Making A Better Tokyo American Club (MABT)

I’m very appreciative of all the time the volunteer board is putting into ‘keeping us safe’ at the TAC recently. However, over the last few months, the same question keeps coming to my mind..

We have two board members who seem to be making all the decisions. The rest of the board has relegated decisions to them from what I heard in the last general meeting (I was remote so maybe I missed something). The member decision makers are- one entrepreneur with an office nearby in the tech business, and the other is a former sales manager at a mobile phone company who is mostly working from the TAC in his independent consulting business. Both guys are volunteering and not from the hospitality business.

Although, I am no longer in hospitality, as a former hotel guy, I wonder;
Why don’t we let the experienced hospitality guys that we hired to run the club, RUN THE CLUB?

Getting experienced people in charge of competently reopening the club, managing the necessary (actual) staffing, and deciding on venues to open and close under the looser guidance of the board of volunteer member-leaders would likely be much more effective.

My opinion, let’s give our GM and team a chance to run the business!

By Mr. Greg Carley (Former TAC President)

While Tokyo has only one full-service expat club, the Tokyo American Club,
 Asia has many with Hong Kong leading  the pack with dozens of elite member
 clubs. TAC can benefit from its Reciprocal Club network.

 TAC with almost 4000 dues paying members holds the area record for revenue
 with the 2020 budget set at $50 million, of which almost 50% is dues and
 entrance fees, and F&B about 30%. Relatively speaking, it is a big club.
 The critical mass for a full-service club is probably 2000 members. TAC has
 400 staff.

 So how does TAC compare to its Reciprocal Club network in the region and
 other clubs? Unsurprisingly, efficiency-wise, not too well. Its Budgeted
 payroll is 59% of Operating Revenue (OR), and its F&B Cost of Goods (COGS)
 was 29% in 2019. In sweeping terms, large clubs are scalable and Payroll
 should be between 40-50% of OR; F&B COGS, 40%.

 HOW TO FIX TAC:
 TAC’s biggest unmined resource is its expat Reciprocal Club network. Here
 it can, on a one-to-one confidential basis, compare metrics, ideas, and
 operations for mutual benefit. Clearly, the payoffs are big, if pursued. As
 well, a number of expat clubs post their AGMs on the Internet; revelatory
 gifts.

 In TAC’s network, the Singapore Tanglin Club has 4000 members and an F&B  business about half that of TAC with COGS about 45%. Its payroll is 40% of  OR. Its dues are miniscule, under $100 while its entrance fee is $75,000.  The LRC in HK is half the member size of TAC, 1900 (capped?). Its  F&BCOGS at 45% of OR; its Payroll at 53% of OR. Size does matter. Dues are about  same as TAC that include a mo. minimum spend of $110. Entrance fee $40,000.

 * Hong Kong Football Club was a recip. club (why not reinstate?) and has a
 robust F&B business at 45% COGS. F&B sales are $13 million which is
 impressive for a 3000? member club.

 *I was not able to find details on the HK & Sing. American Clubs that have
 memberships of 3000 and 3500? respectively. The HK American Club has a big
 entrance fee of $55,000. TAC probably has the highest yearly dues in the
 region at just under $5000 for families.

 Clearly, TAC has a cost problem. Payroll should be under 50% of OR and F&B
 COGS should be about 40% which, ironically, is the % TAC’s 2006 Referendum
 Brochure forecast in the event of Impairment (worst case) scenario with
 revenue at $50 million. Very prescient 14 years ago.

 So where did TAC go wrong? Well, Committees are not the standard for
 successful enterprises. They are called an outdated club model that goes
 back to when clubs could not afford staff. Supposedly, club committees are
 disappearing. Management probably spends 50% of its time in Committee
 meetings. And is there a career path for staff where volunteer committee
 members, often unqualified, make the decisions. No TAC GM or GM’s staff has
 risen through the ranks. By contrast, the current Okura GM started as a
 bell-hop at the hotel

 New TAC went big on banquet space and this should be scrutinized for the
 real costs (payroll, operating and maintenance costs). The budget for the
 Repairs and Maintenance Dept. boggles the mind and should be dramatically
 cut by millions. It appears that other expat clubs do OK at about
 $2500-$3500 F&B per member whereas TAC does not do well at $3500 per dues
 paying member. Something(s) is wrong here. The $25 million payroll is
 clearly way too high. Reduction in highly paid staff compensation makes
 sense. Outsourcing as well. Historically, it was said that the Club is
 really run for the employees. Thus the high pay for some. Undoing the
 damage is hard.

 As TAC is near its perceived member limit, it might make sense to follow
 the HK clubs and raise the Entrance Fee. Maybe Y3 and Y6 million.
 Establishing close, bi-lateral, one-to-one managerial relations with expat
 Reciprocal Clubs in the region can have big payoffs for TAC.

Is it ethical ,or even fair, to call a vote on an issue that was already voted down by the membership? This is concerning. Whether the vote was rejected by 4 or 40, why are members being asked to vote again? Extraordinary is becoming ordinary?

If the club doesn’t need money at this point, why are we being asked to approve a loan (line of credit)? Why are staff not being cut to match the demands of the membership? Isn’t this the largest cost to the club now?

There are many questions today’s announcement brings. Deja vu? What are your thoughts on the topic? Please feel free to comment below. Please remember to keep it positive and constructive.

???—– Original Message —–
“Tokyo American Club”
Saturday, August 29, 2020 2:23:52 PM
Extraordinary General Meeting: September 24

?????Extraordinary General Meeting:
September 24

Dear Member,

At the Board of Governors’ meeting on August 27, the Board approved the convening of an Extraordinary General Meeting (EGM) on September 24

At last month’s EGM, the Board asked Members to vote on a proposal for the Club to take out a line-of-credit-type loan for ¥1 billion with Sumitomo
Mitsui Banking Corporation, our primary lender.

While the proposal only just failed to pass (by four American Member votes), support for the loan was overwhelming, with 85 percent of those who voted
showing their approval. The result convinced the Board to revisit the proposal.

As we explained prior to the last EGM, this line of credit would allow the Club to weather the current period of unpredictability while establishing a
new normal for Club operations. In essence, it would help secure our short-term future. That is why we ask that you vote in favor of the proposal.

Before the EGM, we will host a hybrid town hall on September 8 to answer any questions Members may have about the proposal
and the Club’s financial position.

If you have not already registered as a Voting Member, I urge you to do so and have a say in the future of your Club. Visit the Club website for
information on how to register

Thank you your continued support of our Club community.

Representative Governor
Tokyo American Club

Guys & Gals,

Let me try to show that TAC does not suffer from lack of Revenue but from a bloated payroll. TAC is and has always been a cash cow. Almost half of its revenue is dues & entrance fees, over Y20 OkuIts Revenue from F&B is very competitive with comparable clubs at about Y350,000 per dues paying member. The problem is that almost 70% of F&B revenue goes to payroll.

TAC’s 2020 Payroll Budget is almost 26 Oku, 59% of OR. That is a budget and of course will be reduced. But a big club like TAC is scalable. The payroll should be under 50% of OR. That can pick-up Y6 or Y7 Oki.Thus if you compare like for like, such as the Tanglin Club in Sing. you will, I believe, see under 50% numbers. I keep asking the GM to do a detailed comparison with 4 reciprocal clubs: the American & LRC IN HK & in Sing., the American and Tanglin.

The Tanglin has about the same # of members as TAC and is elite. When I last checked the NYAC, It was under 50%, and that is tough with the highly paid union workers in NYC.BYW, the payroll figures presented at the 17 June Town Hall are not at all correct. The total 400 staff detailed pay only adds up to two-thirds of the 2020 Budget. One-third, almost 10 Oku, is missing. So, if you take, per the presentation, the 300 who supposedly make Y3.2 mm, by exception the remaining 100 staff would be making about Y16mm per head on average.. Clearly not possible. Or is it?

I am waiting for a reply from T.C. Fix the payroll and you will fix TAC. I qualify this by saying none of this should be seen as the fault of the staff. As Milton Friedman said, “When you hold out 100 dollar bills, you see a very long line of people,” Outsourcing is also a source of cost reduction, The annual budget of the Repairs & Main. Dept. boggles the mind. And it is always easier to reduce costs than it is to increase revenue. Hope this helps a course correction.

It seems that staying fully employed but running at half capacity is putting the club under financial strain & is also just annoying members. That’s 0 for 2, just like Rainbow Cafe. No one likes the food, and we lose money.

Voting Suggestions- What would be your suggestions of items to vote for to help the TAC leadership make better/quicker decisions regarding getting the Club reopened or closing it?

Example- #1 Should the club fully open the club members or close temporarily?

Example #2 Should members be allowed to ‘furlough’ their membership paying 50% of the fee until the club is open?

Example #3 What restaurant do you value most at the TAC?

Just ideas. What suggestions do you have? Please feel free to add to the comment section.

1. What’s the Board’s vision? “By 2025, TAC will (financial), (loans), (memberships), (service model) …”

2. Full audit after elections, including a process audit of procurement?

3. Why can’t we adopt a similar guest policy to RHC or the New Sanno?

4. How does the Board propose improving transparency and member participation in decision making?

5. How does the Board propose improving accountability for staff?

6. When are we going to have a fully open club?

7. Why are board members aware of members personal voter information?

8. Can the Board consider implementing an operational auditor committee, made up of a small number of professionals in hospitality and consumer management, much as a company has strategic outside auditors?

The 2006 Referendum Brochure — a Roadmap for TAC`s Recovery?

I just happened to look at the 2006 Brochure that decided the fate of the 34 year old debt-free TAC buildings, forever wiping out member legacy value. One page displays the P&L forecasts for a new TAC (see photo). Surprisingly, the Impaired (worse case) Revenue forecast is strikingly similar to TAC`s 2020 Budget (see photo). When compared: Total Revenue for both is Y50 Oku; Dues & Ent. are Y 2.3 Oku vs. Y2.5 Oku; F&Bs are Y22 Oku vs. 18 Oku for the 2020 Budget.

On the Expense side: Payroll is Y20.1 Oku vs. Y25.8 Oku for the 2020 Budget, an eye-opening difference. As a % of OR this translates to 48% vs. 59%. As regards F&B COGs, 42% vs. 32% for the 2020 Budget, a big gap.

The 2006 Brochure  Impaired Case forecast can and maybe should serve as a guide for payroll and F&B metrics. Payroll would fall below 50% of OR and F&B COGs at 42% would bring TAC back to the historic early 1980s COGs and maybe spark consumption.

It is no easy or pleasant task to reduce payroll by 5 or 6 Oku. But that is the reality and challenge. In 2010 at the temporary Club the payroll was Y20 Oku. A large club like TAC should reap economies of scale. TAC has not but now must. 

Outsourcing and reducing dept. expenses is important. The Repairs & Main. Dept. is a big target and its  Y3 Oku payroll seems excessive. It should be Outsourced which it once was. Ditto for IT. 

All the above must be validated in the marketplace and by benchmarking the Reciprocal Club network, an unmined resource. This can be done by one-to-one agreements, if required. Disintermediate by not involving the CMAA et. al. Direct is best just like a Swiss trade agreement. I suggest benchmarking with 4 recip. clubs: HK American and HK LRC; Sing. Amer. and Sing. Tanglin. 

I am an absent member of the LRC. It has about 2000 dues paying members who are a close profile match to TAC, albeit half the size which I believe is capped. Its 2018  F&B COGs were 46%, there is a min. spend policy, per member sales are similar to TAC about Y350,000. Banquet sales are neglible at 5%, payroll at 53% of OR, staff:member ratio 1:10.

It appears that TAC dues are in line with clubs in the region. However, elite H Kong clubs have high entrance fees of $50,000+.  Amer. Club $65,000 ( Americans get low fee) LRC is $ 52,000. TAC should consider Y3 million and Y6 million for Japanese.

New TAC went big on Banquet space and ended up going outside to non members for over 40% of its business. At old TAC the self-service Mixed Grille Buffet became the go-to outlet, hitting the American Room hard. New TAC did not replicate that success story although there are salad bars.

According to Reuters, the majority of Japanese companies are cutting pay, costs and staff.

Perhaps the biggest unmined/under-promoted asset, (staff excepted) the Club has is the Reciprocal Club network. This resource can yield gems if not gold for management and for member — join one (TAC) and get 200 free. Apropos, thousands of Life members can be a source of ongoing income: the LRC H Kong two years ago introduced a service charge for Life members. Louis XIV`s minister Jean Baptiste Colbert, famously declared that “the art of taxation consists in so plucking the goose so as to obtain the maximum amount of feathers with the minimum amount of hissing.”

The Members said NO!

This happened even though management & the board knew the score going in; down 7 votes. So we got the 2 hour dog & pony show. The little guy won.

We all endured a push by the board to get approval to go deeper in debt and possibly lose our club facilities and land unless serious changes to the thinking and business model are not made.

In the meantime, members are cutting family memberships, rental lockers are being cancelled, and paid parking spaces being eliminated. The rumble of members considering canceling their membership increases.

Is this all because our elected leaders continue to keep the club virtually shuttered up, guests banned, high costs for unnecessary staff, and create an inhospitable environment that keeps members from spending money?

Isn’t it time to start listening to members and stop pretending? Stop telling us that you care about members health, long term finances and damaging the club by not letting us use our club house.

With all due respect, TAC has proven poor at predicting and preparing for risk. Historically, we have tended to ignore worse case scenarios, in favor of optimistic predictions, and have paid a dear price.

The worst case scenario in this case is we draw down the entire ¥1 Billion (with the best of intentions, I am sure) increasing the debt service by ¥250,000,000 / year for the following four years. This amount, added to our current debt, even in a very favorable economic predictions is likely unmanageable. In a moderately less optimistic future vision servicing this debt would clearly be impossible and could lead to The Clubs ruin.

While this issue is not addressed in the Treasurer’s report, reading between the lines, it seems the answer may be that we do not intend to draw down the loan facility, so this this will not happen. The question this raises, why create a loan facility in the first place, tempting current and future leaders, if we know it may lead to our ruin if it is used?