Sticking to the (Capital) Plan

To prepare your club for the future, consider the past and gather the facts—and don’t ease up on the investment pedal.

By Ray Cronin, Founder & Chief Innovator, Club Benchmarking

Here in the United States, it is a fact that hundreds of private clubs have survived depressions, recessions, wars and just about every other imaginable economic circumstance. The goal of this article is to provide context, perspective and food for thought as we consider the current post-election environment.

At the end of Q1 2025, financial markets were experiencing significant turbulence, driven in large part by uncertainties around the current administration’s tariff battles with Canada, Mexico and the European Union. While market fluctuations may impact the overall economy and industries, including private clubs, our view is that a year from now, any given club’s situation will be more directly affected by decisions made by the board and management team than by the economic climate.

A year from now, any given club’s situation will be more directly affected by decisions made by the board and management team than by the economic climate.

Remaining Recession-Wary

The U.S. Bureau of Economic Analysis (BEA) is the organization responsible for determining whether a recession has occurred. The standard “rule of thumb” definition of a recession is two consecutive quarters of decline in gross domestic product (GDP). More specifically, the BEA defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”

The BEA did declare a recession in 2020 during the COVID-19 shutdowns. But it was clear that while the downturn was deep, it was the shortest ever. By definition, it was not a true economic recession tied to the business cycle. The period known as the Great Recession began in late 2007, with the BEA identifying the trough as mid-2009.

Except for the brief decline during COVID-19, the business cycle has grown continuously for the past 16 years. Previously, the longest expansion in U.S. history was the 10-year period between March 1991 and March 2001. Sixteen years of business- cycle growth is clearly significant; as such, at Club Benchmarking we are keeping a keen eye on the economy with the hypothesis that the U.S. economy is closer to a business-cycle contraction than it is to the beginning of a major expansion.

Market downturns during the Great Recession did send ripples through the club industry, but another factor also came into play—demographic changes, as the McMahon Group has noted. In 2016, demographic trends shifted from headwind to tailwind for clubs, as the driver of club membership shifted from baby boomers to millennials. Generation X, between the boomers and millennials, had 30% fewer people, meaning 30% fewer prospective members. That generational transition was the cause of the troubles in the club industry from around 2000 through 2016 when millennials began turning 42, which McMahon Group cites as the average joining age for new club members.

With more favorable demographics, the real question in post-election 2025 and beyond goes back to the economy and the stock market. Markets shun uncertainty. Coupling the tariff question with the odds running strongly against a perpetual business- cycle expansion, we can see a possible speed bump down the road.

Remaining Invested

Nevertheless, we believe that clubs must constantly and consistently invest, independent of business cycles. Proper and comprehensive capital planning ensures that clubs are continuously aggregating the capital necessary to meet future obligatory and aspirational capital needs. If clubs make capital planning a mission-critical, perpetual and strategic business process, they will be able to meet capital investment needs in both up and down business cycles.

Clubs must constantly and consistently invest, independent of business cycles. Proper and comprehensive capital planning assures clubs are continuously aggregating the capital necessary to meet future obligatory and aspirational capital needs.

It should be noted, however, that one key component of capital income is initiation-fee income. During the demographic headwind as new club members shifted from Baby Boomers to Generation X, particularly during and after the Great Recession (November 2007 to June 2009), approximately 50% of clubs decided to cut initiation fees to attract new members. While the economy absolutely impacted clubs, it was the demographic shift, not price, that was at the root of declining club memberships.

Changing prices as a means of reacting to demographic shifts was not a wise decision. As clubs look ahead and consider how things will look during 2025 and into 2026, a proactive consideration of your club’s initiation fee would be logical.

As clubs look ahead and consider how things will look during 2025 and into 2026, a proactive consideration of your club’s initiation fee would be logical.

As anyone familiar with the industry will recall, when clubs were cutting initiation fees during the mid-2010s, a scenario played out where a member with several years of tenure who paid an initiation fee of X would be sitting next to a new member who paid significantly less (sometimes 25% to 50%) for their initiation fee. That caused, and will still cause, ill will. During this time it also became clear that financing joining fees or offering refundability was not wise. From the mid-2010s through the mid-2020s, many clubs eliminated refundable initiation fees (if your club has not yet done so, now is a good time to consider it).

 

Getting Above Water

At Club Benchmarking, we track the ratio of initiation fee to net worth per full-member equivalent (FME). A simple analogy would be that joining a member-owned club is akin to becoming a partner in a partnership. Net Worth Per FME is the value of a share in the partnership and the initiation fee is what a “new” partner would be paying to become a partner.

At the end of 2019, 40% of clubs had an initiation fee that was “underwater,” meaning incoming members were paying less than the value of the club per FME. Even with the last several positive years and the changing demographics, about 27% of clubs were still in that situation in March 2025.

Club Benchmarking gathers data monthly from approximately 300 clubs to track members joining and leaving, the cost of belonging and the prevalence of wait lists across the industry. The 300 clubs are a statistically significant subset of the industry. From that work, we can see that the membership-growth breakout that occurred in 2021 and 2022 has flattened.

The membership-growth breakout that occurred in 2021 and 2022 has flattened.

 

Framing the New Outlook

Considering the post-election environment, the new administration and a thorough analysis of the initiation-fee data, these points frame our outlook for clubs in 2025 and into 2026.

While your club can’t control the economy, you are able to control your own processes. Comprehensive capital planning is always critical. Developing a comprehensive capital plan and a master campus plan while the economy is still growing will allow your club a smoother sail if and when the economy meets the next business-cycle contraction. Waiting until that contraction occurs will make changes—i.e., raising your capital dues—more difficult.

Considering your club’s initiation fee to net worth per FME is a critical piece of data to have in hand in good and bad economies. That ratio across the industry shows that weaker clubs with mounting deferred capital investment have seen a significant rise in their ratio. Their initiation fees are likely topped out.

If you are considering raising your entrance fee, you must be able to commit to holding that ground during an economic downturn, per the logic presented above. The board must agree and ensure that policy survives through leadership transitions. Understanding where you are today is critical.

A strategic capital plan with the proper level of recurring capital dues, coupled with a master campus and amenity plan, will be the most powerful antidote to anything the economy will throw at the industry. Entering a downturn without those critical processes in place will make a downturn unnecessarily painful.

There is change in the wind. The economy can’t soar forever, and clubs must embrace proper planning to assure insulation from things outside the control of the volunteer leadership and the management team. Predicting is a difficult task, but understanding the business cycle, what phase the economy is in and a few critical Key Performance Indicators will help your club prepare to meet the future.