs should be renovated to serve as a more attractive venue for member, guest and community events.  Due to the lack of current business, the low net margins on food sales, and the other options available (a renovated downstairs grille room and the Yacht Club) we recommend that this space be used for scheduled and booked functions rather than a stand-alone al la carte restaurant.  This will minimize the capital dollars that would otherwise be required to upgrade the upstairs kitchen.

Financial Matters:

Based upon its experience completing similar upgrades at its managed properties, GPB estimates the cost for the renovations recommended above at two hundred fifty thousand dollars ($250,000), inclusive of new tables, chairs and kitchen equipment.  This assumes that there are no structural issues or required building upgrades triggered by the renovation to comply with current building codes.  This also does not include “soft costs” such as permitting, legal and architectural fees.

If not covered by the Association’s capital reserve funds, this project could easily be financed by local and national lenders over a 60 month amortized basis.

The Golf Course

 GPB staff toured the golf course and reviewed the detailed report issued by the United States Golf Association.  For the most part the issues identified by the USGA report address ongoing maintenance issues that do not fall under “capital expenditures.”  These will be addressed under the Golf Course Maintenance section of this report.

 The major course related capital improvement issue is the drainage plan that has already been developed.  The effect of the poor drainage is obvious.  Essentially, the golf course serves as the water diversion area for many parts of the surrounding community.  When the community was originally developed more than three decades ago the drainage infrastructure either did not fully anticipate the volume of water that would pass through the system or at the time its impact on the golf course was less of a concern.

 A drainage plan has already been conceived to remedy this problem.  Golf ProfitBuilders can not speak to the engineering behind the plan, its estimated cost or its anticipated effect – nor were we asked to.  However, we can confirm that the poor drainage conditions on the golf course have given rise to the following:

• The course has a reputation among local golfers interviewed for poor turf conditions and is considered unplayable following rainstorms;
• During hot and damp conditions, which challenge any golf course, the turf at OPCC suffers more than many if its competitors;
• Poor drainage resulting in course closures – which cost not only repair time and materials but also lost revenue.

Tom Saunders, GPB’s agronomist, reviewed the USGA report as well as photographs and data regarding the drainage issues and was “surprised that Harlyn was even able to keep grass living” in the worst areas – a testament to Harlyn’s qualifications and experience.  Based upon our review of this issue with Harlyn:

1. The estimated cost, if completed at one time is approximately $2 million.

2. Perhaps 20% – 30% of the work could be completed “in-house” to help reduce this expense.

3. This project could be completed 1 to 2 holes per year.  However, GPB recommends against this, since this would delay the ultimate resolution of this issue for a decade or longer and would not help reverse the negative course conditions.  Furthermore, the ultimate cost would be much higher due to escalating costs and loss of efficiency.

4. Work is currently being done to isolate the irrigation system with valves so that nine holes could be closed for repair while the other nine holes remain open.  This will provide OPCC with the option of completing the improvements over two seasons while always providing golfers a venue.

This two-year option also has its drawbacks.  It would most likely result in two years of operation where revenues are not likely to cover expenses due to the high fixed cost of keeping even nine holes open.  Members and non-members alike would play more rounds at other courses during this period.

5. GPB recommends that if the project is approved by the Board for implementation, that it be completed at one time, with a course closure from July or August and a reopening prior to the following memorial Day.  This would provide the following benefits:

• The project’s cost would ultimately be lower if bid and completed in its entirety at one time – mobilization costs would be lower and price increases for materials over time would be minimized.

• During the course closure other expenses could be eliminated versus keeping 9 holes open.  Hourly and other non-essential staff could be furloughed and rehired prior to the reopening.

• The clubhouse renovations addressed herein could be completed at the same time, thereby minimizing the impact on clubhouse access.

• OPCC could plan a grand reopening and use the event to support a major marketing and awareness campaign – which dovetails into recommendations made under the Marketing section.

Financial Matters:

 The $2 million estimated for the drainage work could be combined with the $250,000 for the clubhouse.  In addition, GPB recommends a 10% contingency, for an approximate grand total of $2.5 million.

 The argument could be made that the required drainage work is not a “golf course” project but more accurately a community infrastructure project that requires funding by the entire Association through a special assessment or existing capital reserve funds.  This may or may not be politically feasible.  The other option would be to borrow the funds with a first mortgage on the golf course, to be repaid through funds generated by the club’s cash flows.

 If financed, OPCC could reasonably expect the following terms from most banks and lenders active in the golf industry:

• Twenty-five year amortization, with a balloon payoff of the balance in 7 or 10 years.

• Floating rate interest of approximately LIBOR plus 2% - 3% or fixed rate interest of approximately Prime plus 1.25% – 1.50%.

• Transaction costs would cost approximately 1.5% - 2.0% of the borrowed amount.

• The loan would be secured by the real property.  Lenders may require a guarantee from the Association.

• Based upon the assumptions above, the annual debt service would be approximately $200,000 - $225,000 per year.

• Alternatively, the community of Ocean Pines may be able to explore municipal-type public financing, which may provide a longer repayment period and lower interest rates.

The End Result:

 The motivation behind and benefits of the improvements would be:

? Improved course conditions, resulting in healthier turf and better playing conditions.

? Better competitive standing within the golf market – supporting greater demand from members and non-members – creating greater revenues.

? Improved appearance and ambiance in the clubhouse.

? Increased property values within the community from having a higher quality private country club as the central amenity.

The question should be posed:  What would be the effect to the club both operationally and financially if the capital projects were not made (or made in a timely manner)?

In our opinion, the club would continue to lose loyal members through natural attrition as well as other members dissatisfied with the facility conditions.  It would be difficult to replace these members with new membership sales or even outside play since OPCC would continue to compare unfavorably to the strong competition in the market.  OPCC would continue to experience operating shortfalls.

Technology

 As discussed in the Marketing section, both OPCC as well as the Association should make the necessary investment in technology so that they can best utilize and manage data.

• The Association’s database should track each resident homeowner by name (versus lot and block number) and have contact information for all residents in the house.  This has several key benefits, not all related to the country club:

1) It would allow the club as well as other amenities within the community better communicate with residents.

2) It would facilitate membership marketing efforts as well as promote social activities at the club.

3) It would potentially assist the fire, police and EMT services with their functions; and lastly

4) A well managed database would provide the Association with a better view of changing demographics within the community – or confirm the anecdotal evidence.

• Such databases are inexpensive and may already be owned by the Association.

• The country club should upgrade its Point of Sales system to include an integrated tee-sheet that can be linked to outside tee time booking systems.  This will also assist with tee time reservations and utilization analysis.
 
Food and Beverage

 In every customer and members survey, the food and beverage component of OPCC, or the lack thereof, ranked as one of the largest issues and sources of dissatisfaction.  In short:

• Members and non-members alike felt that the food service provided by Anna’s café was simply not what they wanted or expected at a country club.

• Comments often included the word ‘embarrassed” when referring to both Anna’s café as well as the upstairs dining.

• Many of those interviewed felt that the country club was being ignored by the food and beverage “department” and that they were not receiving the same level of attention and focus that was being directed to the Yacht Club.

These issues, and the other challenges that we uncovered relating to food and beverage, are not unique to Ocean Pines Golf and Country Club.  Food and beverage operations are often the primary cause of discontent (and operating losses) at private country clubs - and with the thinnest margins and high employee turnover are also the hardest to manage successfully.

Specific to OPCC, we have identified the following issues:

1) The kitchen facilities at the country club are not sufficient to support a higher-quality operation without the addition of equipment and storage.  This applies to both the upstairs and downstairs kitchens.

2) Anna’s café obviously does not satisfy the desires of a very vocal portion of the membership, in appearance, service and menu options.

3) Non-members who have played at OPCC recently feel that the lack of a grille room is a significant drawback when compared to what is available at other local courses and clubs.

4) There is a component of the membership that does not utilize Anna’s – either through dissatisfaction or as a personal economic decision.  Some would rather eat at home before or after their round than stay at the club and eat there.

Based upon our analysis, we recommend the following:

A) After reviewing the financial performance of the Yacht Club and surveying demand, it is not feasible to simultaneously open and staff the Yacht Club and a full service restaurant (upstairs) at the country club.  This would simply duplicate costs and split the demand for dining within the community.
B) As detailed in the Capital Improvement section, we recommend that the downstairs be renovated into a larger, more aesthetically-pleasing grille room.  This would serve as the primary food option during the hours the golf course is open.

C) We recommend the lower floor, versus the upper floor, since it would benefit more from the natural flow of golfers before, during and after their rounds.  This is despite the fact that the downstairs kitchen is not as functional as the upstairs kitchen.

D) It is our recommendation that the upper floor dining are be improved, per the comments in the Capital Improvements section.  The venue would then bet best utilized as social space for special functions and themed dinners.

The golf industry has experienced a drop in more formal dining at country clubs for several years.  Many private clubs, to minimize losses, have closed their dining rooms and utilize them on a scheduled basis.

• For example, they may only serve dinner on a reservation-basis on the two busiest nights of the week.

• The upstairs dining room could continue to be utilized for special events and booked parties.  We do not see this as a conflict with normal club operations – it is common at most private clubs.  Nor, based upon our research, is there an issue with the liquor license that would preclude this.

• The upstairs dining room could also be scheduled for theme dinners – wine dinners, Italian night, steak and cigar night, etc. on a reservation basis.  This would also have the added benefit of increasing membership social activity.  See Exhibit “B” for sample events.

• These events could be served through the upstairs kitchen, with some repairs made, as well as through the shared kitchens (downstairs, if renovated, and the Yacht Club).

Financial Considerations:

 Presently, upon review of the financial performance, the Association’s food and beverage outlets result in a net loss for the Association – with the Beach Club showing the only net profit.

 If renovated as proposed, the grille room could be expected to generate a net margin of 5% - 10%, depending upon the mix of alcohol sales, on an annual basis.   The breakfast time service would most likely produce a net loss, while the post-round bar service could produce an offsetting profit.

 This endeavor would only work with the support of the full membership.  The members must support their club, and for such a private club we would recommend a food and beverage minimum to help justify the financial investment that must be made.  A minimum of $20 per month per member is not unrealistic and should not be an undue burden.

 Certainly, this will be controversial, as none of OPCC’s competitors charge minimums.  However, most of those clubs are supported to a larger degree by the general public and non-members, whereas the grille room at OPCC will be more of a private amenity.  Most of those courses are also more aggressive about selling golf outings and other revenue generating events to help support the restaurant operations.

 In summary, we believe our recommendation in this department would result in:

• Increased social activity in a renovated upstairs venue, produced on a reservation-basis to help increase profitability.

• Balanced use of the upstairs facility to allow for non-member events to provide the necessary cash flow (which should be recorded on the country club’s profit and loss statement).

• A new grille room that would help attract and retain members as well as attract non-member daily fee play, to the extent desired.

• The country club would becoming more appealing to non-golfers and may help the Ocean Pines resident better identify with the club being part of “their” community.

Closing Statement

 Ocean Pines Golf and Country Club has several significant challenges that must be addressed if the facility is to be self-supporting well into the future.

 Fortunately, although they do not always agree, the club is supported by residents and members whose sincere goal is for the club to prosper.  With this support unified behind a common plan, which we believe we have outlined, the club will be successful.

 Some of the changes and recommendations offered herein will be controversial and unwelcome by some.  However, we believe that the changes are in not only the club’s best interest, but also the community’s.

 Initially, our goal was to outline a multi-year action plan to implement the recommendations.  Based upon our findings, we strongly believe that the steps presented in this report should be acted upon within the first year – with the obvious adjustment for the possible course closure due to the drainage repairs.

 

Uploaded: 10/19/2006