Leisure industry feels the pinch

Some golf clubs and gyms are offering enticing deals, writes Caroline Madden

AS CONSUMERS pare back their budgets and forgo luxuries, the leisure industry is starting to feel the pinch. The good news is that a bonanza of enticing deals is coming on stream as golf clubs, fitness centres and health spas try to drum up business in a slowing market. On the downside, there have already been a number of high-profile closures in the leisure sector.

So what are your rights if your leisure or sports club becomes the latest victim of the economic downturn?

Last month, it emerged that the five-star Dublin golf resort Luttrellstown Castle is to close at the end of 2009, as the business is no longer financially viable. The 560-acre estate was bought by leading Irish businessmen JP McManus, John Magnier and Aidan Brooks in 2006, and a new club membership fee structure was then introduced.

Instead of charging a huge five-figure joining fee, as is the norm in the luxury golf market, it was decided that new members would only have to pay an annual subscription fee of €7,000. Unfortunately, Luttrellstown was unable to drive up membership numbers – or green fee revenue – enough to make this business model sustainable.

Luttrellstown differs from traditional private members’ golf clubs in that it is a “proprietary facility”, which means that the land is not owned by the club.

Instead, the club has a lease or licence with the proprietor or owner of the land that allows them to play there.

Private members’ golf clubs rarely disband (and if they did, the assets of the club would be sold and the proceeds shared among the full members who are effectively shareholders), but it is not uncommon for proprietary clubs to be wound down, or forced to move to another facility.

If the proprietor decides to close the facility, perhaps because it isn’t making enough money, the terms of the lease or licence will determine the rights of the club members. “Whatever licence agreement the club would have with the proprietor, it would be clearly stated that if either party wanted to terminate that licence agreement, then a certain amount of notice or an agreed date would have to be arrived at,” says Albert Lee, honorary secretary of the Golfing Union of Ireland.

In the case of Luttrellstown Golf Club, members received 12 months’ notice of the closure.

Luttrellstown did not respond to queries from The Irish Times regarding its closure, or refunds of membership fees.

However, as an upfront entrance fee was not charged, and any annual subscriptions paid for 2009 will presumably allow the members to play up until the facility closes at the end of the year, it seems likely that members who joined since the current owners took over will not be due a refund.

Luttrellstown is not the only proprietary course to find it impossible to turn a profit from golf in the current economic environment. The owners of Harbour Point Golf Club in Cork have announced that the facility will shut down in May of this year. Members were given advance warning, so they have time to look for another club.

In similar situations in the past, club members have sometimes decided to move en masse to a different course.

“We bought the course about four years ago, so anyone who paid us a joining fee is getting their money back, but anyone who joined prior to that isn’t,” says Mark Scally, Harbour Point’s chief executive. Annual subscription fees for the year from June 2008 to May 2009 have been waived.

Scally says that the main reason for the closure is that the club simply wasn’t commercially viable. “Everything was dropping – membership, our joining fee, but also green fees,” he explains. “I think it’s affecting every golf course across the country.”

There is certainly evidence that other high-end golf facilities are struggling. Last year, Doonbeg golf club recorded a loss of €7 million, resulting in accumulated losses of €28 million at the luxury Co Clare golf resort. The exclusive Greg Norman-designed golf course, which opened in July 2002, charges a stratospheric joining fee of €53,984.

It is believed that luxury golf courses which opened in recent years will struggle to attract new members if they maintain the astronomical entrance fees envisaged in their original business plans. There is already evidence that innovative courses are abandoning entrance fees and are simply charging annual subscription fees.

This is great news for younger golfers in particular, who might not be able to afford to pay a joining fee of €15,000 or €20,000.

Druid’s Heath, the newer course at the Druid’s Glen golf resort in Wicklow, is a prime example. “We had the capacity on Druid’s Heath and we felt, in the economic climate at the moment, there was an opportunity to utilise the facility as well as assist those who might not be able or may not want to pay a large amount of initiation fee to a club,” explains chief executive Denis Kane. The offer of membership for an annual fee of €1,500 has received a “phenomenal” response, he says. There has also been a flurry of “special” offers and discounts elsewhere in the leisure industry, not least the gym sector.

Many gyms are tackling the recession by dropping prices in a bid to tempt consumers to join, or to renew their existing membership. While these offers may seem attractive, consumers must be on their guard and should read the fine print before signing the dotted line. “Some gyms may advertise special incentives such as ‘first-time special offers’ with a reduced joining fee,” says the National Consumer Agency. “But remember that monthly subscriptions may have to be paid on top of the special offers.”

Signs are emerging that the leisure industry is bracing itself for a tough year by paring back on payroll costs.

It was recently reported that Ben Dunne was implementing pay cuts ranging from 3 to 15 per cent for all staff in his three Dublin-based fitness centres this month. He is also considering the possibility of introducing a three-day week for some staff, and a small number of redundancies may also be on the cards.

If your gym or leisure centre doesn’t survive the downturn and has to shut its doors, what are your rights? According to the consumer agency, if a club (such as a gym), shuts down, members’ rights will depend on the circumstances of the closure.

“Our advice to club members is that they should formally cancel their membership and standing orders or direct debuts with the bank,” the agency advises.

Usually, when a trader goes out of business, it owes money to a number of interests, the agency explains.

Under the liquidation procedure, priority is given to “secured creditors” such as banks and other lending institutions, and to “preferential creditors” such as the Revenue and employees who may be owed wages. Consumers are treated as “unsecured creditors”, which means that they must join a queue behind the secured and preferential creditors. They should put their claims in writing to the liquidator.

“The consumer’s claim will be met, or partially met, from what is left of the realised assets, once the liabilities to the secured and preferential creditors are met,” the agency explains.