Clubonomics: Could a small club like Blades survive?
How does a club with only 200 members maintain palatial premises in St. James's?
On my recent post about the fictional Blades club in the James Bond novels, one reader asked:
“I really don't understand how a club limited to 200 members could survive financially. More on club finances please.”
I am happy to oblige. Perhaps a healthy start would be to look at these institutions not as clubs, but as businesses, each with a balance sheet of their own.
INCOME
Let’s begin with some of the most common sources of income for any club:
Annual subscriptions, which are the lifeblood of any club, and can typically account for around half of all income. The value to a club of its subscriptions is in their regularity, and their being guaranteed income. Train strikes, health crises, and acts of God like freak storms might all deter a member from using their club as much (and so may dent a club’s trading income); but subscriptions will always come through, no matter what.
Joining fees – which are a one-off levy. These can typically be anything from twice an annual subscription, to a small fraction of a subscription.
Food and beverage income, from members and their guests using the Club. This can be irregular and unpredictable, subject to considerable flux between the seasons, or even day by day. (The run-up to Christmas tends to be the busiest time for Clubland dining, while the early months of the New Year can be the quietest.) It’s also worth noting that the profit margins on these to the club can be low; certainly lower than found in a commercial restaurant.
External events, which can include a large food and beverage element, but also additional sums like room hire fees. This can include everything from small-scale business meetings, to full-scale weddings that book out the entire clubhouse at weekends.
Investment income. Clubs often hold significant investment portfolios, whether in stocks, shares and bonds, or in directly managing investments of their own, such as being property landlords receiving substantial rental income.
Borrowing, which traditional clubs are generally loathe to undertake, except on a very limited scale around specific projects. By contrast, many of the newer clubs are based on heavy borrowing – a quick glance at accounts on Companies House will show several in London that have recorded debts of between £23 million and £78 million within 18 months of opening, on a business which has a middle-range seven-figure annual income. Clubs can also borrow to expand, for instance if setting up a new clubhouse in a new location, which seeks to maximise profit so as to prop up the less profitable parts of the club’s brand.
Although not so common in the UK, there is a culture in the USA of capital assessments. These resemble a subscription windfall, in that they ask for a large sum of money – often comparable to, or even larger than a year’s subscription - to raise money for capital expenditure projects. They can be highly controversial and unpopular with members (since it is not possible for members to opt out without resigning), so they tend to be treated as a last resort.
EXPENDITURE
Staffing, like in most businesses, is usually the largest single line item in any club’s budget. Wages can vary from top to bottom, but the more elaborate a club’s facilities, the larger its staff. There are also associated costs, like the administration of the staff Christmas appeal (though the running of this can be a decentralised, staff-run affair, especially if run as a tronc scheme), pension costs and training budgets.
The clubhouse will vary wildly in the costs involved. Around half the historic clubs of London own their freehold outright – often bought decades (or centuries) ago, when prime central London real estate was much cheaper. The remainder have some form of lease, though a lot of historic clubs tend to have a long lease on a peppercorn rent. Modern clubs tend to have commercial rents, leases, licences or mortgages based on modern valuations of London property prices, meaning that they can easily spend six- or seven-figure sums a year on paying for their building.
Food and beverage is not only a major income area, but an area of considerable expenditure. As well as the cost of raw supplies, there is the cost of storage (which has significant implications in areas like the cellaring of wine), and also spoilage as ingredients fall past their prime. (An effective club dining operation minimises spoilage through the timely recycling of ingredients, explaining the popularity of items like pies and curries on many club menus.)
Accommodation, which is often thought of as a source of income for clubs, but which is usually run at a loss. Clubs seldom have bedrooms open to the public, and so they cannot follow the “70% occupancy, 90% of the time” or “90% occupancy, 70% of the time” models which are the cornerstone of most hotels. It is also rare for most clubs to have more than one or (maybe) two dozen bedrooms, and so they have to meet all the overheads of maintaining and servicing bedrooms, while enjoying none of the economies of scale of a hotel.
Bills, just like any other business. Since Putin invaded Ukraine, clubs have been hit by the same massive hikes in energy bills seen everywhere else; while the rises in central London business rates over the last decade have been 400% in real terms, in some central London boroughs.
Depreciation touches on everything a club does – not only up-to-date equipment such as office IT and private hire AV; but everything from kitchen equipment to staff uniforms will require periodic replacement.
Cultural capital, especially in a club’s art collection. Over time, this can lead to the Club owning assets (such as art collections) that are significantly more valuable than the clubhouse itself. But such collections need careful curation, and also require considerable expenditure on security, maintenance and restoration.
Building maintenance, which can be particularly expensive in historic buildings, especially if they are Listed, as it can make the occupant legally responsible for timely maintenance whilst using like-for-like materials and building methods. London clubs were often historically quite poor at budgeting for long-term maintenance – an approach which carries the risk of ruinous unforeseen last-minute repair work, all tumbling down at the most inopportune moments. As well as the significant capital expenditure required on maintenance of existing buildings, there is also…
Capital expenditure on major new expansions to facilities, for instance, when an existing club sets out to develop a new wing or building, offering members new facilities. These are often an attempt to “future-proof” the Club by anticipating growing demand in a new area, i.e. gyms, outdoor sports facilities, co-working space, etc. While they can bring about a renaissance in club fortunes, they need to be carefully considered based on appropriate data, budgeting, management and execution – nobody wants to spend an eight-figure sum on a white elephant.
Compliance, which is an area of increasing expenditure, on everything from data protection legislation in the GDPR age, to the seeking of expensive legal advice.
The unexpected. It can and does happen, from a 30% hike in the annual Business Rates, to an urgent repair which cannot be avoided. Things involving water can be particularly damaging: everything from a burst pipe causing damage throughout a historic clubhouse, to a previously-undiscovered underground stream flooding the basement.
CLUB ACCOUNTING
Clubs have moved a long way in recent decades, from the centuries-old practice of being run by amateurs as a hobby. Most clubs now have a full-time finance department, as well as robust in-house audit of both management and expenditure. This has been assisted by the recruitment of professionals with a strong finance background, to both Secretary/CEO and CFO roles. But many clubs have still inherited some traditional types of club accounting, most notably the divide between “House” income & expenditure paid for by subscription income, and “trading” income & expenditure traditionally covered by members’ use of the clubhouse, though increasingly subsidised by external conferencing & banqueting.
Clubs are often thought of as hospitality businesses, but they behave in quite different ways. In club accounting, the “House” account is the cost of maintaining a club even if it provides no services to members: administration of the membership list, maintenance of the building, etc. Of course, any restaurant would have to meet similar overheads through regular customer income from meals; so in practice, the subscriptions provide an element of subsidy, since the club’s food and beverage offerings are able to provide meals without worrying about covering such overheads.
There are other differences, too. By and large, clubs are not as profitable as private restaurants. This may be by accident or design. Some clubs are not-for-profit, but this is not the same as being unprofitable – despite what some committee members might occasionally think! This might seem like a gratuitous jibe, but it is an important point: there is something in the “not for profit” nature of member-owned clubs which lends itself to optimistic committee members across Clubland already thinking of ways to spend any income three or four times over, before that sum has even been raised. Great discipline is therefore required in separating out gross income from profit, and then sub-dividing profit between short-term, medium-term and long-term needs.
Of course, not all clubs are profitable; and when clubs are losing money, they usually fall back on reserves. For this reason, it is important for clubs to build considerable reserves, which are diversified in their holdings. Most clubs I have looked at over the centuries have made a loss about two-thirds-to-three-quarters of the time. For that reason, it is important to not only maximise the number of years in which a club turns a profit, but for those years to be very profitable indeed. Rightly or wrongly, the natural trend in many clubs the world over has been towards historically poor management of assets; and while it is of course highly desirable to avoid such poor management altogether in future, it is also prudent to factor in that future club governance might not always be as competent as the current administration.
The elephant in the room is often the ownership of the club – which does so much to determine its overall direction. Prior to the 19th century, clubs were not run by their members at all, but were run as profit-making proprietary clubs. Since they did not yet see themselves as institutions, but as more transient businesses, they could afford to cut corners, for instance, by not worrying about the long-term maintenance of their buildings.
With the 19th century move towards member-owned clubs, which functioned more as a collective, there were associated long-term costs, but also the benefits of having a freehold or a peppercorn rent on a long-term lease. These 19th century “institutional” clubs could also plough any profits back into the club itself.
Modern clubs today have tended to return to the 18th century proprietary model, meaning that the owners and investors will want a significant commercial return – otherwise they are likely to close the club down, or to find another buyer (who themselves will want to turn a profit, and may well have bought the club from its previous owner on the premise that they could run it in a way that extracted even more profit than the previous owners).
Any club owner – whether an external proprietor, or the members collectively owning the institution – will have an asset management policy. It may be separated out by area (i.e. the art collection distinct from the property portfolio), or it may all be managed centrally. Clubs which aspire to longevity tend to separate out their cultural assets from their investment assets – typically, a club’s Trustees would ultimately own items like the art collection, while the management team would run the investment portfolio. This is wise, for it removes the temptation, when times are tough, for the management to make short-termist decisions at the expense of the club’s cultural heritage. And this divide can be seen among the archives of clubs that have moved from proprietary to member-owned model: for instance, Boodle’s has an extensive archive covering the period since it became a member-owned club in 1891; but its archive has very little from its years as a proprietary club in 1762-1891 – successive private landlords saw little value in maintaining an archive, when they had a business to run.
SUBSCRIPTIONS
Club subscriptions can be a matter of some speculation, because most clubs do not publicly advertise them. Some of the guesswork is wildly out – like the Evening Standard’s recent speculation that, “An annual membership at White’s - London’s oldest gentleman’s clubs - is rumoured to cost £85,000”, which is a ludicrously embellished figure, nearly 50 times the true cost.
There are some commonalities in subscription trends. Today, the vast majority of traditional London clubs tend to have annual subscriptions around the £2,000 mark, certainly within £500 ± of that. Clubs that have a greater focus on mass-membership and inclusivity, or which only offer partial services (such as those lacking accommodation, or those only open for part of the week, or for part of the day) can cost around £1,000, or even a few hundred pounds a year. Very informal drinking clubs might cost only a few dozen pounds a year. Modern, proprietary clubs tend to be far more expensive than traditional aristocratic clubs – “new money” establishments usually charge upwards of £3,000 a year, and even £5,000 a year. The high-end casino gambling clubs (of the kind that Blades is a pastiche) can charge £25,000 a year, plus a minimum spend at the casino – though these often have tiny paying memberships.
SIZE
Size matters. Clubs can be almost as big or as small as they like. Historically, there has been a tendency towards small clubs, for two reasons: encouraging greater intimacy among the members, and perceived greater “snob” value. This often led clubs to have a cap on membership, and a waiting list (a whole area deserving of a post of its own – though you’ll find plenty on that in the “Clubonomics” chapter of my last book).
Against that, a common cause of club closure has been that the Club’s “footprint” was too small. For instance, we may look at the case of the short-lived Westminster Reform Club, which was on Great George Street, off Parliament Square, from 1834 to 1836. The members there wanted a prime clubhouse in the heart of London, with the most extravagant furnishings, and the best chef, open at all hours. They also didn’t want to pay very much. And there were only 105 members. Unsurprisingly, they spent the whole of their brief history in debt, and went bankrupt. They were to be replaced in 1836 by a new, expanded Reform Club, which made a point of recruiting at least 1,000 members – so that they had the membership base to fund the palatial clubhouse they envisioned, which they still occupy today. This is typical of how throughout history, costs have often driven London clubs towards larger memberships, to meet their spending commitments.
A club’s financial footprint can be broadly calculated when you multiply the number of members, by what the average member is prepared to pay annually. Of course, there are exceptions to this, because one-off revenue windfalls can happen, whether due to unexpectedly healthy dividends on investments, or one-off appeals for cash. But generally speaking the formula of
Number of Members X Average Annual Member Contribution
holds true.
A 1,000-member club charging £1,000 a year can raise £1 million a year through subscriptions. A 5,000-member club charging £5,000 a year can raise £25 million a year through subscriptions. But this latter yield may be unduly optimistic – more likely is a 5,000-member club costing £1,000 a year, or a 1,000-member club costing £5,000 a year; each of them would yield £5 million a year, which happens to be a median budget for a median London club. Of course, one could envision variations on this latter formula: a 2,500-member club costing £2,000 a year, or a 10,000-member club costing £500 a year, would all yield the same £5 million annual footprint.
And then with subcriptions traditionally generating half of a club’s income, you can typically double that figure for a guesstimate of the total trading income. (That will not, however, tell you whether that club is profitable, since that depends equally on its outgoings.)
London clubs today are much larger than many of their overseas counterparts. They typically have between 1,500 and 2,500 members. Some have over 5,000 members, and a smattering are mass-membership establishments with near or over 20,000 members. This compares with similar establishments in the United States, France, Italy and Spain, which number only a few hundred members - the US ones tend to have much higher fees, whereas the continental European ones tend to be much cheaper.
JOINING FEES
Joining fees constitute a one-off windfall in income. They can be a moveable feast, because they tend to relate to how heavy the demand may be for membership of a club, at a given time.
A club which is considered very fashionable and desirable to a great many people can charge extortionately high joining fees. The current membership may like that, since it raises money without inconveniencing existing members. But it may also put people off joining, and contribute to a general stagnation of the club, intellectually and socially if not financially. By contrast, a club which is desperate for members may drop or waive its joining fee altogether. Most clubs are not in either position, but shift around on a scale between both extremes – a club which is lowering its joining fee one year may still raise it in another year.
Clubs are wise to ring-fence the income from joining fees towards dedicated, non-urgent purposes. Or to put it another way, clubs generally run into trouble sooner rather than later if they treat their joining fee as producing “regular” income, since that incentivises maintaining a regular, steady flow of new members, and indeed produces an incentive to maximise the number of new elections each year. In reality, membership recruitment can be erratic and even unpredictable from one year to the next, and so it makes sense to treat joining fee revenue as a windfall to be spent on special projects, rather than as core revenue.
CLUB TRADING
Trading income is necessarily limited by an establishment being a private members’ club – since financial transactions are limited to the members and their guests. This means that footfall in the main dining room is likely to be considerably less than would be found in a restaurant open to the public. (The exception to this is where the one room of a club open to the general public is the restaurant – a model rare among London clubs, but very common among continental European clubs.)
If the members want access to the dining room to be limited to them and their guests, then they need to be prepared to pay a premium for that, effectively for the room to stand empty for much of the time (unless the club is a mass-membership club of tens of thousands of members, which can carry out economies of scale).
Limiting club trading to members and their guests touches on everything. It not only applies to bar and dining room transactions, but also to private hire. In other words, under most club licensing arrangements, it is not possible to book a function room or a wedding unless it is at least sponsored by a member, and often attended by that member. (The technical differentiation here depends upon whether a club operates under a Club Premises Certificate, a Premises Licence, or both. But I digress.)
There is some wriggle room for expanding a club’s footprint with reciprocal arrangements, and reciprocal members. Reciprocal members can usually enjoy the full benefits of a club as its members would, for a time-limited period. Some London clubs have barely a dozen reciprocal clubs (or none at all); others have several hundred. Clubs with large reciprocals lists can find their trading income significantly boosted by reciprocal visitors. This can be the case even when there is not that large a footfall from reciprocal members: for the visitors, a visit to a reciprocal club can be a big event, worth a significant financial outlay. Reciprocal members are often big spenders in the bar or dining room. Against that, it should be acknowledged that managing reciprocal visits is not a frictionless event: a great deal of staff time and effort can go into induction of the visiting reciprocal members. Furthermore, some clubs have a policy of minimising their reciprocals lists; this is particularly the case in the USA, where the tax status of many clubs involves a commitment to their external trade with non-members not exceeding 15% of annual revenue. Accordingly, this is usually an area accounting for relatively little of a club’s trading.
BACK TO BLADES…
I should return to the original question, which was about the fictional Blades club, and whether a club limited to no more than 200 members could survive whilst maintaining elaborate St. James’s premises.
The short answer is yes, it could absolutely do so. However, it would not be a common model. The fees suggested for Blades (£50 subscription and £100 joining fee in 1955 – today worth around £1,100 and £2,200 respectively) would not be enough to cover the multi-million-pound annual budget required. If we disregard the windfall joining fee income, then the annual subscriptions would only yield some £220,000 among the 200 members.
More promising is the minimum spend on gambling at Blades:
“every member is required to win or lose £500 a year on the club premises, or pay an annual fine of £250.”
In today’s money, this would mean each member annually gambling £11,000, or paying a £5,500 fine. Paradoxically, it would be healthier for the club’s finances if members paid the fine, since all of that sum would be guaranteed income to the club; whereas if each member gambled £11,000, that might produce a turnover of £2.2 million from across the whole membership, but the Club is only likely to see a percentage of it, even assuming the House wins more often than it loses. (Perhaps the figure for the fine is built on the assumption that the House ends up keeping half of all the money staked at the tables.) These are not large enough sums to maintain the medium-sized seven-figure annual expenditure of a club of this type. And they are not comparable to the £25,000-a-year annual minimum spend in some gambling clubs today.
Admittedly, the costs of Blades are likely to be lower than some London clubs. It is a member-owned club, so there is no proprietor or investor looking for a dividend. And we can assume that – like many of the St. James’s clubs – they own their freehold outright. However, this would bring costs of its own, since there would be a valuable building to maintain, most likely Listed, and coming with ruinous repair bills.
The figures quoted for Blades may also be influenced by the time they were written in: even accounting for inflation, the 1950s was close to being the post-war nadir of Clubland, and London clubs were frequently not taking in enough subscription income to maintain themselves. The reasons for this were typically structural: the mechanisms for increasing subscriptions were often very convoluted (and could even involve being put to a referendum of all members voting at the AGM), with the result that member-owned London clubs in the post-war era were often reluctant to keep subscriptions apace with inflation, and might only raise subs at all every decade or two – by which time the subscription was a fraction of its former value. And the 1950s to the 1970s saw some very high inflation indeed.
There is a possible clue to the Blades finances, in the amounts discussed above only being minimums. It should be borne in mind that in most clubs, most of the usage and revenue is generated by a small minority of members – typically only 10-20%, who are frequent users of the Club.
Fleming tells us that some members of Blades lose up to £20,000 a year - £440,000 today. Again, assuming that the House does not take all of this turnover – perhaps only half – it is possible that some two-dozen members (12% of the membership), each annually losing £440,000 in today’s money, accounts for some £10.6 million annually spent in the Club, of which half would be kept by the House. This takes us far closer to the sorts of sums that a club of this type would need to care for its building, and to manage its sumptuous food and beverage and accommodation operations.
Moreover, if a club of Blades’ age has survived since the 1760s, it is likely that it has accumulated numerous assets, especially through bequests and legacies. It is already established by Fleming that its art collection is considerable. Given the means of its members, it is equally likely that its investments are extensive. It would not be too fanciful to suppose that it might have an investment portfolio worth tens (or possibly even hundreds) of millions of pounds. While it is unlikely (and illogical) that it would rely upon this income for day-to-day trading, such a position would immunise it from short-term worries around cash-flow and borrowing. Between that, and the means of its members (who must all show liquid assets of £100,000, or £2.2 million in today’s money), it would certainly be in a strong position to be tided over between any shortfalls or fluctuations in regular income.
There is something else in Blades’ financial favour in its viability: the limited scale of its building and operations. While the premises are large (embedding no fewer than three bow-windows), it is not a club that operates across multiple sites. One profitable building is not subsidising a loss-making building. There are no expensive, speculative ventures opening a golf course, or a shooting range. Money can be invested in the core building, and assets housed on-site. It is a concentrated, focused business, with a business model rotating around one theme.
So that is a long, roundabout way of saying that yes, while the fictional club of Blades is unorthodox, it is far from impossible to imagine it being financially viable. But it would not be cheap, for any of its members. The small-membership, high-value model is not a course many of today’s London clubs have pursued: they have tended to strike a balance between size and pricing. And when they have pursued such a model, it has tended to be pursued by more recent proprietary clubs, rather than by the historic member-owned clubs. If it were not a gambling club, focused on High Net Worth Individuals, it is hard to see how it would work without significant investment income to fall back upon.
You can view the full and varied backlog of Clubland Substack articles, by clicking on the index below.
Index
Articles are centred around several distinct strands, so the below contains links to the main pieces, sorted by theme.
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