In a recent post we provided an analogy of the lease of MCA’s sports complex assets to The Meadows Country Club. If you haven’t read that please click the link and give it a read. It will be good context for this post.
This analysis reflects changes from the MCA’s recent announcement that it would take over operating the fitness center and pool.
First, MCA Homeowners are paying for about $540,000/year of TMCC’s normal operating expenses (property taxes, insurance and MCA assessments on the leased assets). (footnote 1)
Second, MCA Homeowners are out at least $400,000/year for the $8 million of sports and dining complex assets it leases to TMCC. Any reasonable person or business would expect to be paid an appropriate amount for the use of those assets. We’ve assumed a very conservative 5% return, which on $8 million would be $400,000/year (footnote 2)
Third, MCA Homeowners are/will be paying an average of $1.5 million/year for capital maintenance and replacement. The lease requires MCA to pay for all capital maintenance and replacement over $10,000. This is both the largest, least transparent, and most difficult to quantify cost.
In asset-intensive businesses like golf courses, tennis, and dining, the business will have large infrequent expenditures to maintain and replace assets as a result of normal wear and tear. Examples are the $2 million MCA paid in 2021 to refurbish the Regency Room in the clubhouse and the Meadows/Members golf course. The MCA Board recently disclosed that our clubhouse building needs $3.6 million to get it back up to standard. We’ve heard repeatedly that the Highlands course has to be re-done from tee to green. There will undoubtedly be more to come.
How much does a facility like ours need to generate annually to cover these costs over the long-term? Based industry data collected by Club Benchmarking, TMCC should be collecting $1.8 million per year for capital maintenance and repairs. Per their 2022 financials, TMCC collected about $300,000. That means the $1.5 million shortfall has to be paid by MCA Homeowners per the terms of the lease.
That is a big number and there have been “hints” of big expenses coming from TMCC and MCA leadership (more on this in an upcoming post). We won’t see expenditures of that amount every year, we will see larger expenditures every few years (or longer). (footnote 3)
What is MCA’s actual compensation under the lease with TMCC? For the first 6 years of the leases, TMCC paid $10.00/ year. Under the current 17-month lease, TMCC is paying MCA $65,000/year.
In summary, MCA’s subsidy of TMCC is/will be:
$540,000 + $400,000 + $1,500,000 – $65,000 = $2,375,000 PER YEAR
TMCC insiders know this very well. It is why some TMCC members said the MCA was going to be TMCC’s “piggy-bank” when MCA bought the assets 2018.
In order for TMCC to become self-sustaining (increase income by $2.4 million) it would need to either:
1. Raise all membership, cart and green fees by 40% AND not lose any members or public play.
2. More than DOUBLE their annual Gold or Platinum members (they currently have 139 and would need another 160)
THIS IS THE REALITY:
There is no possibility that TMCC is going to be able to pay the full costs to operate their private club.
MCA Homeowners have to find a better way to use our sports and dining complex assets. Hiring an independent golf industry expert, who reports their findings to MCA Homeowners is the best first step to identify and understand our alternatives for utilizing our sports and dining complex assets.
Please share this information with your friends and neighbors, and ask them to vote for new MCA Board members who will focus on MCA Homeowner interests, not TMCC private club member interests.
Contact us at ForTheMeadows@SarasotaMeadows.com
Footnotes (the details behind statements above)
(1) $540,000 per year operating subsidy
From 2020 to 2023 MCA was directly paying $600,000 to TMCC. This provided little benefit to MCA owners and no incremental cost to TMCC. But at least it was visible and somewhat transparent.
In 2024 MCA began paying $416,000 of property taxes + insurance of TMCC and burying it in MCA’s expenses, with the balance paid in cash to TMCC ($184,000 in 2024). This did have the benefit of MCA making sure the insurance and property taxes were paid up, but the MCA President spun this as the fee dropping from $600,000 to $184,000. Maybe technically true but highly misleading and incomplete. The MCA’s budgeted insurance cost for 2025-26 has increased by about 1/3rd (not due to this change) so we are estimating that the cost of insurance related to the leased assets has gone up $70,000. With that increase TMCC operating costs paid by MCA are estimated at $416,000 + $70,000 = $486,000.
In 2024, the new asset lease dropped the requirement for TMCC to pay the MCA assessment on the leased assets. This is estimated at $50,000.
$486,000 + $50,000 = $536,000. We’ll round that to $540,000 for simplicity.
The MCA President and Treasurer present this as “in lieu of the Renaissance Access fee” but with the MCA now operating the pool and fitness center, the only benefit MCA Homeowners now get is 25% off the Highlands and Groves course + ability to play the Meadows/Members course on the 3rd Saturday of the month after noon at full rate. There is no longer a façade of getting something in return. It is purely a subsidy.
Summary: MCA Homeowners are paying $540,000 of what would be normal operating expenses for any other company in The Meadows (or the lessee would need to compensate the lessor for these costs).
(2) $400,000 per year for use of sports complex assets
MCA leases $8 million of sports complex assets to TMCC ($6 million for the original asset purchase + $2 million of upgrades in 2021(?)). How much should MCA be compensated for the use of the assets?
You could look at it from an investment return perspective. For this type of property and risk 5% would be a very low rate of return.
You could look at it from a carrying cost perspective and calculate the interest on borrowing. MCA has been paying 4.25% interest. We are fortunate it is this low. It will likely be higher over the life of the loans.
5% is a very conservative return expectation/lost revenue/interest paid. Maybe 10% or more would be more appropriate, but even with this very conservative assumption, the amount of the total subsidy is HUGE. Debating a more precise amount is just a distraction to the more important discussion of how to eliminate these costs for MCA Homeowners.
Now that TMCC members will be using assets operated by MCA (pool and fitness facility), TMCC should by paying MCA for access to those facilities by non-resident members. But we haven’t included that here.
Summary: $8 million * 5% = $400,000 per year in investment return/lost revenue/interest paid.
(3) $1,500,000 per year for capital maintenance and replacement (“CM&R”)
Large asset-intensive businesses like golf courses, tennis clubs, and dining facilities need to be able to fund large infrequent expenditures of significant maintenance of their assets or replacement of them. Sometimes significant maintenance is the right choice, but most assets need to be replaced at some point (even golf course grass in Florida!). Not doing maintenance will ultimately lead to an earlier asset replacement. Due to lack of funds, low maintenance has been TMCC’s approach for a decade or more.
Club Benchmarking is an organization that aggregates data from clubs, analyzes it and sells the findings to clubs. It is a great way for organizations to understand how they stack up. This Club Benchmarking video presentation articulates their findings on capital planning. Here are the key items from the video that are relevant to this discussion:
- The best indicator of a club’s success is how much it collects/invests for CM&R. (discussion starts around 3:00 in the video, with conclusions around 9:00) The best clubs collect enough to spend on “Aspirational Capital” (additions and improvements to the facilities). But clubs have to cover at least their “Obligatory Capital” needs (maintain and replace current facilities).
- The average club collects “capital income” equal to 18% of their operating revenues (starts around 11:00 in the video) to spend on CM&R. This generally covers on Obligatory Capital, not Aspirational Capital. TMCC has stated recently that they generate $10 million of revenues (MCA has said the same). Based on this, if TMCC was an “average” club, they should be collecting $1.8 million for CM&R: $10 million * 18% = $1.8 million. The top clubs collect capital income of over 40% (a lot of it likely through initiation fees). The very bottom clubs collect around 3% (this is exactly what TMCC collects).
This is a great video if you can invest an hour in watching it.
This is the basis of the $1.8 million amount required annually for CM&R. Again, one could quibble about the 18% amount, but the need to spend significant funds over the long term on CM&R is not debatable.
Per TMCC’s 2022 financial results, they collected $285,646 (pg 9) which we’ll round to $300,000 for simplicity.
If $1.8 million is required per year, and TMCC is collecting $300,000, that leaves a shortfall of $1.5 million which MCA Homeowners will need to pay per year on average. Most TMCC and MCA leadership acknowledge that CM&R funds will come from MCA Homeowners (the MCA President claims TMCC will pay for the Highlands capital improvements but that is not possible).
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