Posted on March 30, 2012
An issue came up on one of the blogs recently about a member of an RV organization being charged for use of facilities because they weren’t actually paying the overnight camping fee at the park. During the “discussions”, I realized that there is a lot of “mis-information” about what a membership actually is, and how it works. So in that light, I am going to present a three-part series, first with our own experience and knowledge as the credibility issue to be able to intelligently discuss this topic, and then explain what the different memberships are, and how they operate. It might surprise some of you how much you don’t know or don’t realize.
Why we are in a position to know these things!
Before we ever got into RV resorts, let me set a little background. Although I am a master electrican and robotics technician by trade, there was time in the mid-70’s when the union didn’t have any work for me except in the copper mines in Minnesota… going into October! I said “Thanks, but NO thanks!”. As an alternative, I kind of fell into a very successful “temporary career” (that lasted seven years) in luxury apartment management, with running a 384 unit/47 condo complex with two clubhouses with swimming pools and private boat docks on a major river. I also ran another 110 unit luxury complex that was in transistion to condos. So multi-family “accommodations” was my precursor to RV resorts.
We first bought into Cutty’s at LaPorte, Indiana back around 1985. I think it cost us around $6000 at that time, which included use of any of the other Cutty’s Resorts around the country, plus a trial membership in Coast to Coast, a reciprocal use program between other participating parks. In order to belong to Coast to Coast, you must first belong to a membership park which is your “home” park.
It was fine for the first couple of years, until we got a letter one day (around 1987) saying that it had been taken over by All Season’s Resorts, and that our home park membership was being moved to Roger’s Lake at Dowagiac, Michigan. It seems that there were problems with trees growing in the sewage treatment plant at Cutty’s and the repairs would have cost over a quarter million dollars, so the decision was made to shut it down. (Obviously Cutty’s is no longer at LaPorte, and the area has been turned into a very nice sub-division.) The move didn’t really bother us, as the distance to the new park was about the same for us.
In the late 80’s, All Season’s also came out with their “President’s Club”, an effort to collect more fees, an effort many parks were also doing to bail out an already financially strapped industry. That “upgrade” cost another $2500. So we bought in so that we would have use of some special privileges and resorts exclusive to that upgraded membership.
Here’s the key… these were memberships on paper only! No real estate was purchased, and there were no “buy-back” stipulations in the contract, so it was basically worth no more than the paper it was printed on. That was evidenced by some members who were trying to get out of their memberships (and the ongoing dues payments) by literally “giving away” for little or nothing, their membership! By these members selling their memberships on classified ads in various camping and RV publications, it literally drove the value of them into the ground! As long as you continued to use them, you were fine. Maybe at some point you would break even and it would be worthwhile. But if you needed to sell them in a hurry, the money was down the tubes!
As a resort manager for this system in 1992 and ’93, I got an inside look at what really goes on, not just with this one system, but with the industry in general! We also had many members of other resorts coming into our park through Coast to Coast, or because they also owned another membership with a reciprocal park, so we had a lot of chance to visit with these other people and gather information!
In the early 90’s, my kids by a previous marriage moved to Lafayette, Indiana, about a three-hour drive from where we were, just east of South Bend. We also got an invitation to check out what used to be the old Roth Campground on the east side of Lake Freeman, just south of Monticello, Indiana. It had just been bought out by a company that was turning it into a very nice “upscale” membership resort. Since this was much closer to Lafayette, and may provide a place to go with the kids on weekends, rather than drive them all the way back north and then back south again every weekend, we decided to buy into that… to the tune of about $8000. The difference here was that this was a DEEDED membership, which actually gave us about a 1/4000ths ownership (based on the number of “members”) in the real estate of the park. In other words, the park can never be sold and converted to something else without some compensation involved. Although that appears to be a safer investment, the validity has never been tested, so it’s a “wait and see” situation.
In the mid-90’s the decision was made for that resort to join forces with Western Horizons Resorts, which gave us the opportunity to use any of the other WHR resorts around the country. But here’s the kicker… they are also affiliated with AOR (American Outdoor Resorts), as well as the chain of Sunbelt Resorts. But in order to be able to use those additional resorts (guess what!) we had to “upgrade”, again at a cost of $2500.
As additional credibility on my part, I also taught a class in electrical troubleshooting to the Arizona RV Park Owner’s Association, so that park owners would have a clue as to why they can’t do certain things, like disconnect (even accidentally) the neutral from a multi-phase system without disconnecting the hot sides first! (It would result in an over-voltage conditon on one or more sides of the line, frying anything attached to it, including your RV’s!) Or what a “system ground” is and why they need to make sure they have one attached to every non-current carrying metal or conductive part of the system. Or what a “ground fault interrupter” (GFI) is, how they work, what their limitations are, and why they they need them at every pedestal. Gee, and you thought it was easy, didn’t you?
How these systems work, financially!
Both of these types of memberships operate by collecting enormous fees to join, but then part of those fees are used to subsidize the daily operation of the resorts. Naturally a good chunk goes to the sales staff. When memberships have no real estate involved, there are no “comps” to go by to set value, nor are there limits on the salesman’s commissions, which can run between 20% to as much as 50% of the fees collected! In fact, the operators many times will tell the sales people to get whatever they can out of the new members, and if they can’t pay that much, offer them a “reduced” membership and leave off a few amenities! I hate to burst anyone’s bubble, but that’s how marketing works in the membership racket!
Whatever is left after the saleman’s commission goes to corporate, another chunk goes to running the corporate offices. THEN, whatever is left after that is put into a general fund which is dispursed to the parks on an “as needed” basis, to subsidize what the resorts make on their own! If the parks are hurting for cash, they simply sell more memberships or make up another upgrade package, sometimes by updating the status of some more elite parks, so they can call it a special “club”.
This is the reason why some resorts can allow the general membership to use “some” things on the resorts without paying for them, such as camping fees (for usually up to two weeks) water, sewage, “sometimes” electric, swimming pool, showers, laundry, etc, etc. Some resorts may have to charge a little extra (usually a dollar a day) for electricity because of rate increases in their area. And of course, anything that is coin operated stays that way.
HOWEVER, the resorts still have to be able to make some money on their own, too! To help me explain this, let’s take that $8,000 membership fee and break it down. Keep in mind, this will be an exaggerated example with wildly inaccurate figures of the progression of things, but hopefully you will get the idea just how little is left for park use. Let’s assume that the salesman takes 30% ($2400), which leaves $5600 for a LIFETIME membership! A younger buyer may get more than 30 years use out of it, but a retiree is likely to get less. Let’s use 30 years as an average life span of a membership. That means that $5600 has to be divided by 30, which equals $186.67 per YEAR. Corporate use may be arbitrary, but some of that, let’s say 20% has to be used to keep the corporate lights on and pay salaries. That leaves $149.34 per year to run the resorts. How many resorts? Well that varies by the individual systems operating them. Some membership resort owners only have one park, while others may have closer to a hundred or more. Let’s say there are 50 resort parks in the system. That means that only $2.99 PER YEAR is allocated to each of those parks to help run them! (Not really, but you get where this is going, right?)
Also, keep in mind, that was based on only one membership. Multiply it by the 4000 members like many parks have, that makes $11,960 per month to run the resort. Think that’s enough? Think again… and keep reading.
Obviously, this figure is exaggerated slightly, because “theoretically” the principal of that money is invested, and the expenses are actually paid with the interest… in a perfect world, that is. But even if 10% were a good return, and they sold 4000 memberships at $8,000 a piece ($32 million dollars), the cost of developing or acquiring the park has to come off that first. A park can easily cost a million dollars or more, and if it has a fancy clubhouse, like some do, you can add a couple more million (or more) to that cost! So let’s say it leaves them with $28 million, less 30% for sales people takes it down to $19.6 million. Less 20% for corporate expenses leaves $15.68 million. 10% interest on that principal makes for only $1.568 million to divide among the parks. Divide that by 50 parks and that’s only $31,600 a year, OR $2613 a month for operating expenses! That’s not far from the truth!
Guess what! The insurance for a park can cost that much! So… who’s going to pay the rest of the expenses, like utilities, repairs and salaries?
You can see that collecting all that money isn’t going make any major difference! It only “helps”. So where does the rest of the money come from? This is the dilemma that many membership resorts face, and why there are always “upgrades” being sold as a way to bring in additional operating funds! The rest has to come from other investments and the park operations themselves. And I hate to tell you, but the corporate office is always going to make sure that they are the first ones to get paid! If a park is not profitable, it will be “sacrificed for the greater good”, which is corporate pockets!
So if a system only charges, say, $75 a year to belong to it, you know exactly where that money goes… to corporate to pay for maintaining the books and expenses for just “belonging” to the organization! It has nothing to do with actually running it!
Knowledge is good!
So now maybe you will understand that if resorts are having trouble staying afloat even when collecting huge membership fees, how do you expect memberships with lesser fees to be able to “share” member benefits between various parks? It ain’t gonna happen!
In part two we will discuss what actually goes on behind the scenes in the parks to create the expenses that they incur.
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