PRO SHOP DECISION ASSESMENT TOOL

PRO SHOP DECISION ASSESMENT TOOL

Contents BACKGROUND... 3 Golf Club Landscape... 3 MOTIVATION FOR CHANGE... 4 Introduction... 4 Motivations... 4 Operating Challenges... 6 Satisfaction... 7 KEY CONSIDERATIONS CHECKLIST... 8 PRO SHOP DECISION ASSESMENT TOOL... 10 Benchmark Data... 10 PSDAT Logic... 11 Instructions... 11 I. Questionnaire... 11 II. PGA Contracted Scenario Model... 12 III. Inhouse Scenario Model... 14 IV. Scenario Outputs... 17 2

BACKGROUND A key question many golf clubs across Australia are considering is What is the most suitable operating structure for their pro shop? Clubs either operate the pro shop inhouse, outsource to a PGA Contracted Professional or adopt a hybrid model of sorts. Each club, in determining the most suitable structure, should be going through a reasonably detailed process to determine which option best suits their particular circumstances. This Pro Shop Decision Assistance Tool (PSDAT) has been developed to assist golf clubs in making such a decision. The Professional Golfers Association of Australia (PGA) regularly receives call from managers, professionals and in some instances, Club directors, seeking information on what strategy would be the best outcome. As a result, the PGA has engaged Golf Business Advisory Services (GBAS) to develop the PSDAT to assist golf clubs in their decision making process. Observations around this topic over time have seen a range of wellstructured and poor decision making processes alike. Good processes take an objective approach, consider all possible alternatives and then make a fact based assessment against predefined criteria. Poor decision making processes are often subjective, unsupported by facts and in some instances are driven by individual motivations or objectives. With golf facilities across Australia under increasing financial pressure, sound decision making is essential to ongoing financial health. It is hoped future decisions around the structure of a pro shop operation can be enhanced through the use of the PSDAT. Golf Club Landscape Golf Australia reports there are 1,583 golf clubs in Australia. The PGA advises there are 529 Clubs who engage at least one PGA Member (34%). Of this group, 328 Clubs (21%) have an outsourced arrangement with a Head Professional Contractor and 201 Clubs (13%) employ PGA Members directly 3

MOTIVATION FOR CHANGE Introduction For a number of reasons club boards and managers from time to time choose to review the operating model of their Pro Shop. With regard to the level of change evident in today s market, in a presentation made by GBAS to the Golf Management Australia national conference in 2013, it was reported that the pace of Clubs changing their Pro Shop operating structure has generally increased in the last 10 years. In totality 50 clubs have changed their operating model by insourcing (employing lead PGA Professional) on the 15+ years since 1999, with 23 having changed in that way since 2008. Up until 2008, the average club size making a change to insourcing in terms of members was 1030. Between 2008 and 2013 the average size was 833, suggesting smaller midlevel clubs are now potentially reviewing their options. Over the same period since 2008 over 100 PGA Head Professional contractor roles had come up for review by virtue of the contract ending or termination of the incumbent s services occurring. In that time, whilst 23 clubs made a change to the operating model, 77 clubs did not change and reengaged the incumbent under the same outsourced contractor model. The number of clubs, their size and the year in which the change in operating model was made is illustrated below. Motivations In August 2013 a GMA survey of golf clubs that have recently changed the operating structure of their Pro Shop was undertaken to identify what the main the motivations were in making the decision. The same survey questions were also put to a sample of PGA Professionals to provide a counter balanced view of these motivations. The findings, which illustrate the number of respondents who either agreed/strongly agreed with the respective motivation, are displayed in the chart below. 4

Several clear disconnects exist in the findings of the survey. PGA Professional respondents felt the main motivators which led a Club to make a change were financial. From the Club manager s perspective, the main stated motivating factors were improving overall services and improving the overall operating structure of the club. In 2011 the PGA undertook research which found in Clubs with 800 members or more, only 40% of PGA Professionals were involved in a formal performance assessment and review process. Irrespective of operating structure, it is critical Clubs and staff/contractors meet regularly to discuss performance related issues. For those Clubs who undertook a review, but elected not to make a change, motivations included: Not historically an area (retail or day to day golf operations) that the club has experience in 5

Club generally not large enough to support the operation Can t support 90 100 hours a week of customer interface Prefer outsourced operating/employment risk Operating Challenges Whilst there may be motivations for change, there are a number of additional operating challenges to be considered in any change process. These challenges include: Having another direct report to manage Cost of daytoday wages and HR/IR considerations Understanding the increase in accounts function Understanding stock control, turns and profitability Managing staff retention and turnover Understanding of the general added issues inherent in managing a new area of club operations Employment restrictions around required supervision of PGA trainees Transitioning PGA member understanding the new culture of being an employee Right balance within the retail stock mix Golf professional remuneration structure, including allowances for teaching and merchandise commissions Provision of game development services core to the skills of the PGA professional in areas of coaching and game development The 2013 survey also probed an understanding of operating challenges. Both Clubs and PGA Professionals were asked to rate the Club s understanding and preparedness to deal with the challenges above, with the findings in the following table showing those who felt they were in a good or very good position to deal with such challenges. 6

What is clear from the table above is Club Managers felt they were in a much better position to understand, confront and deal with the challenges involved in a change in operating model compared to the perspective of the PGA Professional. Satisfaction For those Clubs who currently work under a changed model or did change the operating model to an inhouse structure, the survey asked the manager (or their board) to rate how satisfied they were with the decision from a range of perspectives. The table below shows those managers who responded they were either reasonably or highly satisfied with the decision for each respective are of satisfaction. Area of Satisfaction % highly / reasonably satisfied Service standards 93% Golf Administration 85% Staff Structure 78% Financial performance 67% Coaching programs 67% The biggest motivating factor, being service standards, has provided the highest level of satisfaction after the change. 7

KEY CONSIDERATIONS CHECKLIST As a club potentially considers a review, the quality of outcomes from the both a Club and a PGA Professional perspective will largely be dependent on the scope and objectivity of the decision making process. A comprehensive evaluation and review process could result in a number of different structures and deliver a win/win outcome to all parties. Provided below are a list of considerations that should be assessed objectively in any Pro Shop review process. Area Consideration Completed (Y/N) Evaluation of Status Quo Have the goals and objectives of any potential change in Pro Shop operating structure been defined? Has a like for like financial evaluation of alternatives been completed? Has the manager/board surveyed members/customers to ensure their perceptions and views are well understood? Has the Club conducted regular formal performance reviews with the PGA Professional/Director of Golf in the past? Has the Club performed a skills and competency analysis on the staff (& the structure) required to be involved in a model change? The evaluation process has been conducted in a fair and transparent manner free of any personal bias or individual objectives. Club Self Assessment Were review objectives set at the outset to define the criteria to be satisfied for implementation of structural change? Does the club have the internal skills set to operate the Pro Shop? Does the Club have financial resources to fund the working capital and asset investment required? The Club has assessed its willingness to accept a less favourable financial outcome than the status quo in exchange for nonfinancial benefits. Potential motivations for change have been considered and discussed with all key stakeholders a long time in advance of any contract review timeframes. Potential operating challenges associated with a change in Pro Shop structure have been considered and planned for. 8

Area Consideration Completed (Y/N) The Club has adequate back of house resources to administer the Pro Shop operation and deal with an expanded operation. Staffing A realistic assessment of inhouse wage costs has been completed as part of the PSDAT. Realistic hours of work have been set for club employed staff and adequate casual coverage has been allowed in the base roster (contractors are more likely to do additional hours than salaried staff). The PGA Professional/Director of Golf is incentivised and has skin in the game in support and alignment to the Club s objectives. The club is aware of and has considered the requirements/limitations around employing PGA Trainees under an inhouse model. Customer Service Wages and salaries have been determined based on attracting suitably experienced and qualified staff, ensuring market rates have been adopted rather than simply relying on award minimum conditions. Any customer service gaps existing in the current structure have been defined, documented and given a reasonable chance for improvement. Identified issues have been communicated to the current Contractor/Director of Golf. Clear measurable objectives for customer service levels have been established and will form the basis for determining future performance. Financial The club has completed the PSDAT Model to provide a like for like objective financial analysis of the alternatives The Club considered and can fund out of cash reserves any investments a change in structure may require, including but not limited to: Range balls and buckets Hire clubs Point of Sale system Pro Shop fit out Inventory Repair equipment Golf carts and buggies Teaching equipment 9

PRO SHOP DECISION ASSESMENT TOOL Benchmark Data Golf facilities across Australia vary greatly in terms of rounds, members, revenues, assets, locale and staffing structures. As such, the creation of a one size fits all assessment tool is challenging. In addressing this challenge, the PSDAT enables users to select two key criteria against which they can benchmark themselves. Key criteria used in the PSDAT include: Annual subscription category Annual rounds category The above criteria have been adopted due to the benchmark data available for use in the PSDAT. Three sources of information are included as benchmarks in the Version 1 release, being: The 2013 Retail Operations Survey conducted by GBAS The 2011 Golf Club Salary Census Report conducted by GBAS (on behalf of Golf Management Australia) A data extract from the Golf Management Australia s Benchmarking Tool (data ranges from 2012 to 2014) The table below lists the number of Clubs which make up the data set relevant to each data source which is used by the PSDAT. Annual Subscription Range 2013 Retail Operations Survey GMA Benchmarking Tool 2011 Golf Club Salary Census Report Inhouse Other/ Contracted Inhouse Contracted Unknown* <$1,000 2 72 21 5 16 $1,000 to $1,500 3 10 13 5 11 $1,500 to $2,000 4 6 8 2 12 $2,000 to $2,500 7 8 9 6 12 $2,500 to $3,000 6 9 2 3 10 $3,000 to $3,500 5 5 5 9 3 $3,500 + 15 13 8 6 6 42 123 66 36 70 Annual Rounds Range 2013 Retail Operations Survey GMA Benchmarking Tool Inhouse Other/ Contracted Unknown* <40,000 9 97 30 40,000 to 45,000 11 9 8 45,500 to 50,000 6 5 8 50,000 to 60,000 8 4 10 60,000 + 8 8 10 42 123 66 *Some clubs have not entered annual round volumes and/or subscription rates and therefore fall into the lower range classification. Only clubs which have responded to benchmark indicators have been used in the comparative data set. The respondent profile in the above surveys is skewed towards private and semiprivate golf clubs. This information should be considered in evaluating outputs of the PSDAT as results may be statistically unreliable due to the limited sample size available. 10

PSDAT Logic The Chart below illustrates the logical process users should follow in using the tool. Complete Questionnaire Annual subscription range Annul rounds range Enter baseline financials PGA Contractor Scenario Retainer Commissions Cost Contributions Inhouse Scenario Base roster Staff mix Revenues Expenses Scenario Outputs Financial Evaluation The objective of the tool is to enable the comparison of the current position to two alternate states. The first state being a theoretical PGA Contractor agreement and the second state being under a theoretical inhouse operating model. Instructions The following instructions are presented in line with the tabs in the workbook. Cells which are not to be edited are locked to maintain model integrity. Any cells requiring you to enter values will be shaded in light green (the value may be zero). I. Questionnaire This tab required you to provide some information about your Club and also the current financial position. a. Please select the correct categories which apply to your Club by selecting from the drop down list in each cell. About Your Club Select your home State VIC In what range does you annual subscription fall? $2.5k to $3k How many annual rounds have bene played over the past 12 months? 40k to 45k What is the current structure in place PGA Contracted b. Enter revenue and expense details in Column B. Each items enables you to also include a current commission percentage. Note, if a value of a revenue item is zero, the cells are greyed out as per below. Revenue Arrangements Please enter the gross amounts (ex GST) and inclusive of commissions COGS Pro Commission Green Fees Enter existing Pro Revenue % 10% Cart Fees Enter existing Pro Revenue % 25% 11

Where there is a value entered, the commission percentage cell changes to green shading as illustrated below. Revenue Arrangements Please enter the gross amounts (ex GST) and inclusive of commissions COGS Pro Commission Green Fees 100,000 Enter existing Pro Revenue % 10% Cart Fees 20,000 Enter existing Pro Revenue % 25% For retail (golf and F&B) there is also an option to enter a cost of sales percentage, if applicable. On the expense side, there is the option to show the part of the club s cost is recovered from the contactor by entering a value in Column F. In the example below, the contractor contributes 50% of cleaning and utility costs. Direct Expenses (enter gross amounts if known, ex GST, else leave blank) Advertising and Promotion Enter existing Pro Contibution 0% Cleaning and Utility Costs 15,000 Enter existing Pro Contibution 50% At the conclusion of the questionnaire the Current Annual Club Result should equal the most recent annual trading performance for your Pro Shop. II. PGA Contracted Scenario Model This tab builds a hypothetical remuneration model for a contractor s agreement. The model allows for the following components of a potential contractors agreement. a. Select which of the available items are applicable in the hypothetical contractor s agreement by selecting Yes/No from the drop down boxes in Column D. Item Range Min Range Max Applicable Service Fee / Retainer 394 1,202 No Green Fee Commission 5.8% 11.4% No Golf Cart Commission 25.0% 70.0% No Range Ball Commission Competition Fees (% of Rev) 1.7% 8.1% No Competition Fees (player) Starters Fee (per Comp) Handicap Admin (per Comp) Handicap Admin (per Card) b. Columns B and C contain a maximum and minimum range of values from with the benchmark dataset. These vary significantly and should be considered the outliners for each variable. c. Once various components have been selected as Yes/No, you must then enter the respective values for each component in Column F. Base values for green fees, cart hire and competition fee revenues all flow from the questionnaire. In the example below, the retainer has been set at $1,000 per week, 10% of green fees, 30% of carts and 30 cents per processing of competition card. Competition Fees are set as being not applicable. When including a Handicap Administration component, the number of No No No No No 12

competition rounds needs to be entered in cell E12 also. Item Range Min Range Max Applicable Base Specify Value Unit Amount Service Fee / Retainer 394 1,202 Yes 1,000 per week 52,000 Green Fee Commission 5.8% 11.4% Yes 100,000 10% per $ 10,000 Golf Cart Commission 25.0% 70.0% Yes 20,000 30% per $ 6,000 Range Ball Commission No 0% per $ Competition Fees (% of Rev) 1.7% 8.1% No 0% per $ Competition Fees (player) No per Player Starters Fee (per Comp) No per Comp Handicap Admin (per Comp) No per Comp Handicap Admin (per Card) Yes 30,000 0.30 per Card 9,000 Projected PGA Pro Contract Fee 77,000 d. The PSDAT also provides the ability to model contributions to costs being incurred by the club. Information entered in the Questionnaire flows through, with an override percentage option for each cost element. If you wish to model a cost recovery contribution enter a value in Column F for the respective expense line. EXPENSES Current Value Current Pro % Override Pro % Advertising and Promotion 0% 0% Cleaning and Utility Costs 15,000 50% 0% COGS Merchandise/Retail 0% 0% COGS Food and Beverage 0% 0% COGS Tuition 0% 0% Depreciation 10,000 0% 0% Employment Costs 0% 0% Golf Cart Costs 20,000 0% 0% Insurance 0% 0% inting, Postage and Stationery 0% 0% Range Balls 0% 0% Technology Systems 15,000 0% 0% Trophy and Prizes 40,000 0% 0% Other 0% 0% Scenario Cost Recovery Projected Cost Recovery 7,500 7,500 e. Once the hypothetical package has been completed, the lower section of the page provides a benchmark reference against data for clubs who are in your same annual subscription and annual rounds categories. Where N/A values are returned it means a comparable data set was not available. In the example below, the benchmark package is $73,300 which is used as a reference point. The projected package of $69,500 (retainer less cost recovery) is therefore 94.8% of the benchmark. 13

Benchmark Reference Points Based on Your Facility Profile Subscriptions Rounds $3.5k and over 45k to 50k Base Retainer Your Value 52,000 Well 52,000 Subscription Category 65,958 Under 70,151 % of benchmark 79% 74% Green Fee Percentage Your Value 10.0% 10.0% Well Over Subscription Category 3.5% 5.3% % of benchmark 286% 189% Cart Fee Percentage Your Value 30.0% 30.0% Well Over Subscription Category 25.0% 11.9% % of benchmark 120.0% 253% Well Under Well Over Well Over Competition Fee Percentage Your Value 0.0% 0.0% Subscription Category 2.5% 0.0% % of benchmark 0.0% #DIV/0! Contractor Package Total (Calculated) Your Value 69,500 In line 69,500 Subscription Category 74,458 with 77,827 % of benchmark 93.3% 89.3% Contractor Package Total (Benchmark) Your Value 69,500 Well 69,500 Subscription Category 93,042 Under 114,379 % of benchmark 74.7% 60.8% Under Well Under III. Inhouse Scenario Model This tab builds a hypothetical financial model for a, inhouse club operation. The model focuses on the revenue and cost profile of this scenario, paying particular attention to labour costs. a. The first requirement is to enter the actual number of rounds and also the retail spend per round. For the retail spend, again a max and a min are provided in addition to the average vale for clubs in your category. Unless a specific reason exists to select another value, it is recommended your category average be used. Rounds and Average Retail Your Category Min Max Value Used Enter Actual Rounds for past 12 Months 44,500 Retail Spend Per Round 10.44 7.14 10.89 10.44 b. The next requirement is to enter values required to project your likely labour cost. The first step is to build the hypothetical roster. This is based on entering the average number of hours of staff coverage would will require on various tasks throughout a normal week. The PSDAT provides for shop, range, marshalling and Admin/Other hours. For each day of the week enter the number of staff coverage hours required (if two people are on concurrently in the shop then that counts as two labour hours for which hour the shop is open). 14

Employment Costs Template Roster Labour Hours By Day (Avg Winter and Summer 0.5 = 30 minutes) Shop Range Marshall Admin/Oth Mon 16.0 4.0 20 Tue 16.0 16 Wed 22.0 4.0 6.0 32 Thu 16.0 4.0 20 Fri 16.0 4.0 20 Sat 22.0 4.0 6.0 32 Sun 16.0 2.0 4.0 22 Weekly Hours 162 Annual Hours 8,424 c. Once the roster is complete, you need to enter the profile of the Full Time Employee. Enter the base number of weekly hours for your standard full time positions. Full Time Employee Profile Annual Hrs Annual Leave Sick Avg Work Hours Weekly Hours 40 2,080 160 72 1,848 Full Time Equivalent Employees Required 4.56 d. The requirement in projecting staff costs is to determine the staff mix proposed and the respective wage costs for each position. Position provided for in the PSDAT include a Manager/Director of Golf, supervisory, services attendant and PGA Trainee. The first requirement is to enter the number of full time equivalent staff by position. The second step is to confirm the average annual hourly rate which will apply to each position. The PSDAT include a base wage rate for each position in Column D, but also provides the preferred position of an override rate when your club elects to pay above award wages in the form of a marketrelative salary. Staff Mix Position Full Time Staff Work Hours Base Rate Override Rate Roster Cost Manager/Director of Golf 1.0 1,848 31.25 65,000 Assistant Manager/Supervisor 0.0 21.63 Services Attendant 2.0 3,696 16.83 70,000 PGA Trainee 1.0 1,848 16.59 34,500 Subtotal FTE Wages 4.0 7,392 169,500 Full Time Coverage 7,392 Residual Casual Coverage 1,032 29.45 30,389 Subtotal All Wages 199,889 Oncost 18.0% 0.0% 35,980 Total Wage and Oncost 235,870 The final result is a projected labour cost based on your model roster, staff mix and average hourly rates. e. The next requirement is to enter all of the projected revenues for the inhouse operation. Base values which have been entered in the Questionnaire earlier flow through, however each revenue line has an override capability in Column D. For retail sales and tuition incomes provides the ability to enter a Cost of Sales percentage. 15

REVENUE Current Value Override Value COGS % Scenario Value Green Fees 100,000 100,000 Cart Fees 20,000 20,000 Competition Fees Merchandise/Retail 464,580 65.0% 464,580 Food and Beverage 75,000 35.0% 75,000 Range Balls 15,000 15,000 Repairs 5,000 5,000 Tuition 50,000 80.0% 50,000 Other 5,000 5,000 Total Revenue 734,580 f. The final part of building the inhouse scenario is to enter the cost profile. Costs which are pegged to revenues are automatically calculated and wage costs flow from the model roster and staff mix completed earlier. Again, base values from the Questionnaire flow through with provision for an override amount to be entered. EXPENSES Advertising and Promotion Cleaning and Utility Costs 15,000 15,000 COGS Merchandise/Retail (from above) 301,977 301,977 COGS Food and Beverage (from above) 26,250 26,250 COGS Tuition (from above) 40,000 40,000 Depreciation 10,000 10,000 Employment Costs (from roster) 238,712 238,712 Golf Cart Costs 20,000 20,000 Insurance 5,000 5,000 Printing, Postage and Stationery 5,000 5,000 Range Balls Technology Systems 15,000 25,000 25,000 Trophy and Prizes 40,000 40,000 Other Total Expenses 726,939 g. Once the hypothetical inhouse model has been completed, a benchmark reference against data for clubs who are in your same annual subscription and annual rounds categories is provided. Comparisons are provided for merchandise sales, wages as a percentage of revenue and gross wage costs. Benchmark Reference Points Subscriptions Rounds $3.5k and over 45k to 50k Merchandise Sales Your Value 464,580 464,580 In line with Subscription Category 499,641 452,764 % of benchmark 93% 103% Manager/Director of Golf Salary Your Value 61,750 61,750 Well Under Subscription Category 106,242 101,200 % of benchmark 58.1% 61.0% Assistant Manager/Retail Manager Salary Your Value Subscription Category 51,000 60,000 % of benchmark 0.0% 0.0% Wages as a $ Value Your Value 238,712 238,712 Well Under Subscription Category 465,935 353,692 % of benchmark 51.2% 67.5% In line with Well Under Well Under 16

IV. Scenario Outputs If outside a variance range you should reconsider or assess some of your assumptions. The final tab provide a read only comparison of the current situation against the model contractor and inhouse options. SCENARIO OPTIONS GBAS GOLF CLUB LIMITED CURRENT SCENARIO SCENARIO 1 SCENARIO 2 Structure PGA Contracted PGA Contracted Club Operated Gross Pro % Gross Pro % Gross Revenues Green Fees 100,000 0% 100,000 10% 100,000 Cart Fees 20,000 0% 20,000 30% 20,000 Competition Fees 0% 0% Merchandise/Retail 464,580 Food and Beverage 75,000 Range Balls 0% 15,000 Repairs 0% 5,000 Tuition 0% 50,000 Other 0% 5,000 Total Revenue 120,000 120,000 734,580 Expenses Advertising and Promotion 0% 0% Cleaning and Utility Costs 15,000 50% 15,000 50% 15,000 COGS Merchandise/Retail 0% 0% 301,977 COGS Food and Beverage 0% 0% 26,250 COGS Tuition 0% 40,000 Depreciation 10,000 0% 10,000 0% 10,000 Employment Costs 0% 0% 238,712 Golf Cart Costs 20,000 0% 20,000 0% 20,000 Insurance 0% 0% 5,000 Printing, Postage and Stationery 0% 0% 5,000 Range Balls 0% 0% Technology Systems 15,000 0% 15,000 0% 25,000 Trophy and Prizes 40,000 0% 40,000 0% 40,000 Other 0% 0% Pro Retainer/Service Fee 52,000 Pro Commission 25,000 Pro Cost Recovery 7,500 7,500 Total Expenses 92,500 169,500 726,939 Projected Club Result 27,500 49,500 7,641 Variance from Current 77,000 19,859 17